23 Jun 2011

(by Andreas Stephan) The European Court of Justice (ECJ) has ruled that EU Law does not prohibit access to leniency documents by third parties seeking damages. Access should be determined according to national law, which must weigh the interests arguing in favour and against a disclosure of documents received under leniency. The possibility of such access being granted is a further way in which private enforcement could undermine public enforcement, raising the question of whether competition authorities are shooting themselves in the foot by encouraging such actions.

The Case

On 14 June 2011, the ECJ passed down its judgement in  (C-360/09) on a reference made under Article 234 EC from the Amstsgericht Bonn in Germany (decision of 4 August 2009). Pfleiderer was seeking full access to the file from the Bundeskartellamt, in relation to its 2008 cartel decision imposing a fine of €62 million on three European manufacturers of decor paper. Pfleiderer, a customer of the fined undertakings, was preparing an action for damages. The Bundeskartellamt refused access to leniency documents and the relevant evidence seized.

Pfleiderer took the Bundeskartellamt to court and on 3 Februrary 2009 the District Court of Bonn ordered the authority to grant Pfleiderer access to leniency documents, not including confidential business information, legal documents or correspondence through the European Competition Network. They ruled that Pfleiderer was an ‘aggrieved party’ in accordance with German law and that they had a ‘legitimate interest’ in obtaining access to the documents, as they were to be used in order to recover damages. The German court stayed the decision pending an Article 234 EC reference to the ECJ, to check whether allowing access to leniency documents would be compatible with EU law.

The ECJ recognised (at 26) that allowing access could compromise leniency programmes, but this could not defeat the well established right of individuals to bring a claim for damages caused by an infringement of competition law (C-453/99 Courage and Crehen and C-295/04 Manfredi). It is therefore up to national courts and tribunals to consider each application for access to leniency documents on a case-by-case basis, according to national law, and take into account all the relevant factors in the case.

Rules vary between member states, but the present judgement will focus claimants’ attempts to access leniency documents when preparing their private actions for damages. As pointed out in an insightful case note by , Pfleiderer could also have implications for access in the US, where courts have thus far not required production of foreign leniency statements to civil litigants.

Its Implications

The natural tension between leniency and private enforcement has been clear for some time. The principal attraction of being the first to self-report an infringement is complete protection from public liability. From the firm’s perspective, private actions for damages are an extension of public fines – their effect on the firm is the same. The greater the difference between immunity and the sanctions otherwise faced, the more intense is the incentive to race to the competition authority. Any uncertainty or departure from this simple incentive risks discouraging infringing firms from coming forward. This has dire implications for cartel enforcement. Since 2001 at least two thirds of European cartel cases have been uncovered through leniency. The present case creates a further reason to think twice before self-reporting: not only could the revealing firm have to pay damages, any evidence they provide through leniency could later be used against them to facilitate such claims.

These serious dangers to public enforcement make it seem rather strange that competition authorities are pushing for private enforcement with such enthusiasm. The European Commission, in particular, is determined to facilitate such actions, having published a , a , a consultation on and now a consultation on .

The right of EU citizens to recover damages for harm caused to them by competition law infringements is beyond doubt. The problem is that Pfleiderer appears unable to have brought the action successfully without access to the Bundeskartellamt’s leniency documents. Allowing access to leniency documents in such cases makes no sense at all, as the revealing firm might not have come forward had they known their leniency application would later be used against them. The decision risks suffocating both future public and private enforcement.

The European Commission has acknowledged the dangers and has suggested they can be dealt with by limiting the liability of the immunity applicant and providing leniency applicants with adequate protection against disclosure (White Paper at 19). They have suggested this should apply to all statements submitted by all applicants for leniency. However, it is questionable whether such measures would effectively protect leniency applicants while facilitating private enforcement. For one thing, around half the firms subject to cartel decisions benefit from immunity or some level of leniency. This would make it hard for claimants to recover damages in many cases. In addition, there are no US style treble damages, or cost rules which favour the plaintiff, making the protection weak in comparison to that afforded by the Antitrust Criminal Penalty Enhancement and Reform Act of 2004. There is also only a very weak threat of an ‘original’ action which does not follow on from a public case.

If competition authorities really care about injured parties, it would be a lot simpler if they paid out compensation from cartel fines in public enforcement. This could create a critical mass of expertise in calculating damages, afford full protection to the revealing firm and avert significant litigation costs. Such a move would not please lawyers or economics consultants, but the kind of work thrown their way through greater private enforcement adds little value to the law, to economics or to the wider economy.