Law on cartel damages claims revised

Introduction

On September 28 2016 the government draft of a reform of the Act against Restraints of Competition was published. The reform intends, among other things, to implement the EU Damages Directive[1] into German competition law.

From a German practitioner's perspective, no fundamental revolution will occur following the reform. To a significant extent, the directive has overtaken existing, predominantly claimant-friendly German practice and law governing actions for damages following competition law infringements. The reform leaves room for the courts' discretion and thus creates legal uncertainty in relation to central issues (eg, civil liability of parent companies). Like the directive, the reform provides for no approach to resolve cases with dispersed damages and specific rules on collective proceedings (eg, class actions) in competition law matters.

Reform

The reform enhances the effectiveness of private enforcement by providing for a rebuttable presumption of harm and a longer limitation period, among other things. The codification of a presumption of harm in cases of cartel infringements (ie, the occurrence of damage valued at greater than €0) helps to establish the causal link between an infringement and the occurrence of damage, which is otherwise difficult for an injured party to prove. The presumption is based on findings that more than 90% of cartels result in a price increase. German courts have thus far used prima facie evidence with (almost) the same effect but without a basis in statutory law. The limitation period has been prolonged from three to five years and does not begin to run before the infringement of competition law has ceased. The suspension period for competition authority investigations has been prolonged from six months to one year after the infringement decision has become final or after the proceedings are otherwise terminated. This substantially improves the situation of claimants, which will now have more time to collect essential evidence, evaluate their chances of success and instigate proceedings. Of these provisions, only the duration of the limitation period will apply retroactively and only to those claims which are not already time-barred.

Despite these advantages for cartel victims, the new provisions may not be classified as claimant-friendly only. The reform intends to balance the particular interests of damaged parties and the paramount objective of an effective cartel prosecution. It does so basically by according certain privileges to immunity recipients. For instance, the disclosure of leniency statements and settlement submissions are categorically exempt, thus limiting the scope of the possibility to disclose evidence.

Further, the discretion of the national courts will be crucial where the disclosure of evidence is subject to certain conditions (eg, the protection of business secrets). In theory, on the claimant's request, the court could order a defendant, third party or even a competition authority to disclose relevant evidence in their control. However, the courts tend to be reluctant when it comes to fact finding. The production of evidence by the parties is a fundamental principle of civil procedure (ie, no discovery and no 'fishing expeditions'). Therefore, it will be interesting to see which facts will be assumed as sufficiently specified and reasonably available by the courts in order to justify a request for disclosure.

The passing-on of overcharges is controversial in almost every follow-on damage claim. Generally, the burden of proof for 'passing on' has rested on cartel members or indirect customers. Going forward, indirect customers benefit from a passing-on presumption, unless the direct customer can demonstrate credibly to the satisfaction of the court that this was not (entirely) the case. Indirect customers as well as cartel members are entitled to reasonably request the disclosure of relevant evidence from the opposing party and third parties (ie, especially the direct customer). The reform further facilitates the assertion of 'passing on' by lowering the standard of proof which allows courts to estimate the share of overcharge that was passed on. It follows that new conflicts emerge in the clear demarcation of the damage suffered by direct and indirect customers. This may delay proceedings. On its way to the final customer, not only the damage but also the incentive to instigate proceedings decreases, which contradicts the overall intention of the reform to strengthen the private enforcement of competition rules. While the European Commission endorses the introduction of class actions in order to diminish this effect, German legislature opts instead for a new litigation register or model declaratory actions by consumer associations; however, it has yet to introduce this into the reform.

Finally, the ministries in charge of the legislation failed to agree on the transposition of the broad EU law concept and definition of economic units as 'undertakings' and the ensuing liability of parent companies into German civil cartel law. Article 1 of the Damages Directive states that damages can be claimed from the undertaking that infringed competition law. The Federal Ministry for Economic Affairs endorsed the European legal view by wanting a legal person (ie, a parent company in a holding) to be held liable as part of a 'single economic unit'. The Federal Ministry of Justice opposed and held onto the system of corporate separability and the liability of separate legal entities, a fundamental German company law principle. The current wording of the draft does not therefore explicitly transpose the controversial European concept but stays open for interpretation by the courts – to the disadvantage of legal certainty. The fact that the draft provides for the wide European notion of undertaking (corporate group liability) for administrative fines is revealing. Thus, the legislature missed the opportunity to harmonise public and private sanctions of competition law infringements, thereby clearly discriminating against the private sector while securing the enforceability of fines.

Comment

The directive is set to be implemented on December 27 2016. However, this deadline will not be met according to ministry staff, which estimate that implementation will not occur before February 2017. Should this be the case, difficult questions regarding the directive's direct, indirect or incidental effect could arise. The reform remains on the agenda.

[1] Directive 2014/104/EU of the European Parliament and of the Council on Certain Rules Governing Actions for Damages Under National Law for Infringements of the Competition Law Provisions of the Member States and of the European Union, OJ [2014] L 349/1.