Commission's Private Enforcement White Paper expected soon

With comment from Michael Sanders, partner at Linklaters

In December 2005 the European Commission published a Green Paper and Staff Working Paper on facilitating private actions for damages for breaches of EC competition law. The Green Paper set out a number of possible options by which the current legal framework could be altered. Following the consultation draft, the EC will publish their recommendations on private actions in a White Paper due to be issued shortly.

The Green Paper focuses on damages actions as a means of private enforcement of EC competition law and highlights the purposes which would be served by increased damages actions. It is argued that victims of anti-competitive behaviour would be better compensated for the loss which they have suffered if private actions were more prevalent. At the same time, it is said that the possibility of private actions would provide greater deterrence of anti-competitive behaviour.

The overall effect of the proposals discussed in the Green Paper would, if adopted, be to move the EU much closer to the US by fostering an environment in which private litigation for antitrust infringements is commonplace.

Addressing obstacles faced by potential litigants

The Green Paper highlights a number of factors which have contributed to the dearth of private actions for infringements of competition law to date. A number of ways in which the barriers facing potential claimants might be addressed are considered.

Potential claimants currently face obstacles when seeking access to evidence. Often, the relevant evidence is primarily within the control of the infringing party. The Green Paper raises the question of whether there should be special rules with regard to the disclosure of documentary evidence, and presents a number of options as to the operation of these rules. Provision for access to documents held by National Competition Authorities is also considered. Leniency applications are highlighted as a potential exception to any obligation which may be imposed on a party to turn over documents which have previously been submitted to a National Competition Authority.

The burden of proof which should apply in cases of private enforcement is discussed. In particular, the Commission invites views as to whether the claimant's burden of proving the infringement of competition law should be alleviated, and if so, how that may be done. Among the options put forward are that decisions by National Competition Authorities should be universally binding on civil courts, or that where such a decision has been made, the burden of proof is reversed and placed upon the defendant. In recognition of the difficulties which potential claimants face when seeking access to evidence, a further option proposed is that in cases of "information asymmetry", the burden of proof could be shifted or lowered. Further, if a party refuses to turn over evidence for no justifiable reason, this could influence where the burden of proof should lie.

The Commission opens the debate on whether there should be a requirement to prove fault on the part of the defendant, that is, whether proof of the infringement should be sufficient in all cases or only in the most serious cases.

The question of the damages which should be available in private actions raises two separate issues. First, the Commission seeks view as to how damages should be defined. Three possibilities are put forward: restrict damages to compensating the claimant for the loss it has suffered, define damages by reference to the illegal gain made by the infringer or to introduce punitive double damages for horizontal cartels. Interest could either run from the date of the infringement or the date of the injury. Second, the method of quantification of damages is opened for discussion. Views are invited as to whether complex economic models should be used, and whether the court should have the power to adopt an equitable approach when assessing the amount of damages to be awarded.

The Green Paper opens for discussion the question of whether defendants should be permitted to use the passing on defence, that is the argument that the claimant did not suffer any loss because the overcharge was passed on to its customers. In this connection, whether those final customers should be able to bring claims is also considered. It is noted that the availability of this defence substantially increases the complexity of damages claims, and indirect customers, in particular, face evidentiary problems.

Collective actions are discussed as a means of providing an incentive to individuals to bring claims in the face of potentially high litigation costs. Only rarely will the damage suffered by an individual be greater than the potential costs of litigation. The Commission notes that the availability of collective actions is not only likely to lead to better protection of consumer interests, but also to save time and money, by consolidating many small claims into one action. In recognition of the fact that potentially high litigation costs are likely to operate as a disincentive for potential claimants, the Green Paper opens discussion on the possibility of introducing special rules to reduce the risk faced by a potential claimant.  It is suggested that a rule be formulated such that unsuccessful claimants would only pay costs if they acted in a manifestly unreasonable manner.

The Commission emphasises that increased private enforcement should not result in decreased public enforcement. It seeks optimum coordination of private and public enforcement. This is recognised as particularly important in the context of leniency applications. In order to ensure that the effectiveness of leniency applications is not compromised, a number of options are put forward. These include ensuring that leniency applications are not discoverable, offering a conditional rebate on any damages claim against the leniency applicant, and excluding leniency applicants from joint liability.

Other issues raised by the Green Paper are how to determine the applicable law, the use of experts and whether parties should be required to agree on an expert appointed by the court, whether limitation periods should be suspended in order to ensure that claims can be brought (an issue which is particularly pertinent in the context of follow-on actions), and whether it is necessary to clarify the legal requirement of causation.

Michael Sanders, partner at Linklaters, commented:

"Some of the options discussed by the Commission would represent a fundamental and radical departure from the status quo.  The adoption of such proposals would create a very specialised EU-wide antitrust litigation framework quite unlike anything we have seen in any other area of European law.  The Commission will need to be careful to balance the desire to encourage private enforcement of competition law against the very real risk of promoting a US style system of opportunistic litigation."