Antitrust Damage Claims – Turning A Burden Into Valuable Assets

Companies harmed by anticompetitive conduct at EU or national level have the right to obtain full compensation. The effective exercise of this right is the subject of Directive 2014/104 on antitrust damages actions (the “Damages Directive”) which must implemented into national law by 27 December 2016. Despite this major step towards a more effective private enforcement regime in the EU, companies and their legal advisors still have to assess in detail whether a potential claim merits the often considerable expense of time and resources to be pursued.

Turning Complex Damage Claims into Valuable Assets

The enforcement of antitrust damage claims is complex and requires a combination of specific economic, legal, and IT expertise. The main obstacle for successful damage actions remains the substantiation and proof of individual effects by market-wide competition law infringements, most notably cartels. Such economic analysis and quantification, including causality aspects, typically require detailed data and information covering the affected market before, during, and after the cartel infringement. Other practical obstacles include:

• existing information asymmetries and lack of evidence due to the secret nature of cartels;
• a potential strain on commercial relationships;
• drawn-out litigation due to the inherent legal and economic complexity;
• high costs for the claims enforcement, including lawyers and economic experts.

These practical disincentives inherent in the private enforcement of antitrust damage claims contributed to the emergence of specialised entities offering solutions to corporate cartel victims to effectively outsource the substantiation and pursuit of their damage claims in their own name through judicial means or out-of-court settlements. A central element in this model consists in the transfer and sale of damage claims by multiple companies harmed by one and the same infringement. The harmed companies typically obtain an upfront purchase price and/or a variable price which is paid out if the claims are successfully enforced by the specialised entity.

This bundling at a material law level helps to overcome existing economic disincentives:

• In particular transaction data gathered from a wide set of harmed companies covering a longer period of time allows for a better economic assessment of the cartel effects on the market as a whole compared to an individual action.
• In this respect the know-how and experience of the entity pursuing the claims is key in ensuring a careful ex-ante assessment of the potential benefits and risks of a case so that only meritorious claims are pursued.
• In cases where the passing-on of damages to the next purchaser level may play a role, the combination of claims by direct and indirect purchasers (‘vertical bundling’) may be an effective solution to counter the passing-on defence typically raised by defendants.
• Combining multiple claims also improves the chances for successful out-of-court settlements and creates significant synergies in potential court proceedings. This is also true for defendants which are confronted with only one action before one court instead of multiple actions across various jurisdictions.
• Finally, only the aggregation of claims may enable harmed companies to obtain third party funding and/or an insurance coverage for their legal expenses and risks.

Recognition in the Damages Directive

The right to sell and purchase antitrust damage claims has been specifically recognised in the Damages Directive. According to Article 2(4) “‘action for damages’ means an action under national law by which a claim for damages is brought before a national court by an alleged injured party, or by someone acting on behalf of one or more alleged injured parties, where Union or national law provides for this possibility, or by the natural or legal person that succeeded in the right of the alleged injured party, including the person that acquired the claim.” This provision enhances the right to obtain effective compensation by way of a sale of claims. Damage claims are assets which are protected by the fundamental right of property (Article 17 of the Charter of Fundamental Rights). This is echoed in the recent opinion by Advocate General Jäaskinen (Case C-352/13) who stated: “The emergence of players on the judicial scene, such as the applicant in the main proceedings, whose aim it is to combine assets based on claims for damages resulting from infringements of EU competition law, seems to me to show that, in the case of the more complex barriers to competition, it is not reasonable for the persons adversely affected themselves individually to sue those responsible for a barrier of that type.”

It is safe to assume that the EU legislator aimed to strengthen this model which has played a key role in the development of private antitrust enforcement in the EU. Some of the largest damage actions pending or settled before national courts in the European Union (in particular in the Netherlands, Germany, Austria, and Finland) have been brought on this basis and many key judgments now providing for more legal certainty have been achieved in those cases. Without the transfer to a third party helping to overcome the problem of the lack of participation by the injured parties, most of those cases would not have been initiated in the first place.

It will be interesting to see how Member States implement the requirements of the Damages Directive in this field. In accordance with the principle of supremacy of EU law, Member States may have to repeal existing national provisions or case-law which prevent a transfer of a damage claim or which render the exercise of the right to obtain full compensation by way of a claims transfer excessively difficult (e.g. the rules of champerty and maintenance in the United Kingdom and Ireland).