The merits of private enforcement of competition law have been thrust onto Europe’s agenda in the last couple of years. The European Commission, led by antitrust tsar Neelie Kroes, is behind the push. It seeks to encourage private litigation, alongside existing public enforcement, as an added deterrent to infringers to create a fairer overall business climate.
“Businesses and consumers in Europe lose billions of euros each and every year as a result of companies breaking EU antitrust rules. These people have a right to compensation through an effective system that complements public enforcement, whilst avoiding excessive burdens and abuses,” says Kroes on the Commission’s website.
The Commission is trying to make it easier for private parties to bring damages actions before the national courts of the member states for breach of European antitrust rules. But in most EU countries, private antitrust actions have been extremely limited. In Europe, unlike the USA, competition law is mostly enforced by national and international competition agencies – awards for damages at the initiative of private parties are far less common.
But in the Commission’s view, European businesses and citizens harmed by unlawful action should not have to wait for a public body to intervene. Their rights should not solely be protected by public enforcement – they should be able to defend and assert those rights themselves without obstacles standing in the way.
This year, the Commission published a White Paper suggesting measures to help victims of infringements access effective redress mechanisms. “The White Paper that was recently unveiled by the Commission will lead to significant legal changes in some member states,” says Uría Menéndez competition partner Alfonso Gutiérrez. “In Spain people are certainly contemplating its implications, and the fresh 2007 Competition Act has introduced certain amendments to facilitate private enforcement.”
The Commission may hope to encourage more victims of antitrust infringements to bring private claims. The problem is that, historically, injured third parties in Europe have been disinclined to take cases to the national courts. Too many hurdles stand in their way. The Commission is looking at ways to remedy this.
The key issue is creating economies of scale so large enough groups of businesses or citizens are able to get together and bring a viable claim. This could be through a representative action where a central body – a consumer or trade association for example – brings the claim on behalf of a number of people, or a collective action where individual claims are banded together without a representative body leading it. Various other measures aimed at reducing the cost and risk of bringing claims have also been put forward. “The European Commission sees getting money back for victims of cartels as the job of the private sector,” says Vincent Smith, a partner specialising European competition law at Cohen, Milstein, Hausfeld & Toll in London.
“They think there hasn’t been enough of it and they want to do more to promote it.” National competition bodies, across the EU’s member states, have been generally supportive of the Commission’s move. “People have had the right to recover damages for a breach of EC competition law since the UK joined the EC in 1973. Since 2000 they have had similar rights under domestic law,” a spokesman for Britain’s Office of Fair Trading (OFT) points out.
“A two-tier system has always existed. The public authorities have pursued competition violations in the public interest, whereas the victims are businesses and consumers – they are entitled to claim compensation. The European Commission and the OFT have taken an interest in this issue because people have a right to claim, but find it too difficult or complicated to do so. For these reasons – but perhaps also because people are not aware of their rights – consumers in the UK are generally not recovering the damages they are entitled to. Something should be done about the barriers to effective redress for consumers and businesses, without encouraging speculative claims.”
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The trickle of private claims across member states has increased a little in the last few years. The European Commission’s initiative could turn that trickle into a flood within a decade. “I anticipate an explosion in private litigation cases, but that will happen in about five years’ time,” says Oriol Armengol, a partner specialising in EU and Competition Law at Perez-Llorca. “It represents a big change in competition law in the future.”
Armengol says Perez-Llorca is pursuing two private litigation cases at present. One involves abuse of dominant position, the other relates to wireless telephony IP rights. Other member states are witnessing occasional private cases that could set precedents for the future.
Last year, the Austrian Chamber of Labour initiated damages claims on behalf of customers at five driving schools in the city of Graz. The schools had secretly agreed to charge a certain price for specific courses. “For the Austrian economy it’s not a very detrimental case. But it was a cartel nonetheless and the driving schools involved have been fined. It sets a very nice precedent for claimants,” says Franz Urlesberger, a Vienna-based competition partner at Schönherr. “It has had an impact on our future strategy as we expect more cases of its kind.”
In the UK, engineering conglomerate Emerson Electric is seeking private damages from carbon manufacturer Morgan Crucible, after it admitted participating in a graphite products cartel.Morgan Crucible had owned up in return for leniency from the European Commission. But the subsequent “follow-on” damages claim was brought by Emerson Electric against Morgan Crucible after the UK Competition Appeal Tribunal granted permission for the claim to be made in November 2007.
The case serves as an example of the kind of obstacles that the European Commission needs to legislate around. In seeking to encourage greater private enforcement it could undermine the leniency regime – because a cartelist that seeks leniency is the obvious target for all subsequent private damages claims.
But some EU countries may have longer to wait. “Private enforcement front is not yet on the radar in Portugal,” says Gonçalo Machado Borges, senior associate with the EU and competition law practice group at Morais Leitão, Galvão Teles, Soares da Silva & Associados, based in Lisbon. “There have only been a few cases because it costs so much money and because the outcome is so uncertain,” says Jane Wessel, a counsel at Crowell & Moring’s London office. “These cases are in their infancy on this side of the Atlantic. There are a few critical questions on which the law has yet to opine that could completely nix a case that otherwise looked very strong.”
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The Commission’s proposals have generated controversy. Kroes has faced accusations that she is imposing ideas imported from the other side of the Atlantic at the expense of long-standing European legal traditions. It’s a charge she denies. “The aim is to enhance the possibility of collective actions by consumer organisations but avoid excessive levels of litigation, speculative lawsuits prompted by ambulance-chasing lawyers, and an avalanche of unmeritorious claims,” she said in a keynote speech two years ago.
But Joseph Vogel, senior partner, Vogel & Vogel in Paris, is sceptical. “The Commission believes that it is necessary to increase private enforcement but this idea is not well founded. It is always dangerous when a common idea is believed to be true and nobody asks if it’s really a good idea. Competition law should not impede the efficiency of undertakings by submitting them to too many proceedings.
In Europe we already have very strong public enforcement of competition law. In the last few years, fines relating to Article 81 have increased substantially,” Vogel says. The rise in fines imposed by the European Commission in the last three years supports this point. In 2007, it imposed fines totalling €3.3 billion. This is almost double the amount imposed in 2006, which totalled €1.8 billion. In 2005 fines issued by the Commission amounted to €0.8 billion.
“The tremendous increase in fines shows how effective the competition laws have been,”Vogel continues. “Where is the necessity to add private enforcement when public enforcement works so well?”
“Private enforcement is a pillar of competition law in the United States, but it is not a good idea to import American law into European law. The two systems are quite different. Private enforcement is strong in the United States because public enforcement is not so important. This is the logic of the American system, but Europe has an alternative logic. In Europe, public enforcement is the pillar of our system – the state has substantial powers of investigation – and private enforcement is ancillary,” Vogel adds.
Britain’s OFT also dismisses claims that the Commission is cutting-and-pasting American precedents into the Europe’s legal system. The UK has a completely different legal system to that in the USA. It does not have jury trials or treble damages. In the US, the plaintiff is entitled to three times the damage they suffer,” the OFT spokesperson says.
“The Commission and the OFT propose representative actions led by consumer bodies that bring the case on behalf of consumers. This is different from US class actions where one person, often sponsored by a law firm, can claim on behalf of the whole class of persons affected. The loser pays rule is another important factor. In the USA, if you lose in antitrust cases, you are not liable to pay the other parties’ costs. In the UK, you are on the hook.”
The Commission’s proposals have, unsurprisingly, met a less than favourable response from Europe’s corporate sector. “The proposals have generated a fair amount of controversy. It’s fair to say that big industry is relatively hostile,” says Cohen Milstein’s Vincent Smith. “I suspect it’s because they see themselves being faced with liabilities they thought they’d got away with.” Should the number of private claims surge then Europe’s leading law firms – with rafts of top corporate clients – are likely to find themselves defending those clients’ interests (as opposed to acting for claimants).
“Most of my major international clients recognise this as a growing risk area,” says Jon Lawrence, a leading competition partner at Freshfields. The Londonbased firm’s competition group is encouraging younger partners to focus their practices on the risks presented by private litigation. “Civil liability lawsuits are already a problem for multinationals in the United States. The question is whether this tide of litigation will come into Europe,” Lawrence continues.
“In terms of my own practice, I’m seeing a gradual but steady increase in the number of damages claims brought on behalf of those who claim to be damaged by cartels.”