Historically, competition law has been a matter for public enforcement, with those who infringe it subject to penalty from regulators. However, there is an increasing impetus towards so-called "private enforcement" where the victims of anticompetitive behaviour sue for damages. In this regard, three developments are of particular interest:
- the introduction of follow-on actions; and
current proposal to reform the damages regime from
- the UK Government; and
- the European Commission
THE CURRENT PROPOSALS OF THE EUROPEAN COMMISSION
On 11 June 2013, the European Commission published a package of documents in its on-going drive to promote damages actions for infringement of competition law:
- a draft Directive
- a Communication and Recommendations for collective redress; and
- a Communication and Guidance on quantifying harm.
Draft Directive on antitrust damages claims
The key document was the draft Directive, seeking to establish common rules for damages actions across the EU. The main points are these.
Compulsory disclosure of documents:
This is not such a major development in the UK which has comprehensive disclosure in litigation anyway. Continental Europe has no such tradition, which is particularly problematic in antitrust cases. Anticompetitive behaviour is, by its nature, secret. The evidence to prove infringement is often only in the hands of the infringers and, for behaviour under investigation, the regulatory authorities.
The Directive prescribes that:
- Courts should be able to order defendants or third parties to disclose evidence if the claimant has presented a plausible case.
- Court should also be able to order claimants or third parties to make disclosure to Defendants.
- However, disclosure should be proportionate with regard to cost and the likelihood of infringement.
Special rules for disclosure of "leniency" documents:
There is specific provision for documents on the files of competition authorities, given concerns that a cartel participant's incentive to blow the whistle in exchange for a lenient penalty is diluted if the whistle-blower runs the risk of being sued by victims of the cartel's behaviour. This has been a vexed question since the European Court decision in Pfleiderer a couple of years ago that, in the absence of European law, disclosure of leniency documents was a question for national courts.
The Directive proposes to clear up the confusion, providing that:
- Leniency corporate statements (i.e. confessions) and settlement submissions are protected from disclosure.
- Other documents prepared in the course of proceedings
- by the authority (e.g. the Statement of Objections), or
- by a party (e.g. replies to the Statement of Objections or to requests for information) may be disclosed, but only after the file is closed.
To mirror these restrictions, parties who happen to have documents
- in category (1) cannot use them in evidence, and
- in category (2) cannot use them in evidence whilst the authority's file is open,
but this is only if they got the documents from the authority's files.
Other documents on authority's files can be disclosed at any time. Crucially, this could include documents seized in a dawn raid.
Joint and several liability
The Directive establishes that businesses that infringe competition law together are "jointly and severally" liable, so where victims suffer from a cartel they can claim all their damages from whichever cartelists they choose to sue. Defendants may then sue their co-infringers for a contribution.
There is a partial exception. A whistle-blower granted leniency is only liable for damages caused by it; or damages caused by its co-infringers if the Claimant can show it is otherwise unable to recover them.
Where the Claimant's loss is that it paid too high a price, the Directive confirms that it is a defence to say the Claimant increased its own prices and thus passed some or all the loss down the distribution chain. However, the defence is not available if the overcharge has been passed on to someone who finds it "legally impossible" to sue.
Where a direct purchaser sues, the burden is on the Defendant to prove pass-on but, where an indirect purchaser sues, it has the burden of proving the loss was passed on to it.
Victims will be able to bring a claim for at least five years:
- from the date they first knew (or should have known) of the infringement, the harm it caused, and the identity of the infringer; or
- if later, from the date the infringement ceases.
The clock is frozen whilst a competition authority investigates or acts against the infringement, and it shall not be unfrozen until at least a year after the infringement decision is final or the investigation is terminated.
The draft Directive says that national courts cannot make decisions which are counter to findings of infringement by competition authorities. This may fall short of the UK's follow-on regime, where infringement decisions of the European Commission and UK authorities are directly binding on the Courts so trial of a private action can skip the liability phase altogether and jump straight to the question of what damage (if any) the claimant suffered.
Still, under the draft Directive, where a claim falls within the four corners of an authority's decision, the liability phase should be cursory and, interestingly, such quasi-follow-on actions may be on the basis of a foreign national regulator's decision.
Member States will have two years to enact compliant legislation if and when the Directive enters into force. However it is only in draft, and must now be debated by the European Parliament and the Council. It may be significantly amended, or even abandoned entirely like a previous draft in 2009 although this is unlikely.
Communication and Recommendations on collective redress
The previous draft Directive was abandoned in 2009 because of difficulties in arriving at a consensus. Some Member States oppose promoting litigation as a means of enforcing competition law, and they are especially sceptical of collective redress given a perception that, in the US, class actions are driven by the lawyers for their own benefit. Collective redress has therefore been relegated from the latest Directive to accompanying "Recommendations".
The Commissions recommends that Member States have collective redress for:
- injunctions to prevent violations of rights granted by EU law; and
- compensation for violations of such rights.
The Recommendations are therefore not restricted to competition law, but they are especially relevant to it as a key area where large numbers of people can suffer a small loss. Hence their publication within this package of documents.
In the UK, a draft Bill on collective redress for competition claims is already making its way through Parliament, somewhat sidelining the relevance of the Recommendations. The UK's draft legislation largely mirrors the Recommendations, but is not bound to follow them.
The Recommendations include:
- That only designated bodies should bring representative actions, either public authorities or not-for-profit bodies with objects related to the dispute. The UK Bill is less prescriptive, just saying that representative actions should be brought someone the tribunal thinks it is "just and reasonable" should act.
- That in collective actions, be they representative actions or actions by class members, the claimants should be able to disseminate information about the action and, in cross-border cases, there should be a single collective action. The UK Bill says nothing about this.
- That the losing party should pay the winning party's costs. The UK Bill agrees.
- That the Claimant should be made to disclose its funding arrangements at the outset. Existing UK law requires disclosure of "no win, no fee" agreements, and often of third party funding; these being the two obvious funding arrangements.
- That contingency fees (where lawyers are paid as a percentage of the damages) and punitive damages should be banned. The UK Bill agrees.
- That collective redress procedures should be accompanied by collective alternative dispute resolution procedures. The UK Bill has them.
- That collective actions should be on the more conservative "opt-in" basis, where victims much choose to participate. The UK Bill has no preference for "opt in" over "opt-out", where claims can be bought on behalf of all victims whether they know about it or not. The European Recommendations do suggest allowing "opt-out" in exceptional cases, but the UK's limited experience is that damages in "opt-in" claims can be a pittance, making them of questionable value in enforcing competition law.
Communication and Guidance on quantifying harm
These publications are more useful as reference materials when quantifying a specific claim, so there is limited value in discussing them here. Suffice to say the Guidance is not binding and, as a taster of the issues involved…
Damages in competition law are particularly hard to calculate because the exercise requires speculation of what the Claimant's financial position would be in the so-called "counterfactual"; the parallel universe where there was no infringement.
Where the complaint is overpricing, there are competing methodologies for calculating what the price would have been without the overcharge.
- The comparator method looks at the price before and after the infringement; which is simple in theory but there is inevitably background static to filter out.
Simulation methods seeks to predict market behaviour through econometric modelling, principally comprised of:
- the cost-based method, which extrapolates price from cost plus reasonable profit; or
- the finance-based method, which estimates price on the basis of the financial performance of claimant or defendant.
There is then the question of whether the Claimant has passed some or all the overcharge down the distribution chain. Even if it has, it may have suffered loss because a higher price may result in lower sales volumes.
However, not all complaints are of overcharging. The Claimant may allege it was excluded from the market altogether. This is even more complex because, at least with overcharging, the counterfactual uses the same market structure. If the Claimant alleges it was excluded, the counterfactual requires speculation of what the market would have looked like if it had not been.