Competition damages – a rocky road ahead?

1. Background

Earlier this summer, the European Commission took a long-awaited step forward in the area of competition damages actions. After years of heated debate and consultations on the best ways to assist victims of competition law infringements to sue for damages, the Commission finally released its proposed “Directive on certain rules governing actions for damages under national law for infringements of the competition law provisions of member states and of the European Union”. This seeks to set out principles which will harmonise national level actions for competition damages, following an infringement of EU competition law, and optimise interaction between public and private enforcement.

The proposed Directive was accompanied by:

• A draft Commission recommendation (non-binding) which encourages member states to set up collective redress mechanisms for all types of harm (since this is not covered in the proposed Directive). This recommends opt-in class actions (meaning class actions whereby all potential claimants must opt in to join the group in order to have an entitlement to share the compensation); and
• A communication and accompanying practical guide on quantification of damages (also non-binding), to assist national courts and parties involved in damages actions by setting out a general approach and information on the rather complex concept of quantifying damages in the case of competition infringements.

The Commission has identified the proposed Directive as a “priority proposal” on 22 October 2013, with a view to investing its attention towards it (among other proposals) in the six months leading up to the European Parliament (“EP”) elections. However, there is still some way to go in terms of the Brussels political process before anything is certain: it remains unclear whether the proposal will be adopted before the EP winds down in May 2014, and the final form of the proposed Directive following consensus via the ordinary legislative procedure between the European Council and the EP.

2. Competition litigation damages – the main principles and reactions

The main principles in the proposed Directive include a range of different rules designed to remove practical obstacles to compensation for all victims of infringements of EU competition law. As widely debated since the summer, these include:

• a clear limitation period of at least five years for claimants to bring an action from first knowledge of it;
• a rebuttable presumption that cartels cause harm;
• decisions of national competition authorities to be deemed to constitute full proof of an infringement;
• a wider level of disclosure: victims will have easier access to evidence held by the defendant or a third party which is necessary for any damages claim (although leniency statements and settlement submissions admitting guilt have absolute protection from disclosure);
• clarification of the possibility for defendants to use the “passing on” defence, i.e. that the claimant “passed on” any increase in prices to their downstream customers;
• a rebuttable presumption that indirect customers suffered a part of the price increase;
• infringing companies in a cartel to be jointly and severally liable for the total harm; and
• victims to obtain full compensation for the actual loss suffered, plus loss of profits.

As has been observed in various detailed commentaries and conferences since the announcement of the proposed Directive, a few concerns have arisen, including but not limited to:

• It still remains unclear as to when the limitation period exactly commences.
• A rebuttable presumption that “cartels” cause harm appears to include a broader definition than the classic cartel. This may be regarded as controversial in relation to, say information exchange agreements, or vertical agreements.
• Wider disclosure may not be essential, carries the risk of having a chilling effect on leniency applications, and may potentially lead to US-style evidence fishing expeditions.
• The absolute protection of leniency statements and settlement submissions may not be in line with recent jurisprudence from the Court of Justice of the EU.
• The “passing on” defence is regarded as controversial and is at odds with certain member states’ laws.
• In terms of the recommended opt-in class action procedure, the UK proposed a new opt-out regime for competition law infringements as part of UK civil procedure the following day (opt-out class actions mean that certain representative organisations may bring actions on behalf of all customers who may have been affected by the infringement, unless such customers opt out).

3. Where are we now, and where do we go from here?

The Commission’s work programme for 2014 was adopted on 22 October, and lists the proposed Directive as one of its “priority” proposals. This means that the Commission believes it deserves special attention, given its importance, and the fact it is sufficiently advanced to have a realistic chance of adoption in the coming months. It also indicates that it is one of the areas in which the Commission will invest its attention in the six months coming up to the EP elections.

This is the first time that the Commission has proposed draft EU legislation in the field of anti-trust damages. This is also the first time that draft competition legislation has been reviewed by the EP acting as co-legislator under the ordinary legislative procedure (ex-co-decision procedure). The EP repeatedly asked to be fully involved in this legislative process, given the importance of the development on a European level, and Competition Commissioner Almunia committed to ensuring that this was achieved.

The proposed Directive is therefore now being considered by the EP and the Council (i.e. member state governments), both of which can propose changes. Any issues must be resolved in order for all three institutions to reach agreement before the EP winds down in May 2014. Should this fail, the risk remains that the proposals may not survive once the new MEPs assemble from June 2014.

The EP’s Committee on Economic and Monetary Affairs (“ECON Committee”), the responsible parliamentary committee for this proposal, published a draft report on 3 October 2013, which offers a number of changes to the proposed Directive. It recommends dilution of the absolute protection of leniency documents proposed by the Commission, which it finds to be incompatible with Court of Justice jurisprudence. It instead proposes that judges in national courts should be empowered to lift the protection of leniency documents. This is limited to certain circumstances where the claimant presents that the leniency statement (or other document) containing self-incriminating evidence is indispensable to supporting their claim, and that it contains evidence that cannot be otherwise provided.

The draft report also proposes that the Commission’s rebuttable “presumption of harm” being caused by a cartel infringement is replaced instead by granting the national courts the power to establish the existence of and estimate the harm, with reference to the evidence presented by the parties. Another amendment contained in the draft report concerns the limitation period, reducing the Commission’s minimum period for bringing an action for damages down from at least five years to three years, which is regarded as sufficient.

However, the EP’s Internal Market and Consumer Protection Committee, as an opinion committee for this proposal, also published a draft opinion on 2 October 2013. This sets out a number of changes to the proposed Directive, with some at loggerheads to the ECON Committee’s position. For instance, the draft opinion starts off by introducing collective actions in the legislation itself – a concept which is not currently included in the proposed Directive. However, in relation to leniency, it underlines that all documents provided by leniency applicants should be covered by the rules of absolute protection, given the importance of leniency programmes in uncovering cartels. A committee opinion does not carry any legislative weight in comparison to a committee report, but we may expect to see some similar comments proposed by MEPs as amendments to the proposed Directive.

Under normal circumstances, a vote by the ECON Committee would take place in December, consisting of all committee members. Prior to that, the rapporteur (reporter), with the other main European party shadow rapporteurs, should attempt to find a compromise text in terms of all the amendments proposed within the EP. However, the timing of the next procedural steps is somewhat uncertain since another opinion committee, namely the Legal Affairs Committee (“JURI Committee”) is involved in a procedural dispute over its role in the legislative process. This looks likely to delay matters for all involved and Commissioner Almunia has publicly voiced his concerns at a prospective material delay in the EP. He has also highlighted the serious problems a delay until the next parliament could have for leniency programmes, and the overall effectiveness of regulators’ fight against cartels.

Meanwhile, the Council is said to be making significant progress, with most member states’ governments apparently being broadly in support of the legislation. The Council Presidency (currently Lithuania) released a compromise text on 9 October, which proposes a few interesting changes. These include a minimum three year limitation period, and the award of protection to leniency corporate statements “in any form”. A Council public deliberation on this is currently tabled for 2/3 December in the Council’s provisional agenda.

4. The road ahead

Given the various different fundamental issues under discussion at present, it appears that the three European institutions will face challenges if they are to reach a meaningful consensus. This is well illustrated by the various different positions currently proposed, and the procedural disputes which have arisen. It is likely that all will continue to propose numerous amendments, but whether the short time left before May 2014 will be sufficient to iron out materially divergent views in the end remains to be seen.

If Brussels does win the race against the clock, the position finally adopted on competition damages will be material – if in the end it is significantly watered down, it may lack the strength ultimately needed for its intended purpose. Whatever the outcome, member states will have two years following adoption of the Directive to implement the legislation into their national legal systems.