The need for legislation

The European Commission's (Commission) original proposal of June 2012 was adopted by the Parliament at first reading after amendment, with further recent final amendments being made and adopted by the Council on 10 November 2014.

The Commission's public enforcement objective is to punish and deter antitrust infringements. However, for a number of years now, it has also been striving to facilitate private enforcement.

At present, very few victims of anti-competitive conduct actually manage to obtain compensation - the Commission estimates that only 25% of its antitrust infringement findings in the last seven years have been followed by damages actions, and in only a fraction of these has redress been granted. Inadequate rules on procedure, evidence and disclosure has littered the path to civil redress with practical difficulties and legal uncertainty as to how public and private enforcement interact.  The Commission is concerned that small or medium-sized enterprises (SMEs) and individuals in particular cannot effectively access compensation.  And, with a lack of consistency in national laws across the European Union, it is concerned that a victim's chances of success depend too much on the Member State in which they are located (to date most actions have been started in the UK, Germany and the Netherlands).

The Commission hopes that the Directive on private antitrust damages actions should remove a number of these practical obstacles and smooth out some of the discrepancies.

In this Alert we take you through the key provisions.

The rules facilitating private enforcement

Absolute protection from disclosure for leniency/settlement submissions

This has been one of the most controversial and fiercely contested issues.  To what extent should private damages claimants be able to access documents on an antitrust authority’s investigation file, in particular documents submitted by companies applying for leniency or looking to settle?

The Commission has been unmoving in its position – leniency statements and settlement submissions should not be disclosed to claimants.  To do otherwise could jeopardise the effectiveness of "essential" public enforcement instruments, leniency and settlement programmes.  Companies would be discouraged from voluntarily approaching antitrust authorities for fear that documents confessing anti-competitive conduct could be used against them in national courts. The European Parliament has largely been supportive of the Commission's legislative route, despite the EU courts often taking a divergent approach.  (The European Court of Justice has ruled (in the Donau Chemie case) against an absolute ban on disclosure of leniency documents; instead, it concluded, national courts should weigh up the interests in favour of disclosing, or protecting, the documents on a case-by-case basis.)

The Directive provides strict protections:

• National courts can never order disclosure of:
  • Leniency statements (where a company or individual sets out its knowledge of a cartel and its role and seeks immunity or a reduction in fines under a leniency programme).
  • Settlement submissions (where a company admits its infringement and in return seeks an expedited or simplified investigation and a reduction in fine).

For these purposes, national courts should be able to access claimed leniency and settlement documents to ensure their contents do not go beyond true leniency statements/settlement submissions.

• Certain documents are temporarily protected from disclosure, and access can only be granted after the competition authority has closed its proceedings (it would appear that protection will not be extended to cover any appeals of a decision to the EU or national courts):
  • Documents specifically prepared by parties for the purpose of the antitrust investigation, e.g. replies to the authority’s requests for information and witness statements.
  • Documents the antitrust authority has created during its investigation and sent to the parties, e.g. statement of objections.
  • Settlement submissions that have been withdrawn.

These protections also apply to the extent that parties to the investigation obtained copies of the above documents during the “access to file” process.  Claimants cannot therefore circumvent the ban on disclosure by seeking to obtain these materials directly from the defendants.

Documents falling outside the two categories can be disclosed to claimants at any time (subject to the protection of confidential information).  This would apply, for example, to pre-existing evidence of anti-competitive conduct (such as emails) which were not created as part of the investigation process.  However, courts should not order disclosure of these documents in such a way so as to risk revealing what is on an authority’s file ("fishing expeditions").The national courts must also give full effect to applicable legal professional privilege under Union or national law. Claimant’s requests for disclosure should be proportionate, and specify categories of evidence as precisely and narrowly as possible on the basis of reasonably available facts and evidence presented in a "reasoned justification".  Otherwise they may be able to “unravel” the authority’s investigation strategy, and parties under investigation may be unwilling to supply evidence.

Five+ year limitation period

Victims of antitrust infringements will be given at least five years to bring an action.  This starts to run after the infringement ends, and after victims become aware of the infringement, the harm, and the identity of the infringer.  Where an antitrust authority opens an investigation into a suspected infringement, the limitation period is suspended or interrupted until at least one year following a final “infringement decision” (a decision of a competition authority or review court that can no longer be appealed).

By setting this period, it is hoped injured parties will be given a reasonable opportunity to seek compensation for their loss, but without compromising legal certainty for potential defendants.

No joint and several liability for immunity recipient

The general principle is that companies which have infringed competition law should be jointly and severally liable for the harm caused.  However, the Directive elevates immunity applicants to a special position: a company which has been granted immunity from fines under a leniency programme should only have to pay damages for the harm caused to its own customers.

The reasoning behind this is again to preserve the effectiveness of leniency regimes.  Immunity applicants are less likely to appeal an infringement decision, meaning that their proceedings are made “final” long before those of infringers who appeal the decision.  They are therefore often primary and preferred targets of damages actions.  The Commission does not want this to discourage potential immunity applicants from coming forward and blowing the whistle.

But this does not mean that claimants might lose out.  As a last "very unlikely" resort the immunity recipient will still be fully liable should the claimant be unable to obtain full compensation from the other infringers (for example because all of them went bankrupt).

No Joint and several liability for certain SMEs

The Directive also provides an exception to joint and several liability for certain SMEs.  The recently-included carve out applies if the SME's market share remained below 5% at any time during the infringement, the application of the normal rules of liability would irretrievably jeopardise its economic viability and cause its assets to lose all their value, it was not a leader or coercer of the infringement and it is not a repeat offender.

Some Member States (Germany, Poland and Slovenia) have already expressed their dissapproval of the final text stating that it was 'far' from the objectives of ensuring victims the opportunity to seek full compensation and that it will lead to legal uncertainty and unequal treatment due to differences in the definition of SMEs amongst the Member States.

Passing-on defence allowed

The Directive recognises that both direct and indirect customers of an infringing entity should be able to seek compensation for harm – actual loss and lost profits plus interest – suffered.  Indirect purchasers are those at the next and subsequent levels of the supply chain to those buying direct from the infringer.  This is all good for claimants, but what about defendants who could be hit with damages claims from customers, customers’ customers etc.?  The Directive gives them some comfort in enabling them to rely on the passing-on defence.  This means that a defendant has a defence where it can show that the claimant has reduced his actual loss (e.g. an overcharge from cartel conduct) by passing it on (wholly or partly) to subsequent customers.

Presumption of harm for cartel conduct

There will be a (rebuttable) presumption that cartel infringements lead to harm in the form of a price effect (often an overcharge).  This will be a key incentive for claimants to bring an action.  But the Directive does not go as far as to quantify the harm presumed.  Quantification of the harm will be a matter for national rules and national courts. Under the adopted text the Court’s may invite the national authorities to assist in the quantification unlike the proposed text which allowed the national competition authorities to get directly involved. The Commission has published non-binding Communication and Guidelines to give guidance to national courts on calculating damages, including practical tips on methodology and techniques.

The relevance of National decisions

The Commission had hoped to prevent national courts from taking damages decisions that ran counter to any national authority’s infringement findings.  This would have avoided defendants re-litigating the same issues during a subsequent damages action, and would have put national authority decisions on the same footing as those of the Commission.

However, the provision proved controversial and the extent to which any national authority's infringement findings are binding has been watered down during the passage of the Directive.

A final infringement decision of a national competition authority will only automatically constitute proof before courts of the same Member State that the infringement occurred.  In actions before courts of other Member States, claimants will merely be able to present such decisions as at least prima facie evidence of the infringement.

CONSENSUAL Dispute resolution is encouraged

Recognising that victims of anti-competitive conduct may be equally compensated through out of court settlement (often faster and at less cost), the Directive incentivises and increases the effectiveness of consensual dispute resolution mechanisms.  For example, it suspends limitation periods and pending proceedings where parties are engaged in settlement discussions.  It also clarifies the effect of partial consensual settlements on subsequent actions for damages, setting out how the remaining claim should be determined, against whom it can be made and how settling and non-settling co-infringers should contribute.  And, interestingly, the Directive now provides that where an infringer has paid compensation as a result of a consensual settlement, a competition authority may consider this as a mitigating factor when setting the fine for that infringer.

What next?

Member States have two years (until 27 December 2016) to implement this Directive. For some Member States this will mean a radical change.

The Directive seeks to strike a balance – removing (or at least lowering) barriers for claims on the one hand, and on the other protecting key interests of defendants, particularly those benefiting from leniency and, increasingly, settlement programmes.

But the Commission does not expect the Directive to completely iron out the hurdles for victims seeking redress, or level the playing field across the EU.  The Directive itself requires a report four years following implementation on, amongst other things, how the payment of fines following public enforcement and the "prima facie evidence" status of national competition authority decisions impact on the ability of victims to actually obtain compensation.  And it is likely that the accelerating trend for antitrust damages actions will remain concentrated in certain jurisdictions, such as the UK, as they forge ahead with national even-more-claimant-friendly rules.

The Commission will undoubtedly remain committed to ensuring its enforcement tools are not compromised, but will it continue to give such pro-active support to private enforcement right across the EU?

To read the Directive on antitrust damages actions (and Communication/Guidelines on quantifying harm), click here.