Is the New EU Private Enforcement Draft Directive Too Little Too Late?

(by Sebastian Peyer) After a decade of debate, consultation and guidance papers, DG Competition has finally released its draft Directive on actions for damages. It has been driven by the Commission’s desire to encourage private antitrust enforcement, currently deemed too low and mainly restricted to a small number of Member States, and the need to ‘optimise the interaction between public and private enforcement’. This second objective seeks to maintain the incentives for private firms to reveal cartels in return for leniency and engage in settlement procedures. A particular threat is posed by disclosure of leniency documents to third parties (e.g. Pfleiderer and National Grid). However, with rapidly developing litigation on the national level, there is a danger that aspects of the draft Directive are already behind the times.

The draft Directive was preceded by two consultations, the Green and the White Paper, reports, a never published draft Directive under the reign of Neelie Kroes and a guidance paper on the quantification of harm in antitrust disputes. The latest output from the Commission is accompanied by a Communication of the Commission on the quantification of harm and a Collective Redress Initiative. The varying national civil procedural rules have been identified as the main obstacle to effective compensation in civil law disputes.

What has been proposed in the draft Directive?

  • The draft Directive restates the right to full compensation that was established in Courage and Manfredi.
  • Article 5(1) introduces directed disclosure between the parties while Article 6 excludes settlement information and leniency statements. Article 7 protects leniency or settlement information held by one defendant which had been obtained through access to the Commission’s record from another defendant.
  • Article 9 declares agency decisions binding in follow-on cases before the national courts.
  • The Commission seeks to extend and suspend limitation periods in Article 10.
  • Firms shall be jointly and severally liable for the harm they have caused through joint behaviour according to Article 11(1). However, Article 11(2) removes joint and several liability from the leniency applicant. The immunity recipient shall only be liable to direct or indirect trading partners. However, if other cartel victims are unable to obtain full compensation from the remaining infringers, they may turn to the leniency recipient. Contribution between the leniency receiving firm and other cartel members is limited to the harm the leniency applicant has caused to direct and indirect purchasers or buyers.
  • Article 12(1) of the draft Directive makes it clear that defendants can invoke the passing-on defence unless it is ‘legally impossible’ for the claimant to show that a passing-on took place (Article 12(2)). Indirect purchasers are to show that they actually suffered harm through passing-on but a rebuttable presumption comes to help. Passing-on is assumed if the defendant violated competition law, the infringement resulted in an overcharge and the plaintiff purchased affected goods or services. Member State shall assure that courts take into account related damages actions (Article 15) when considering damages.
  • Article 16 proposes a rebuttable presumption that harm has occurred as the result of a cartel infringement.
  • Article 17 and 18 encourage consensual dispute resolution by suspending limitation periods for as long as the dispute resolution process lasts. Non-settling co-infringers cannot retrieve contribution from the settling infringer.

Are these provisions all still relevant?

The scope of the draft directive is rather disappointing considering the time, money and effort that has already been put into this reform. It is a far cry from the Commission’s objective to facilitate compensation claims. The proposal comes at a time when private litigation is rapidly evolving in the Member States. Binding rules for follow-on cases, rules on standing for indirect purchasers and limitation periods have been or are being adjusted in national jurisdictions. The German Federal Court of Justice has ruled on the passing-on defence (ORWI) and the UK Competition Appeal Tribunal awarded punitive damages in a follow-on damages case in 2012 (Cardiff Bus). The new draft Directive may, if it comes into force, require a reassessment of questions that have already been settled in some Member States.

The access to the defendant’s file may sit awkwardly in some civil law jurisdictions. The proposed relevance and proportionality test for the disclosure of files does not differ much from the disclosure standard under US Federal Rule of Civil Procedure 26(b)(1) – a fairly broad test! The impression prevails that the Commission seeks to constrain the onslaught on its records and files. It is also interesting to note the order in which the ‘optimising’, meaning protection of public files, and ‘compensation’ objectives are dealt with. The protection of leniency applicants from joint and several liability can help to maintain their incentives to co-operate. But the proposed rule is inconsistent. In the worst case scenario the leniency applicant has to await the end of all (!) private damages claims, before he knows whether or not the claimants have obtained full compensation from other cartel members, or are likely to pursue him. This may reduce the incentives for firms to voluntarily disclose information to the agencies.. The concept of ‘legally impossible’ with which the Commission seeks to bar defendants from invoking the passing-on defence is also ambiguous. It is likely to encourage satellite litigation. The courts would have to second-guess the application of causation and other rules in a hypothetical legal proceeding in order to determine whether or not an indirect purchaser suit is legally impossible (as opposed to economically not viable).

Overall, the draft Directive can facilitate litigation for those businesses that are already willing to seek a court-imposed remedy. However, the proposals do not provide more incentives for small and medium-sized companies or consumers to actually bring costly damages actions – one of the main declared  goals of this reform (let us assume that this is a desirable goal). The draft Directive hardly addresses the real issues: costs, funding and class actions. In all fairness, with respect to class actions it makes a lot more sense to seek a common civil law approach. While the proposals do not do much to facilitate compensation for consumers, they could have been more effective at guarding government documents and protecting agency information.

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