The EU Adopts the Damages Directive: The Emergence of an EU Level Playing Field in Private Antitrust Actions

November 14, 2014

The EU levels the playing field for antitrust damages across the Member States, drives its members towards the UK model, and saves its most far-reaching provisions for the protection of its leniency regime. 

Introduction

As part of its emphasis on the need to enhance deterrence against antitrust violations, the European Commission has over the past decade been fine-tuning proposals to create an effective European private enforcement regime through the pursuit of damages actions before European Union ("EU") Member State courts.  The approval by the European Parliament on 17 April 2014 of a new Directive on Private Damages Actions in Competition Law (the "Directive"), which was signed by the European Council of Ministers on 10 November 2014, seeks to establish a less fragmented regime for the pursuit of such actions across the 28 Member States of the EU.[1]

Until now, the lack of a uniform framework for private damages actions under competition rules had created great uncertainty among the antitrust Bar, and more importantly, among potential claimants considering which jurisdictions might offer fertile territory for antitrust damages actions.  The European Commission concluded, as far back as 2005, that claimants were being confronted with significant evidentiary burdens, uncertainty in potential outcomes and various risks associated with the rejection of an action for damages (especially as regards adverse orders to bear the legal costs of one’s opponent).[2] 

The net effect of these uncertainties was arguably to dis-incentivise private actions in antitrust cases in certain jurisdictions, and to channel the vast majority of claims towards those jurisdictions with the most developed damages regimes, and those seen as offering the most claimant-friendly process, disclosure rules or legal costs regime.  In some cases, this led to cases better suited to one jurisdiction being shoehorned into litigation before the courts of another Member State. 

The overarching aim of the Directive is to approximate the procedural rules of national courts in relation to damages actions based on the infringement of EU or national competition rules.  The Directive seeks to make it more straightforward for victims of anti-competitive conduct across the EU to obtain compensation.  It sets out minimum standards to achieve its goals, while leaving it open to Member States to introduce measures that might go beyond the prescribed standard in the Directive, provided that they are consistent with the Directive’s aims.  The 28 EU Member States have two years to transpose the Directive into national law.  While that process often leads to a patchwork of implementation across the Member States, it is the clear intention of the EU to secure a high degree of uniformity.  

Observers of the British legal system will note a close conceptual resemblance between the new Directive and the established UK model of cartel damages claims, although there are some important differences.  It is therefore to be expected that the UK will remain a preferred forum for damages claims within the EU.

Key Legal Elements

The new Directive introduces a number of important common elements into the legal regimes of the EU Member States which regulate private antitrust enforcement actions, including the following:

• The new regime has sought to confirm the evidentiary value of Decisions and Judgments adopted respectively by a National Competition Authority ("NCA") and by a national court.  A final Decision of an NCA (or national appellate court) will constitute irrefutable evidence in litigation in that Member State that an infringement has occurred.  Similarly, a pre-existing decision in one Member State shall constitute prima facie evidence of an infringement for the purposes of a damages action in another Member State (albeit that, from a jurisdictional perspective, and depending on market definition, this may assist the claimant little in the second Member State).  This provision is designed to allow NCA or national court decisions to be used as strong evidence to instigate follow-on damages actions across the EU.
• The Directive requires States to enable both direct and indirect purchasers to claim for losses suffered as a result of an antitrust infringement.[3] The Directive encourages claims from end-customers by allowing claims from indirect purchasers.[4]  Indirect purchasers will only be required to establish evidence that the direct purchaser has suffered an overcharge as a result of the cartel, and that the indirect purchaser purchased goods or services affected by the cartel arrangements from the direct purchaser.[5]
•  This marks a departure from established principles in some Member States.  For example, it raises an interesting question under UK law, where proof of loss is a constituent element of the tort claim for breach of a statutory duty (the basis under which antitrust damages claims would normally be brought).  The Directive does not appear to extinguish this element of the claim, but does create a presumption of loss in favour of the indirect purchaser, which will apply unless the defendant can "demonstrate credibly to the satisfaction of the court that the overcharge was not, or was not entirely, passed on to the purchaser".[6]   
• With respect to the important issue of the disclosure of documents, crucially, the Directive establishes that Member States’ national courts must be able to order a defendant or a third party to disclose relevant documents required by the claimants who present "a reasoned justification" as to "the plausibility of its claim".  According the Commission’s Staff Working Document, this change in practice will constitute a significant modification for many Member States’ evidentiary regimes.  Indeed, in some Member States, the changes required by this provision will fall somewhere on the continuum between transformational and revolutionary.  The Directive also brings an increased degree of prospective certainty to an area that, since the 2011 Pfleiderer judgment, has left the disclosure of any and all requested documents to a case-by-case analysis. [7] 
  • The new rules stipulate there are certain "black list" documents that are entirely exempted from disclosure.  These documents include immunity and leniency statements and settlement submissions.  The Commission has clarified that if the new rules were to permit the disclosure of leniency statements or settlement submissions, it would have a detrimental effect on entities cooperating under the leniency and settlement programs adopted at EU level and in individual Member States.  Nevertheless, this is a remarkable piece of legislative expansionism — indicating that the EU legislation may be at its most fearless when guarding the powers of its own institutions.
  • Certain "grey list" categories of evidence, such as information prepared by investigated entities specifically for proceedings before a competition authority (including responses to Requests for Information or replies to a Statement of Objections), or withdrawn settlement submissions, can only be revealed after the Competition Authority has closed its file.  The rationale here appears to be that the Directive should reflect how successful leniency and settlement programs have been regarding the uncovering of cartels and the fact that both the Commission and the NCAs consider it vital to ensure the continued protection of existing procedures.

    Some justification can clearly be claimed for this view.  However, it is open to question whether the approach is a principled one, and it may face challenge on EU fundamental rights grounds, or under Article 6 of the European Convention on Human Rights, if parties to litigation are prevented from obtaining non-privileged documents which are critical to their ability to pursue their case and which they would, absent the Directive, otherwise be entitled to see under domestic law.

  • Other "white list" documents can be disclosed at any time, subject to the requirements of proportionality and relevance being met.
• In the past, the Commission had expressed the view that the existence of different national limitation periods across the EU Member States might constitute an obstacle to the effective recovery of damages.[8]  The new framework seeks to approximate limitation periods for the bringing of damages claims by providing that Member State limitation periods are obliged to run for at least five years after the infringement has ceased.  The Directive provides that the metaphorical clock does not start to tick until the infringement has come to a halt and the claimant knows or can reasonably be expected to know: (a) of the behavior of the defendant and that it constitutes an infringement of competition rules; (b) the infringement caused the Claimant harm; and (c) the precise identity of the infringer.  In addition, any domestic limitation period is suspended as long as a competition authority is investigating the infringement.[9]  Such suspension will end at the earliest one year after the infringement decision has become final or after the proceedings are otherwise terminated.[10] It should be borne in mind that existing limitation periods will continue to be determined according to national rules until the Directive is transposed into national law.  Litigants will not be able to reanimate claims which have expired domestically but which have received a notional "new lease of life" under the terms of the Directive.
• The new Directive obliges Member States to consider fully the ‘passing-on defence‘ where damage claims are made.[11]  By definition, the successful use of the ‘passing-on defence’ allows  the accused undertaking to be able to refuse the payment of damages to claimants who have ‘passed-on’ the overcharge to their customers.  The burden of proof regarding the passing on of the overcharge will lie with the defendant (which, as mentioned above, is one of the few departures from the orthodox position under UK law), but its successful discharge will mean that it can be used as a shield in diminishing its liability.
• The new rules introduce a presumption that the infringing party should be capable of being held fully liable to compensate both direct and indirect purchasers for the same infringement, to encourage collective redress.  Uncertainties remain as to how this will be implemented in practice, and important issues are left to potentially divergent national laws.  For example, the Directive does not address how damages should be quantified or apportioned as between direct and indirect purchasers.  Coupled with the operation of the presumptions regarding passing on, this may mean that an infringing party could potentially be required to pay more than once for the same infringement.

  The Directive stipulates that compensation for actual loss at any level of the supply chain should not exceed the overcharge harm suffered at that level,[12] which is presumably intended to address this risk.  However, the Directive offers no further detail on how this safeguard would operate.  Greater clarity will hopefully emerge as the Directive requires the Commission to issue guidance to national courts on how to estimate the share of overcharge passed to indirect purchasers.[13]

• Another important principle encompassed within the Directive is that, subject to certain exceptions and limitations, including for small or medium sized enterprises, Member States must ensure that cartel members are to be held jointly and severally liable for the resulting harm caused by their proven cartel activities.[14] Those who have suffered from the activities inherent to cartel behaviour (i.e., direct and indirect purchasers) therefore have the option of filing a claim against only one of the infringing parties (again, a reflection of the position in the UK).[15] There are certain limitations under the Directive regarding the joint and several liability of cartelists.  Cartel members that have been granted immunity from fines under a leniency programme will be liable only to their own (direct and indirect) customers, unless a claimant can prove that it is unable to obtain adequate compensation from the other cartel members.[16]

  The Directive provides that defendants should be able to recover a contribution from any other infringer.  However, this is subject to the limitation that the amount of contribution of an infringer which has been granted immunity from fines under a leniency programme shall not exceed the amount of the harm it caused to its own direct or indirect purchasers or providers.[17]

• Finally, the Directive adopts methods designed to bolster the development of out-of-court settlements.[18]  Protracted litigation and associated legal costs operate as a disincentive to private enforcement.  The Directive therefore provides for the suspension of limitation periods for up to two years pending consensual dispute resolution (i.e., settlement negotiations, arbitration and mediation).

Conclusions

Member States will have two years from the adoption of the Directive to implement the relevant provisions into their national legal systems, and there is already speculation that some Member States might be less than enthusiastic implementers.  Moreover, because the Directive merely establishes a set of minimum standards that Member States should implement, the possibility remains that material differences among Member State litigation enforcement regimes will continue to exist.

Those differences will be compounded by the fact that each Member State will need to transpose this directive in a manner sensitive to the peculiarities of its own law of tort/delict and its own civil procedure rules.  Indeed, any parties which have infringed competition law through joint behaviour are to be jointly and severally liable for the infringement.  In a cartel context, this approach plainly serves the interests of justice.  It is open to question whether justice will consistently be served by imposing liability for the totality of any harm caused to a third party by a vertical agreement between one very powerful party and one less powerful undertaking, particularly in circumstances of marked inequality of bargaining power.  For example, the various rebuttable presumptions established by the Directive operate differently in the legal systems of the Member States, the practical significance of which depends on the requisite legal standard for rebutting such presumptions in each Member State, and even the extent to which a Member State operates a concept of "burden of proof" in civil proceedings. 

The Directive is therefore unlikely to bring a complete end to the current practice of "forum-shopping" by antitrust damages claimants, especially when one takes into account the ability of complainants to target individual cartel members as the focus of their private damages action (on the basis of the joint and several liability principle) and the fact that elements of the Directive such as disclosure will inevitably be embraced less fulsomely in some Member States than in others.  However, going forward, such forum-shopping may be less focused on the availability of disclosure or limitation periods, and more on the speed, expertise and efficiency of the courts of each Member State, and their regimes on legal costs.

While it is clear that the adoption of a minimum set of rules in this area of the law must be considered to be a positive development from the viewpoint of legal certainty, and while the enhanced private enforcement climate will add weight to the deterrent effect of antitrust enforcement, it is open to question whether the Directive will make a material difference to the success and frequency of private enforcement actions in any meaningful timeframe.  While the Commission has been quick to point out that it wishes to avoid the pitfalls of relying excessively on private enforcement (to the potential detriment of public enforcement), one is left with the impression that the hurdles for plaintiffs in bringing successful enforcement actions are still significant, even though the obstacles created in this field by differences in legal culture will be diminished by the Directive.  

In this regard, perhaps the greatest threat to the growth of private enforcement stems from the Commission’s practice of striking settlement agreements with defendants under its so-called Article 9 procedure, and the parallel trend occurring among NCAs at Member State level.  Absent definitive findings on relevant markets, dominance and a theory of harm, elements which are all usually absent in settlement agreements (the EU version of US Consent Orders), private damages claimants may continue to encounter highly significant hurdles to successful claims across the EU.  The lack of binding common rules on class actions, including on the "opt-in" versus the "opt-out" model, also indicate that it is unlikely that private antitrust enforcement will gain the same momentum in the EU as in the United States.  Those with aspirations to create a US-style private enforcement culture might find themselves at least a little disappointed. 

What is clear though is that the Directive substantially reinforces the attractiveness of early applications under applicable leniency regimes, not only by protecting leniency statements from disclosure, but also by limiting the liability of the immunity recipient for the harm it caused.  This further accentuates the liability divide between whistleblowers and other cartel members, and increases the stakes when it comes to securing a leniency marker.

[1] http://europa.eu/rapid/press-release_IP-14-1580_en.htm

[2] European Commission, ‘Damages actions for the breach of antitrust rules’ (2005) Staff Working Paper, at para. 6.

[3] Article 14, Directive of the European Parliament and of the Council on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, 24/10/2014 – http://ec.europa.eu/competition/antitrust/actionsdamages/damages_directive_final_en.pdf .

[4] Supra, Article 14.

[5] Supra, Article 14(2).

[6]  Supra, Article 14(2).

[7] C-536/11 – Donau Chemie and Others, Judgment of June 6, 2013, not yet published; Case C-360/09, Pfleiderer AG v Bundeskartellamt, [2011] ECR I-5161, where it was held that no category of documents could automatically be withheld and that, in the absence of EU law, it is for the national court to decide on the basis of national law and on a case-by-case basis whether to allow the disclosure of documents, including leniency documents.  The national court should balance both the interest of protecting effective public enforcement of EU competition rules and ensuring that the right to full compensation can be exercised effectively.

[8] White Paper on Damages actions for breach of EC antitrust rules, COM (2008) 165, at Section 2.7, page 8.

[9] Directive, Article 10(4).   

[10] Supra, Article 10(4).

[11] Supra, Chapter IV.

[12] Supra, Article 12(2).

[13] Supra, Article 16.

[14] Supra, Article 11.

[15] Supra, Article 11(1).

[16] Supra, Article 11(4).

[17] Supra, Article 11(5).

[18] Supra, Articles 18 and 19. 

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