The Commission's primary objective is for victims to receive full compensation for the loss they have suffered. However, the Commission recognises that effective damages actions are likely to have a beneficial deterrent effect, encouraging greater compliance with the EC antitrust rules. The Commission is committed to strong public enforcement of the EC antitrust rules by the Commission itself and by EC Member State national competition authorities ("NCAs"). The measures put forward in the White Paper are therefore designed to complement, not to replace (and certainly not to jeopardise), public enforcement.
The Commission's key proposals concern: (i) the desire to compensate victims by providing single damages for harm suffered, (ii) the ability to seek collective redress, (iii) greater access to evidence and (iv) for victims of anti-competitive activity to be able to rely on decisions of national competition authorities, as well as decisions of the Commission itself when seeking damages.
Background
The facilitation of damages actions for breaches of EC antitrust law has already been the subject of ad hoc reform at a national level throughout the EU, with some Member States being more active than others in encouraging private actions. In the UK, for example, the Office of Fair Trading (the "OFT") published recommendations to the UK Government in November 2007, proposing a number of steps to improve the effectiveness of private enforcement. Significant reform looks possible in the UK as the OFT is understood to have political support for many of its recommendations.
At a European level, on 19 December 2005, the Commission published for public consultation a Green Paper on antitrust damages actions. This focussed on ways of reducing the obstacles faced by claimants in bringing proceedings of this kind. The concern was (and still is) that even though the right of victims to compensation is guaranteed by Community law, in practice victims of EC antitrust infringements rarely obtain recompense for the harm they have suffered. The White Paper notes that these victims are foregoing compensation in the range of several billion euros every year.
What is the purpose of this White Paper?
The European Competition Commissioner, Neelie Kroes, emphasised at a Brussels press conference immediately following the release of the White Paper, that the Commission has "moved past the question of ‘should we have a more effective system of antitrust damages actions […] to the issue of how a damages action system should operate". Accordingly, the White Paper sets out proposals for concrete measures to make it easier for individuals and businesses to claim compensation for harm they have suffered as a result of anti-competitive activity. The White Paper is a consultation document and interested parties are invited to submit comments by 15 July 2008.
Key recommendations
The Commission has recommended that the ineffectiveness of antitrust damages actions is best addressed by a combination of measures at both Community and national level. Some of the most important proposals and their implications are summarised below:
Single damages – one of the key ways in which the Commission is distancing itself from the perceived excesses of the US system is to recommend that damages be quantified on a purely compensatory basis – nothing more, nothing less. Although some commentators have suggested that a system of double or even treble damages (including exemplary or punitive damages) would ensure more effective deterrence, the Commission’s line is that the purpose of damages is to compensate for losses incurred.
The Commission explains that compensation should extend not only to the actual loss flowing from the anti-competitive behaviour (for example a price increase), but also the loss of profit resulting from any reduction in sales, as well as interest. The Commission recognises the difficulties inherent in assessing the amount of damages to be awarded and plans to draw up non-binding guidance for quantification of damages, which will include approximate methods of calculation or simplified rules on estimating the loss.
Collective redress – the Commission recognises that victims are unlikely to bring individual claims in cases where the loss suffered is small and/or spread among numerous individual consumers or small businesses. It notes that victims may not even be aware of the existence of an infringement or the extent of losses suffered and that this may prevent them from claiming. To tackle these issues, the Commission suggests a package of two complementary mechanisms for collective redress:
- representative actions which would be brought by qualified entities such as consumer or trade associations. Member State authorities will be able to designate these entities in advance or certify them on an ad hoc basis in a particular case; and
- opt-in collective actions in which victims expressly decide to combine their individual claims for the harm they have suffered into one single action.
The proposed mechanisms for collective redress therefore fall short of a full US style class action, where victims are required to "opt-out" if they do not wish to be involved in the claim.
Access to evidence - the Commission views access to relevant evidence as an essential requirement for an effective damages action. It has suggested there should be a "minimum level of disclosure" between parties to such actions. Parties should be able to have access to evidence which is indispensable to their case based on strict judicial control as to the necessity, scope and proportionality of the disclosure request. The Commission expressly shies away from a system of "overly broad pre-trial disclosure", seeking instead to strike a balance between a regime which imposes excessive burdens of disclosure on the parties (and which can lead to procedural abuses) and a regime where the defendant is able to conceal relevant evidence from the claimant. The proposed approach would have little impact in the UK which already has well-established disclosure rules, but much greater impact in other Member States.
Binding decisions of NCAs – where the European Commission issues a final decision that there has been a breach of Article 81 and/or 82 EC, the victim of the infringement is entitled to rely on that decision before a civil court in a subsequent claim for damages, as proof of the breach. The Commission recognises that to require victims to prove the existence of a breach a second time in order to obtain damages from a civil court would incur so much time and expense that many would be inhibited from making a civil claim. Allowing a civil court to re-evaluate the same set of facts would also create the potential for inconsistent application of antitrust law and considerable uncertainty. Moreover, the findings of all NCAs are subject to scrutiny by review courts, and once all appeal processes have been exhausted, the Commission considers that there is no justification for re-litigating the same practices. Consequently, the White Paper proposes that victims should also be able to rely on the decision of any NCA before the civil courts of any Member State. It does state explicitly, however:
- that claimants can only rely on the final decisions of NCAs (ie decisions which have either been confirmed by the appropriate appeal court, or have been accepted by the infringing party); and
- that this rule would only relate to the same practices or market conduct for which the NCA found an infringement.
The Commission rejected the argument that the effects of NCA decisions should be limited to damages actions brought in the same Member State on the grounds that all NCAs are competent to apply Articles 81 and 82 EC. This will mean that a UK court would have to follow a decision of competition authorities throughout the EU. This may well be of concern to businesses, as the quality of decision making is not uniform across the EU.
Protection of leniency applicants - the Commission's overall aim is to create a system which combines effective private actions with continued public enforcement of the competition rules. The Commission recognises that in the absence of leniency applications, many serious antitrust offences would not be uncovered. However, it also points out that the applicant has still committed an infringement of antitrust law and should not escape all liability. Therefore, the Commission proposes:
- the protection of confessions by leniency applicants in relation to breaches of Article 81 EC (so-called "corporate statements") against any kind of disclosure in damages actions regardless of whether the application is accepted, rejected or leads to no decision by the competition authority. The protection would apply in situations where disclosure was ordered by a court, either before or after the adoption of a decision by the competition authority; and
- the possible limitation of the civil liability of successful immunity applicants to their direct and indirect contractual partners (ie to those who bought the product or service directly from the immunity recipient or someone further down the supply chain -- NOT to those who bought the product or service from another member of the cartel). This concept is already used in the US and the Commission hopes that it would make the scope of damages to be paid by immunity recipients more predictable as well as more limited, without absolving them from civil liability completely.
Passing-on overcharges – in a further departure from the US approach, the Commission proposes that both direct and indirect purchasers should be able to claim damages for breaches of competition law. Direct purchasers may pass an illegal overcharge to their own customers, who may in turn pass the overcharge further down the distribution chain. Purchasers further down the chain may have difficulty in proving causation of the harm which they have suffered owing to their distance from the infringement. In order to deal with this problem, the Commission has suggested lightening the burden on indirect purchasers by allowing them to rely on a rebuttable presumption that an overcharge has been passed on to them in its entirety.
The White Paper also recognises, however, that if both a direct and an indirect purchaser are able to claim for the same infringement, the infringer could be required to pay multiple compensation for the same offence. It therefore suggests that a defendant (seller) should be entitled to raise the passing-on of an overcharge as a defence – ie if it can show that all or a part of an overcharge was passed on by one purchaser to another, it will only be required to compensate the initial purchaser to the extent that it did not pass on the overcharge.
Other measures – the White Paper deals with a number of other matters designed to assist the bringing of damages actions. In particular, the White Paper suggests changes to limitation periods, notably suggesting that a new limitation period of at least two years should start once an infringement decision on which a follow-on claimant relies has become final. The Commission also encourages Member States to consider their costs rules, so as not to discourage victims with meritorious claims, as well as procedural rules to foster settlements as a way of reducing costs .
Conclusion
The proposals set out in the White Paper are not as far reaching as some observers had predicted and will certainly not change the landscape of private enforcement overnight. However, with a patchwork of legal systems to consider, spanning 27 countries, dramatic change would never have been workable. The suggested package offers a pragmatic compromise between the hurdles to effective redress that currently exist in many EU Member States and an over-incentivised US-style regime which might encourage excessive litigation. The Commission plans to take action once it has received and considered comments on these proposals.