Corporate & Securities Law

European Commission Publishes Proposals to Encourage Private Antitrust Litigation in the EU

By Sheppard Mullin Richter Hampton, LLP

On April 3, the European Commission ("EC") published its long-awaited "White Paper" or policy proposals to increase the number of private antitrust damages actions in the EU.  The White Paper sets out suggestions for concrete measures "to help victims of EU competition law infringements to get compensation for the harm they have suffered".  The EC's proposals are the result of extensive consultation and are in response to criticisms that there is a lack of effective redress for European businesses and consumers who have suffered from alleged antitrust injury.  The EC is keen to encourage a culture of private litigation in the EU but wants to avoid the excesses of US-style class actions.

After a period of public consultation ending in mid-July, the EC will take a definite view and draft a legislative proposal which will be subject to approval by the individual Member States, and also, possibly by the European Parliament.  The EU's legislative process is complicated, and there are a number of legal procedures the EC could choose to follow in order to implement its proposals.  Whatever legislative procedure is adopted, these remedies are at least 2  or possibly 3 years away from becoming effective. Below is a summary of the EC's key proposals:

Damages -  The EC recommends a system of single damages and not multiple damages.  The single damages will cover not only actual loss due to the alleged anticompetitive conduct but also the loss of profit resulting from it, for example, a reduction in sales.  Claimants will also have a right to interest payments.  Importantly, the EC raises the possibility of limiting the civil liability of amnesty applicants against "claims by his direct and indirect contractual partners" - this proposal is subject to further discussions.

Collective Redress -  The EC wants to avoid "class actions run by law firms for an unidentified number of claimants" and has suggested a combination of two complementary mechanisms of collective redress - (1) opt-in collective actions in which claimants expressly decide to combine their individual claims for harm they suffered into one single action, and (2) representative actions which are brought on behalf of the "identifiable victims" by qualified entities, such as consumer associations, state bodies or trade associations.  Individual Member States could either designate those qualified entities in advance or certify them on an ad hoc basis for a particular antitrust infringement.  These two types of actions are meant to complement each other to "avoid excessive litigation".

Discovery - The White Paper proposes a minimum standard of access to evidence in all Member States: all alleged victims of antitrust infringements should be able to ask the court to oblige the defendants to "reveal those pieces of evidence in its possession which are essential for the victims to prove their case for damages".  However, such disclosure will be subject to strict conditions and under the control of a judge.  For example, the claimant must have presented reasonably available facts to show plausible grounds for a case, the disclosure of the requested evidence must be truly necessary and proportionate, etc.  The EC does not want a situation "where defendants settle merely to avoid the heavy costs that excessive wide-ranging discovery can create".  Importantly, the EC also recommends specific protection of Corporate Statements by Leniency Applicants even when disclosure is ordered by a court.

Passing-On Defense / Indirect Claims - The EC wants to avoid defendants having to compensate both direct customers and final consumers for the same alleged illegal overcharge.  Therefore, the EC proposes that defendants "should be entitled to invoke the passing-on defense" against purchasers who may have passed on the overcharge to their own customers.  However, the EC proposals will make it easier for indirect purchasers to bring claims because they "should be able to rely on the rebuttable presumption that the illegal overcharge was passed on to them in its entirety".

Empowering Courts to derogate from normal cost rules -  The current costs associated with antitrust damages actions and Member States' cost allocation rules such as the "loser pays" principle have been a major disincentive to bring private claims in the EU.  The EC, therefore, encourages (i) Member States to design procedural rules fostering settlements as a way to reduce costs; (ii) to set court fees at a level so that they are not a disproportionate disincentive to antitrust damages claims; and (iii) give national courts the possibility of issuing cost orders derogating, in certain justified cases, from the normal cost rules, "preferably upfront in the proceedings".  Such cost orders would guarantee that the claimant, even if unsuccessful, "would not have to bear all costs incurred by the other party".

The EC has scaled back from its earlier more ambitious and radical announcements.  There will be no treble damages and no opt-out class actions - two best known features which characterize the US system.  However, there are concerns about the exact definition of "identifiable victims" who can bring representative actions, and the method of calculating antitrust damages which will be the topic of further guidance by the EC in the coming months.

Authored by:

Neil Ray

415.774.3269

nray@sheppardmullin.com

Full post as published by Antitrust Blog Review on April 07, 2008 (boomark / email).