The European Commission has published a package of measures that aims to facilitate actions for damages across the European Union. This package includes:
- a proposal for a Directive governing actions for damages for infringements of EU and member state competition law (the "Proposed Directive")
- a Communication on quantifying harm in actions for damages based on breaches of EU competition law (the "Communication on Quantification of Harm")
- a Recommendation on the common principles for collective redress in member states for injunctions and damages claims based on violations of EU rights (the "Recommendation") and
- a Communication "Towards a European Horizontal Framework for Collective Redress" ("Communication on Collective Redress").
The Commission has been working for close to ten years on these instruments. Most of the rules contained in the Proposed Directive where already debated in a White Paper of 2008, under the former EU Commissioner for Competition Neelie Kroes. This discussion culminated in a draft directive on which the Commission ultimately was unable to agree, because of strong opposition from some member states, the European Parliament, and within the Commission itself. In particular, the Commission’s Justice Directorate was, and continues to be, skeptical of making collective redress mandatory on member states. To increase the chances of persuading the Parliament and the member states to adopt private enforcement rules before the end of his mandate (which expires in October 2014), the current EU Commissioner for Competition Joaquin Almunia abandoned his predecessor’s ambitious project to adopt binding rules on collective redress mechanisms specific to antitrust actions.
The Proposed Directive
The aim of the Proposed Directive (grandfathered by the Competition Directorate) is to introduce measures that will facilitate victims of infringements of EU and national competition rules to effectively obtain full compensation for the harm they suffered while protecting the immunity programs of the Commission and the member states. First of all, the Proposed Directive states that victims of antitrust infringements (including direct and indirect purchasers) have a right to be fully compensated by infringers. The specific reference to "compensation" excludes punitive damages. The Proposed Directive then proposes specific measures:
- Rules on discovery. Where a claimant has presented reasonably available facts and evidence showing plausible grounds for suspecting that he, or those he represents, has suffered harm caused by the defendant’s infringement of competition law, national courts can order the defendant or a third party to disclose evidence, regardless of whether or not this evidence is also included in the file of a competition authority. National courts will have to ensure that disclosure orders are proportionate and that confidential information is duly protected.
- Protection of leniency statements and settlement submissions. To ensure that discovery does not negatively impact on investigations by EU competition authorities, leniency corporate statements and settlement submissions may never be disclosed. The Proposed Directive offers temporary protection for certain documents that have been prepared in the context of enforcement proceedings (e.g. replies to a competition authorities’ request for information, preliminary assessments in the context of a commitment procedure). Such documents may only be disclosed once the competition proceedings have been closed. By contrast, disclosure of evidence in the file of a competition authority that does not fall within the above categories may be ordered in action for damages at any time.
- Probative effect of national authorities’ decisions. Final decisions (i.e., decisions that are no longer subject to judicial review) by EU national competition authorities finding an infringement of competition law are binding upon the court when it decides on claims for damages.
- Joint and several liability. If several companies have infringed competition law (e.g. in a cartel scenario), they will be jointly and severally liable for any damages claim. However, to maintain the appeal of leniency programs, the Proposed Directive limits this general rule for immunity recipients, which will, as a general rule, only be liable for damages caused to their direct or indirect customers or providers. However, the company that has received immunity will still remain a "last resort debtor" if damages cannot be obtained from the other infringers for legal reasons.
- Passing-on defense. The Proposed Directive permits the defendants to argue that the plaintiff passed on the overcharge resulting from the infringement (in whole or part) to its customers. However, such a defense cannot be raised in situations where it would be legally or practically impossible for the indirect purchasers to claim compensation. The burden of prove is on the defendant. Conversely, in actions by indirect purchasers, the Proposed Directive assumes that the overcharge has been passed on, subject to certain (relatively narrow) conditions.
- Presumption of harm. The Proposed Directive puts forward a rebuttable presumption of overcharges in cartel scenarios.. This recognizes the difficulty for the claimant in proving causation.
- Rules on limitation periods. From the moment a victim has the possibility to discover that it suffered harm from an infringement, that victim should have a period of at least five years to bring a claim. This period is suspended if a competition authority starts proceedings, or for the duration of a consensual dispute resolution process. Claims must not be time-barred for at least one year after the decision becomes final.
It is to be expected that some of these rules will trigger controversy in the European Parliament and at member state level. For instance, it is subject to debate whether the exclusion of immunity documents from court-ordered disclosure is consistent with the recent judgment of the European Court of Justice in Donau Chemie (Case C-536/11). The Court found that EU law precludes provisions of national law that, in an action for damages, make access to antitrust enforcement files subject to the consent of all the parties to the proceedings, without leaving any possibility for the national court of weighing up the interests involved.
Directives are legally binding on member states under EU law. If adopted by the European Parliament and the Council, member states will have two years to implement the rules contained in the Proposed Directive into their national laws.
The Communication on Quantification of Harm
In the Communication on Quantification of Harm, the Commission recalls that the member states’ legal requirements for quantifying antitrust harm should not make it impossible or excessively difficult for victims to be compensated. The Communication is accompanied by a lengthy "practical guide" that offers economic and legal insights into the harm typically caused by antitrust infringements and some methods for quantifying it. The purpose of the practical guide is to provide assistance to parties and national courts for assessing the amount of the harm in damages actions. It describes various methods to assess damages. Although it does not take sides with any of these methods, it does attempt to minimize the burden of prove for plaintiffs. The Communication on Quantification and the practical are not binding on member states and the courts.
The Recommendation and the Communication on Collective Redress
The Draft Directive relates to competition law infringements. However, also in light of a recent resolution of the European Parliament, the Commission concluded that competition law is not the only field of EU law in which scattered harm frequently occurs and in which it is difficult for consumers and small and medium enterprises to obtain damages for the harm they suffered (such as in consumer law or environmental law). Consequently, the Commission decided to propose in the Recommendation horizontal rules on "collective redress," rather than a competition-specific solution.
The Recommendation (grandfathered by the Justice Directorate) advocates that all member states operate national collective redress systems based on a "number of common European principles," such as the following:
- Admissibility. Collective actions should only be brought when certain admissibility criteria are met.
- Representative actions. Member states should designate representative entities to bring representative actions. The Recommendation sets out minimum criteria which such entities should meet, such as the entity should be not-for-profit.
- Collective actions should in principle be follow-on. In fields of law where the government is empowered to adopt a decision finding that there has been a violation of EU law (such as a competition authority), collective actions should in principle start only once the public body has concluded that there has been a violation of EU law.
The Communication on Collective Redress makes clear that the Commission does not want the Recommendation to lead to "abusive litigation," referring to
US Supreme Court decisions [that] have started to progressively limit the availability of class actions in view of the detrimental economic and legal effects of a system that is open to abuse by frivolous litigation.
Consequently, the Recommendation sets out certain conditions which should prevent this from occurring within the EU:
- Compensatory (non-punitive) damages. The aim of collective damages actions should be to compensate those to whom the infringement has caused damage.
- Opt-in mechanism. The group bringing an action should usually be formed on the basis of the "opt-in" method, rather than the "opt-out" method. This will enable a clearly defined group to be identified in order to "allow the court to conduct the proceedings in a manner consistent with the rights of all parties, and in particular with the rights of the defence."
- Funding. Funding mechanisms which might encourage abusive litigation, such as contingency fees, should not be permitted.
Commission recommendations are not binding on member states. The Recommendation invites the member states to implement its principles within two years. After four years, the Commission will assess whether further legislative measures need to be taken.
EU member states likely will take differing approaches to implement the measures contained in the Recommendation. Certain member states will likely take a more proactive approach (such as the United Kingdom, which is in the process of introducing opt-out group actions). Others, such as Germany, will be in no hurry to take action. While German law actively encourages litigation for antitrust damages, it is somewhat skeptical of collective redress.
The European Parliament and the Council must fully debate the contents of the Proposed Directive. Some proposals may not survive the legislative phase and some even may be broadened in scope. The Commission’s reform package demonstrates that Europe is as a whole gradually moving closer to a litigation culture where in particular victims of cartels may take legal action to seek compensation for claimed harm caused by anticompetitive conduct.
The 11 June 2013 Proposed Directive and the Communication on Quantification of Harm are available here.
The Recommendation and the Communication on Collective Redress are available here.