Cartel Damage Claims and the so-Called “Umbrella Pricing” Under EU Competition Law: The Kone Ruling of the Court of Justice of the European Union

July 2, 2014

On June 5, 2014, the Court of Justice of the European Union (respectively, the "EU" and the "CJEU") issued a Ruling in relation to so-called "umbrella pricing" cartel damage actions.  These claims refer to damages allegedly suffered due to the surcharge applied by non-cartelists who, independently and rationally, adapted to a price increase resulting from a cartel by increasing their own prices. 

Pursuant to the Ruling of the CJEU in Case C-557/12 Kone ("Kone"), the Treaty on the Functioning of the European Union ("TFEU") preempts the EU Member States from having in place domestic regulations which "categorically exclude" umbrella pricing claims deriving from breaches of EU Competition law. 

I.   Background

In February 2007, the European Commission issued a Decision imposing fines on the members of an alleged cartel in the markets for lifts and escalators.  The members of the alleged cartel included the Finnish company Kone AG.

Relying on the "umbrella effect" of the cartel, ÖBB-Infrastruktur AG ("ÖBB"), a subsidiary of the Austrian Federal Railway, brought an action before the Austrian courts against the members of the alleged cartel, including Kone AG, claiming damages.  These damages would result from ÖBB buying from third party suppliers which were not a member of the cartel at a higher price than ÖBB would have paid but for the existence of that cartel, on the ground that those third undertakings benefited from the existence of the cartel in adapting their prices to the higher level (see Kone, at § 10). 

ÖBB’s action was rejected by an Austrian Court of First Instance but it was upheld by the appellate Court.  The Austrian Supreme Court ("Oberster Gerichtshof") asked the CJEU for a preliminary ruling on the issue of whether Article 101 TFEU (namely, the provision of EU law which prohibits anti-competitive agreements, the EU equivalent to § 1 Sherman Act) requires the recognition of "umbrella claims".  This recognition would apparently be contrary to the requirements, applicable to damages claims under Austrian torts law, of "adequate causal link" between the conduct of the infringing entity and the injury and "unlawfulness", that is, whether the provision infringed had as its object the protection of the interests of the injured person (see Kone, at § 13 to 15).

II.   The Reasoning of the CJEU in Kone

The CJEU recalled that, in the absence of EU rules governing damages claims, it is for the domestic legal system of each Member State to lay down the rules governing damage claims for breaches of EU law, "including those on the application of the concept of causal relationship", provided that the general principle of effectiveness of EU law is observed (see Kone, at § 24)

The CJEU indicated that "the full effectiveness of Article 101 TFEU would be put at risk if the right of any individual to claim compensation for the harm suffered were subject by national law, categorically, and regardless of the particular circumstances of the case, to the existence of a direct causal link while excluding that right because the individual concerned had no contractual links with a member of the cartel, but with an [entity] not party thereto, whose pricing policy, however, is a result of the cartel" (see Kone, at § 33).  The Ruling is somewhat blurry, and might not necessarily depict Austrian law in an accurate manner or, for that matter, be entirely consistent with the question asked by the Austrian Supreme Court,

Consequently, argued the CJEU, "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 [. . .] liable to have the effect of umbrella pricing being applied by third parties acting independently and that those circumstances could not be ignored by the members of the cartel" (see Kone, at § 34).

III.   Conclusions

The practical implications of the Kone Ruling remain to be seen.  Ultimately, plaintiffs have to prove the causal link between infringement and damage.  Nonetheless, the following considerations come to the fore.

  • The Kone Ruling might result in the following three type of new claims:  (i) claims against the members of cartels for the amounts "overpaid" to third parties who are not members of the cartel (on top of the amounts claimed for the damages directly deriving from the cartel i.e., the same scenario as in Kone); (ii) direct claims against third parties who are not members of the cartel who independently followed the cartel and increased its prices and (iii) claims from the cartel members having suffered an "umbrella action" against the third party who independently followed the cartel and increased its prices (in order to recover from the "umbrella claim").  Kone is silent re (ii) and (iii), which should be governed by the national laws of the EU Member States.
  • Cartelists might be deterred from applying for leniency given that they now face a new potential liability:  that which derives from the price increases applied by third parties who are not members to the cartel.  In fact, the CJEU expressly disregards this policy argument against accepting "umbrella claims" (see Kone, § 36).
  • The very existence of the Ruling might be perceived as an endorsement by the CJEU of the so-called "umbrella claims", perhaps influencing the national courts of the EU Member States to give more credibility to these.
  • Whereas the Kone Ruling still leaves in place the requirement of a causal link (see Kone, § 22), by striking down a certain interpretation of that link under Austrian law, the CJEU’s Ruling can be interpreted as bringing a certain de facto harmonization to the law on antitrust torts of the EU Member States.  Consequently, plaintiffs might try to explore which other national rules currently making the success of their actions less likely (e.g., national rules on passing on as a defense) are incompatible with the general principle of effectiveness of EU law.  It should be recalled that the CJEU’s Ruling in Kone constitutes the last step in the Courage-Manfredi case-law of the CJEU, a line of cases which has already de facto harmonised, e.g., that the amount of the damages deriving from a claim for breach of Article 101 TFEU must include the loss of profit (lucrum cessans) plus interest (see C-295/04 to C-298/04 Manfredi, at § 95 and 96).
  • One could argue that there is little reason to limit the scope of the principles which underpin the Kone Ruling of the CJEU to Article 101 TFEU.  One could imagine scenarios of "umbrella pricing" arising also in relation to the competitors of a dominant firm who has been found guilty of applying excessive pricing, which, unlike in US antitrust, still constitutes a ground of abuse of dominant position under both EU law and the competition laws of the Member States of the EU.
  • From the perspective of Austrian law, it remains to be seen how the Austrian Supreme Court gives effect to the Kone Ruling.  If Austria suddenly facilitates "umbrella claims" it might perhaps become a new forum of choice for cartel damage claims, to be added to the "usual suspects" of private antitrust litigation in Europe (namely, the UK, Germany and the Netherlands).

Conventional wisdom would have the European antitrust bar think about EU developments in relation to cartel damage claims in terms of the attempts by the institutions of the EU to legislate in this domain.  Indeed the European Parliament approved on 17 April 2014 the text of a Draft Directive on antitrust damage actions.  However, the Kone Ruling of the CJEU recalls us the importance of direct intervention by the European Courts in this domain. 

Gibson, Dunn & Crutcher LLP 

Gibson, Dunn & Crutcher’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Antitrust and Competition practice group, or the authors of this alert:

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Pablo Figueroa – Brussels (+32 2 554 7000, [email protected])

Peter Alexiadis (+32 2 554 7200, [email protected])
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