Virtually each dispute over claims for damages resulting from an infringement of competition law includes the question of how to deal with the fact that a direct purchaser from an infringer might have passed on all or part of the illegal overcharge to its own customers and thus, directly or indirectly, even down to the final consumer. The European Commission has therefore, in light of Article 16 of the EU Damages Directive on antitrust damages actions, invited views and comments on its Draft Guidelines for national courts on how to estimate the share of cartel overcharges passed on to indirect purchasers and final consumers by 4 October 2018.
In particular, the Draft Guidelines rely on the provision under the Damages Directive that the infringer shall invoke the passing-on of the overcharge as a defence against a claim for damages, by arguing that the claimant had reduced its actual loss by passing it on (Article 13). Otherwise, it might amount to unjust enrichment from ‘over-compensation’ of a claimant. This shall be avoided (Article 12). Besides, denying use of the passing-on defence could imply that the infringer would risk having to compensate the overcharge more than once. This would be the case if both the direct purchaser, who suffered from the initial price increase, and the indirect purchaser, to whom the overcharge was passed on (for the standing of the indirect purchaser, see Article 14), claim damages for the same illegal price increase. Such a ‘multiple liability’ of the infringer shall be avoided too (Article 15).
Risk of an unlawful absence of liability
However, the Draft Guidelines do not mention the case where the passing-on defence shall be used against the claimant, while no or very few purchasers downstream of the claimant bring a damages case, e.g. because the damage is too small and/or too difficult to prove. This especially concerns, but is not limited to, final consumers to whom the Draft Guidelines refer repeatedly. Having small and scattered damage only, and a long causation line to the infringement, it is typically not reasonable for final consumers to sue the infringer for such damages themselves.
This scenario concerns any assessment of passing-on in antitrust damages cases, because, pursuant to Damages Directives Articles 12(1) and 15(1), an ‘absence of liability of the infringer’ must be avoided as well.
Passing-on of scattered damages – a hot potato before the national courts
There are many judgments on what may be called a ‘reasonableness test’ already, especially in those Member States with the most activities in private antitrust enforcement. Accordingly, the passing-on defence is inapplicable in cases where the infringer otherwise, unreasonably, would not have to fear any compensation claim, because the claimant passed on small and dispersed damages to a multitude of final consumers who typically have no interest in pursuing expensive legal actions for claiming those damages themselves. For this, see for example:
- In Germany, on the Rail Track Cartel, the Higher Regional Court of Munich, judgment of 8 March 2018 (at para. 81); the Regional Court of Frankfurt, judgment of 30 March 2016 (at C I 1 b dd (2)); the Regional Court of Hamburg, judgment of 1 September 2017 (at the end of para. 54), as well as, on the Trucks Cartel, the Regional Court of Dortmund in its judgment of 27 June 2018 (at paras. 169 to 173);
- In the Netherlands, the District Court of Gelderland in its judgment of 10 June 2015 (at paras. 2.28 to 2.29) on the Gas Insulated Switchgear Cartel;
- In the United Kingdom, the Competition Appeal Tribunal in its judgment of 14 July 2016 (at para. 484(4)/(5)) on anti-competitive interchange fee arrangements.
The Commission’s guidelines should take into account that the risk of an absence of liability is of particular practical relevance. In a case in which any potential claim becomes either so fragmented or else so impossible to prove that the end-result is that the defendant retains the overcharge in default of a successful claimant or group of claimants, there is obviously no need to protect the infringer against multiple compensation. As regards the argument related to the ‘unjust enrichment’ of the claimant, this is outweighed by the fact that those who violate competition law would retain the fruits of their illegality, if the claimant was barred from compensation by the passing-on defence and, as a matter of fact, none or just a fraction of the harmed purchasers downstream brought suit against them instead. Such an absence of effective liability contradicts the principle of full compensation and impedes any deterrent effect of private actions for antitrust damages. The effectiveness of the competition rules under Articles 101 and 102 TFEU would be substantially and hence unduly reduced. Under such circumstances, the passing-on defence must not be allowed. To avoid an absence of liability of the cartelists, there is no other solution, provided that an effective mechanism of collective redress is not available, or not used for whatever reason, in the case at hand.
The Draft Guidelines describe the legal framework applicable to passing-on in chapter 2. This seems to be the right place to further clarify in the final version of the guidelines that:
- Firstly, the passing-on defence cannot be invoked against a claimant to the extent that otherwise any claims downstream of that claimant are either so fragmented or else so impossible to prove that, if successful plaintiffs or group of plaintiffs on that level do not exist, the end-result would be an ‘absence of liability of the infringer’ (Articles 12(1), 15(1) Damages Directive) or a similar, significant, reduction of its liability. This would be contrary to the EU legal principles of both full compensation and effectiveness of EU competition law;
- Secondly, for the passing-on defence against a claimant to succeed the infringer shall address the risk of an absence or significant reduction of liability, by demonstrating the existence of (sufficiently enough) other plaintiffs, or groups of plaintiffs, asking for damages on the downstream level, in order to ensure the principle of full compensation for the harm caused by the infringement of competition law on the different levels of the supply chain. This shall take place in line with the relevant national standard of proof, taking into account the infringer’s burden of proof (Article 13 Damages Directive), the particular relation of this burden of proof to the question of whether actions for damages related to the same infringement are brought by claimants from other levels in the supply chain (Article 15(1)(a) Damages Directive), and the fact that the infringer is best placed to know whether or not anybody else has sued him for damages;
- Thirdly, it may be assessed, on a case-by-case basis, whether there is an effective collective redress mechanism which as a matter of fact is used by plaintiffs downstream of the claimant. In case of doubt, given that the Damages Directive itself does not exactly require Member States to introduce collective redress mechanisms for the enforcement of EU competition law (Recital 13), while explicitly forbidding an absence of liability of the infringer (Articles 12(1) and 15(1)), any conflict between the Directive’s objectives of avoiding over-compensation on the one hand, and under-compensation or even an absence of liability on the other hand, must be solved to the disadvantage of the infringer of EU competition law.
For more detail, please see CDC’s contribution to the public consultation by the European Commission on the Draft Guidelines.
By Carsten Krüger