On 10 November 2014, the EU Council of Ministers formally adopted the Commission’s Directive on antitrust damages. The Directive will be signed by the EU Parliament at the end of November, starting a two year countdown in which each EU Member State must adopt the Directive into their own national legislation.
The Directive aims to raise and standardise many aspects of antitrust or competition litigation throughout the EU. This is the ability of victims of anti- competitive behaviour to claim compensation from the infringers for the harm they have suffered. The legislation is not quite the revolution many pushed for but is based on a more cautious evolutionary approach. This approach emphasises the key principle of compensatory damages and the need for EU Member States to make it easier for claimants to be fully compensated for their losses through standardised national litigation procedures.
The Directives main provisions are as follows:
- It creates a general ability for national courts throughout the EU to order companies to disclose evidence in court proceedings. (This is not news in countries such as the UK or Holland where strong disclosure regimes already exist but it will bring Germany and other EU Member States up to a similar level to allow reasonable access to evidence).
- A finding of liability by a national competition regulator will constitute a binding finding of liability before the courts of that Member State. However, the finding of liability by a regulator of another Member State will be evidence (but not binding) in other Member States’ courts. (The original recommendation was for the foreign regulatory decision to be binding on other Member States’ courts as a finding of liability. This proposal ran into constitutional problems in Germany, not to mention the fear in highly developed antitrust systems that the less respected and developed decisions of other Member State regulators would be binding on them and companies inside their borders. The fact the foreign regulatory decision is now only evidence rather than binding circumvents these concerns).
- Victims will have at least one year to claim damages once an infringement decision by a regulator has become final.
- The Directive enshrines the ‘passing-on defence’ which can be invoked by those being sued. Those being sued can thus plead that although they did overcharge one of their customers, that customer then passed on the overcharge to their subsequent customers and so did not suffer any quantifiable harm. (This defence was enshrined due to fear of un-meritorious victims claiming compensation as well as the perpetrator being wrongly sued twice, once by the first customer for the loss and once by the indirect purchaser. There have been criticism that the passing-on defence although ultimately fair, discourages litigation by direct purchasers who are often best placed to pursue the case).
- Regulatory leniency or whistleblower programmes are specifically protected in that there are safeguards in the Directive to ensure companies are still encouraged to come forward with information on wrongdoing. (Safeguarding leniency programmes was key for the Commission. Importantly, victims will still not have access to the most damaging parts of the whistleblower’s evidence ((including about the whistleblower’s wrongdoing)) meaning that a whistleblower is still well protected from claims for compensation).
- There is an acknowledgement in the Directive that victims of anti-competitive behaviour have a right to compensation but that right does not extend to punitive, multiple or over- compensatory damages. (Whilst this point may seems obvious and fair, it is a direct agreement not to adopt the US system of triple damages which are designed to encourage litigation. Critics of the level of antitrust litigation in Europe often point to the difficulty in claiming full compensation and the lack of incentive to start cases. This is due to the absence of punitive damages which is considered the main and perennial obstacle to any large-scale upswing in European litigation).
Significantly, what is not in the Directive is important as what is enshrined within it. There were originally proposals for the adoption of an EU wide system of class actions to allow multiple victims such as consumers but also businesses to group their claims together as they can do in the US when pursuing compensation. Due to disagreement between Member States and a general European fear of the worse excesses of the US class action system, no agreement could be reached on this proposal and the onus has instead fallen to each Member State to pursue their own legislation. The EU Commission has indicated that unless Member States bring in their own class action systems, the issue may be revisited in a future Directive. The UK is pursuing a clear path on this with the provisions on collective actions found in the current Consumer Rights Bill.
Another issue not wholly dealt with or settled by the Directive is the ability of victims to seek third party funding for their claims and structure the way their lawyers are paid such as with contingency fee based arrangements. Again this issue, and the freedom regarding funding that fuels the US antitrust litigation system, was clearly too contentious an issue and has been dealt with again separately by Member States. As above, provisions regarding new funding arrangements may be found in the UK Consumer Rights Bill.
Regardless of the shortcomings of the Directive and the areas which it didn’t address, it represents a welcome evolution and a standardisation of competition litigation throughout the EU. Although the implementation of the EU Directive is some two years away the passage of new enforcement legislation in the national member states such as the Consumer Rights Bill in the UK is going to significantly drive this type of legislation in the immediate future. As a priority, companies need to understand both the opportunities this new type of litigation offers as well as an appreciation of the challenges it poses to those who may find themselves the subject of a competition investigation in the EU.