The Court of Justice of the European Union last week handed down a ruling1 on a reference from an Austrian court on the unsettled question under EU law of whether cartel members can be held liable for umbrella pricing.
The Court held that the EU Member States cannot categorically and regardless of the particular circumstances exclude civil liability for losses from umbrella pricing.
Umbrella claims in cartel damages cases are known in the US and have been dealt with by the US courts. Several US trial courts and one appellate court have permitted umbrella damages claims to proceed when the claimants purchased directly from competitors to the alleged conspirators. Other courts have denied standing to umbrella damages claimants because their claims were considered to be too remote from the alleged antitrust violation or their damages claims too speculative.
To date in Europe, however, only a few such claims have been brought before national courts. This ruling now increases the exposure of cartel participants in Europe by increasing the amount of damages potentially at issue in cartel cases.
What is umbrella pricing?
Umbrella pricing occurs when companies, which are not themselves part of a cartel but who benefit from the knock-on effect that the cartel has on prices throughout the market, set their own prices higher that they would otherwise have been able on a competitive market.
How did this case arise?
This ruling arose as a result of a preliminary reference from an Austrian court dealing with follow-on damages claims from ÖBB-Infrastruktur AG (a subsidiary of the Austrian Federal Railways) in relation to an Austrian elevator and escalator cartel. ÖBB-Infrastruktur had purchased elevators and escalators directly from members of the cartel but also from companies that were not part of the cartel. After fines were imposed by the Austrian Antitrust Court, ÖBB-Infrastruktur claimed damages from members of the Austrian cartel for losses as a result of the cartel. This included Euro 1.8 million, as a result of buying from companies that were not party to the cartel elevators at a higher price than it would have done in the absence of the cartel.
Under Austrian law, companies cannot be held liable for umbrella pricing. The Austrian Court referred a question to the CJEU asking whether this approach was legitimate, essentially asking whether EU competition law and the EU principle of effectiveness require that such umbrella claims should be possible under national laws.
The CJEU held that EU law should be interpreted as allowing claims based on umbrella pricing. It held that:
- "Where a cartel manages to maintain artificially high prices for particular goods and certain conditions are met, relating, in particular, to the nature of the goods or to the size of the market covered by that cartel, it cannot be ruled out that a competing undertaking, outside the cartel in question, might choose to set the price of its offer at an amount higher than it would have chosen under normal conditions of competition, that is, in the absence of that cartel. In such a situation, even if the determination of an offer price is regarded as a purely autonomous decision, taken by the undertaking not party to a cartel, it must none the less be stated that such a decision has been able to be taken by reference to a market price distorted by that cartel and, as a result, contrary to the competition rules."
- "the victim of umbrella pricing may obtain compensation for the loss caused by the members of a cartel, even if it did not have contractual links with them, where it is established that the cartel at issue was, in the circumstances of the case and, in particular, the specific aspects of the relevant market, liable to have the effect of umbrella pricing being applied by third parties acting independently, and that those circumstances and specific aspects could not be ignored by the members of that cartel."
The CJEU rejected arguments that claims for compensation for losses resulting from umbrella pricing constitute claims for punitive damages. It also rejected arguments that damages for umbrella pricing are likely to dissuade the companies concerned from assisting the competition authorities to investigate cases, which runs contrary to the principle of effectiveness.
The Court concluded as follows:
- "Article 101 TFEU must be interpreted as meaning that it precludes the interpretation and application of domestic legislation enacted by a Member State which categorically excludes, for legal reasons, any civil liability of undertakings belonging to a cartel for loss resulting from the fact that an undertaking not party to the cartel, having regard to the practices of the cartel, set its prices higher than would otherwise have been expected under competitive conditions."
This ruling has an important potential impact on antitrust damages claims in Europe, by opening the door to umbrella claims in national cartel damages proceedings where such claims are expressly precluded under national law.
However, the ruling confines itself to the principle of umbrella claims, and only rules that national laws cannot categorically exclude umbrella claims as a matter of principle. It does not specify when umbrella claims should be granted. The practical reality remains that umbrella claims remain hard to bring successfully due to the significant challenges in proving causation. Proving damage suffered from non-cartelist suppliers is complex, and requires demonstrating that the anti-competitive practice led to an increase in prices on the overall market and that the increase caused them harm. The recently adopted EU antitrust damages directive, whilst it addresses issues such as access to evidence on the file of a competition authority and indirect purchasers, does not specifically deal with the issue of umbrella claims. The chances of success ultimately depend on the judicial system of each EU Member State, and the ability to overcome the evidentiary burdens.