The European Commission has published a study on the passing-on of overcharges in cartels. The intention is that the study will help judges and other practitioners (who are not economic experts) by providing practical guidance on obtaining and assessing economic evidence in relation to pass-on in the context of competition law infringements.
The study sets out a framework for:
- evaluating the plausibility of claims;
- quantifying the effects of pass-on; and,
- assessing the total extent of the harm suffered by the claimant.
There are three distinct elements to the harm that may be suffered by a claimant: the overcharge, the increase in the claimant’s costs; the pass-on, the reduction in the harm to the claimant if it passes on some or all of the overcharge to its own customers by means of a price increase; and, the volume effect, the loss of profit associated with the loss of sales volumes suffered by the claimant as a consequence of pass-on.
The study gives an overview of the relevant case law and legal framework in relation to pass-on, both at EU and national levels. However, the bulk of the study is devoted to the economic analysis of pass-on and its quantification, along with specific guidance for judges on managing and assessing evidence related to pass-on.
The study acknowledges that the legal test for establishing whether pass-on has occurred is to be developed by national courts. Nevertheless, the study emphasises that “economics has an important role to play in assisting national courts in assessing causation issues.” Directive 2014/104/EU (the Damages Directive) merely requires Member States to “lay down procedural rules appropriate to ensure that compensation for actual loss at any level of the supply chain does not exceed the overcharge harm suffered at that level.”
In its recent Sainsbury’s v MasterCard decision1, the Competition Appeal Tribunal (CAT) considered that the legal test for establishing pass-on was distinct from a pure economic test, noting that “an economist might well define pass-on more widely”. According to the CAT, a narrower legal approach for establishing pass-on was necessary to guard against the risk of claimants being under-compensated.
Approximately half of the study is devoted to the economic approach of quantifying pass-on. This reflects one of its main purposes, which is to help the Commission to prepare Guidelines on how national courts should quantify the passing-on of overcharges. However it is important to note that, as with the legal test for establishing pass-on, it is up to the national courts to elaborate their own rules on how the effects of pass-on are to be quantified.
Article 12(5) of the Damages Directive provides that “national courts have the power to estimate, in accordance with national procedures, the share of any overcharge that was passed on”. Indeed, no matter how sophisticated the economic analysis of pass-on is, the study acknowledges that the best that national courts can do is to “estimate” the amount of loss that must be compensated. In the UK the CAT and the High Court have found no difficulty in discharging their task.
The study can be found here.