June 14, 2013
After an eight year long debate, on June 11, 2013, the European Commission took its first steps towards an EU legislative package on damages claims. The proposals are antitrust-specific and aim to facilitate private actions at a national level against infringers of EU competition rules. While the draft law will open the door to antitrust litigation in Europe, arguably the most important element, an EU regime for collective redress ("class actions"), is still being negotiated and a proposal is not expected until 2017.
The Draft EU Directive on Antitrust Damages Actions
The draft legislation on antitrust damages takes the form of a Directive and, if approved by the European Parliament and Council, will require EU Member States to implement the measures set out therein into their national legal systems within a set deadline. For some Member States, this may require significant changes to existing substantive and procedural rules.
The European Court of Justice has long since recognised the right of an individual to claim compensation for loss caused by an antitrust infringement (Case C-453/99 Courage and Crehan,  ECR I-6297). However, in the absence of any EU-level initiative on antitrust damages actions and in light of shortcomings in national legal frameworks, only a few victims of antitrust infringements have succeeded to date in obtaining compensation in EU national courts. The draft legislation aims to remove these obstacles, facilitating claims by SMEs and consumers and addressing key differences in national rules on antitrust damages actions. Until now, the most popular fora for private actions in the EU have been the UK, Germany and the Netherlands and plaintiffs have mainly comprised large businesses. While the draft Directive will make it easier to bring private claims against antitrust infringers in EU Member State courts, the proposals also go very far to limit the exposure of businesses cooperating with the Commission and other competition authorities in cartel investigations.
Seeking to Strike the Balance: EU Right to Compensation v Cooperation in Cartel Cases
In the EU, whistle-blower (leniency) programmes have proven invaluable for the detection of cartels and, coupled with settlement procedures, have had an overall positive impact on investigations, in terms of efficient allocation of resources and timing. However, the lack of clarity as regards the interplay between leniency/ settlement procedures and the rules of national courts has been the source of much anxiety for those willing to cooperate with authorities conducting cartel investigations. The draft Directive, however, should significantly reduce these concerns, particularly for those companies thinking about blowing the whistle:
1. New Rules on Disclosure of Evidence
The rules on document disclosure in cartel damages actions have generated uncertainty for parties engaging with competition authorities as part of a leniency programme and/or during the course of settlement proceedings. The ECJ 2011 preliminary ruling in the Pfleiderer Judgement (Case C-360/09) provided little comfort to whistle-blowers, holding that it was for national courts to weigh up the interests of a plaintiff seeking the disclosure of leniency documents against the risk of undermining leniency programmes. More recently, the same court gave further weight to this principle, holding that national law cannot preclude the weighing up of these interests and that non-disclosure is only justified if there is a risk that the document in question could actually undermine the public interest relating to the effectiveness of a national leniency program (Case C-536/11 Bundeswettbewerbsbehörde v Donau Chemie AG and Others, 2013, not yet reported).
The draft Directive, however, has addressed this issue head-on, by proposing to introduce safeguards for leniency applicants and settling parties against the disclosure of key submissions made to antitrust authorities. The draft legislation will effectively create a sliding scale of protection:
Absolute Protection: Under the draft Directive, leniency corporate oral statements (or "oral proffers") and formal settlement submissions will be afforded "absolute protection" from disclosure in national courts.
Temporary Protection: Other documents prepared specifically for the purposes of antitrust proceedings (such as a party’s response to an information request) as well as documents drawn up by a competition authority during the course of proceedings (such as a Statement of Objections) will be temporarily protected from disclosure until antitrust enforcement proceedings are brought to an end.
No Protection: In relation to those documents not falling into the above two categories, a judge will be able to order disclosure at any point in time. However, the Commission intends to include a provision to dissuade national courts from disclosing evidence by reference to information supplied to a competition authority for the purpose of antitrust proceedings, particularly where those proceedings are on-going.
These changes seek to strike the right balance between: (1) the facilitation of damages actions against antitrust infringers (thus respecting the EU right to compensation); and (2) the need to promote leniency programmes as useful tools to uncover and bring to an end competition infringements. The proposed rules may also prove beneficial in dissuading plaintiffs from bringing a case, due to the obstacles they are likely to face in obtaining key evidence because the antitrust enforcement proceedings are on-going.
2. Limited Liability of the Immunity Applicant
In cartel cases, participants are typically found jointly and severally liable for the entire harm caused by the antitrust infringement. The draft legislation proposes that those who have successfully applied for immunity (i.e., first-in whistle-blowers benefiting from a 100% fine reduction) will normally only be liable for the harm caused by their share of the cartel and not for the harm caused by their co-infringers. However, to guarantee the EU right to full compensation, this limitation on liability will not be absolute: under the proposals, where injured parties are unable to obtain compensation from co-infringers, the immunity beneficiary can still be held fully liable as a last resort. In this way, the draft Directive works to build in rules which will benefit immunity recipients, safeguarding the attractiveness of leniency programmes, while at the same time respecting the right to compensation.
3. Introduction of the Passing-on-Defence
To prevent unjust enrichment, the draft Directive also explicitly recognises the possibility for a cartelist to invoke the passing-on-defence, i.e., to claim that the injured party has reduced its losses by passing these on to purchasers. According to the proposals, this defence will be available so long as it is legally possible for the person at the next level in the supply chain to bring a claim, (which may not always be the case for indirect purchasers due to national rules on causation). The inclusion of the passing on defence in the proposal will impact significantly on the structure of business v. business private antitrust damages actions, since it will play a role in determining which cases are brought, the outcome and amount of damages, as well as creating a need for courts to take into account parallel proceedings brought by parties at different levels of the supply chain.
Other Changes & Guidance on Quantum of Loss
Other key proposals in the draft Directive include rules on limitation periods (at least five years from the date the plaintiff became aware of the infringement, the harm and the infringer’s identity) and dispute resolution provisions to encourage out-of-court settlements. This legislative proposal is accompanied by a non-binding Practical Guide for national judges in the form of a Commission Communication on how to quantify loss. Loss is generally measured by comparing the actual position of the injured party against a hypothetical non-infringement scenario (the position that party would have been in "but for" the infringement). The Guidance provides national courts with "insights" to be used within national legal frameworks to enhance the effectiveness of antitrust damages claims. It identifies categories of harmful effects and describes various legal and economic methods available to construct non-infringement scenarios. It then weighs up the pros and cons of such methods and their suitability for quantifying a particular type of harm. While this Guidance seeks to achieve a greater level of legal certainty, the Commission itself has recognised that economic techniques for the quantification of damages may need to evolve over time.
Towards an European Framework for Collective Redress for EU Law Infringements?
The draft Directive on antitrust damages actions will significantly re-shape the procedural landscape in Europe for competition litigation. However, for many, without a proposal on collective redress ("class actions"), the proposals remain incomplete. The negotiation of an European framework for collective redress is still underway and a decision is not expected until 2017, at the earliest. The Commission has, nonetheless, taken some steps towards encouraging collective redress and on the same day as publishing its draft Directive, it issued a series of common, non-binding principles calling for Member States to put in place mechanisms to improve access to justice for victims of EU law violations, including antitrust infringements.
The Recommendation seeks to achieve procedural efficiencies and cost-savings, by encouraging Member States to introduce the possibility to bundle multiple claims into one single court action. In its Recommendation, the Commission advocates for "opt-in" systems as the norm and for "opt-out" as the exception (only to be used where it is justified owing to reasons of sound administrative justice). In this way, the Commission seeks to steer Europe away from "US style" litigation and to avoid punitive damages and contingency fees. Controversially, the UK earlier this year published a game-changing proposal to introduce limited opt-out collective actions for competition law claims and since an EU collective redress framework must, in the words of the in-coming Commissioner for Consumer Policy, "respect the national jurisdictions and legal traditions" of Member States, lengthy negotiations are expected to ensue before any EU decision on collective redress can be reached.
Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, any member of the firm’s Antitrust and Trade Regulation Practice Group, or any of the following:
Ali Nikpay (+44 20 7071 4273, [email protected])
Patrick Doris (+44 20 7071 4276, [email protected])
Philip Rocher (+44 20 7071 4202, [email protected])
Charles Falconer (+44 20 7071 4270, [email protected])
M. Sean Royall (214-698-3256, [email protected])
Veronica S. Lewis (214-698-3320, [email protected])
Brian Robison (214-698-3370, [email protected])
Robert C. Walters (214-698-3114, [email protected])
D. Jarrett Arp (202-955-8678, [email protected])
Joseph Kattan P.C. (202-955-8239, [email protected])
Joshua Lipton (202-955-8226, [email protected])
John Christopher Wood (202-955-8595, [email protected])
Adam Di Vincenzo (202-887-3704, [email protected])
Cynthia Richman (202-955-8234, [email protected])
Joshua H. Soven (202-955-8503, [email protected])
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