On June 5, the European Court of Justice (ECJ) ruled that victims of cartel / price-fixing behavior may seek compensation against the cartel participants for loss caused by so-called “umbrella pricing,” namely prices charged by competing suppliers that were not members of the cartel which were higher than they would otherwise have been without the cartel.

The ECJ ruled in response to a December 2012 request from the Oberster Gerichthof (Austria) for a preliminary ruling (Case C-557/12, Kone AG and Othersv. ÖBB Infrastruktur).  In the national civil proceedings before the Austrian court, the Austrian railways had filed follow-on damage claims against the four leading suppliers of elevators and escalators for their involvement in a bid-rigging cartel in Austria.  The Austrian railways claimed from the cartel members not only compensation for being charged higher prices when purchasing products and maintenance services from them, but also for losses stemming from the fact that non-participating suppliers of escalators and elevators benefited from the distorted competitive environment, allowing them to charge higher prices than such suppliers would have been able to in the absence of the cartel.

Austrian rules on civil liability

Under Austrian rules governing civil liability, claims based on non-contractual liability must establish a causal link between the unlawful conduct and the suffered loss. In principle, a person responsible for the loss caused to another person should compensate for the foreseeable consequences of his/her conduct.  When some competitors do not join a cartel, prices charged by them are arguably determined by them independently in view of their own business interests and taking account of myriad factors.  Those non-participating competitors are by definition not committing an unlawful act even if they charge prices higher than they would otherwise have been able to but for the cartel.  Such “umbrella pricing” does not involve unlawful behavior by the non-participating competitors engaged in the practice but merely constitutes a side-effect of a cartel.  Accordingly, under ordinary Austrian civil liability law, the members of the cartel who did commit violation should not be required to compensate for losses resulting from those market consequences of the cartel.

The principle of effectiveness

Under well-established ECJ case law (in particular, Courage and Crehan and Manfredi), the provisions on competition in the Treaty on the Functioning of the European Union (TFEU), in particular Articles 101 and 102, produce direct effects between economic operators, and any person is entitled to compensation for harm caused by an infringement of those provisions.  In its recent ruling, the ECJ noted that no harmonized definition at EU level specifies what is required to establish an adequate causal link between the suffered loss and the illicit cartel conduct.  In such a situation, it is for the national systems of the Member States to determine the rules under which the right to compensation could be exercised.  However, the ECJ also noted, the effectiveness of EU competition law would be jeopardized if domestic rules on civil liability, in particular on the notion of causality, make it practically impossible or exceedingly difficult for cartel victims to exercise their rights to compensation.

Focus on the effect of the cartel conduct

Turning to the question of liability for umbrella pricing raised by case at hand, the ECJ focused on the possible negative effects of the cartel conduct, as opposed to merely the illegal conduct as such.  The ECJ reasoned that umbrella pricing resulting from the autonomous decisions of non-cartelists is a possible consequence of the cartel.  As such, umbrella pricing is a collateral outcome of “the cartel that contributed to the distortion of price formation mechanism governing competitive markets,” which the TFEU provisions are intended to prevent.  The ECJ concluded that the causal link between the loss suffered by the claimant and the cartel infringement could not be broken as a result of the claimant purchasing goods or services from an undertaking not party to the cartel where:

  • The circumstances of the case and the specific market aspects were liable to have the effect of umbrella pricing by the non-participating undertaking(s)
  • The members of the cartel could not ignore such circumstances and aspects

The ECJ indicated that it is for the national courts to determine whether the evidence is sufficient and adequate to conclude that both conditions are met.

As a result, the ECJ ruled that Article 101 TFEU precludes the application of national law that “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.”

Impact of the ruling

This latest decision continues a strong trend toward bolstering civil damages redress for violations of EU competition law.  This is not the first (and surely will not be the last) time that the ECJ has been asked for guidance on the interplay between EU competition rules and civil damages claims in national courts.  Indeed, this is the second time in two years that the ECJ has found Austrian rules in civil damages proceedings violate EU competition law.  In June 2013, in Donau Chemie, the ECJ held that a blanket Austrian rule giving cartel members veto power to prevent third parties from accessing the administrative file in the enforcement proceeding, infringed on the principle of effectiveness of EU competition law, which the ECJ had held in Pfleiderer requires a case-by-case balancing of interests.

Whenever the ECJ has been asked to interpret the TFEU in the context of civil damages claims, it has heavily relied on the principle of effectiveness (and equivalence) to vigorously defend the right of victims of cartel violations to seek and obtain compensation in national courts.  The ECJ sees this right as a necessary component of the antitrust enforcement arsenal in Europe, as private rights further the goals of deterrence and dissuasion against those contemplating cartel violations.

In the short term, while the ECJ is pushing the civil damages agenda, the heavy lifting will be left to the national courts.  The European Commission’s practical guide on quantifying harm in actions for damages identified umbrella pricing as a possible effect of infringement but left recovery of damages for it to national rules governing civil liability.  The ECJ now instructs that such effects must be taken into account whenever the above two conditions are met.  But important questions remain unanswered.

  • As to the first condition, it remains to be seen how the umbrella effect should be quantified and, importantly, what correlation or nexus, if any, there should be between the cartel conduct and the pricing decisions taken by non-cartelists. In particular, the task will be made difficult by the fact that non-participating companies determine their pricing conduct in view of multiple factors, including their independent business interests.  Courts will also need to decide what products sold by non-cartelists should be included: only “identical” ones, ready substitutes,” or some other, perhaps econometrically-derived, formulation?  The ECJ’s ruling does not provide much guidance on what evidence claimants must provide to demonstrate the existence of umbrella pricing and which side bears the burden of proving or disproving its existence and causal nexus to the violation.
  • Regarding the second condition, it is unclear whether it is merely presumed or requires a distinct finding by the national judge that the cartel members could not have ignored that their collusive behavior was liable to cause market-wide prices to go up.

Although the underlying case in Austria involved a claimant, the Austrian railway, that had bought lifts and escalators from both cartelists and non-cartelists, the ECJ’s broad reasoning and conclusion would arguably apply to claims by someone who bought affected products only from non-cartelists (and none from cartelists).  It thus increases both the quantum of damages that a customer of both the cartelists and non-cartelists might recover and the scope of potential claimants, so long as the ECJ’s two conditions are met.

Interestingly, the ECJ did not consider some unintended consequences.  Facing the possibility of paying damages (if caught) for sales by non-participating competitors might perversely further encourage cartelists to sweep all industry participants into the cartel, to ensure that none escape liability in any resultant civil claim.  Furthermore, this ruling might chill applications for leniency, which have become a critical part of the Commission’s program against cartels.  Whilst leniency applicants may enjoy relief (in whole or in part) from regulatory fines, they enjoy no immunity from civil suit.  The bulk of civil actions for cartel violations are “follow-on” actions, arising from a regulatory authority’s decision (usually triggered by a leniency application) that an infringement of the competition rules has occurred.  If the umbrella liability doctrine very significantly increases the quantum of damages recovered from cartelists in future civil actions, some contemplating applying for leniency might hesitate or even decide not to in the future. Additionally, this might eventually reduce the number of ‘follow-on’ civil actions themselves.

More broadly, the ECJ’s repeated insistence on effective redress for violations of EU competition law has led to a creeping harmonization of Member States’ rules regarding civil liability for antitrust violations.  In the medium to long term this decision presses Member States yet further toward stronger and more harmonized civil redress for antitrust violations.

The ECJ’s recent decision to permit “umbrella pricing” theories of damage thus heralds greater liability, to a broader range of potential claimants, but also much hard work for national courts of the Member States as they attempt to apply these new instructions.