Up and Running, Or Is It
1
Ulf Böge* / Konrad Ost**
Up and running, or is it?
Private enforcement – The Situation in Germany and policy perspectives
To be published in the E.C.L.R. (April 2006)[1]Ulf Böge* / Konrad Ost**
It is an undisputed fact that private antitrust enforcement plays an important and valuable role. The positive effects of private enforcement should therefore be further promoted and strengthened. However, some of the suggestions that have come up in the current discussion should be examined critically.
I.The role and aspects of private enforcement
From the perspective of those affected the natural objective of private antitrust enforcement is to enforce their interests and rights. These can either be done offensively, i.e. by claims for injunction, supply, admission to a distribution system or pecuniary damages, or defensively, e.g. by asserting the invalidity of anti-competitive agreements.
In addition to this compensatory function in individual cases, private enforcement serves a number of other functions. Firstly, it eases the burden on competition authorities. Due to limited resources these are often unable to take on cases that only affect individual companies and are of minor overall economic importance. Thus, private litigants help to close gaps in the overall competition enforcement system.
In addition, the considerable number of private law proceedings contributes to further developing antitrust law.[2] Besides, they provide valuable indications for the Bundeskartellamt on competition problems in individual industries.
Finally, the possible accumulation of fines and claims for damages enhances deterrence and strengthens the overall antitrust culture.
II.The status quo of private enforcement in Germany
Private antitrust enforcement is a well-established practice in Germany. Each year the Bundeskartellamt gains knowledge of several hundred new private law proceedings with antitrust relevance. Since 2002, ca. 900 decisions with antitrust relevance have been registered in the Bundeskartellamt database. The authority has examined the extent of private enforcement activity in Germany on the basis of exemplary data from the year 2004. In this period alone 240 decisions in private law proceedings were registered where a violation of antitrust provisions had been claimed. In 68 cases antitrust claims were asserted offensively. 56 of these cases were decided under German law, 20 of these were won and 36 lost. Twelve cases were decided under European antitrust law, three of these were won and nine lost. 38 cases involved (also) claims for pecuniary damages, in 19 of these cases the claimant won.
Apart from vertical agreements, most of the actions concerned abusive practices or cases of discrimination against dependent companies by a dominant or powerful company. The fact that a relative high number of proceedings refer to provisions of the ARC or Articles 81, 82 of the EC-Treaty shows that antitrust law has become a well-established part of private law proceedings.
Claims for damages by victims of hardcore cartels, however, so far have only been successfully asserted once.[3] Several equivalent proceedings were settled.[4] A novelty in this field was the lawsuit filed by the Belgian company Cartel Damage Claims (CDC) against Dyckerhoff, Lafarge and the former Readymix Group. CDC had requested about 30 small and medium-sized cement customers in Germany to assign their claims to it and is now suing the cartel members named above for damages. Should this become general practice the number of civil law suits against members of hardcore cartels could increase in future.
III.Private enforcement and public enforcement
From a public interest perspective private and public antitrust enforcement are complementing parts of one system. While authorities have more far-reaching intelligence and investigatory powers than individuals, the latter are able to become active in areas where competition authorities cannot intervene sufficiently due to their limited resources. Against this background private enforcement should by no means be reduced to damage claims following hardcore cartels alone. By doing so the importance of law suits which do not concern hardcore cartels (such as abuse proceedings or actions against vertical competition restraints) would be underestimated. Such cases, however, are of particular importance because they typically cover those areas of antitrust enforcement in which competition authorities are not primarily active.
In areas where private and public enforcement overlap conflicting objectives may arise.[5] To solve these conflicts it should first be determined what purpose the private action serves. If this is mainly to compensate damages incurred, as a rule the private law action is to be given priority even if this might have a negative impact on public enforcement.[6] A cooperation with competition authorities should therefore de lege ferenda not lead to an immunity against private law actions. Likewise it is unavoidable that the role a cartel member has played becomes apparent from decisions of competition authorities, at least from those directed against the other members of the cartel. However, it would be reasonable and in the interest of all parties involved to assess the approach recently adopted in the United States to limit the liability of cartel members who participate in the leniency programmes to claims of their own contractual partners.[7] Likewise, to maintain the attractiveness of leniency programmes, cartel members should be protected, as far as possible, from disclosure of their statements made in the course of leniency proceedings to potential claimants.
Punishing competition law violations should not become the task of “private attorney generals” but should remain a domain of competition authorities. These have better facilities for fact-finding and establishing proof which the constitutional system denies individuals. In addition, competition authorities are better suited than individuals to safeguard public interests, because the results achieved by individuals in their own interest are not necessarily also in the interest of competition protection. For example, damages can be abusively claimed (i.e. unfounded claims with the mere aim of reaching a settlement) as is sometimes the case in the United States. Conversely, cartel members may often prevent unfavourable precedents by offering lucrative settlements to claimants.[8] This cannot happen in proceedings brought by competition authorities.
Private enforcement may therefore supplement and strengthen public enforcement, but it can never substitute it.
IV.Enhancing private enforcement
This said, the question arises how private enforcement could be usefully enhanced i.e. which measures could be taken to strengthen private enforcement in its complementary and supportive function for public enforcement.
1.The 7th Amendment to the German ARC
The 7th Amendment to the ARC introduces several reforms[9] which are likely to have a positive effect on private claims against anti-competitive behaviour.The chances for damages claims, in particular, are likely to be improved.
Under previous law private antitrust claims required a violation of a “provision [that] serves to protect another person”. The 7th Amendment to the ARC abandons such a protective law requirement and clearly states a right to compensation at least to those directly damaged by anti competitive behaviour (i.e. the purchaser contracting with a member of the cartel).
Under the previous version of the ARC national courts were not bound by (final) decisions of competition authorities or other courts establishing violations of competition law. Accordingly, such decisions were only used as prima facie evidence before the courts. Exempted from this rule were decisions by the Commission which, according to the Masterfoods case law of the European Court of Justice, were binding on national courts.[10]
The 7th Amendment to the ARC significantly extends this rule. Where a violation of provisions of the ARC or Articles 81 or 82 of the EC-Treaty is established not only decisions by the Commission but also decisions taken by the national competition authorities and competition authorities and courts of other EU Member states are binding.[11]
In addition, the 7th Amendment to the ARC makes it easier for potential plaintiffs to await the outcome of authority or court proceedings. The limitation period of three years, which under the general law of tort starts when the plaintiff gains knowledge of the facts giving rise to a claim, is suspended with the institution of antitrust proceedings by the Commission or by courts or competition authorities of the EU Member States.[12] Moreover, interest is charged on damages from the day they are incurred.
2.Passing-on defence
Problematic are those cases where contracting parties, i.e. purchasers or suppliers, are forced by the anti-competitive behaviour to pay higher prices but are able to pass this price increase wholly or partly to their customers or suppliers.At the end of the day, has the contracting party incurred a damage or is the cartel member allowed to argue that the passing on of the damage diminishes or excludes the claim of the contracting party? Even after the reform the ARC does not provide for a clear cut solution to the problem. The new law only deals with the burden of proof for this defence (to be borne by the damaging party). While lower courts were ready to accept the passing-on defence[13] the prevailing opinion in this German legal literature is that it should be excluded to achieve effective antitrust enforcement.[14]Usually, it is argued that only the direct customer is able to prove the damage caused by a cartel, while looking at subsequent market levels it becomes more and more difficult, if not impossible, to prove a causal and attributable damage. The party causing the damage and violating antitrust law is thus unfairly exonerated.[15] In addition the passing on of higher prices typically requires efforts undertaken by the direct customer.[16]
This opinion should be supported in so far as it points out that it would be unfair to allow a cartel member to retain the advantage gained from anti-competitive behaviour. It is also true that a passing-on of the damage is often only possible through increased efforts by the direct customer. In this connection it should be pointed out that hardcore cartels, on which much interest is currently focused, are basically only uncovered by competition authorities. By using the sanctions at their disposal (fines, skimming off of profits from anti competitive behaviour ) competition authorities already ensure that violations of competition law do not pay.
Indeed, it seems appropriate to exclude the passing-on defence in the vast majority of the cases, thus restricting it to a few atypical exemptions. From a dogmatic perspective, this is achieved by a consistent application of the adjustment of benefits principle which is laid down in the German law of torts. The compensatory function of the law of torts suggests that an adjustment of benefits in specific individual cases should be possible. A categorical exclusion of the “adjustment of benefits principle” (so called Vorteilsausgleichung) would give claims for damages a preventive and punitive function, detached from any idea of compensation. This does not correspond to German tort law principles.[17] The fact that the damage suffered by the direct customers due to the payment of an excessive cartel price (i.e. the primary damage) has ultimately not resulted in any pecuniary losses on their part constitutes a defence for the damaging party for which it bears the burden of proof.[18] To provide this proof will be extremely difficult for the damaging party because it is presumed that a passing-on of the damage depends on the damaged party undertaking his own endeavours. This is all the more true because the downstream market is a competitive market and thus it is much more difficult to pass on increased prices than it is for members of the cartel. More generally phrased, the passing-on defence should be admitted in the damaging party’s defence in those rare and exceptional cases where the damage has indeed been passed on, the passing-on did not involve any risk for the damaged party, required only minimal efforts and did not result in a decline in sales. If these criteria are applied only a few, narrowly defined groups of cases should emerge in case law where the passing-on defence could be admitted, such as the so-called “cost-plus contracts” (provided there is no decline in sales). In these contracts purchasing prices are passed on undiminished to the purchaser in the next market level and profit margins are fixed in advance.[19]
3.Indirect purchaser standing
While the 7th Amendment to the ARC clarified for German law that directly affected parties from the immediate opposite side of the market are always entitled to claims, it remains open whether parties involved in more distant market levels are also entitled.[20]
While it appears that there are no precedents in German case law on this issue, several authors in the literature are of the opinion that only direct purchasers are entitled to claims. This position is partly based on considerations on the scope of the - now abolished[21] - protective law requirement[22] and partly on the view that multiple liability against an incalculable number of claimants should be prevented[23].
The comments of the European Court of Justice in the Courage decision do not offer a definite answer to this question either. The ECJ stated that violations of Article 81 EC Treaty in principle entitled “any individual” to claim damages[24], however, the case in question concerned an action brought before the court by a party of an anti-competitive agreement against another party to the agreement. So far, no decision on the entitlement of indirect consumers to claim damages against cartel members has been taken. In addition, the ECJ explicitly stated in its Courage decision that it was left to the discretion of the Member States to decide on procedural issues as long as the Community imperatives of efficiency and equivalence were considered.[25] Consequently, it can at least not be ruled out that Community Law would allow a limitation or exclusion of the indirect purchaser standing at national level.
If an admission of the passing-on defence is supported in atypical individual cases then this basic decision must also apply to the question of whether indirect consumers are entitled to claims. Assuming that, in a few atypical cases, the damaging party is able to prove that the damage has been passed on to the next market level it would be absurd to deny this next market level an entitlement to claim damages. The result would be that although the tortious infliction of damage was apparent the evidently damaged party would have no possibility to recover the damage incurred. Admitting, to a very limited extent, the passing-on defence and an entitlement of indirect purchasers to claim damages would to a large degree prevent an accumulation of claims for damages[26] as well as a situation where the damaged party has no entitlement to claim and consequently damages cannot be recovered. This approach corresponds best to the compensatory function of the law of damages.[27]
4.Multiple damages
For the victims of anti-competitive conduct the instrument of multiple damages undoubtedly provides a strong incentive to take legal action against the party or parties inflicting the damage. Moreover, under the aspect of deterrence it seems to be reasonable to balance a low probability of discovering anti-competitive conduct by the risk of higher damages. For this reason the German Monopolies Commission has advocated the introduction of double damages.[28]
The introduction of multiple damages would raise constitutional concerns. The German Federal Supreme Court has thus rejected a proposal to declare enforceable a US court decision which awarded punitive damages exceeding the damage suffered by the plaintiff. According to the Federal Supreme Court this was incompatible with the state’s monopoly on punishment and the corresponding procedural safeguards, and with the ban on enrichment under the law of damages. Punitive damages thus violated the substantive ordre public in Sections 723 (2), 328 (1) no.4 of the Code of Civil Procedure (ZPO).[29]
Multiple damages would also be in contradiction to the understanding of the law of damages according to which this law has a compensatory function. In general the claimant is not entitled to receive any compensation exceeding the level of the damage suffered. On the other hand, the introduction of multiple damages provides an increased threat potential. Even if the defendant’s conduct is in line with the principles of competition this potential could possibly be used by the plaintiff, i.e. by promising an out-of-court settlement in exchange for considerably lower payments.
Besides, imposing multiple damages bears an even greater danger of companies being squeezed out of the market by claims for damages which could result in a deterioration of competitive conditions.[30]
Finally, an essential argument against the introduction of multiple damages is their effect on the competition authorities’ leniency programmes. The fact that authorities refrain totally or to some extent from imposing sanctions would possibly no longer provide an adequate counterweight to the immense private antitrust damage claims which could result from leniency proceedings. The incentive for cartel members to leave a cartel and cooperate with the authorities would thus be considerably weakened. A process of „de-trebling“ (or „de-doubling“) following the US model could help but might raise difficulties because proceedings by an authority would directly affect a party’s position in private proceedings.