As widely acknowledged, key problems in the implementation of the Antitrust Damages Directive [2014/104/EU, herein referred to as “Damages Directive”] were found in the vague provisions set therein, such as the rules on presumption of harm, passing on, and quantification of damages. In view of the quantification difficulties, the European Commission had earlier on adopted a more general Communication on quantifying harm in antitrust damages actions [2013/C 167/07] and a related practical guide focusing on the overcharge only. Nevertheless, Article 16 Damages Directive provides that the commission shall issue passing-on specific guidelines for national courts, since these “have the power to estimate, in accordance with national procedures, the share of any overcharge that was passed on” (cf. Article 12 par. 5).
The commission has therefore through the recently published cuidelines for national courts on how to estimate the share of overcharge which was passed on to the indirect purchaser [herein referred to as “Guidelines”] offered much-needed insight to national judges facing the implementation of the right to full compensation in cartel-related cases. The commission clarifies that it takes into consideration mostly passing-on in cartel cases, although it considers these guidelines useful as a source of good practices in damage actions for vertical restraints and abuse of dominant position, provided that the specificities of applicable rules are sufficiently taken into account. These guidelines are based on a stakeholder consultation and a 2016 study on the passing-on of overcharges, and are to be read together with the Staff practical guide to quantifying harm in actions for damages [SWD(2013) 205] for further insight.
This nonbinding text is to be taken into account in future case law, although it ultimately leaves the national judge free to choose his/her preferred economic theory and method of quantification on a case by case basis. Moreover, these guidelines are without prejudice to the consideration of national law, provided they comply with the principles of equivalence and effectiveness.
I. First aim of the guidelines: providing clear legal tools for national judges to estimate the share of any overcharge
As the Court of Justice of the European Union (CJEU) jurisprudence and Damages Directive state, any person has the right to full compensation. This entitles both direct and indirect purchasers that are part of the same supply chain to obtain damages, having in their favor the general Article 17(2) Damages Directive presumption that cartel infringements cause harm. In fact, the infringer first applied an overcharge, which was then passed down to the purchasers through, in the price effect case, an undue price increase, or in the volume effect case, through the reduced purchasers or supplier sales and resulting profit loss. Distinguishing between actual loss and loss of profit is customary, thus differentiating between the two effects, yet an inherent link between the two is to be taken into consideration through the economic tools extensively set out in the guidelines.
There are two scenarios in which national courts may face passing-on. In the first one, the infringer invokes it as a defense, using it as a shield. Thus, the defendant needs to prove that the claimant passed on the overcharge as provided under Article 13 Damages Directive. In the second one, the sword scenario, the indirect purchaser invokes it as a basis for the damage action. Burden of proof is for the claimant, although difficulties of indirect purchasers are addressed by the Damages Directive. In fact, if it is a commercial practice to pass on such overcharge, there is proof prima faciae. Furthermore, there is a rebuttable passing-on presumption under Article 14(2) Damages Directive if the claimant can show that the direct purchaser has paid an overcharge to the infringer and he/she as the indirect purchaser bought products from the former.
Therefore, parallel claims are possible, in which case courts should avoid under- and overcompensation. This is achieved by taking due account of other decisions related to the same infringement and damages actions, and relevant information in the public domain. It is in the interest of the parties to make the national court aware of such action, judgment or information. Stay of proceedings, joinder of claims, acquisition of another person claim (Article 2(4) Damages Directive) and any other appropriate procedural mean, even if found in national law, is to be taken into consideration.
Most important, national courts have the power to estimate the share of any overcharge, meaning that they cannot reject claims or submissions by a party that is unable to precisely quantify the passing-on effects. This includes the right to full compensation of victims of umbrella pricing, per the Kone CJEU jurisprudence.
Courts shall estimate the partial or full passing-on of an overcharge by identifying the overcharge harm that remains at a given level of the supply chain. They shall do so as stipulated under Article 12(5) and 17(1) Damages Directive by first basing their assessment on the information reasonably available and, second, striving for a plausible approximation of the amount or share of the passing-on. This exercise is subject to national law put into place following the Damages Directive.
In practice, courts will rely on assumptions, on which they have broad discretion, especially as to the way figures and statistical data are to be used for the calculation and assessment of damages. These are important to build the counterfactual, as in the economic situation absent the infringement, for the purpose of quantifying passing-on and volume effects as described in the following section. Thus it is advised that the courts ask the parties that in any submission, assumptions be carefully laid out and the related changes to subsequent predictions be made clear.
Therefore, judges are advised to consider whether economic experts comply with such best practices as early as in the request of disclosure phase, and they should not hesitate to ask concrete questions on the quantification method used and the data needed. In particular, the court should ask such economic experts to address alternative explanations for their findings and ensure equality of arms to the parties. On the matter of disclosure, under Articles 5 and 13 Damages Directive, in view of the principle of proportionality, the court may consider that no further data gathering is necessary as parties must use facts reasonably available to them to establish overcharge harm, such as information gathered during the course of business. The court may also order disclosure of confidential information, and as a measure of last resort, disclosure of evidence by a competition authority.
II. Second aim of the guidelines: affording economic tools for the quantification of damages
The guidelines then focus on quantification of damages, suggesting a three-step assessment that looks first at the overcharge effect, then at the passing-on related effect and, lastly, at the passing-on related volume effect. As previously mentioned, it is important for the court to determine the counterfactual in order to assess the harm done by the overcharge and related passing-on.
To determine price effects, the comparator-based approach is favored, and specifically the difference-in-differences approach by combining comparison over time and across markets. Nevertheless, the commission is cautious and underlines limits of the various approaches. Thus, pragmatic measures are also advised, such as a demanding threshold for statistical significance or a complementing consideration of qualitative evidence (i.e., records showing passing-on) instead of limiting itself to quantitative evidence. If sufficient data is not available, also because of the proportionality principle applied during disclosure, other methods such as economic modeling or the passing-on rate approach (i.e., overall likelihood that a market participant passes on changes in input factors) are suggested.
Although courts have rarely engaged in the quantification of volume-based effects, they are encouraged to do so since at least in theory a passing-on related price effect necessarily implies a volume effect. The assessment methodology is much the same, the comparator-based approach being useful also in this case. Nonetheless, the parameters are specific to volume-based effects and include information on the observed quantity sold by the direct purchaser, the counterfactual volume sold and the price-cost margin that would have been achieved absent the infringement. If comparative analysis fails, courts may again consider qualitative evidence or a further test, combining observed price increases and the estimated price sensitivity/price elasticity of the relevant demand.
All in all, these passing-on Guidelines offer a full spectrum of the economic methods of quantification available, underlining that there is no technique that could be singled out, since the courts shall decide on a case-by-case basis which approach is the most appropriate under the circumstances.