After more than ten years in gestation, on November 10, 2014, the European Council of Ministers formally adopted the Antitrust Damages Directive.¹

By requiring all 28 EU member states to have procedural rules that ensure the victims of antitrust infringements can effectively exercise their right to compensation, the directive seeks to improve the interplay between public enforcement (which is both well established and sophisticated) and private enforcement (which has been criticized in some circles as being patchy and haphazard). Member states have a little more than two years from publication of the directive to transpose its provisions into national law.

Takeaways for Business

The implementation of the directive will mark a sea change in antitrust enforcement in several EU member states, notably in those countries where claimants have historically struggled to gather the evidence needed to substantiate a claim of damages or faced procedural impediments to the successful prosecution of a cartel damages action.

For cartel defendants, the two most significant implications of the directive are:

• higher damages risk in the EU—as a result of litigation or, more likely, of settlements following the threat of litigation; and
• even greater complexity in relation to leniency applications.

The new rule that cartel infringements will be deemed to have caused harm relieves each claimant of the burden of proving that it suffered loss as a consequence of the cartel as a pre-condition for action and swiftly moves the debate to the quantum of damages. This change will result in more defendants paying damages to claimants, higher payments being made, and ultimately more actions being started. More defendants will pay because there is little room under the directive for a defendant to argue that the prices that customers paid were not higher than they would have been but for the cartel. Higher settlements are likely as claimants pitch their initial claims higher to draw defendants to the negotiating table in the sure knowledge that compensation of some sort will be payable. And more claimants will be encouraged to start proceedings, as they can expect at least some compensation, reducing their exposure to costs at the end of any action.

Applications for leniency will also become more complicated. While defendants will welcome the statutory protection accorded to oral statements, the access that claimants will have to contemporaneous evidence (e.g., pre-existing documents that were submitted as annexes to an immunity or leniency application) and to defendants' replies to requests for information filed with the Commission during the administrative proceedings is bad news for defendants since it will significantly enhance the prospects of a claimant properly articulating its claim in its pleadings and pinning liability on specific defendants. The "grey list" provision making abandoned settlement submissions available to claimants will likewise be a cause of concern for defendants who enter into settlement discussions with the Commission unsure as to the likely outcome, as those statements may, under the directive, become the object of a disclosure order if the settlement submissions are later withdrawn.

Bite-size Guide to Main Provisions of the Directive

Right to full compensation (Articles 3 and 4)

The European Court's ruling in Manfredi² reiterated the statement of principle that the effectiveness of Article 101 (and by extension Article 102) would be jeopardized "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." The overriding objective of the directive is therefore to ensure that victims of competition law infringements are able to obtain "full compensation" from the members of a cartel or from a business that has abused its dominant position. This right to compensation covers actual loss, loss of profit, and payment of interest from the time the harm occurred until compensation is paid.

The directive steers away from the regime of triple civil damages found in the U.S., stating instead that full compensation should not lead to "over-compensation, whether by means of punitive, multiple or other types of damages."

Rules on disclosure of evidence (Articles 5 to 8)

One key feature of the directive is the package of rules that make it easier for victims of antitrust infringements to obtain access to the evidence they need to substantiate their claim. National courts across the EU will thus be able to order a defendant or third party to disclose relevant evidence in its control, provided that the claim for damages is plausible, the evidence is relevant for substantiating the claim, the categories of evidence to be disclosed are defined as precisely and narrowly as possible, and the scope of the disclosure is proportionate. Fishing expeditions are not permitted. The courts are also empowered to order disclosure of evidence containing confidential information, subject to safeguards effectively protecting business secrets.

Addressing the rulings in Pfleiderer³ and Donau Chemie,⁴ in which the Court of Justice held that no category of documents may be generally exempt from potential disclosure and that it should be up to the national courts to decide on a case-by-case basis which evidence should be revealed, the directive introduces a sliding scale of pan-European protection from disclosure in national courts for different categories of evidence (or "lists"):

1. Absolute protection from disclosure is granted for immunity and leniency statements and settlement submissions (documents on the so-called black list).
2. Other categories of evidence can be disclosed only after an investigation has closed (the grey list items). This grey list covers information prepared by a person specifically for the proceedings (such as replies to requests for information), information drawn up by the authority and sent to the parties (such as statements of objections), and settlement submissions that have been withdrawn.
3. But no protection is afforded to other pre-existing documents, including critically, documents submitted as annexes to a leniency statement (white list items).

These new "lists" aim at striking a balance between opening evidence on the regulators' file up for disclosure and trying to ensure that the incentives that underpin the success of corporate leniency programs are maintained by limiting the risk that certain documents provided in the context of a leniency application are later used against the leniency applicant in damages actions.

Binding effect of national competition decisions (Article 9)

The directive extends the binding effect of decisions of the European Commission to decisions of national competition authorities finding an infringement of competition law. Decisions by agencies in one member state will not be binding on courts or regulators in another member state, but the directive emphasizes that such decisions should be recognized as prima facie evidence in follow-on damages actions across the EU.

Limitation periods (Article 10)

Another important provision in the directive is the introduction of a five-year limitation period for the initiation of antitrust infringement actions by aggrieved claimants. This period will only begin to run once the infringement has ceased and the claimant knows, or can reasonably be expected to know, that the particular defendant infringed the competition rules and that the infringement caused harm to the claimant. In addition, the limitation period is suspended for as long as a competition authority is investigating the infringement and until at least one year after an infringement decision has become final or proceedings are otherwise terminated.

Limits on the liability of immunity recipients to claimants (Articles 11 and 18)

In principle, undertakings that have infringed competition rules through joint behavior are jointly and severally liable for the harm caused to customers, and it is for the co-infringers to make and secure contribution claims against each other. The directive does, however, establish two important exceptions to the general rule of joint and several liability:

1. Ostensibly to promote whistleblowing, an immunity recipient is jointly and severally liable under the directive only to its direct and indirect purchasers, except when claimants are not able to obtain full compensation from the other co-infringers. The amount of contribution for harm caused to other infringers' customers or providers shall not exceed the harm the immunity recipient caused to its own direct and indirect purchasers or providers.
2. In certain circumstances, small or medium-sized companies that did not lead or coerce others will be liable only to their own direct or indirect purchasers.

Availability of the passing-on defense (Articles 12 to 15)

The directive makes provision for claims both by direct purchasers and by indirect purchasers (i.e., intermediate customers and end-consumers further down the supply chain).

In keeping with the concept of full- but not over-compensation, the directive seeks to ensure that compensation for actual loss at any level of the supply chain does not exceed the "overcharge" harm that incurred at that level. Accordingly, where the claimant is the direct purchaser, the directive allows the defendant to invoke the passing-on defense, and argue that the claimant (its direct customer) has passed on the cartel overcharge (in whole or in part) to its own customers. The burden of proof in such cases lies with the defendant, and power to estimate the amount of the overcharge that was passed on resides ultimately with the national courts.

The directive also sets the parameters for antitrust damages claims made by indirect customers. The indirect customer will, as a matter of law, bear the burden of proving the existence and scope of any passing-on, but this burden will be mitigated in two important respects. First, the indirect purchaser may ask the court to order disclosure of evidence from the defendant or from a third party. Second, there will be a rebuttable presumption that a surcharge has been passed on to an indirect customer who can show that: (i) the defendant committed an infringement; (ii) the infringement resulted in an overcharge for the direct purchaser; and (iii) the indirect purchaser purchased the good or services that were the object of the infringement (or good or services derived from them).

Presumption and quantification of harm (Article 17)

The directive establishes a rebuttable presumption that cartel infringements (but not other infringements) caused harm.

In addition, in all cases (and not merely cartels) the national courts will have the power to estimate the amount of harm suffered when it is practically impossible or excessively difficult to quantify the precise harm suffered.

¹ The Directive is available at http://ec.europa.eu/competition/antitrust/actionsdamages/damages_directive_final_en.pdf.

² C-295/04 to C-298/04 - Manfredi and Others, judgments of July 13, 2006.

³ C-360/09 - Pfleiderer, judgment of June 14, 2011.

⁴ C-536/11 - Donau Chemie and Others, judgment of June 6, 2013.