By Sonsoles Prieto, EU competition law practitioner, London*
EU Member States are nearing the deadline to implement the EU Damages Directive. This directive aims to empower consumers and small businesses to seek damages from parties who violate competition law.
Although the need for such a directive was questioned in the past, the current perspective has significantly shifted. Nevertheless, adapting to this new approach presents ongoing challenges.
Background
Adopted in December 2014, the Directive mandates that all EU and EEA member states ensure individuals and entities impacted by competition law violations can claim and receive full compensation for their losses. This right to claim damages applies even in cases where the European Commission has already imposed fines on the offending parties.
With a December 2016 deadline for implementation, Member States are incorporating significant changes into their national legislation, including provisions for file disclosure, class actions, joint and several liability (excluding leniency recipients), and a clear assumption that cartels lead to losses or pass-on effects.
Interestingly, this new regulation emerges as US courts scale back their extraterritorial jurisdiction in antitrust cases, as seen in Motorola Mobility v. AU Optronics, signaling a potential shift in the global antitrust landscape.
Class actions
Alongside the Directive, the Commission issued a recommendation encouraging member states to streamline collective redress options for victims of antitrust activities by July 2015. The Commission plans to implement further harmonized measures by summer 2017 if necessary.
While the UK already allows for opt-out class action lawsuits, thanks to the Consumer Rights Act of 2015, the possibility of a shift toward a US-style approach might have influenced the Commission’s recommendation to prioritize opt-in procedures.
The decision between opt-in and opt-out frameworks carries significant weight. The potential claimant should first consider whether a claim justifies the substantial time and expense, including legal representation and economic expertise.
This presents two key points: (i) the Directive aims to assist consumers and small businesses in obtaining compensation and (ii) Opt-out mechanisms are often critical for class action lawsuits involving small individual claims. This raises the question of whether a claims aggregator could bridge this gap.
The phantom menace of US class actions
The EU and US class action systems differ fundamentally in their goals: the EU emphasizes corrective justice through legal means, while the US prioritizes preventing future infringements.
The US has a long history of deterring companies from violating antitrust rules, going beyond mere compensation for losses.
Conversely, the Commission views private damages enforcement as a means of achieving corrective justice through compensation for losses, though not exclusively. The Commission emphasizes that private enforcement should complement public enforcement without diminishing the effectiveness of tools used by competition authorities, particularly leniency and settlement programs.
Unfortunately, neither the Directive nor the preceding Green Paper clearly prioritizes one of these contrasting goals, leading to confusion within an already complex EU legislative framework.
Concerns about the potential excesses of US-style class actions appear to have driven the EU to prohibit contingency fees and restrict damages to the actual harm suffered. The Commission’s decision to limit damages to proven harm (including lost profits and pre-judgment interest but excluding treble damages: Article 3 of the Directive) also deviates from the US model.
While some within the Commission express concern about potential excesses in the US system, antitrust and competition law continually evolve. The US approach to damages has undergone refinements over time, such as more precise criteria for evaluating standing and pleading requirements, mandatory causal link rules, and recent amendments allowing parties to challenge class action certifications promptly. These changes help prevent unfair settlement practices regardless of a claim’s merit.
Therefore, the Commission’s safeguards, including the protection of leniency programs and file disclosure, prioritize public enforcement of competition law over private action, rather than solely focusing on preventing potential excesses of US-style class actions. However, criticism of the Directive highlights its failure to achieve its primary objective of consumer protection through compensation.
Are damages claims assets?
Article 2.4 of the Directive allows for purchasing claims from victims of competition law infringements, opening the door for profit-driven entities specializing in claim aggregation (a practice already prevalent in the US) to enter the European judicial landscape. These third parties acquire the rights of multiple consumers harmed by a single infringement to bring a collective lawsuit.
The funding mechanisms for these new players raise questions, particularly how they differ from the US contingency fee system. The underlying rationale, however, might be uncomfortably similar for some European officials: the need for viable litigation financing options.
Despite its commitment to encouraging consumer lawsuits for competition law violations, the Commission acknowledges the difficulties faced by consumers and small businesses due to substantial legal costs and risks. Claims aggregators offer to purchase damages claims for a fixed price plus a variable amount contingent upon success, raising questions about its similarity to contingency fees.
Practical significance
The European market is becoming increasingly appealing to third-party entities specializing in pursuing follow-on actions in antitrust cases. Every competition infringement could lead to a class action lawsuit. However, litigation is inherently risky, and despite early enthusiasm, a cautious approach to class action case selection is critical.
Significant financial resources are crucial for these third-party entities. Recent judgments, such as the substantial claim by CDC in the German cement cartel case where the Higher Regional Court of Dusseldorf rejected the class action due to insufficient funding for the proposed financial vehicle, highlight the necessity of a robust economic foundation.
Consequently, international outsourcing entities are emerging in the European market to offer solutions for victims of competition infringements. Examples include the joint venture between Burford and Hausfeld, as well as Bentham, a major competitor of Burford that financially backs class action lawsuits against Volkswagen AG and Tesco.
These examples likely represent the beginning of a surge in activity. Other potential cases include the UK pensioners’ class action seeking damages from Pride Mobility Products for competition law breaches and possible actions for damages related to Libor submissions (involving banks like the Royal Bank of Scotland), FX manipulations, and the Melco and Hitachi car parts cartel.
Conclusion
The EU’s antitrust efforts focus on preventing, restricting, or eliminating competition law violations, with consumer protection as the ultimate goal. The new legislation will likely result in a rise in private competition class action lawsuits in Europe. Early rulings will set precedents and potentially bring further cases to light.
However, the hope is that the Commission’s concessions to public enforcement, such as leniency programs and file disclosure, will not hinder the Directive’s primary objective: encouraging consumers and small businesses to file lawsuits and receive compensation. Undeniably, this serves as a warning to potential antitrust violators, who may face more severe financial repercussions, even though deterrence is not the central objective.
*Reblogged from the Anti-Trust and Competition Law blog
Barnard & Peers: chapter 17
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