Competition enforcement from investigations to sanctions – 2016/17
Directive 104/2014 (‘actions for damages under national law for infringements of the competition law’) was to be transposed into Member State laws by 27 December 2016. Do you think that the principles set out in Articles 12-16 of the Directive are adequate to guarantee that indirect purchasers of products from participants in a cartel receive full compensation for the loss they have suffered as a result of an infringement of Article 101 of the Treaty on the Functioning of the EU?
Summary
Directive 104/204 (hereinafter the Directive) grants standing for indirect purchasers to bring damages actions to receive full compensation for the harm suffered from an infringement of competition law. Under the principle of effectiveness Member States regulations should not render impossible or extremely difficult the exercise of the right to be fully compensated from a breach of competition law. The Directive set out in chapter IV principles and rules that must be transported in national member states framework in order to create a coherent regulation which enables victims to be fully compensated.
The aim of this essay is to determine whether the principles set out in chapter IV of the Directive are adequate to protect the rights of indirect purchasers to receive full compensation from a breach of competition law. Hence, does the Directive achieve the principle of effectiveness enshrined in the Directive in relation to the rights of indirect purchasers to be fully compensated?
For that purpose I will critically analyse the provisions of chapter IV of the Directive altogether with the relevant provisions set out in the Directive related to the exercise of indirect purchaser’s rights.
Private enforcement of competition law is a relatively new phenomenon in the EU. The 2001 Judgment of the European Court of Justice (hereinafter ECJ) in Courage v Crehan is considered seminal because it indirectly recognized the standing of indirect purchasers to claim damages from an infringement of competition law, extending the direct effect of article 101 to “any individual”[1] who suffered a loss from a breach of competition law. As Lundqvist and Andersson said this “ruling was already considered seminal then, but few could imagine the forces that were actually set in motion”[2].
Following the previous decision in Courage, in the Manfredi[3] case the ECJ confirmed that “any individual can claim compensation for the harm suffered where there is a causal relationship between that harm and an agreement or practice prohibited under Article 81 EC”, setting the basis for private enforcement of competition law.
The Directive enshrines that any person who has suffered a loss from a competition infringement is entitled to seek full compensation for the suffered harm including direct and indirect purchasers. Accordingly the Directive standing is granted to indirect purchasers to bring damages actions to receive full compensation from an infringement of competition law.
Notably the Commission’s approach deviates from the US treatment to the passing-on whereby indirect purchasers are banned to bring damages claims from antitrust infringements since the landmark cases of Hanover Shoe and Illinois Brick in 1968 and 1977 respectively, denied the passing-on defense and later the standing of indirect purchasers at state level.
Chapter IV of the Directive deals with the passing-on of overcharges recognizing the standing of indirect purchasers to bring damages actions and the passing-on defense, regulating the burden of proof in both cases. It also enshrines some principles that govern the standing of indirect purchasers. Furthermore the Directive establishes a rebuttable presumption in favor of the indirect purchaser that the overcharge passed-on to him where certain conditions set out in article 14 are met. Lastly the Directive contains rules to prevent multiple or absence of liability from the infringer when claimants located in different levels of the distribution chain lodge damages actions.
The aim of this essay is to critically assess whether the principles set out in chapter IV of the Directive are adequate to guarantee indirect purchaser’s right to be fully compensated from a cartel breach. In other words, whether the directive achieved the principle of effectiveness in relation to the rights of indirect purchasers to be fully compensated?
This essay is structured as follows: I will briefly identify the barriers to bring damages from indirect purchasers. Then I will analyze the scheme of the Directive, in particular chapter IV. Later I will identify and analyze the principles enshrined in chapter IV. In this context I will analyze the standing of indirect purchasers in relation to the principles set out in article 12 to 16. Lastly, I will summarize the conclusions of this research to determine whether the principle set out in articles 12 to 16 of the Directive adequately protect the rights of indirect purchasers to receive full compensation.
I argue that the principles set out in article 12 to 16 are not adequate to protect the interest of indirect purchasers because: (i) indirect purchaser are subject to a high burden of proof which is not compensated by the presumption that overcharge passed-on; (ii) this presumption is unlikely to be met especially for indirect purchasers far from the infringement or final consumers; (iii) there are no favorable rules for access to evidence. The provision in article 13 which states that indirect purchasers “may reasonably require disclosure from the defendant or from third parties” is vague and out of the context of article 5 and 6.
In order to approach comprehensively the topic question and asses if whether the rules contained in chapter IV of the Directive are adequate to ensure the right of indirect purchaser to bring damages actions, it is necessarily in my view to identify what are the obstacles for indirect purchasers to bring damages actions, and latter face the provisions of the Directive with the obstacles identified.
A first step when analysing the advent of damages actions is to determine who should have standing to bring those actions. This first step is fairly simple since the Directive entitled both direct and indirect purchasers and other injured parties to seek full compensation for antitrust breaches. Once cleared the standing for bringing damages actions several requirements must be met in order to obtain compensation. Firstly, it is necessary to prove the existence of harm. Secondly, that there is a causal relation between the infringement of competition law and the harm suffered. Thirdly, the quantification of the damages. Fourthly, the quantification of the exact passing-on of the overcharge in the level where the claimant is situated in the distribution chain.
However, in practice things are more complex than the scenario described above, and there are several barriers that indirect purchasers face when deciding to sue a cartelist.
According to the Commission Staff Working Paper, Annex to the Green Paper for Damages actions for breach of the EC antitrust rules identified eleven obstacles for bringing damages actions: Collective actions, Fault, Burden and standard of proof, Collection and presentation of evidence, Evidential value of national competition authorities and national court decisions, Quantification of damages, Passing on defence and indirect purchaser claims, Amount of damages, Time limitations, Costs, Applicable law.[4]
In my view, the entitlement of indirect purchasers to bring damages actions regarding the burden of proof represents a major barrier to protect the rights of indirect purchasers. Moreover, access to evidence is crucial to protect the standing of idirect purchasers, especially considering the high burden of proof established in article 14 for indirect purchasers.
It is true that in light of certainty, to prevent unjust enrichment and overcompensation a claimant should only be compensated for the harm suffered, but at the same time we must comprehend that the rules governing the rights of indirect purchasers should observe the principle of effectiveness meaning that the Directive should not make “practically impossible or excessively difficult the exercise of rights”[5] entitled in the Directive[6]. Hence, does the Directive achieve the principle of effectiveness in relation to the rights of indirect purchasers?
The scope of the Directive is clearly defined in article one which states: “Directive sets out certain rules necessary to ensure that anyone who has suffered harm caused by an infringement of competition law (..) can effectively exercise the right to claim full compensation for that harm (..). In addition, it enshrines “equivalent protection throughout the Union for anyone who has suffered such harm”. Therefore, article three declares that any natural or legal person who has suffered a loss from a competition law infringement is entitled to seek full compensation for the harm inflicted.[7]
Article 14 expressly recognizes the standing of indirect purchasers as a necessary element of the principle of full compensation stating: “To ensure the full effectiveness of the right to full compensation as laid down in Article 3, Member States shall ensure that, in accordance with the rules laid down in this Chapter, compensation of harm can be claimed by anyone who suffered it, irrespective of whether they are direct or indirect purchasers from an infringer, and that compensation of harm exceeding that caused by the infringement of competition law to the claimant, as well as the absence of liability of the infringer, are avoided.”
Therefore, it is clear that the directive aims to facilitate damages actions in the EU by harmonizing Member States regulation in this matter.[8]
The case law of the European Court of Justice (hereinafter ECJ) has broadened the scope of damages actions in the Kone[9] case, whereby the Court developed the umbrella pricing effect whereby “The full effectiveness of Article 101 TFEU would be put at risk if the right of any individual to claim compensation for harm suffered were subjected 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 undertaking not party thereto, whose pricing policy, however, is a result of the cartel that contributed to the distortion of price formation mechanisms governing competitive markets…Consequently, 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, in the circumstances of the case and, in particular, the specific aspects of the relevant market, liable to have the effect of umbrella pricing being applied by third parties acting independently…”[10]
Nonetheless, it is important to bear in mind that even though the Directive does not mention it expressly, it intends to strike the right balance between private and public enforcement.[11] This circumstance in my view is crucial to understanding how the Directive addressed the standing of indirect purchasers in order to protect public enforcement and particularly the efficacy of leniency programmes intending to achieve the necessary predictability and transparency for potential leniency applicants.[12] As argued by Kirst and Van den Bergh “the Directive had to find the right balance between public and private enforcement without detracting from the goal of compensatory justice”[13]. This situation in my view helps to better understand the treatment of passing-on of overcharges and the standing of indirect purchasers in the Directive.
In order to facilitate damages actions the Directive contains rules reforming sensitive areas which in the Commission’s view needs to be amended in order to have a common and coherent approach between the Member States. For that purpose the Directive set out rules that reforms the disclosure of evidence, establishes the binding effect of National Competition Authorities decisions, a presumption that overcharge passed-on if the conditions set out in article 14 are met, regulates a joint and several liability in cartel breaches, lays down rules regarding the limitation of period applicable to damages actions, a presumption that cartel breaches cause harm, promotes a consensual dispute resolution and regulates in chapter IV the passing-on of overcharges and the standing of indirect purchasers.
In this section I will outline the aspects subject to be reformed once the Directive is implemented which in my view are directly linked to the discussion addressed in this essay: whether chapter IV of the Directive is to protect the right of full compensation from cartel breaches. As mentioned above in my view the analysis of chapter IV must be conducted altogether with those rules related to the exercise of the standing of indirect purchasers.
This section is of the most important to analyse the topic of this essay considering that lack of information is one of the great obstacles to bringing damages actions in particular for indirect purchasers who are sometimes far away on the distribution chain and not linked with the infringer and therefore it is difficult to obtain enough evidence to prove the amount of the overcharge.[14]
The lack of information about the increase of prices and the overcharge distributed through the distribution chain reflects an information asymmetry between the infringer and the claimant that constitutes an obstacle when deciding to bring a damage action. For that reason, “access to adequate data and information in the hands of opposing parties or third parties to litigation can be important in carrying out meaningful economic analysis of pass-on.”[15]
The evidence normally will be handled by the defendant, a third party or the Commission. For that reason, chapter II of the Directive stipulates rules that aim to facilitate the access of evidence for claimants concealing the right to claim damages and the interaction of public interest in protecting leniency programmes.[16]
As mentioned above, it is not my intention to analyse the rules governing the access to evidence, but I will only mention briefly some thoughts whether these rules protect adequately the interests of indirect purchasers.
In my view, these rules are insufficient to protect indirect purchaser’s rights because in principle the party who seeks access to a certain evidence should afford the costs, hence there is no incentive for indirect purchasers, especially final consumers to bring a lawsuit.
In addition, the Directive makes a distinction between disclosure of evidence in hands of a third party and evidence held by a Competition Authority distinguishing between a grey and black list[17] whereby leniency statements and settlements submissions are excluded from disclosure at any time, therefore indirect purchasers as well any third party have no chance to have access to this important evidence.
“Member States shall ensure that an infringement of competition law found by a final decision of a national competition authority or by a review court is deemed to be irrefutably established for the purposes of an action for damages brought before their national courts under Article 101 or 102 TFEU or under national competition law.” [18]
The binding effect of National Competition Authorities decision in order to accredit the breach of competition law is an adequate measure especially considering the asymmetry of information referred to in the previous section. In addition, article 14.2 grant a presumption in favour of indirect purchasers that the overcharge has passed-on when: “(a) the defendant has committed an infringement of competition law; (b) the infringement of competition law has resulted in an overcharge for the direct purchaser of the defendant; (c) the indirect purchaser has purchased the goods or services that were the object of the infringement of competition law, or has purchased goods or services derived from or containing them.”[19]
As explained in detail in section 4.1 the fulfilment of the two first conditions set out in article 14.2 are extremely difficult to be achieved by indirect purchasers inter alia, because they are very distant from the infringement and lack of pivotal information contained by direct purchaser of the cartelist, in leniency statements, settlement submissions and ultimately the complexity of the analysis depends on the extension of the distribution chain.
In my view indirect purchasers can only rely on the application of follow-on actions, whereby this binding effect enshrined in article 9 in my opinion serves adequately to protect the interests of indirect purchasers in the context I propose in section 4.1.
In this section I will introduce the rationale under passing-on of overcharges. Then I will analyze the principle of effectiveness and equivalence, full compensation and the principle of certainty of damages. In light of the principle of certainty of damages I will approach the rejection of over-compensation expressed in the Directive altogether with the passing-on defence.
Following the seminal case law of Courage v Creahn and Manfredi the Commission grants standing to indirect purchasers to bring damages actions from competition breaches in order to facilitate compensations implementing the principle of effectiveness.
“To ensure the full effectiveness of the right to full compensation as laid down in Article 3, Member States shall ensure that, in accordance with the rules laid down in this Chapter, compensation of harm can be claimed by anyone who suffered it, irrespective of whether they are direct or indirect purchasers from an infringer, and that compensation of harm exceeding that caused by the infringement of competition law to the claimant, as well as the absence of liability of the infringer, are avoided.”[20]
In most cartel cases direct purchasers normally pass-on part or all the harm to its direct customer (indirect purchaser of the cartelist) and so on through the distribution chain potentially reaching final consumers depending on the complexity and extension of the chain. This harm is reflected in an increase of prices that is “passed on down the supply chain”[21]
Accordingly, the Directive grants standing to indirect purchasers to seek full compensation from the harm caused by a breach of competition law represented principally for the overcharge passed-on through the distribution chain.[22] In the same way the Directive grants standing to the defendant (infringer) to invoke the passing-on defense alleging that the claimant passed-on all or part of the overcharge.[23]
Following the Manfredi case the ECJ held that “… as regards the possibility of seeking compensation for loss caused by a contract or by conduct liable to restrict or distort competition, it should be recalled that the full effectiveness of Article 81 EC (now article 101 TFEU) and, in particular, the practical effect of the prohibition laid down in Article 81 (EC) EC would be put at risk if it were not open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition… It follows that any individual can claim compensation for the harm suffered where there is a causal relationship between that harm and an agreement or practice prohibited under Article 81 EC… it follows from the principle of effectiveness and the right of any individual to seek compensation for loss caused by a contract or by conduct liable to restrict or distort competition that injured persons must be able to seek compensation not only for actual loss (damnum emergens) but also for loss of profit (lucrum cessans) plus interest”[24]
On the other hand the principle of equivalence means that “national rules and procedures relating to actions for damages resulting from infringements of Article 101 or 102 TFEU shall not be less favourable to the alleged injured parties than those governing similar actions for damages resulting from infringements of national law.”[25]
The importance of those principle is clear, as it inspired the approach of the Directive in article 4, meaning that the application of national procedural rules cannot make impossible or excessively difficult the exercise of the right to claim damages establishing that compensation encompasses the damnum emergens, lucrum cessans plus interest.
A different aspect is whether the rules and principles set out in chapter 4 are in line with the principle of effectiveness and ensure the right of full compensation.
According to article 1, 3 and 12 of the Directive indirect purchaser are entitled to seek full compensation from a breach of competition law. Therefore, in these sections I will analyse the concept of full compensation.
What is meant by full compensation?
According to article 3 of the Directive the right to receive full compensation encompasses the damunum emergens, the lucrum cesans plus interests from the period of time from when the compensation was awarded to the time when it is effectively paid[26]. In this sense, the Directive incorporates the grounds of the ECJ in the seminal cases of Courage v Crehan and Manfredi and recognized in the White and Green Papers.
In a legal context, the term “damages” “covers both a material loss stricto senso, that is to say, a reduction in a person’s assets, and also the loss of an increase in those assets which would have occurred if the harmful act had not taken place (these two alternatives are known respectively as damnum emergens and lucrum cessans)[27].
It is important to note that the principle of full compensation indeed was considered as the primary object of the White Paper and the “foremost guiding principle”[28]
However, the Directive is ambitious and goes further and expresses the scenario which shows what the Commission’s view of the victim should be after being compensated, stating that “full compensation shall place a person who has suffered harm in the position in which that person would have been had the infringement of competition law not been committed”[29][30]. This means that the principle of full compensation as it is addressed in the Directive imposes a high standard of proof in order to determine the exact amount of the overcharge were the claimant should neither be undercompensated nor overcompensated.[31]
The incorporation of this paragraph in article three of the Directive reflects the view of the Commission in order to clearly define the boundaries of the principle of full compensation and clearly express the purpose of this principle, in the sense that it cannot lead to over-compensate victims of an antitrust infringement, limiting the extension of full compensation under a counterfactual scenario. For this reason, the Directive expressly bans punitive, double or treble damages in order to avoid unjust enrichment.
In light of the principle of full compensation the Directive express clearly that indirect purchasers holds “the burden of proving the existence and scope of such a passing-on”.[32] Moreover, article 12 states that compensation should not exceed the amount of the overcharged assumed by the indirect purchaser. Furthermore, compensations that exceeds the harm caused by the infringement are avoided. Lastly the Directive stress that compensation for actual loss cannot exceed the overcharge suffered.
In light of the above mentioned there is no doubt that burden of proof is extremely rigorous for indirect purchasers.
From a plain reading of the Directive we can note the concern expressed by the Commission for overcompensation. In this regard, “full compensation under this Directive shall not lead to overcompensation, whether by means of punitive, multiple or other types of damages.”[33] In addition, In order to avoid overcompensation, Member States shall lay down procedural rules appropriate to ensure that compensation for actual loss at any level of the supply chain does not exceed the overcharge harm suffered at that level.[34](Emphasis added)
In sum, by overcompensation we should understand those situations were punitive, double or treble damages are enshrined for claimant as well as situations where compensation exceeds the real damunum emergens and lucrum cesans suffered by the victim of an antirust infringement.
In my view the fear and rejection of overcompensation is a consequence of the recognition of the principle of unjust enrichment of long standing in the EU as well as the rationale of punitive damages under the scope of EU competition enforcement. In this regard, the ECJ has stated that “The Court has held that Community law does not prevent national courts from taking steps to ensure that the protection of the rights guaranteed by Community law does not entail the unjust enrichment of those who enjoy them”[35]
Indeed, unjust enrichment and the passing-on defence share the same rationale of fairness[36] for two reason in my view: firstly, because the recognition of the passing-on defence prevents direct and indirect purchasers from obtaining compensations over the real harm suffered when it was passed downstream in the distribution chain to other indirect purchasers or even final consumers. Hence, it does not seem fair to grant full compensation when the harm was passed-on fully or partially. Secondly, only the party who assumed the cost of the overcharge should be entitled to seek full compensation, which leads to recognizing the standing of indirect purchaser in the Directive.
For the reasons mentioned above the Commission was concerned about deviating from the US Class Action system, intending to promote a competition culture rather than a litigation culture limiting the concept of full compensation denying the incorporation of any amount which departs from the legal concept of damages encompassing the damunun emergens, lucrum cesans and interests.
However, as expressed by Bergren[37] the rejection of claimant´s overcompensation may lead to an unjust enrichment of the defendant. In my view, this is absolutely true, but the focus should be on the way that the Guidance approaches the issue of overcompensation, elevating the burden of proof for the indirect purchasers, and if it’s fairly compensated with adequate rules that compensate the high burden of proof to which it is subject. In addition, we must bear in mind that in the first place, the infringer is that who has been enriched unfairly as a consequence of a cartel breach, so, in a balancing exercise the infringers should bear the uncertainty in the determination and quantification of the passing-on and the estimation of damages.
The Directive approach is in regards to compensation, and not overcompensation. For that reason the Commission considers that indirect purchasers should not be entitled to be rewarded with any amount distinct to the loss suffered. Therefore, if a claimant receives a compensation that exceeds the damaged suffered it will constitute an unjust enrichment. “Thus, unlike US antitrust law, the Directive does not conceive damages as a tool to punish and deter those who breach competition rules.”[38]
For that reason the Directive grants the defendant the possibility to allege the circumstance that the claimant passed-on all or part of the overcharge through its customers. The burden of proof in this case is on the defendant.
“The recognition of such a defense allows avoiding unjust enrichment of purchasers, who passed on the overcharge as well as multiple compensation for the illegal overcharge by the defendant”[39]
I will analyse in this section the standard of proof to which indirect purchasers are subject. In my opinion the burden is too high and can be explained as a consequence of the fear of over-compensation and to prevent windfall compensation for indirect purchasers. In my view, this option is correct and fair because otherwise potential claimants could be unfairly enriched if they receive any amount distinct from the exact harm suffered. However, on the other hand, such strict burden of proof could lead to absence of liability which is expressly rejected in article 14 of the Directive. For that reason, the Directive has to find the adequate balance between compensation and absence of liability.
In this section I will critically analyse the burden of proof of the indirect purchaser, the presumption that overcharge was passed-on and the presumption that cartel infringements cause harm.
According to article 14 of the Directive “…the burden of proving the existence and scope of [the] passing-on shall rest with the claimant, who may reasonably require disclosure from the defendant or from third parties.”
In that circumstance the indirect purchaser holds the burden of proof. In order to alleviate the burden of proof of indirect purchasers the directive enshrines two presumptions: firstly; in article 14, that the overcharge passed-on, and secondly; in article 17, that cartel infringements cause harm. However, as we will see in the next section those presumptions are rebuttable and is extremely difficult to be achieved in the first case.
In addition, according to article 14 indirect purchasers “may reasonably require disclosure from the defendant or from third parties.” However, the expression “may reasonably require” is vague because indirect purchasers are subject to disclosure rules set in articles 5 and 6. Thus, this sentence has no practical effect.
In this point I refer to the discussion in section 3.2.1.
Article 14.2 provides the following presumption in favour of indirect purchasers:
“the indirect purchaser shall be deemed to have proven that a passing-on to that indirect purchaser occurred where that indirect purchaser has shown that:
(a) the defendant has committed an infringement of competition law;
(b) the infringement of competition law has resulted in an overcharge for the direct purchaser of the defendant; and
(c) the indirect purchaser has purchased the goods or services that were the object of the infringement of competition law, or has purchased goods or services derived from or containing them.”
However, this presumption is rebuttable if “the defendant can demonstrate credibly to the satisfaction of the court that the overcharge was not, or was not entirely, passed on to the indirect purchaser”[40]
Accordingly, there are three cumulative requirements for the application of this presumption: (i) when the defendant has committed an infringement of competition law. This requirement is fairly straightforward, especially considering the binding effect of National Competition Authorities and if the indirect purchaser files a follow-on action. However, this requirement could be difficult to be achieved in a stand-alone action where it will be extremely difficult and onerous to bring the action. (ii)If the infringement has resulted in an overcharge for the direct customer of the defendant. This requirement is extremely difficult to be achieved if we consider that one of the barriers to bring a damage actions from an indirect purchaser is the lack of evidence and information. As stated in the proceeding point only when a decision of a Competition Authority has found an infringement of competition that amounts to an overcharge, the indirect purchaser will be in position to enjoy this presumption. (iii) The third condition is fairly simple to be met and no analysis is necessary.[41]
This presumption intends to alleviate the burden of proof of indirect purchasers. However, the limited access to evidence provided in article 5 and 6 of the Directive increases in my view the information asymmetry “particularly in cross-border situations, [where] the possible application of this rule by national courts is far from simple. Particularly in cases where the cartelised product has been processed into another product, it is almost impossible to prove passing-on owing to the numerous economic factors which influence the pricing at the downstream level, so that the causal link between the infringement and the passing-on can only rarely be established.”[42]
In my view, in practice this rebuttable presumption amounts to proving the causal relation between the infringement and the alleged harm. Hence this provision seems to provide certainty about the conditions that must be met to establish the causal requirement rather than protecting indirect purchaser rights or alleviating the burden of proof. For that reason the binding effect of National Competition Authorities is coherent with this presumption. Further, in my opinion the Directive should have provided a rule whereby National Courts should have made reference to the second element required by article 14.2 when giving a decision.
Rather, as it is stated in the Directive indirect purchasers face complex obstacles to tackle, in particular “proving the existence and scope of such a passing-on”[43] which is the main challenge. Chapter V, article 17 contains a rebuttable presumption that cartels breaches cause harm which will be discussed in the next section.
In order to facilitate the exercise of damages actions, article 17.2 of the Directive grants a rebuttable presumption that cartel breaches cause harm “in particular via an effect on prices”.[44] It is important to note that this presumption only applies in cartel breaches leaving abuses of dominance, vertical restraint or any other horizontal agreement.
As mentioned previously the scope of this presumption is also limited with regards to indirect purchasers, because to obtain compensation it will be necessary to prove the causal relation either bringing evidence or relying on the presumption of article 14.2. Therefore the main obstacle is proving the exact amount of the harm.
In my opinion the Directive does not protect adequately the rights of indirect purchasers, especially if we consider the scope of the principle of full compensation and the principle of effectiveness of long standing in damages actions.
The Directive in its ambition to broaden the standing of damages actions risks absent of liability from the infringer[45] which could lead to an unjust enrichment from the infringer retaining the ill-gotten profits. One step further the scenario could be troubling if indirect purchasers are not encouraged to seek damages, because the infringer, again, can retain the unclaimed damages. In this sense, some scholars[46] argue that indirect purchaser’s standing could discourage direct purchasers interest to sue.
The following considerations intend to explain why in my view the Commission does not fulfil the compensatory goal of the Directive for indirect purchasers.
The Commission is aware that information asymmetry could discourage claimants to seek compensation especially if we consider the secret nature of cartels and the absolute protection of leniency statements and settlement submissions from disclosure. To solve the lack of information and the problems associated with the quantification of harm, the Directive opted to grant a rebuttable presumption that cartel breaches cause harm via the increase of prices.[47] Under the same argument, the Directive recognizes that it is extremely difficult for consumers and indirect purchasers to prove the extension and quantification of the harm,[48] “taking into account the commercial practice that price increases are passed on down the supply chain”[49]. Therefore the Commission decided to grant a rebuttable presumption that the overcharge has been passed-on to an indirect purchaser, if certain conditions are met.[50]
In sum, I am sceptical that the disclosure rules provided in article 5 and 6 of the Directive encourages and facilitates damages actions. In my opinion the main obstacle is to sufficiently ground an action for damages before lodging the claim before the Court. Otherwise, claimants face unmeritorious litigation.
A possible solution could be the reform of article 15 of the Directive granting National Courts with the authority to join cases even in cross borders proceeding not only to preclude multiple liability[51], but especially “to ensure that compensation for actual loss paid at any level of the supply chain does not exceed the overcharge harm caused at that level”.[52]
Under article 14 the indirect purchaser bears the burden of proof that the overcharge passed-on, an extremely difficult aspect, especially if we consider that in complex distribution chain or manufactured products the claimant could be far away from the infringement and probably could not have enough evidence to calculate the overcharge.
In exchange the Directive presumes that an overcharge has passed-on if the circumstances mentioned in article 14.2 are met, and a presumption that cartel infringements cause harm principally by means of prices increases.
The presumption that the overcharge has passed-on is extremely difficult to be met by indirect purchasers distant from the infringement and especially final consumers. Moreover, the conditions required by article 14.2 amount in practice to prove the causal relation between the infringement and the compensation sought. In my view the Directive should contemplate in article 9 a provision whereby National Competition Authorities must made reference its decision to the circumstance whether the breach of competition law amounted in an overcharge for the direct customer of the infringer. The decisions of NCA’s will normally contain a reference to this element, but it could be adequate to state it.
In my view, the Directive does not consider in practice how difficult it will be for indirect purchasers to bring damages claims, because, although the passing-on defence imposes the burden of proof on the infringer it does not preclude the indirect purchaser to prove the existence and the quantification of the passing-on which is the main task.
[1] “ The full effectiveness of Article 85 of the Treaty and, in particular, the practical effect of the prohibition laid down in Article 85(1) would be put at risk if it were not open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition”. (Emphasis added)
[2] Lundqvist, Bjorn and Andersson, Helene, Access to Documents for Cartel Victims and Cartel Members – is the System Coherent? (2015). in Maria Bergström, Marios Iacovides, Magnus Strand (editors)” Harmonizing EU Competition Litigation: The New Directive and Beyond”, forthcoming with Hart Publishing/Bloomsbury in 2015, available at SSRN: https://ssrn.com/abstract=2621258, accessed on March 14, 2017, 166.
[3] Joined Cases C-295/04, Manfride and Others V. Lloyd Adriatico, 2006 E.C.R. I-6619.
[4] COMMISSION STAFF WORKING PAPER accompanying the WHITE PAPER on Damages actions for breach of the EC antitrust rules. COM(2008) 165 final P. 12-14
[5] Case C-453/99 Courage Ltd v Bernard Crehan, ECLI:EU:C:2001:465 [2001] ECR I-6297, para. 29
[6] In this sense, the Directive enshrines in article 17 that “Member States shall ensure that neither the burden nor the standard of proof required for the quantification of harm renders the exercise of the right to damages practically impossible or excessively difficult. Member States shall ensure that the national courts are empowered, in accordance with national procedures, to estimate the amount of harm if it is established that a claimant suffered harm but it is practically impossible or excessively difficult precisely to quantify the harm suffered on the basis of the evidence available.”
[7] For this purpose, I will discuss what is meant by full compensation in the next point.
[8] Peyer, Sebastian, Compensation and the Damages Directive (September 1, 2015). Available at SSRN: https://ssrn.com/abstract=2654187 or http://dx.doi.org/10.2139/ssrn.2654187, accessed on March 16th, 2017. P. 2.
[9] Case C‐557/12 KONE AG And Others, EU:C:2014:1317
[10] Ibid. para 33-34.
[11] Ibid (N 5) p. 2
[12] Directive preamble 26.
[13] P. Kirst and R. Van den Bergh, “The European Directive on Damages Actions: a Missed Opportunity to Reconcile Compensation of Victims and Leniency Incentives”, Journal of Competition Law & Economics, n° 1, 2016, p. 2.
[14] European Law Institute (ELI), Statement of the European Law Institute on Collective Redress and Competition Damages Claims (2014). Available at https://www.europeanlawinstitute.eu/fileadmin/user_upload/p_eli/General_Assembly/2014/Draft_Statement_on_Collective_Redress_Competition_Damages_Claims.pdf. Accessed on 01-04-2017. P. 71
[15] European Commission, “Study on the passing-on of overcharges”. Available at http://ec.europa.eu/competition/publications/reports/KD0216916ENN.pdf. Accessed on 29-0-2017. p. 162.
[16] Report for the European Commissions, Making antitrust damages actions more effective in the eu: welfare impact and potential scenarios. Available at http://ec.europa.eu/competition/antitrust/actionsdamages/files_white_paper/impact_study.pdf. Accessed on 25-03-2017. p 345.
[17] See: Philip Bently and David Henry Antitrust Damages Actions: Obtaining Probative Evidence in the Hands of Another Party in W. Comp. Law and Economics Review, (2014) vol 37 issue 3, 277.
Ibid (N 2). Directive article 6.6.
[18] Directive article 9.
[19] Ibid. article 14.2
[20] Directive article 12.
[21]Ibid. article 14.
[22] “To ensure the full effectiveness of the right to full compensation as laid down in Article 3, Member States shall ensure that, in accordance with the rules laid down in this Chapter, compensation of harm can be claimed by anyone who suffered it, irrespective of whether they are direct or indirect purchasers from an infringer, and that compensation of harm exceeding that caused by the infringement of competition law to the claimant, as well as the absence of liability of the infringer, are avoided.” Directive article 12.
[23] “Member States shall ensure that the defendant in an action for damages can invoke as a defence against a claim for damages the fact that the claimant passed on the whole or part of the overcharge resulting from the infringement of competition law. The burden of proving that the overcharge was passed on shall be on the defendant, who may reasonably require disclosure from the claimant or from third parties.” Directive article 13.
[24] Ibid 3.
[25] Directive article 4.
[26] See Directive preamble 12.
[27] Case 238/78, Ireks-Arkady GmbH v. Council and Commission [1979] ECR 2955, at 2998.
[29] Directive article 3.2.
[30] Although the Directive use the word compensation, it is not proper, since “Compensation is the grant of an equivalent in kind or in money for the harm suffered. It differs from restitution that aims at putting the victim in the situation he was in prior to the infringement”. EU Commission Staff Working Paper, Annex to the Green Paper, Damages Actions for Breach of the EC Antitrust Rules p. 34.
[31] Oxera “Quantifying antitrust damages. Towards non-binding guidance for courts” (2009). Available at http://ec.europa.eu/competition/antitrust/actionsdamages/quantification_study.pdf p.3. accessed on 6th April 2017.
[32] Directive article 14.
[33] Directive article 3 para 3.
[34] Directive article 12 para.2
[35] See Case238/78 Ireks-Arkady v Council and Commission [1979]ECR2955, paragraph 14, Joined cases C-441/98 and C-442/98 Michaïlidis [2000] ECR I-7145, paragraph 31, and Courage and Crehan , paragraph 30), C-295-04 Vincenzo Manfredi v Lloyd Adriatico Assicurazioni SpA, ECR [2006] I-06619, para 94.
[36] Cengiz, Firat, Passing-On Defense and Indirect Purchaser Standing in Actions for Damages Against the Violations of Competition Law: What Can the EC Learn from the US? (November 1, 2007). Center for Competition Policy Working Paper No. 07-21, p. 32. Available at SSRN: https://ssrn.com/abstract=1462234 or http://dx.doi.org/10.2139/ssrn.1462234 , accesed on March 15th, 2017.
[37] Berggren, Malin, The implementation of the passing-on defence into EU Law, Faculty of Law, Lund University, p. 58.
[38] Geradin, Damien, Collective Redress for Antitrust Damages in the European Union: Is This a Reality Now? (April 13, 2015). George Mason Law Review, Forthcoming; George Mason Law & Economics Research Paper No. 15-16. Available at SSRN: https://ssrn.com/abstract=2593746 accessed on 07-04-2017. P 5.
[39] EU Commission Staff Working Paper, Annex to the Green Paper, Damages Actions for Breach of the EC Antitrust Rules, para. 169.
[40] Directive article 14.
[41] Grant Stirling, Private damages actions under EU competition law: an analysis of standing to sue for indirect purchasers and proving loss, 2014, p 8-9, available at http://www.uaces.org/documents/papers/1401/stirling.pdf. Accessed on 05-04-2017.
[42] Erdem Büyüksagis, Standing and Passing-on in the New EU Directive on Antitrust Damages Actions, SZW/RSDA 1/2015, p 25, available at http://ssrn.com/abstract=2577898
[43] Article 14.1
[44] Directive recital 47.
[45] Absence of liability is expressly avoided in article 12.
[46] See Denis Waelbroeck, Donald Slater and Gil Even-Shoshan, Study on the conditions of claims for damages in case of infringement of EC competition rules, Ashurst study, 2004, p 110.
[47] Directive recital 47.
[48] Directive recital 41.
[49] Directive article 14.
[50] Directive recital 41 and article 14.
[51] “Member States shall ensure that in proceedings relating to an action for damages in the Union, upon request of a claimant who has presented a reasoned justification containing reasonably available facts and evidence sufficient to support the plausibility of its claim for damages, national courts are able to order the defendant or a third party to disclose relevant evidence which lies in their control, subject to the conditions set out in this Chapter. Member States shall ensure that national courts are able, upon request of the defendant, to order the claimant or a third party to disclose relevant evidence.”
[52] Ibid (11)
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