Why Private Enforcement should be Reformed alongside Public Enforcement

(by Morten Hviid) Apart from a few words in the foreword by Vince Cable and four paragraphs in chapter 5, private enforcement is not mentioned at all in the UK consultation on reform of the competition regime. According to his foreword, the minister is keen to promote private-sector challenges to anti competitive behaviour, but says he will bring separate proposals in due course. So it may seem odd to comment on something which is almost not there.  However, by sidelining the discussion of private enforcement, I think the consultation is missing a trick – private enforcement is not a separable complement to public enforcement.

There are at least three dimensions in which private and public enforcement are not separable: 1. Efficiency in follow-on actions; 2. Incentives for those responsible for taking action; and 3. Initiation of action by complaining to an agency or by leading a private action.

  1. Enforcing the law uses up resources. This is true irrespective of who does the enforcement. Considering the role of private enforcement when designing the enforcement regime may lead to a more cost effective system. To provide an example of this, consider a case where the competition authority finds that a group of firms have engaged in price fixing and fines them accordingly. Subsequently, a body acting on behalf of the consumers brings a following-on case in the Competition Appeals Tribunal asking for damages. This means running the case for a second time [or a third if it has already been through an appeal]. Unless we learn something substantially new and damaging about the effects of the cartel, this is potentially entirely wasteful. Secondly, there is also something odd about having one body acting on behalf of the consumers taking over from another body who is supposed to do exactly the same. An example of this is the “Replica Football Kit” case [Decision of the Office of Fair Trading No. CA98/06/2003] where Which? on behalf of those harmed brought a follow-on action to the original OFT decision. Rather than forcing the case to be run again to secure damages, it would be worthwhile at least considering giving the competition authority the power to use settlement procedures to set up mechanisms to compensate those harmed. The OFT in its consultation in 2007 [OFT discussion paper OFT916, paragraph 4.17] touched on this possibility. It would be better to consider this now rather than later.
  2. Private enforcement is not just about compensation. Germany, which has a considerable number of private actions a year, provides an example where compensation cases are in the minority. Individuals harmed by violations of competition law are in a number of instances better placed to bring a case, typically because they have better information about the violation. They may also have the strongest incentives, for example where the anti-competitive act threatens the future viability of their business. Private enforcement should be as much about enforcement and deterrence as compensation.  It has the potential to act as an alternative to public enforcement (e.g. for abuse of dominance by behaviour to exclude rivals). Once this is recognised, the optimal division of labour between public and private enforcement becomes an issue – one which would best be discussed alongside the discussion about the optimal design of the public enforcement regime.
  3. Finally, the consultation document raises the possibility of extending super-complaint powers to SME bodies.  This is not the place to go in to details with the potential dangers in the proposal, mainly related to tacit collusion and coordinated behaviour. However, to discuss this without considering the possibility of individual self-help through private enforcement runs the danger of overlooking a simpler solution with fewer potential side effects.

One Response to Why Private Enforcement should be Reformed alongside Public Enforcement

  1. David Elliott says:

    Until the OFT demonstrates effect in cartel cases rather than asserting it based upon object I am afraid private enforcement will be a dead duck in the UK

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