17 Feb 2010
(by Sebastian Peyer) Speaking at the European Parliament last month, the new European Commissioner for Competition, Joaquín Almunia, disappointed those who had hoped for a stop to the contentious reforms of private actions for damages in Europe. However, ; keen to ensure sufficient safeguards circumvent the pitfalls of the US system. So what does the immediate future hold for private actions in Europe? Should businesses be worried and potential plaintiffs be optimistic?
For some years now, the European Commission has been heavily promoting damages claims for the violation of Art 101 and 102 TFEU (formerly 81 and 82 EC). Victims’ entitlement of damages for anticompetitive conduct was stressed by the European Court of Justice (ECJ) in Crehan (Case C-453/99,  ECR I-6297) and Manfredi (298/04,  ECR I-6619). The current draft Directive – which picks up on the White Paper proposals and the Green Paper discussion – is meant to take this forward. It contains measures concerning representative actions, disclosure of evidence to antitrust plaintiffs and regulation of the passing-on defence in order to ensure the right of compensation. The problem, however, is that greater private enforcement entails an increased cost to businesses and to society in the shape of legal costs. Although these result in compensation, they do not rectify the distortion caused to markets or add any ‘value’ to the wider economy except by affecting incentives for future breaches. Some might suggest those with the most to gain from greater private enforcement are the lawyers. As a result of such concerns, the previous Commissioner, Neelie Kroes, was anxious to stress the importance of safeguards to avoid the excesses of US litigation.
So should firms be worried if the new Commissioner pushes ahead with the (temporarily stalled) draft Directive? This depends on what Mr Almunia means by “carefully exploring” damages actions.
The key danger for firms is nuisance suits.
If a special procedure is introduced which applies only to private actions for breaches of Art 101 and 102 TFEU, there is a danger that innocent businesses will be drawn into antitrust cases. Such a procedure will give plaintiffs an advantage at trial, for example by allowing access to the defendant’s documents through disclosure. This does not exist for breach of contract or other compensation cases in most jurisdictions, creating an incentive for plaintiffs to give their cases an antitrust flavour. This danger of nuisance suits is heightened by the blurry line which generally exists between contract and antitrust disputes (most private antitrust actions originate from contract disputes). This kind of effect is evidenced in the US, where many private antitrust cases are actually contract cases with an antitrust spin, in pursuit of treble damages.
The proposed safeguards against nuisance suits are likely to be overly restrictive.
The first key safeguard is that documents in the possession of competition authorities will not be made available to victims if that would endanger public enforcement (e.g. leniency programmes). This is more about protecting the effectiveness of leniency than it is about controlling overzealous plaintiffs. Given the difficulty of original actions, as opposed to follow-on suits, this safeguard may smother any potential increase in private enforcement altogether.
The second safeguard is that collective actions should only be brought by qualified entities like, for instance, consumer protection associations representing an unidentified class of consumers, or by means of opt-in group actions requiring the identification of every member of the group. The experience of UK consumer group ‘Which?’ in bringing a collective action against the member of a replica football kit cartel, demonstrates how expensive and ineffective such procedures can be. In particular, the cost of advertising to encourage victims to opt-in proved prohibitively expensive and with limited return. While an opt-out system might encourage too much litigation, an opt-in system might keep the door to collective actions firmly shut.
The current draft Directive contains (some more) problematic measures and is far from being coherent. The two key safeguards outlined above may need to be relaxed in order for there to be any increase in actions for damages at all. This would however increase the danger to businesses of nuisance suits. Further careful consideration is needed to strike a healthy balance. If Mr Almunia sticks to his words and carefully explores the damages actions reform (revising the most obvious flaws), then firms may have little reason to worry about nuisance suits. On the other hand, this will not necessarily mean that plaintiffs will have reason to be too happy either.