Trustbusters unite

End of the Crehan saga

When the (English) Court of Appeal famously awarded damages to publican Bernard Crehan for losses resulting from an anti-competitive “beer tie” (Crehan v Inntrepreneur [2004] EWCA 637), it was the first successful damages claim based on competition law in the UK. Although Crehan did not receive a great deal of money – £131,336 after 11 years of litigation – it sent a message that private antitrust enforcement is a real option to UK litigants. However, in July 2006, the House of Lords reversed the decision ([2006] UKHL 38).

Mr Crehan had entered into exclusive supply agreements for beer with Inntrepreneur. The agreement obliged Crehan to buy a certain minimum amount every year from Inntrepreneur’s designated supplier, Courage. When Crehan’s business faltered – as a result, he claimed, of the unfavourable and discriminatory terms of the agreement – Courage sued to recover outstanding payments ([1998] EGCS 171). Crehan counterclaimed that the beer tie was an anti-competitive agreement prohibited under article 81 of the EC Treaty, and sued for damages.

Following eight years of litigation, including a landmark ruling in which the European Court of Justice

(C-453/99 Courage v Crehan) established the principle that private parties must have the possibility of being awarded damages by national courts for breaches of competition law – even where they were party to the unlawful agreement – the High Court finally ruled on Crehan’s damages claim ([2003] EWHC 1510). Crehan relied on a decision by the European Commission in Whitbread (1999] OJ L88/26), establishing that a similar beer tie, albeit involving different parties, infringed article 81. The judge however considered he was not bound by the Commission’s findings and conducted his own assessment of the competitive effects of Inntrepreneur’s beer tie. He concluded that the beer tie was not contrary to article 81, given the conditions on the local market at the time of the agreement.

The Court of Appeal reversed the High Court’s decision. In view of national courts’ duty of loyal cooperation towards the EU, as provided by article 10 EC, the court thought it would be disloyal to depart from the finding in Whitbread. It found that the High Court had been wrong to substitute its own assessment of the agreement’s competitive effects for that of the Commission. Concluding that Inntrepreneur’s beer tie was unlawful, the court awarded damages to Crehan.

On 19 July that decision was in turn reversed by the House of Lords. The Lords did not agree that the Commission’s Whitbread decision meant the English courts could not conduct their own assessment of the agreement in question. A previous Commission decision assessing a similar agreement was highly persuasive but not binding upon English courts assessing an agreement between different parties and/or with a different subject matter. Otherwise, the parties would unfairly be held to a decision, the outcome of which they had had no possibility of influencing. The Lords therefore reversed the Court of Appeal’s finding that the High Court judge had erred in making his own assessment of the agreement’s effect on competition and, consequently, upheld the latter’s judgment. Crehan received no damages.

What now for private enforcement?

The Court of Appeal’s Crehan ruling was seen as a major boost for private antitrust actions, in Scotland as in England – not least because it was based on EU principles. Although it remained the only UK case where damages had been awarded, other damages actions have followed and have resulted in settlements out of court: see BCL v Aventis, consent order by the Competition Appeal Tribunal (CAT), 11 February 2005, and the NHS’s actions in the English courts against drug manufacturers suspected of price fixing.

The House of Lords’ decision brings the official count of successful damages actions back to zero, but was not a result of any negative attitude towards private antitrust enforcement generally. It does not detract from the principles of the ECJ’s Crehan ruling. Rather, it turns on a separate issue – interesting for different reasons – regarding national courts’ autonomy in relation to previous Commission decisions. Note, also, that the circumstances underlying Crehan did not present a straightforward test case in the first place. Crehan had not produced conclusive evidence of the agreement’s foreclosing effect on the market, and so relied heavily on the analogy with the Whitbread decision.

In cases of more clear-cut anti-competitive behaviour, the Crehan judgment will arguably not help defendants. Such cases are likely to become increasingly frequent. In particular, the Competition Act 1998 provides for so-called “follow-on actions” to be brought before the specialised CAT. Section 47A allows private parties to raise damages actions, on the back of an administrative infringement decision by the Office of Fair Trading or the European Commission, without further having to prove the infringement. All that remains, then, is to show causation and to quantify loss.

The first s 47A action arising from an OFT decision is currently before the CAT: Healthcare At Home is suing Genzyme, a company dominant in the UK market for the drug Cerezyme, for losses it alleges to have suffered as a result of Genzyme’s “margin squeeze” in the pricing of the drug. The OFT fined Genzyme £6.9 million (reduced to £3 million on appeal to the CAT) for this conduct in 2003. The case promises to address some interesting issues, for example the types of decisions by the OFT on which a s 47A action can be based, and whether the CAT can award exemplary damages.

The availability of follow-on actions makes England and Scotland favourable jurisdictions for bringing damages claims, notwithstanding Crehan. It is also easier to obtain disclosure here than in continental Europe. This can be a crucial factor in competition cases, not only when it comes to proving the existence of an infringement, but also in showing causation and calculating loss.

English courts have taken a favourable attitude to asserting jurisdiction over actions even where the link to the UK is tenuous: in Provimi v Aventis [2003] EWHC 961, the High Court admitted damages actions against a number of companies whom the Commission had found guilty of price fixing in the infamous Vitamins cartel. Although most of the defendants had no business in the UK, the judge thought it enough that some of them were based in England for the actions to be joined together and dealt with in England. If that approach is followed by the CAT and Scottish courts, we will likely see a lot more damages actions here, given the favourable conditions in the UK.

A softening attitude?

Crehan aside, some recent English decisions may indicate that the ordinary civil courts are warming to competition arguments. In December 2005, Attheraces v British Horse Racing Board [2005] EWHC 3015 became the second successful private enforcement case in the UK (after Crehan). Attheraces (ATR) operates a betting service using websites, TV and other media. It uses pre-race data compiled and licensed by the British Horse Racing Board (BHB). ATR sued BHB, claiming that it had abused its dominant position by charging ATR discriminatory and excessive prices for the data and by threatening to terminate supply.

The High Court considered that BHB was indeed dominant in the UK market for pre-race data, which it held was an “essential facility” to ATR’s business. It went on to find that BHB had abused its position as argued by ATR. The court is considering, in separate proceedings, what remedies to impose, including the issue of damages.

In Adidas-Salomon v Drape [2006] EWHC 1318, Adidas is asking the High Court to order the International Tennis Federation and the organisers of tennis’s four Grand Slam events to change their dress code rules for competitions. Those rules limit the extent to which players can sport manufacturers’ logos on their clothes during matches, in particular regarding the size of logos. The defendants recently changed the logo restrictions to include Adidas’s “3 stripes” design. Adidas claims the three stripes are not a logo but a “distinctive design element”, and to stop players wearing clothes with the three stripes would place Adidas at a competitive disadvantage. It claims such a measure would amount to an anti-competitive agreement between the tour organisers and an abuse of their collective dominant position.

In an interlocutory judgment on 7 June 2006, the judge refused to dismiss the claim, considering that Adidas has “a real prospect of success”. He noted that the ECJ has treated the “sporting exception” from EU competition law restrictively, and thought the defendants’ dress code cannot be seen as a purely sporting rule, but has a partly commercial nature. He ordered the suspension of the new rules until the court’s final judgment.

In Scotland, competition-based arguments in the courts are still few and far between. Last year, in PIK Facilities v Watson's Ayr Park 2005 SLT 1041, the defender, an operator of off-site parking for Prestwick airport, attempted to fend off a trespass action by the airport by arguing the latter was abusing its dominant position. Watson’s had taken customers by bus from the car park to the terminal, without having obtained access rights from PIK. The claim was dismissed on the basis that it was insufficiently pled; for instance, Watson’s had not defined the market in which it claimed PIK was dominant.

Perhaps it would be wrong to infer too much from PIK about the Scottish courts’ attitude towards antitrust actions and arguments. Given the facts of the case and the way they were presented to the court, the outcome would arguably have been the same in any jurisdiction. A more important factor may be the attitude of Scots lawyers: could it be that there is reluctance to advise clients to use competition arguments, thus entering uncharted territory?

Private enforcement in the EU

Meanwhile, on the European front, the Commission is putting great effort into kick-starting private enforcement in the EU member states. Casting jealous glances at the US, where private actions account for some 90% of antitrust enforcement, Competition Commissioner Neelie Kroes believes it is imperative to involve businesses and consumers in the fight against cartels. The Commission hopes that if private actions become more common, it can focus its limited resources on battling the most damaging anti-competitive behaviour. Real risk of incurring damages might also work as an added deterrent on cartelists. The Commission recently consulted on possible ways to encourage private enforcement (panel, previous page).

So far, the number of successful damages actions in the EU is modest. A handful of claimants have been awarded damages, notably in Germany, Italy, France, Spain and the Netherlands. A number of actions have been raised across Europe on the back of the 2001 Vitamins decision (e.g. the English Provimi case, discussed above). However, some of these actions have failed as the defendants have been successful in using the “passing-on defence” (explained in the panel). On the other hand, in 2004 a German court awarded damages to a customer of a member of the Vitamins cartel irrespective of whether the loss had been passed on. As of July 2005, the passing-on defence is excluded by statute in private antitrust cases in Germany. In the telecoms sector, incumbents’ abuse of dominance have resulted in the award of damages in France and Spain.

Running a greater risk

Risks attached to competition law infringements has increased greatly over the last few years. Fines are getting ever higher, both in the EU and the UK. EU fines are set to rise further following the Commission’s new guidelines on fines, effective as of 1 September 2006. Leniency applications are becoming increasingly common, vastly contributing to the detection of cartels. In the UK, the Enterprise Act 2002 introduced the “cartel offence”, meaning that individuals risk prison if implicated in cartels. Recent high-profile extradition cases, resulting in Ian Norris and “the NatWest three” being flown off to stand trial in the US, present an added risk element for cartelists.

While European private enforcement is a far cry from the US, where huge damages are the norm, UK courts are taking the issue increasingly seriously and it is, surely, only a matter of time before follow-on actions before the CAT take off. When it comes to stand-alone actions, there is arguably more work to be done before the path is cleared.

Regulators aim to increase risks to such a level that cartels and other competition infringements become unprofitable. Studies suggest that only one in six cartels are found out. In order to make companies think the gamble is not worthwhile, fines (combined with damages) would therefore need to amount to at least six times the gains from the cartel. At the moment, we are a long way from that.

Whereas private enforcement is still virtually non-existent in Scotland, there is fertile ground for damages actions, not least considering how many Scottish businesses have been fined in various OFT cartel investigations in recent years.

    Catriona Munro is a partner in the EU, Competition and Regulatory Team, Maclay Murray & Spense

PRIVATE ENFORCEMENT: EU EFFORTS

In December 2005, the European Commission published a green paper on damages actions (http://ec.europa.eu/comm/competition/antitrust/others/actions_for_damages/index_en.html), inviting comments on a range of possible measures to facilitate such actions in the member states. The green paper identifies what the Commission views as the main obstacles, notably the difficulty for claimants to access evidence, quantification of damages and cartelists’ possible defence of arguing that the claimant’s loss has been passed on to end consumers, so that there is no loss to compensate (the “passing-on defence”). It suggests a range of solutions, such as harmonising (i.e. broadening) the member states’ procedural rules on disclosure and introducing a harmonised system for class actions, whereby consumers and other indirect purchasers could bring joint or representative actions against cartelists. The latter measure would be a natural corollary to allowing the passing-on defence and would be aimed at respecting the compensatory principle in damages law.

The green paper also invites comments on the extent to which the passing-on defence should be available to defendants, as a matter of principle. It further discusses other means of encouraging damages actions, such as the introduction of double damages (in the US, antitrust breaches can already result in treble damages), harmonised rules on costs recovery and the reversal or re-balancing of the burden of proof.

The Commission received some 140 responses from a wide range of organisations, generally welcoming the initiative of facilitating damages actions. However, respondents were critical of many suggestions. Views were wide ranging on crucial issues such as whether to allow the passing-on defence and/or actions by indirect purchasers. There seems to be a widespread wariness of copying the US system, with fears of creating a “litigation culture”. Respondents broadly rejected the idea of double damages as incompatible with European legal principles. Many respondents also voiced reluctance against the EU interfering in member states’ domestic procedural systems.

The Commission’s paper was always going to spark debate, especially considering the range and scope of proposed measures. Overall, though, it seems the Commission enjoys strong support in its efforts to encourage private enforcement. Having said that, it is likely to take a long time before consensus can be reached as to the appropriate means of achieving that goal.