Earlier today, the Council of the European Union approved the long-awaited Directive governing actions for damages for infringements of competition rules (Damages Directive). The Damages Directive is based on a proposal by the European Commission (Commission) that followed more than ten years of intense debate in the EU on whether it should have a common framework for antitrust damages actions, and if so what this framework should be.
The Damages Directive is meant to ensure that anyone can claim compensation before the national courts in the EU for any harm caused by an infringement of competition law. As many competition law infringements have cross-border effects across the EU, the Damages Directive stresses the need to ensure a level playing field for damages actions across the EU. To achieve this aim, the Damages Directive establishes certain minimum requirements the member states have to implement in order to ensure the effective exercise of the EU right to claim compensation for competition law infringements in member states.
Right to full compensation. The member states have to ensure that anyone who has suffered harm through an infringement of competition law is able to claim and obtain full compensation (actual loss, lost profits, interest).
Disclosure of evidence. The national courts will be able to order the defendant or third parties to disclose relevant evidence to plaintiff if plaintiff presents a reasoned justification to the court containing reasonably available evidence sufficient to support the plausibility of the plaintiff's damages claims. Conversely, the national courts will also be able to order the plaintiff or third parties to disclose relevant evidence to the defendant.
The Damages Directive also includes safeguards against overbroad discovery. The party requesting disclosure has to describe the evidence it requests as precisely and narrowly as possible. Moreover, disclosure of evidence is limited by the principle of proportionality, which requirement was included to prevent fishing expeditions. Accordingly, generic disclosure requests (such as for the disclosure of all documents in the file of a competition authority) will not be granted.
The national courts will be able to order the disclosure of evidence containing confidential information, but at the same time will have to take the appropriate measures to protect such information. For instance, the courts could limit the disclosure to the parties within a ring of confidentiality.
Importantly, amnesty/leniency statements and settlement submissions are protected against disclosure. This was the main point of dispute during the negotiations leading up to the passing of the Damages Directive. The European Court of Justice (ECJ) held in Pfleiderer (2011) and Donau Chemie(2013) that amnesty/leniency statements are, as a rule, not exempt from disclosure under applicable national laws, in the absence of an EU instrument that regulates the matter. However, given that the large majority of cartels are discovered as a result of leniency applications, the Commission and the national competition authorities considered it essential to ensure the protection of such applications. While the Damages Directive now provides for the protection of such submissions, preexisting documents that were submitted as annexes to amnesty/leniency applications (such as incriminating emails) are not protected and can be disclosed by the national courts. Responses to requests for information (such as sales data) are protected until the end of the infringement proceedings.
Binding effect of national antitrust decisions. Already today, decisions by the Commission finding an infringement are binding upon the national courts. The Damages Directive extends that binding effect to decisions by national competition authorities finding an infringement of competition law, which decisions will now also be binding on the civil courts in that country. Decisions by competition authorities of other member states will not be binding. However, the Damages Directive emphasizes that such decisions should be recognized as prima facie evidence in follow-on damages actions across the EU.
Limitation periods. The limitation period for damage claims for the infringement of competition law will be at least five years. It shall not begin to run before the infringement has ceased and the plaintiff knows or can reasonably be expected to know (i) the relevant behavior and the fact that it constitutes an infringement of competition law, (ii) that the infringement caused harm to plaintiff, and (iii) the identity of the infringer. In addition, the limitation period is suspended as long as a competition authority investigates the infringement.
Joint and several liability. Companies that infringed competition law through joint behavior – in particular, in cartels – are jointly and severally liable for any harm caused by that behavior. Therefore, the injured party has the right to require full compensation from any of these companies, while the infringing companies have contribution claims against each other. There are two exceptions:
First, in order to keep leniency programs attractive, the Damages Directive provides for an exception for companies that have been granted amnesty. Such companies are jointly and severally liable only to their own (direct or indirect) purchasers and suppliers. Other injured parties can recover compensation only if they cannot obtain full compensation from any of the other companies involved in the infringement.
Second, a small or medium-sized company will also be liable only to its own (direct and indirect) purchasers if (i) compensating the entire harm would jeopardize its economic viability, (ii) its market share was below 5% throughout the infringement and (iii) it did not lead the infringement. This exception was fiercely debated and caused Germany, Poland and Slovenia to abstain from voting on the Damages Directive in the Council. It raises a considerable number of difficult legal and factual questions so that its practical implications will likely be small at best.
Passing-on. The Damages Directive recognizes the so-called passing-on defense, pursuant to which an infringing company can defend itself against a damage claim by arguing that the plaintiff (its direct customer) has passed on the cartel overcharge to its own customers. However, the burden of proof lies with the infringer, which can try to meet this burden by requesting disclosure from the plaintiff or a third party. The national courts will have the power to estimate the amount of the overcharge that was passed on.
The Damages Directive also establishes that indirect customers can also claim antitrust damages. Indirect customers have to proof that their suppliers (the direct customers of the cartelist) passed on the cartel overcharge to them. However, the Damages Directive contains a (rebuttable) presumption of such a pass-on provided that (i) the defendant committed an infringement, (ii) the infringement resulted in an overcharge for the direct purchaser, and (iii) the indirect purchaser purchased the good or services that were the object of the infringement.
Quantification of harm. The Damages Directive establishes a rebuttable presumption that the infringement of antitrust law caused harm. In addition, the national courts will have the power to estimate the amount of harm suffered provided that it is practically impossible or excessively difficult precisely to quantify the harm suffered.
The Damages Directive is a major step forward in strengthening antitrust damages actions in the EU. It will enter into force 20 days after its publication in the EU's Official Journal. The member states will have two years to implement the provisions of the Damages Directive in their national laws.
Notably, the Damages Directive will require only limited changes to the national laws in the three countries in which most damages actions have so far been brought – Germany, the Netherlands and the United Kingdom. Nonetheless, even in those countries changes will be needed, such as to the statute of limitations in Germany. That said, the Damages Directive will have its most significant impact on the other member states, where private litigation for antitrust damages currently is less developed.
The Damages Directive is binding upon the member states, not on the Commission. However, there could be an interesting side effect on the Commission's procedures. Currently, for all practical purposes, plaintiffs cannot access the Commission's files, whereas the Damages Directives empowers the national courts to order the disclosure of certain information the national authority has on file. The Commission is working on streamlining its (very narrow) rules for disclosure with the (broader) new rules in the Damages Directive.
The Damages Directive is available in English on the Commission's web site.