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Private enforcement of antitrust law - a commercial reality
Consultation on European Commission Green Paper closes Friday Consultation on the European Commission Green Paper setting out options designed to encourage more private damages claims for antitrust infringements closes on 21 April 2006. The Commission will now consider the responses from the business community before deciding what action, if any, should be taken to make such claims easier to bring.
Even without further reform, companies found to be in breach of EC or national competition laws increasingly face claims for damages from third parties who have suffered loss, in addition to the fines imposed by the Commission or the national competition authority.
Some of the options for reform would bring radical changes to the national legal systems in Europe and would dramatically increase the risks associated with antitrust infringements: the outcome of the consultation process will shape the future of antitrust damages actions for years to come.
Background
Claims to recover damages caused by infringements of EC and national competition law have, in theory, been possible for some time. In practice, they had been very rare. Such claims must increasingly be regarded as a commercial reality. Businesses operating in Europe need to take stock of this change and assess the risks and opportunities that it creates.
This change has been brought about by policy changes in the way in which competition law is applied and enforced in Europe and developments in case law. The European Commission and national competition authorities are now encouraging private damages claims to be brought and to this end changes have been made in some countries to remove obstacles to successful claims. The Commission Green Paper looks at the continuing obstacles to an efficient system of actions for damages and sets out a number of options designed to overcome these obstacles.
This comes at a time when there is likely to be a rise in the number of infringements detected by the authorities as a result of leniency programmes, offering total or partial immunity from fines to those who provide evidence of infringements. There is, however, no parallel protection from claims for damages.
In England, although claims may be brought without there having first been a finding of infringement by the OFT or the European Commission, where there is such a finding, this can be used by a claimant seeking damages as conclusive proof of the infringement. Damages claims are, therefore, much more likely to be filed in the wake of any finding of infringement, and the damages that can be recovered are not reduced by any fines imposed by competition authorities.
The exposure of businesses found to have infringed competition law has never been greater.
Businesses operating in Europe (whether based there or not) should consider whether they have been the victim of anti-competitive behaviour and whether they may have a claim for damages. They should also consider if their business practices taken in isolation or together with the activity of others could amount to an infringement. If this is a possibility there may be steps they can take to minimise their exposure to both public enforcement and private litigation.
The Green Paper
Some of the key policy issues that the Green Paper considered include:
• Evidence & Proof The Commission proposes that claimants should have an extended right to disclosure of documents in antitrust claims and possibly disclosure of documents by third parties. The Commission is considering ways to lessen the claimant's burden of proof, suggesting even that once a prima facie case of infringement has been made out, the burden would switch to the defendant to prove that there had been no infringement.
• Damages One of the most radical proposals made in the Green Paper is that in the most serious cases a claimant might be able to recover double damages (ie £2 for every £1 of loss they suffer) either as a right or at the court's discretion. This echoes the position in the US, where claimants can recover treble damages. The Green Paper also asks whether the measure of damages should be compensatory (the loss suffered by the claimant as a result of the infringement) or restitutionary (fixed by reference to the infringer's illegal gain rather than claimant's loss). The latter would be a significant move away from the traditional approach of English tort law but could make it easier to assess the level of damages in many cases.
• 'Passing on' defence One area where the Green Paper has canvassed views concerns the question whether the so-called 'passing on' defence should be allowed. A party dealing with, say, a cartel member will often overpay for the goods or services obtained. It may then 'pass on' part, or all, of the overcharge to its own customers, the 'indirect' customers. This raises a number of issues. Can direct customers recover any part of the overcharge that they have passed on to their own customers or can the infringer raise 'passing on' as a defence? Can indirect customers seek to recover from infringers the overcharges passed on to them?
If the 'passing on' defence is allowed and indirect customers are allowed to recover losses passed to them, the concern is that the loss would be split between so many parties that it may be uneconomical for any one party to seek to recover. The Green Paper asked for views on different options ranging from allowing the 'passing on' defence and both direct and indirect customers to claim, to disallowing the 'passing on' defence and allowing only direct claims.
Conclusion
The European Commission will have to select a finely balanced package of reforms if it is to encourage private claims to such an extent that they become an effective form of enforcement of antitrust rules, while at the same time avoiding what it calls the "excesses" of a "litigation culture". Some of the proposals will be controversial for a number of EU Member States and it is likely that many of them will not see the light of day for many years. It is also questionable whether there should be a "special regime" for competition cases. Whatever the outcome, it is clear that the Green Paper is causing businesses to reflect on their own positions as potential claimants or, indeed, defendants.
For more information and/or comment on these issues, please contact:
Matthew Levitt, partner, Lovells 00 322 647 0660 matthew.levitt@lovells.com
Nicholas Heaton, partner, Lovells 020 7296 5919 nicholas.heaton@lovells.com
James Igoe, press officer, Lovells 020 7296 2780 james.igoe@lovells.com