On July 1, 2016, the German Federal Ministry of Economic Affairs published the ministerial draft of the 9th amendment to the German Act against Restraints of Competition (the “Draft”). The Draft implements the European Union directive governing actions for damages for infringements of competition rules (“EU Damages Directive”). The Draft still has to be approved by the German government (which is only a formality), and will afterwards be presented to the German parliament, which will very likely make a number of modifications. In any event, Germany has to implement the Damages Directive by December 27, 2016.
EU Damages Directive
The purpose of the EU Damages Directive is to ensure that anyone can claim compensation for harm caused by a competition law infringement. It establishes certain minimum requirements, involving such matters as:
- Right to full compensation;
- Binding effect of antitrust decisions;
- Disclosure of evidence;
- Extended limitation periods;
- Joint and several liability;
- Passing-on defense/Standing for indirect customers.
Draft German Law
While German law already is largely consistent with the standards established by the EU Damages Directive, the Draft now sets out to bring German law fully in line.
Right to full compensation
In Section 33a (1) of the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen, “GWB”), the Draft sets out – as does current German law – the right of a claimant to full compensation for competition law infringements.
- Liability of parent companies. The Draft is silent on the question of whether a parent company is liable for a competition law infringement (directly) committed by a subsidiary. While it is generally accepted – and has repeatedly been stressed by European Commission officials – that the EU Damages Directive establishes the liability of a parent company for antitrust infringements by subsidiaries under European law forming part of the same undertaking, the Draft leaves the clarification of this question to the German courts (and ultimately the European Court of Justice).
- Binding effect of antitrust decisions. As is already the case under current German law, Section 33b GWB of the Draft provides for a binding effect of European Commission and German Federal Cartel Office’s (“FCO”) decisions, as well as decisions by other national competition authorities (or courts acting as such). The Draft thus goes beyond the EU Damages Directive, which merely requires that decisions of other national competition authorities serve as prima facie evidence.
- Quantification of damages. The Draft does not lead to any noteworthy changes regarding the quantification of damages. A (rebuttable) presumption that a cartel causes harm, as now stipulated by the Draft, was already generally recognized by lower German courts. Likewise, the Draft merely clarifies the existing competence of German courts to estimate the actual amount of damages suffered.
Disclosure of evidence
New Section 33g GWB provides for the disclosure of specific documents under German law. Disclosure can be requested from cartel members/defendants as well as from third parties. In addition, cartel members/defendants can request disclosure from claimants. Disclosure can be requested during a pending damages proceeding. In addition, a claimant could also request disclosure before a damages claim has been brought in court.
- Broad disclosure. Surprisingly, the Draft goes beyond the requirements of the EU Damages Directive. Under current law, German courts – while reluctant to do so in practice – can order the disclosure of certain documents. Although the EU Damages Directive only requires Member States to enable the courts to order disclosure in their discretion, the Draft establishes a substantive right to disclosure. Accordingly, the courts could only refuse to do so if the disclosure request is disproportionate, courts and would no longer have wide discretion whether to order disclosure.
- Documents exempt from disclosure. Amnesty/leniency statements as well as settlement submissions are excluded from disclosure. The Draft considers transcripts of witness statements given by individuals that either cooperate directly or on behalf of a company with the FCO under its leniency program as leniency statements and thus as protected from disclosure. In contrast, pre-existing documents submitted as annexes to a leniency application would – in contrast to the FCO’s current enforcement practice – no longer be protected from disclosure. Other documents could only be disclosed after the relevant competition authority has closed its investigation.
- Cost reimbursement. According to Section 33g (7) GWB of the Draft, a party requesting disclosure has to reimburse the disclosing party for reasonable costs associated with disclosure. As the EU Damages Directive does not explicitly allow Member States to provide for such reimbursement claims, it could be argued that the respective provision is not in line with the EU Damages Directive.
Statute of limitations
Consistent with the EU Damages Directive, Section 33h GWB of the Draft extends the statute of limitations.
- Statute of limitations. Under the Draft, the limitation period is five instead of three years, beginning at the end of the year in which the claim arose and the claimant obtained the requisite knowledge of (i) the circumstances giving rise to the claim, and (ii) the identity of the obligor, or would have obtained such knowledge had they not been grossly negligent. In addition, the limitation period under the Draft only begins if the claimant knew, or absent actual knowledge, would have known that the acts in question actually amounted to an antitrust violation. This requirement could lead to a later start of the statute of limitations in case of an information exchange or an abuse of dominance. While the longstop statute of limitations would remain 10 years, the limitation period would no longer start once the claim has arisen, but when (additionally) the antitrust infringement has ceased.
- Suspension. Under the Draft, the statute of limitations is – as currently – suspended during an ongoing investigation by the European Commission, the FCO, or another national competition authority.
Joint and several liability
Companies violating competition law will continue to be jointly and severally liable under the Draft.
- Exemption for immunity applicants and smaller companies. Under the Draft – in line with the Damages Directive – immunity applicants as well as small and medium-sized companies would under certain conditions be exempt from joint and several liability (and only liable to their direct and indirect customers). The limitation of an immunity applicant’s liability in the future would have important implications for claimants’ recovery strategies.
- Statute of limitations for contribution claims. The Draft provides that the statute of limitations for contribution claims among enterprises involved in an infringement begins to run only when the enterprise demanding contribution has paid damages to the claimant. This addresses the problem under current German law that such contribution claims could become time-barred before damages are paid to the claimant.
Standing of indirect customers/passing-on defense
The Draft also contains provisions dealing with indirect customers as well as the passing-on defense.
- Standing of indirect customers. The Draft in Section 33c (2) GWB stipulates that indirect customers will have standing to claim damages. While the standing of indirect customers has already been recognized under current law by the Federal Court of Justice (Bundesgerichtshof), the Draft makes it easier for indirect customers to claim damages by establishing a presumption that direct customers have passed on a cartel overcharge. German courts would then be free to estimate the extent of this pass-on. This presumption only works to the indirect customers’ advantage and could not be invoked by defendants to counter a damages action brought by direct customers.
- Passing-on defense. According to the Federal Court of Justice, defendants can raise the passing-on defense, but its requirements are stringent and difficult to meet. The Draft continues to recognize the passing-on defense, but does not stipulate the exact requirements that defendants have to meet in order to prove a passing-on. It is unclear whether the Draft’s silence on this point should be understood as a tacit approval of the stringent requirements established by the Federal Court of Justice.
Cost risk in case of intervener
The Draft also drastically reduces the cost risks of claimants.
- Significant adverse cost risk under current law. Under current German law, courts have held that a losing claimant has to reimburse intervening parties for their legal costs at the same rate as defendants. As this significantly increases the adverse cost risk of claimants, many potential claimants – in particular in case of cartels consisting of numerous cartel members – following these decisions have decided against bringing a damages action.
- Solution under the Draft. The Draft in Section 89a (3) GWB limits the reimbursement of legal fees of all interveners combined to the amount of legal fees a single defendant could demand reimbursement for if the claimant were to lose.
It will be interesting to see what changes the Draft will undergo in parliament. In any event, it is already clear that it will ultimately become easier to claim damages for competition law violations in Germany.