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A Legal Approach to the Kone Decision: Does the Private Enforcement of European Competition Law Need an Umbrella?

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Abstract

With the recent Kone judgment, the European Court of Justice has faced a debate on the admissibility of actions for damages suffered as a consequence of the umbrella effect in the private enforcement of European competition law. In particular, the Court was questioned about whether the right to compensation for damages suffered by the victims of a cartel is also valid for the customers of an undertaking not party to that cartel which decided to raise the prices of its own products above the normal market price under conditions of competition, taking advantage of the price distortion produced by the cartel. Recognizing this right to compensation suggests the likelihood of damage claims, even when those impacted by the anticompetitive practice are not in any way linked to business activities that infringe competition rules. From a legal perspective, serious doubts arise concerning the acceptance of such umbrella damages and the possibility of proof in private enforcement proceedings, especially concerning proof of the link between the anticompetitive conduct and the damages.

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Notes

  1. On 10 November 2014, the Council finally adopted the “Directive of the European parliament and of the Council on certain rules governing actions for damages under national law for infringements of the competition law provision of the Member States and of the European Union” (Directive on Antitrust Damages) [2013/0185 (COD), O.J. L 349/1–19, 5.12.2014], after a long processing of the Proposal COM(2013) 404 final, 2013/0185 (COD), 11.06.2013, and the introduction of several amendments. The final text corresponds to the corrigendum adopted without a vote at the European Parliament’s plenary session, on 21 October 2014. Once the Directive was signed into law and published in the Official Journal, Member States have two years (up to 27 December 2016) to bring into force the laws, regulations and administrative provisions necessary to comply with the Directive.

  2. ECJ (Fifth Chamber) ruling of 5 June 2014, Case C-557/12, Kone AG, Otis GmbH, Schindler Aufzüge und Fahrtreppen GmbH, Schindler Liegenschaftsverwaltung GmbH and ThyssenKrupp Aufzüge GmbH v. ÖBB Infrastruktur AG, [ECLI:EU:C:2014:1317]. For the official headnotes, see 45 IIC p. 1003 (2014), doi:10.1007/s40319-014-0278-8.

  3. Although the Courage judgment is considered to be the basis for the recognition of the right for damages suffered as a consequence of antitrust violations, we must also take into account some other previous ECJ judgments, such as Case C-234/89, Stergios Delimitis v. Henninger Bräu AG, [1991] ECR I-00935 (sp. para. 45); Case C-127/73, Belgische Radio en Televisie and Société Belge des Auteurs, Compositeurs et Éditeurs v. SV SABAM and NV Fonior, [1974] ECR 00051 (sp. para. 16). These early decisions dealt with the topic in quite a general way, considering that Arts. 101 and 102 TFEU “produce direct effects in the relations between individuals and create rights for the individuals concerned which the national courts must safeguard” (Kone judgment para. 23).

  4. As stated in the ruling of the ECJ Joined Cases C-6/90 and C-9/90, Andrea Francovich, Danila Bonifaci and others v. Italian Republic, [1991] ECR I-05357: “Just as it imposes burdens on individuals, Community law is also intended to give rise to rights which become part of their legal patrimony. Those rights arise not only where they are expressly granted by the Treaty but also by virtue of obligations which the Treaty imposes in a clearly defined manner both on individuals and on the Member States and the Community institutions” (para. 31).

  5. Opinions of Advocate General van Gerven of 27 October 1993, with regards to the ruling of the ECJ in Case C-128/92, H.J. Banks & Co. Ltd v. British Coal Corporation, [1994] ECR I-01209, are illustrative in this sense. More accurately, the AG states that when an individual infringes a provision of Community law to which he is subject, thereby causing loss and damage to another individual, it implies the “breach of a right which an individual derives from an obligation imposed by Community law on another individual (…). [T]he full effect of Community law would be impaired if the former individual or undertaking did not have the possibility of obtaining reparation from the party who can be held responsible for the breach of Community law – all the more so, evidently, if a directly effective provision of Community law is infringed. (…) [S]uch provisions of Community law as have direct effect in relation to individuals include Articles 85 and 86 of the EEC Treaty (…) When an undertaking subject to those rules infringes them, it can be held responsible for that infringement (…) and it must be held liable for the loss and damage resulting from that breach of Community law” (para. 43).

  6. ECJ ruling of 20 September 2001, Case C-453/99, Courage Ltd v. Bernard Crehan and Bernard Crehan v. Courage Ltd and others, [2001] ECR I-06297.

  7. ECJ ruling of 13 July 2006, Joined Cases C-295/04 to C-298/04, Vincenzo Manfredi v. Lloyd Adriatico Assicurazioni SpA; Antonio Cannito v. Fondiaria Sai SpA; and Nicolò Tricarico and Pasqualina Murgolo v. Assitalia Spa, [2006] ECR I-06619.

  8. ECJ ruling of 14 June 2011, Case C-360/09, Pfleiderer AG v. Bundeskartellamt, [2011] ECR I-05161.

  9. Judgment of the Court (Grand Chamber) of 6 November 2012, Case C-199/11, Europese Gemeenschap v. Otis NV and Others, [not yet published]; appeal case before the General Court T-141/07, Case C-494/11 P Order of the Court (Sixth Chamber) of 15 June 2012, Otis Luxembourg Sàrl and Others v Eurpean Commission.

  10. This special interest has been underlined with the publishing of the European Parliament resolution of 2 February 2012 (2011/2089(INI)), “Towards a Coherent European Approach to Collective Redress” and the publishing of an independent study about this kind of actions, conducted by Prof. Paolo Buccirossi, “Collective Redress in Antitrust” (available at: http://www.europarl.europa.eu/RegData/etudes/etudes/join/2012/475120/IPOL-ECON_ET(2012)475120_EN.pdf).

  11. “This implies that one needs to be interested in all effects of competition law violations and cannot assume a priori that relevant harm only occurs on certain levels of a vertical chain”, Maier-Rigaud (2014a). However, the cases in which a cartel produces effects outside the vertical chain of supply of the product are not limited to the cases of umbrella effects. Their consequences can also be considered in the case of complementary products. In those cases, the price increase of one of the products (as a consequence of the cartel) implies normally that the demand of the complementary good decreases. This situation generates losses for the producers of this second group of products that have not taken part in the cartel. To face this situation, the producer of this complementary good will be constricted to reduce the price of its own products, suffering a double damage as a consequence of the cartel: the one of the reduction of the sales and the one of the price depression.

  12. Maier Rigaud (2014a).

  13. In fact, the literature that we can find about umbrella pricing offers an eminently economic approach, avoiding the legal analysis of those effects. Among the main contributions, we can point out the studies of Beth and Pinter (2013); Blair and Maurer (1982); Hansberry et al. (2014); Roman Inderst, Frank Maier-Rigaud and Ulrich Schwalbe, “Umbrella Effects”, IESEG Working Paper Series, 2013-ECO-17; Lave (2003); Frank Maier-Rigaud, surpa note 11, pp. 247–251; Peralta (2014).

  14. In particular, the preliminary ruling was set in these terms: “Is Article 101 TFEU (Article 81 EC, Article 85 of the EC Treaty) to be interpreted as meaning that any person may claim from members of a cartel damages also for the loss which he has been caused by a person not party to the cartel who, benefiting from the protection of the increased market prices, raises his own prices for his products more than he would have done without the cartel (umbrella pricing), so that the principle of effectiveness laid down by the Court (…) requires the grant of a claim under national law?”.

  15. Roman Inderst, Frank Maier-Rigaud and Ulrich Schwalbe, supra note 13, p. 2; Jonathan M. Lave, supra note 13, pp. 234–236.

  16. See Roman Inderst, Frank Maier-Rigaud and Ulrich Schwalbe, supra note 13, pp. 8–11.

  17. Case COMP/E-1/38.823, PO/Elevators and Escalators (C(2007) 512 final), whose summary has been published in the O.J. C75/19-24, 26 March 2008, so as by the order of the Austrian Cartel Court (Kartellgericht) (NCA of that country) of 14 December 2007, confirmed by the judgment of the Supreme Court (Oberster Gerichtshof) of 8 October 2008.

  18. See para. 23.

  19. It is a matter of European competition law because: “The focus of interest of such an assessment will, rather, be the much more fundamental question of whether cartel members can be held civilly liable at all for this kind of loss and whether they can be sued by persons who are not their direct or indirect customers (that is to say, the ‘whether’ of compensation). That question cannot be left to the legal orders of the Member States alone” (AG Opinion para. 28).

  20. See Connor (2005).

  21. This critique has also been made by Frank Maier-Rigaud, surpa note 11, p. 251.

  22. In this sense, Kone decision states (para. 29) “(…) even if the determination of an offer price is regarded as a purely autonomous decision, taken by the undertaking not party to a cartel, it must none the less be stated that such a decision has been able to be taken by reference to a market price distorted by that cartel and, as a result, contrary to the competition rules”.

  23. “(…) reactions of cartel outsiders, whether in the same relevant market or not, cannot be considered free-riding in the sense of a wilful exploitative act (possibly to be sanctioned by competition law in itself) but should rather be seen as an economically optimal reaction by these outsiders to changes in demand”, Roman Inderst, Frank Maier-Rigaud and Ulrich Schwalbe, supra note 13, p. 3.

  24. Frank Maier-Rigaud, surpa note 11, p. 248; Hannes Beth and Cora M. Pinter, supra note 13, pp. 231–232.

  25. On the discussion held in a first moment about the legal nature of such actions, see in the spanish literature Baquero IO (2011) p. 165; Mulero (2005).

  26. As stated in Art. 4 of the Directive on antitrust damages: “Member States shall ensure that all national rules and procedures relating to the exercise of claims for damages are designed and applied in such a way that they do not render practically impossible or excessively difficult the exercise of the Union right to full compensation for harm caused by an infringement of competition law. In accordance with the principle of equivalence, national rules and procedures relating to actions for damages resulting from infringements of Articles 101 or 102 TFEU shall not be less favourable to the alleged injured parties than those governing similar actions for damages resulting from infringements of national law”.

  27. Hannes Beth and Cora M. Pinter, supra note 13, p. 231.

  28. Roman Inderst, Frank Maier-Rigaud, Ulrich Schwalbe, supra note 13, pp. 4, 14–15. Lande (2005–2006), analyses this phenomenon explaining the effect produced by the agreement of the OPEC for the increase of the price of petrol on the natural gas market. In the case, this late product was considered substitutable (we have to keep in mind that the OPEC controls the 60 % of the global petrol production). Moreover, in this case the effect of the price increase resulting from the cartel brought along an increase of the price for the natural gas, as a consequence of the umbrella effect generated by the cartel on the market of this second product.

  29. Roger D. Blair and Virginia G. Maurer, supra note 13, p. 779.

  30. Marcos and Graells (2008) p. 11, consider that “the difficulty in locating and identifying relevant private agents entitled to damage claims comes to diminish the effectiveness and adequacy of private enforcement to tackle the whole myriad of economic effects generated by antitrust infringements. To be sure, private enforcement can only tackle private compensation, while the public interest embedded in the proper functioning of the market and the maintenance of an effective competition is better served through public enforcement of the antitrust rules”.

  31. See AG Kokott Opinion to Kone judgment, para. 33.

  32. The Directive considers this as an “overcharge” (Art. 2(20)), which means “the difference between the price actually paid and the price that would have prevailed in the absence of an infringement of competition law”. Nevertheless, the patrimonial damage suffered by the consumers is not the only damage coming out of the cartel. It is easier to consider that from such agreements arise other potential negative consequences whose entity is even harder to determine, such as the lowering of quality levels, the reduction of the diversity of products or the lack of innovation in the market. See Francisco Marcos and Andrés Sánchez Graells, supra note 30, p. 8.

  33. Komninos (2008).

  34. This is not the place to develop a deeper analysis on the difficulties faced when quantifying damages for infringements of competition law. In this regard, see the study prepared by Oxera and a multijurisdictional team of lawyers directed by Assimakis P. Komninos, “Quantifying antitrust damages: towards non-binding guidance for courts”, December 2009. This has been analyzed in the Spanish literature by García (2010). Also see, de la Vega García (2013); Pérez (2012); Prosperetti (2012); Carpagnano (2006); Assimakis P. Komninos, supra note 33, p. 208 et seq.

  35. In this sense, AG Kokott’s opinion on the Kone judgment recognizes that: “No doubt there will not always be meaningful studies or other evidence that reasonably support the conclusion that umbrella pricing caused by a cartel has taken place on the market in question. On the other hand, however, such an effect is also anything but excluded and the losses connected with it are by no means as ‘speculative’ and ‘uncertain’ as is sometimes argued” (para. 86).

  36. See para. 32 of the Pfleiderer judgment.

  37. Dorothy Hansberry, Christina Hummer, Morvan Le Berre and Mélanie Leclercl, supra note 13, p. 196; Francisco Marcos and Andrés Sánchez Graells, supra note 30, p. 7.

  38. This proof will be easier when relating to follow-on actions, i.e. tort actions exercised on the basis of a decision of the European Commission or a national competition authority stating the existence of an anticompetitive conduct.

  39. These are the criteria used by the US case law. Thus, the Decision of the Washington Western District Court in case State of Washington v. American Pipe & Construction Co. 1968 280 F. Supp. 802 (1968) concluded that “to maintain his suit, a plaintiff must establish (a) a proximate, causal connection between defendant’s action and injury translatable into money damages, and (b) that such injury is not remote from the illegality activity”. As has been considered in the literature, in the US system, to determine whether there is an adequate causal link we have to take into account these criteria: the nature of the damage; the direct or indirect character of this damage, the possible speculative character of the damage; the risk of accumulating double compensation; the risk of complex apportionments of the damages; and the existence of other direct victims of the harmful agreement. Dorothy Hansberry, Christina Hummer, Morvan Le Berre and Mélanie Leclercl, supra note 13, p. 199.

  40. See AG Kokott’s opinion on Kone, para. 33.

  41. The Otis judgment, para. 65, considers the criteria of immediate causality, that had already been considered in the opinion of AG Van Gerven on the Banks judgment (para. 52). “The terminology used in this regard (‘legal causation’, ‘adäquate Kausalität’ and the like) may differ from one legal order to another. In substance, however, the considerations are the same, and it is these which also inform the concept of a sufficiently direct causal link”, AG Kokott’s opinion on Kone, para. 35.

  42. Kone judgment, para. 14.

  43. Opinion of AG Kokott on the Kone decision, para. 36.

  44. Para. 38.

  45. Along with that, it may still be possible to try the passing-on defence.

  46. The opinion of AG Kokott (para. 39) goes on arguing that: “It would be unreasonable to make the civil liability of cartel members subject to the condition of their being the single cause. Prices rarely have only one cause. This does not mean, however, that cartel members whose anticompetitive practices have – as here – contributed towards a distortion of the price formation mechanisms that normally apply on the market in question, cannot be held liable for the resulting loss.” Even when I agree with the reasoning that it is necessary to hold cartelists liable for the effect of distorting market prices, I believe that such an objective must be achieved by means of the public enforcement of competition law rather than by tort actions, for the former are more accurate for the defence of general interests (as are the adequate functioning of the market or the consumers protection) and the sanction for the harmful diffuse consequences of the infringement of antitrust law. I can also not share her opinion when she exposes that: “The certainty that they would never be liable for umbrella pricing would give the members of a cartel an additional incentive to continue with their anticompetitive practices” (para. 65). In my opinion the deterrent goal of antitrust law must be achieved mainly by means of public enforcement.

  47. Para. 32.

  48. Dorothy Hansberry, Christina Hummer, Morvan Le Berre and Mélanie Leclercl, supra note 13, p. 201.

  49. Para. 42.

  50. See AG Kokott’s opinion, para. 51.

  51. Thus, “The solution (…) does not mean that cartel members will automatically and in every individual case be required to provide compensation to customers of undertakings not party to a cartel, but it does not rule out such an obligation to provide compensation from the outset either” (para. 84 AG Kokott’s opinion on the Kone judgment).

  52. On this topic, of particular importance is the report of the International Competition Network, “Interaction of Public and Private Enforcement in Cartel Cases”, Cartels Working Group, presented to the annual Conference of the ICN in May 2007, available under: http://www.internationalcompetitionnetwork.org/uploads/library/doc349.pdf (last accessed 5 November 2014). Among a broad literature, I recommend the lecture of Frese (2011).

  53. We share the opinion of Águila-Real JA (2009) pp. 30 et seq.; and Francisco Marcos and Andrés Sánchez Graells, supra note 30, p. 10.

  54. See Francisco Marcos and Andrés Sánchez Graells, supra note 30, pp. 9–10. I particularly recommend the lecture by Lande (2004).

  55. Jonathan M. Lave, supra note 13, pp. 239 et seq.

  56. Dorothy Hansberry, Christina Hummer, Morvan Le Berre and Mélanie Leclercl, supra note 13, p. 199; Page (1985); Jonathan M. Lave, supra note 13, pp. 244–246, where in particular he refers to the importance of such damages to achieve “optimal sanctions”. This reasoning does not easily fit with European competition law, where the sanctioning scope is a part of the public enforcement. In US case law we must consider these decisions: Mid-West Paper Products Co. v. Continental Group Inc., United States Court of Appeals (3rd Circuit), 596 F.2d 573, 397 (1979); Federal Trade Commission/Mylan Laboratories, United States District Court (District of Columbia), 62 F.Supp.2d 25, 9 (1999); United States Gypsum Co. v. Indiana Gas Co., United States Court of Appeals (7th Circuit), 350 F.3d 623, 627 (2003); In re Beef Industry Antitrust Litigation, United States Court of Appeals (5th Circuit), 600 F.2d 1148, 1166 (1979).

  57. As pointed out in the opinion of the AG on the Manfredi judgment, para. 67, “Only a few Member States provide for the possibility of punitive or exemplary sanctions in the context of actions for damages.” According to the “Study on the conditions of claims for damages in case of infringement of EC competition rules” prepared by Denis Waelbroeck, Donald Slater and Gil Even-Shoshan for the Commission (Ashurst Report), these are the United Kingdom, Ireland and Cyprus.

  58. See the Manfredi judgment, paras. 92 and 93, particularly where it is stated: “In that respect, first, in accordance with the principle of equivalence, it must be possible to award particular damages, such as exemplary or punitive damages, pursuant to actions founded on the Community competition rules, if such damages may be awarded pursuant to similar actions founded on domestic law.”

  59. AG’s opinion on the Manfredi judgment, para. 68. We must take into account that the domestic regulations that admit treble damages do that in a certain way with the scope of potentiating the detection of cartels and stimulating the promotion of antitrust actions.

  60. AG Kokott’s opinion on Kone para. 78.

  61. See Hannes Beth and Cora M. Pinter, supra note 13, pp. 234 et seq.

  62. Jedermann ist berechtigt, von dem Beschädiger den Ersatz des Schadens, welchen dieser ihm aus Verschulden zugefügt hat, zu fordern; der Schade mag durch Übertretung einer Vertragspflicht oder ohne Beziehung auf einen Vertrag verursacht worden sein”.

  63. Der bloße Zufall trifft denjenigen, in dessen Vermögen oder Person er sich ereignet. Hat aber jemand den Zufall durch ein Verschulden veranlaßt; hat er ein Gesetz, das den zufälligen Beschädigungen vorzubeugen sucht, übertreten; oder, sich ohne Not in fremde Geschäfte gemengt; so haftet er für allen Nachteil, welcher außer dem nicht erfolgt wäre”.

  64. Dorothy Hansberry, Christina Hummer, Morvan Le Berre and Mélanie Leclercl, supra note 13, p. 200.

  65. See Jesús Alfaro Águila-Real, supra note 53, esp. pp. 11 et seq.; Patricia Pérez Fernández, “¿Aplicación pública o aplicación privada del Derecho de la Competencia?”, 11 Documento de Trabajo Seminario Permanente de Ciencias Sociales 2011, Universidad de Castilla La Mancha, esp. pp. 9 et seq.

  66. A comparative and deeper point of view is offered by Dorothy Hansberry, Christina Hummer, Morvan Le Berre and Mélanie Leclercl, supra note 13, pp. 201–202.

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Peralta, E.O. A Legal Approach to the Kone Decision: Does the Private Enforcement of European Competition Law Need an Umbrella?. IIC 47, 697–722 (2016). https://doi.org/10.1007/s40319-016-0498-1

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