In this seminar I want to discuss whether private enforcement is a regulatory tool that works within the antitrust context. You will recall that in the first seminar we discussed the meaning of regulation. I suggested that a narrow meaning would encompass sector-specific regulations (e.g. regulating advertising or regulating telecoms), but that a wider meaning is the ‘intentional use of authority to affect the behavior of a different party’. This would encompass private enforcement. Recall also that what we expect of regulation is: (1) setting the standard; (2) enforcement of the standard; (3) gathering of information. Private enforcement is (mostly, I think) about 2 and 3.
Some necessary background: in 2005 the Commission proposed harmonizing rules for private enforcement of competition law. This has now culminated in a Directive on certain aspects of private enforcement. The relevant documents can be obtained here. The Directive is quite narrow in scope, we can discuss certain aspects if you wish.
Readings
A few notes on the readings. You will notice that they are all American: Kelemen is a political scientist who has tried to see how far the notion of ‘adversarial legalism’ fits in the EU generally; Galanter’s is a seminal paper which some of you may well have seen already. Nether look specifically at antitrust law, so the question is whether the ideas they develop may map out onto competition law enforcement, or, conversely, whether a competition law angle might add something to their analyses. Dan Crane is one of the leading antitrust scholars of his generation & he interrogates the value of private enforcement.
Case C-557/12 Kone v ÖBB-Infrastruktur AG, judgment of 5 June 2014
R. D. Kelemen ‘Suing for Europe: Adversarial Legalism and European Governance’ (2006) 39(1) Comparative Political Studies 101
M. Galanter ‘Why the Haves Come Out Ahead‘(1974) 9(1) Law & Society Review
D. Crane ‘Optimizing Private Antitrust Enforcement'(2010) 63 Vanderbilt Law review 675
Further Reading
Frederick Schauer, Richard Zeckhauser ‘The Trouble with Cases‘ (in Kessler, ed Regulation v Litigation, 2010)
Richard A. Posner ‘ Regulation (Agencies) versus Litigation (Courts): An Analytical Framework‘ (in Kessler, ed Regulation v Litigation, 2010)
competitioncourses 
At first sight it might appear that the EU private enforcement model is centred around the aim of securing compensation. Indeed, establishing a “right to full compensation” is the core aim of the proposed Directive on certain aspects of private enforcement. However, the overriding aspiration of the system is to ensure effective enforcement of articles 101 and 102. This objective is clearly articulated in Kone (“The full effectiveness of Article 101 TFEU and, in particular, the practical effect of the prohibition laid down in paragraph 1 of that provision would be put at risk if it were not open to any individual to claim damages” (para 21, relying on earlier case law)) as well as in the proposed Directive (Recital 1). So, offering compensation through private enforcement is simply a mechanism that was selected for achieving a different aim, rather than an end in itself. In this utilitarian sense, what matters most is relieving the burden put on competition authorities by allowing private parties to actively participate in the process. Yet, effectiveness is not just about the rate of enforcement, but also about the ability of that enforcement to bring about positive change. Thus, there are two sides to the effectiveness puzzle.
While damages might be an attractive remedy for at least some private parties (=ensuring higher enforcement rate), Crane persuasively demonstrates that this form of remedy fails as both a compensatory and a deterrent mechanism. Yet, his forward-looking, problem-oriented solution is not without its problems. First and foremost, it appears to be a very intrusive solution based on very prescriptive remedies, which in itself might be objectionable on a number of grounds. I also find it doubtful whether it would allow for swifter adjudication through abbreviated proceedings. It seems to me that since forward-looking remedies require a very deep understanding of the market forces in each particular case, they would actually require more in-depth proceedings, otherwise the risk of error would be just too big to make these remedies justifiable. So, it is not just a question of whether the courts are best placed or able to give decisions of this sort, but of manageability of a system of highly individualistic remedies. So, even if such remedies could be more useful from the perspective of better achieving the greater aims of competition law (= more effective in the latter sense, provided that the risk of error could be kept within reasonable bounds), they could be unattractive from the point of view of prospective claimants on account of time and uncertainty associated with such proceedings, thus negatively affecting the rate of private enforcement.
Similarly, the success of private enforcement as measured by the rate of enforcement will be affected by procedural rules used for formal adjudication – and this is largely irrespective of what form of remedy is made available at the end of the process. This appears to be the key to an uneven development of private enforcement across different national jurisdictions in the EU. While the new Directive goes in the direction of eliminating (or at least reducing) some of the decisive differences in MS private enforcement, for as long as the EU will have only limited competence to regulate procedural matters, private enforcement will continue to develop at a differing pace across the MS.
The European Union’s private enforcement initiative and the ECJ’s Kone judgment in particular constitute a very clear example for the spread of the new regulatory / governance style described by Kelemen as ‘Eurolegalism’. Based on the recognition of the direct effect of Article 101 and 102 TFEU (BRT and Sabam) and on the principle of equivalence and effectiveness, the ECJ constructed the right of compensation for cartel injuries as individual right of every legal and natural person who is victim of a breach of EU competition rules(Courage and Crehan, Manfredi). Thus, the ECJ and the EU Commission tried to create incentives for enterprises and EU citizens to bring actions for damages against cartels and to contribute in a decentralized way to the enforcement of EU competition law. This could (at least in theory) enable the EU Commission to reduce enforcement costs and to cope with the principle-agent problem between EU competition enforcement and the enforcement by national courts. In the Kone ruling, the ECJ even expands the right of compensation beyond the direct and indirect purchasers and creates also in favour of victims of “umbarella pricing” the individual right claim damages for losses incurred by cartel practices. The Kone case also illustrates that this form of adversarial cartel enforcement through damages actions clashes with the traditional rules of the national legal system of the Member States (in this case Austria). However, the Court as well as AG Kokott used the principle of equivalence and effectiveness and the effet utile doctrine, in order to declare the Austrian legislation incompatible with EU law. By this ruling, the ECJ enlarged the scope of potential private claimants which could rely on decentralized private enforcement and gave a further impetus to the Commission’s private enforcement initiative.
It remains, however, unclear to what extent this ruling empowers EU citizens or moral persons in the way as described by Kelemen. On the contrary, it is rather doubtful whether the ruling strengthens the private enforcement of competition law in terms of compensation and deterrence. Daniel A. Crane’s article underlines the difficulties of achieving adequate compensation for cartel victims through private enforcement. It is even more difficult to quantify damages for victims of “umbrella pricing” than for direct and indirect purchasers of a cartel, since the link of causality between the cartel and the losses caused by “umbrella pricing” could be extremely tenuous. Moreover, the Court does not address the question to what extent the cartel members could try to rely on a “passing-on” defense as it is the case with regard to indirect purchasers. Interestingly, the defendants in the Kone case also point out the inherent tension between the goal of compensation and deterrence which vitiates the EU private enforcement of competition law. Thus they warn in paragraph 36, that the recognition of the right of compensation for victims of “umbrella pricing” would dis-incentivize cartel members to cooperate with competition authorities in the leniency programs, which are the most important and effective instrument for the detection of cartels and therefore for the enforcement and deterrence of EU competition law.
Due to this inherent tension between the deterrence and the compensation objective, it remains still very difficult for private cartel victims to bring actions for damages in Europe, despite of the new EU private enforcement package and the far-reaching ECJ case law. Thus, in order to guarantee the incentives for cartel members to participate in leniency programs, the new directive on private damages action establishes for instance in Art. 5-7 rather strict principles with regard to the disclosure of evidence which contradict the balancing-approach embraced by the Court in Pfleiderer and Donau Chemie. By consequence, it remains still very difficult for cartel victims to bring evidence and to establish a link of causality in order to claim damages. Moreover, the new private enforcement package only provides for a (soft-law) recommendation on collective redress based on an opt-in system and does not allow for any treble damages. This corroborates Daniel A. Crane’s assumption that the EU private enforcement is not very likely to guarantee adequate compensation for consumers as private cartel victims. Therefore, it could be assumed that private enforcement of competition law as a “eurolegalistic” regulatory approach serves the interests of corporate players (competitors, purchasers, lawyers, or in short “the haves”) which dispose of sufficient resources in terms of time, expertise and budget bring damages actions, rather than contributing to the “democratic” empowerment of the individual EU citizen as it is claimed by Kelemen.
All these readings were new to me, but I have personally found it quite interesting to combine Kelemen’s and Galanter’s articles so as to get a picture of how the spread of adversarial legalism could look like in the EU. It seems to me that when we praise the virtues of the more ‘private’ approach to legal enforcement (competition law in our case) we often forget that only certain profile of actors dominate the EU judicial arena, and hence it is likely that breaches who primarily affect the ‘outsiders’ of the system might remain unprosecuted.
For Kelemen, the spread of enforcement through private litigation in the EU has meant giving opportunity for broader participation in the system to those groups previously excluded from government. One of his hypotheses is that within the multiple agency problems that the process of European integration can cause, some actors have found an alternative manner to contest policies they disagree with. These actors, precluded to different extents from influencing the policy-making process in question, instead turn to the European judiciary so as to defend their interests. The ECJ has responded by progressively opened up the boundaries of enforceable rights.
I agree with Kelemen in much of his analysis and with this hypothesis in particular. Yet I think it is debatable to use these findings to imply that adversarial legalism can serve to improve the quality of democracy and to compensate vulnerable groups, let alone to enhance a sense of European identity and citizenship. This is so because, as Galanter’s article evidences, certain types of actors exploit the benefits of judicial contestation more than others. This is somehow reflected in Kelemen’s article itself, for he acknowledges that there has not been any flood of litigation in the field of consumer protection (here Crane’s article is also very illustrative on the difficulty to locate the real economic victim when charges are passed on to different consumers subsequently and they become almost unquantifiable). Galanter’s piece concludes that litigation is unlikely to shape decisively the distribution of power in society. Although his research is conducted on the US context, I think we can picture a similar sphere in the European milieu, particularly so given that the remoteness of the EU legal framework promotes very much the cleavage between the insiders (e.g. transnational companies, certain environmental interests…) and the ‘have-nots’ (e.g. non-mobile and non-sophisticated consumers).
Taking this to the antitrust context, in a situation like the Kone case (cartel resulting in ‘umbrella effect’ over prices) other business actors (the Austrian Federal Railways in this case) are more likely to mobilise for damages than those consumers directly affected by the artificially high prices of elevators (imagine, an average Florentine condominio!), although the damages of the latter were probably be more ‘quantifiable’. If official prosecution is progressively abandoned, this could perhaps result in certain profiles of anti-competitive actions being de facto less penalised than others, despite their aggregate welfare effects being very similar.
The European Union’s private enforcement initiative and the ECJ’s Kone judgment in particular constitute a very clear example for the spread of the new regulatory / governance style described by Kelemen as ‘Eurolegalism’. Based on the recognition of the direct effect of Article 101 and 102 TFEU (BRT and Sabam) and on the principle of equivalence and effectiveness, the ECJ has constructed the right of compensation for cartel injuries as individual right of every legal and natural person who is victim of a breach of EU competition rules (Courage and Crehan, Manfredi). Thus, the ECJ and the EU Commission tried to create incentives for enterprises and EU citizens to bring actions for damages against cartels and to contribute in a decentralized way to the enforcement of EU competition law. This could (at least in theory) enable the EU Commission to reduce enforcement costs and to cope with the principle-agent problem between EU competition enforcement and the enforcement by national courts. In the Kone ruling, the ECJ even expands the right of compensation beyond the direct and indirect purchasers and creates also in favour of victims of “umbarella pricing” the individual right claim damages for losses incurred by cartel practices. The Kone case also illustrates that this form of adversarial cartel enforcement through damages actions clashes with the traditional rules of the national legal system of the Member States (in this case Austria). However, the Court as well as AG Kokott used the principle of equivalence and effectiveness and the effet utile doctrine, in order to declare the Austrian legislation incompatible with EU law. By this ruling, the ECJ enlarged the scope of potential private claimants which could rely on decentralized private enforcement and gave a further impetus to the Commission’s private enforcement initiative.
It remains, however, unclear to what extent this ruling empowers EU citizens or moral persons in the way as described by Kelemen. On the contrary, it is rather doubtful whether the ruling strengthens the private enforcement of competition law in terms of compensation and deterrence. Daniel A. Crane’s article underlines the difficulties of achieving adequate compensation for cartel victims through private enforcement. It is even more difficult to quantify damages for victims of “umbrella pricing” than for direct and indirect purchasers of a cartel, since the link of causality between the cartel and the losses caused by “umbrella pricing” could be extremely tenuous. Moreover, the Court does not address the question to what extent the cartel members could try to rely on a “passing-on” defense as it is the case with regard to indirect purchasers. Interestingly, the defendants in the Kone case also point out the inherent tension between the goal of compensation and deterrence which vitiates the EU private enforcement of competition law. Thus they warn in paragraph 36, that the recognition of the right of compensation for victims of “umbrella pricing” would dis-incentivize cartel members to cooperate with competition authorities in the leniency programs, which are the most important and effective instrument for the detection of cartels and therefore for the enforcement and deterrence of EU competition law.
Due to this inherent tension between the deterrence and the compensation objective, it remains still very difficult for private cartel victims to bring actions for damages in Europe, despite of the new EU private enforcement package and the far-reaching ECJ case law. Thus, in order to guarantee the incentives for cartel members to participate in leniency programs, the new directive on private damages action establishes for instance in Art. 5-7 rather strict principles with regard to the disclosure of evidence which contradict the balancing-approach embraced by the Court in Pfleiderer and Donau Chemie. By consequence, it remains still very difficult for cartel victims to bring evidence and to establish a link of causality in order to claim damages. Moreover, the new private enforcement package only provides for a (soft-law) recommendation on collective redress based on an opt-in system and does not allow for any treble damages. This corroborates Daniel A. Crane’s assumption that the EU private enforcement is not very likely to guarantee adequate compensation for consumers as private cartel victims. Therefore, it could be assumed that private enforcement of competition law as a “eurolegalistic” regulatory approach serves the interests of corporate players (competitors, purchasers, lawyers, or in short “the haves”) which dispose of sufficient resources in terms of time, expertise and budget in order to
bring damages actions, rather than contributing to the “democratic” empowerment of the individual EU citizen
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I put forward two observations on the Kone decision which held that EU law “precludes the interpretation and application of domestic legislation enacted by a Member State which categorically excludes, for legal reasons, any civil liability of undertakings belonging to a cartel for loss resulting from the fact that an undertaking not party to the cartel, having regard to the practices of the cartel, set its prices higher than would otherwise have been expected under competitive conditions”.
First comment. It seems to me that this case establishes the existance of a right to compensation on any market, not only on the market relevant for the cartel infringment. Neither the holding nor the motivation grant ground for the limitation. And the AG’s opinion seems supporting this intepretation too. True, causation of harm could be difficult to prove, expecially for complementary goods (but maybe behavioral economics can offer some insight on this), but it cannot be excluded in principle.
Second comment. Can the umbrella pricing theory of harm be extended to abuse of dominant position cases? The text of the decision does not help much. However, I do not see a reason for rejecting such a compensation claim. But maybe there is.
I. Causal nexus and compensation rights
In Kone the Court examines whether and to what extent the cartelists are required to compensate for the higher price charged not just by the members of the cartel, but also by other companies in the market (the umbrella effect). In particular, the Court accepted AG Kokott’s Opinion according to which the causal chain traceable back to the cartel is not broken by the intervention of non-infringer, but is in fact continued, since the non-infringer when determining its prices, is guided by the relevant market conditions. In other words, the Court recognized that there is sufficiently direct causal nexus between the harmful conduct and the alleged damage, for cartel’s conduct functioned as a barometric price leader inducing third parties to benefit from a market price that was higher than it would otherwise have been but for the existence of that cartel. Moreover, the cartelists could have foreseen the loss resulting from the umbrella pricing, in that such a loss did not derive from an atypical causal chain. To put it differently, provided that it is very important for the success of a cartel that the prices of non-members rises as well, it can be maintained that cartelists rationally aimed at umbrella pricing. Therefore, cartel members and especially in such a market (i.e. the cartel covered 80% of a homogenous and transparent market) could not be surprised by such a conduct of a non-member. Accordingly, the cartelists whose anticompetitive practices have contributed to price inflation, were correctly held liable for the resulting loss.
In the said case the Court shed light on the issue of the content and the limits of cartelists’ civil liability under Article 101 TFEU and formed a principled approach regarding the quantification of harm in private damages actions, while its justification was heavily based on the compensatory feature of private enforcement. The theory of causal nexus developed by the Court may deal with Crane’s concerns regarding private enforcement’s failure to compensate the true victims of the antitrust violation. Likewise, the “passing-on of overcharges” (Proposal for Damages Directive, articles 12-15) is likely to ensure that the true victims will be compensated, while avoiding under- and over-compensation of the harm. Hence, the Court’s approach as set forth in Kone, in conjunction with the specific characteristic of the Damages Directive (i.e. full compensation, indirect purchaser standing, joint and several liability, disclosure rules which do not disregard the leniency option, the relation between leniency immunity and full compensation, the burden of proof oscillation) may ensure that in each case a comprehensive assessment of all the relevant facts would be carried out and that private enforcement will fulfill its objectives. In this respect, the EU model as a compensation-orientated system seems optimal in comparison to a deterrence-oriented model.
II. Umbrella pricing and leniency program
In Kone the Court touched upon another issue, which lies in the intersection between public and private antitrust enforcement, namely the possible negative relation between umbrella effects and leniency. Specifically, taking into account the umbrella effect, so as to estimate the amount of full compensation, will increase the civil liability of the member of the cartel in a symmetrical manner. If an umbrella effect is found, all members of the cartel will face an identical risk of being held liable for damages. However, this may dissuade firms from being subjected to the leniency programs. By awarding complete immunity to the first applicant and at maximum a 50% rebate to all others, the leniency program creates an asymmetry of costs between the cartel members that is likely to destabilize the cartel (incurring a prisoner’s dilemma problem). However, the Court’s formalistic justification (para 34) on this issue did not take into account the potential effect of the follow-on damages claims on the leniency tool. In other words, the Court did not examine whether the relevant ruling could compromise the effectiveness of the leniency option. In this regard, it could be submitted that Kone ignored the problem of optimizing the interaction between the public and private enforcement of antitrust.
Crane argues for a reconceptualization of the policy goals of private competition enforcement. He suggests that private enforcement is incapable of achieving the traditional objectives of compensation and deterrence, so should focus on enabling private bargaining over problems of market power. In my opinion, Crane is unfairly pessimistic in his assessment of the ability of private enforcement to compensate and to deter, I argue that these are legitimate policy goals which private enforcement is capable of, to an extent, achieving.
To paraphrase, Crane firstly argues that private enforcement is incapable of compensating adequately as it cannot compensate those consumers who chose not to purchase a product being sold at a higher price because of anticompetitive market conditions. Crane’s second argument is that private enforcement cannot compensate for the dynamic losses caused by anticompetitive behaviour.
The central tenet of Crane’s argument, therefore, is that private enforcement cannot be justified by compensation as not all those who have suffered harm can be compensated. Such an argument is highly flawed. Tort law (because of rules of remoteness etc.) does not provide compensation to all those effected by a tortious act, nor does it provide complete compensation in any event, yet no one would challenge the idea of compensation as the justification behind the ability of private actors to bring tort claims. Although a balance must be struck between full compensation and the practical limitations of any legal system, this does not deprive private actions of their compensatory justification.
Crane argues that “[d]eterrence is ineffective because the time lag between the planning of the violation and the legal judgment day is usually so long that the corporate managers responsible for planning have left their corporate employer before the employer internalizes the cost of the violation.” (p673)
In my opinion, Crane’s view on deterrence is a gross oversimplification. Although, as we have seen through the previous weeks’ reading, the deterrent effect of sanctions on firms is highly variable, we have also seen that it can be effective. Allowing private actions against anticompetitive practices must surely increase significantly the probability of discovery and, therefore, under Becker’s Rule, result in a deterrent effect.
As I have argued before and in which Galanters direction also points – while private enforcement is not without its merit, it should be looked at more from the point of view of having an additional enforcement tool, not for the sake of redistribution (which is imperfect at best, harmful or meaningless at worst) but as an additional factor of deterrence.
In a paper by Peyer – Myths and Untold Stories – Private Antitrust Enforcement in Germany (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1672695) an empirical analysis of private enfrocement in competition law cases (in Germany) was conducted. It was shown, that even with increased possibilities for private enforcement, especially competitors often just opt to get an injunction or a similar order, but didn’t go for damages.
Gallanter, in his paper divides by repeat players with experience, good access to lawyers and similar benefits on one side and one-shotters that go to court just once or so on the other. This points toward no benefits for harmed consumers or companies in private enforcement, unlesse they are a RP themselves or have large resources. In the US, there are class a suites in (competition) cases to solve this, however this is still unlikely to ‘make the injured parties whole’ the infringment could have been going on for some time and then cartellants would still benefit massively from it. As such, I think priavte enforcement should be a tool of the law, but it shouldn’t be THE tool, but merly one option for increased deterrence/enforcement, as a supplement to public enforcement.
One thing that struck me from the Kelemen article was his democratic accountability argument. I find the idea that increased adversarial legalism enhances ‘transparency, access to justice, accountability, and public participation’ and that it is thus a way to combat the EU’s problem of the democratic deficit an interesting suggestion. His argument that an ‘enhanced access to justice constitutes a vital form of democratic participation’ seems compelling to me. Adversarial legalism for him offers a way to induce more public participation in governance but also to create more rights for the individual at EU level.
Private enforcement in competition law falls under adversarial legalism and therefore, following Kelemen, should also enhance the EU democracy. However, when set against Crane’s article, which argues that the justifications for private enforcement – compensation and deterrence – both fail, Kelemen’s democratic enhancement argument seems like a more romantic, rather than realistic notion. Arguably, for Kelemen’s idea to succeed, it does not actually matter whether the justifications of compensation and deterrence hold true. Any case brought by an individual could technically enhance ‘democratic participation’. However, if adequate compensation for victims in competition cases is very difficult to attain, then where is the incentive for individuals to bring a case?
With respect to the issues the reading material raised this week I would like to point out the following:
• In Case C‑557/12 the Court stated that a cartel victim should retain his right to compensation even if there is no adequate causal link between the cartel and the loss suffered by the victim because the loss is indirect. However according to tort law the right to damages requires the existence of a causal link between the loss and the breach of a legal rule. In this context the following questions are raised: to what extent should civil law of the EU Members be transformed so that the right to compensation of a cartel victim is ensured? The Court in this case took the view that national courts should interpret their tort law in a way that ensures that cartel victims are always compensated. However can the Court ask the national courts to transform their tort law so that even the indirect loss of cartel victims is compensated? The answers to these questions are not clear. However I believe that they should be considered by the Court in future cases.
• Daniel A. Crane in his paper outlines the main reasons why a private enforcement system fails to achieve its two goals: full compensation of the victims of antitrust violations and deterrence. He takes the view that a) compensation fails because the true economic victims of most antitrust violations are usually indirect purchasers who are too numerous and remote to locate and compensate b) Deterrence is ineffective because of the long time lag between the breach of antitrust rules and the legal judgment day. In this context the author suggests that the goals of the private enforcement system would be achieved in a more effective and efficient way if a problem-solving approach to private antitrust enforcement was adopted. He proposes a new framework which may empower firms and individuals to negotiate problems of market in the shadow of, legal or administrative proceedings. Although I find the author’s proposal interesting and innovating I consider that the described ineffectiveness of the private enforcement system may undermine the undertakings’ incentives to negotiate market problems. In particular I wonder to what extent undertakings would have the incentives to negotiate and let the judges intervene in their contractual relationships if the risk of paying full compensation to antitrust victims is low and the time lag between the violation and the adoption of a final decision is long.
Crane leads a reflexion about the role and purposes of competition law private enforcement. He sees competition law not as a set of norms but more as a regulatory process. Competition law is conceived as a tool that can be used by private parties to shape markets and influence their evolution. He argues that deterrence and compensation are not the appropriate goals of private enforcement. For him, private enforcement should be a mean for private parties to intervene in the decision-making process. Private parties should be empowered to bargain toward mutually beneficial solutions to market power problem. Instead of damages, courts should provide “forward-looking remedies” which would allow private parties to correct market power problems and shape the market in a more efficient way. Both Crane and Kelemen show the democratic advantages of private enforcement. Litigation is the only mean for private parties to try to change the rule and to enforce the rule. A system of private enforcement allows for decentralized decision making and individualizes bargaining. It supplies for a set of enforcers closer to the relevant problems. It enhances the enforcement resources and guaranty a continued enforcement during downturns in public enforcement.
However, the use of private enforcement as a regulatory tool entails major downsides.
First, it should not be forgot that all private parties do not have the same access to litigation. Complexity, the need for high inputs of legal services and cost barriers make challenge of rules expensive. Multinational undertakings, consumers and small undertakings do not have the same access to litigation. Private enforcement is mainly a tool for big undertakings. Thus, the standards resulting from private enforcement are likely to be oriented toward powerful and rich stakeholders’ interests. This questioned the democratic aspect of private enforcement. A way to counterbalance this inequality between private parties would be to authorize class action procedures, which would give more power to smaller parties.
In addition, public interest is not took into consideration in private enforcement as it is in public enforcement. This become a problem when remedies available in public enforcement procedures become available to private parties. If private parties can influence market’s forces by having access to “forward looking remedies”, they will tend to influence the market according to their own private interests.
Finally, the potential regulatory effect of private enforcement should be tempered by two extents. First, the overwhelming majority of private parties are not interested in regulating the market but are looking for damages. If compensation is not anymore the most common remedy in private enforcement, the number of private actions would certainly decrease. Second, the regulatory effect of private enforcement is rather small since the architecture of courts limits the scale and scope of changes they can introduce in the law. Courts are limited to solutions compatible with the existing institutional framework. Thus, standard setting by private enforcement is seriously limited.
In sum, private enforcement may not be a regulatory tool that works within the antitrust context since it widens inequalities between big and small players and fails to take in consideration public interest, which is contradictory to competition law aims and values.
Daniel Crane examines some of the negatives involved in private enforcement. In his opinion, private enforcement is incapable of achieving the traditional objectives of compensation and deterrence. One example of the difficulties in achieving adequate compensation for the victims of cartels was demonstrated in the Kone decision. Umbrella pricing occurs when cartels artificially raise prices. This creates a problem for compensation because according to the court there needs to be a direct causal link between the harm and the practice prohibited under Article 101 TFEU. The victims of the artificially raised prices are indirectly hurt by the cartel. Nevertheless, the court ultimately held that “Article 101 TFEU must be interpreted as meaning that it precludes the interpretation and application of domestic legislation enacted by a Member State which categorically excludes, for legal reasons, any civil liability of undertakings belonging to a cartel for loss resulting from the fact that an undertaking not party to the cartel, having regard to the practices of the cartel, set its prices higher than would otherwise have been expected under competitive conditions.”
Although I agree that forward-looking remedies are a good idea, I do not agree that damages fail as both compensatory and deterrent mechanisms. Yes, there are problems in achieving full compensation with victims such as those affected by umbrella pricing; however, the Crane decision showed that the courts are willing to be lenient in their interpretations of the law in order to ensure as much justice as possible. Without damages as a mechanism, the cartels will be able to keep the money that they essentially stole from victims. Punitive damages are essential in deterring future abuse.
Following Kelemen, the argument that empowering individuals by facilitating enforcement of their right to claim damages for harm suffered due to anti-competitive behaviour can bring the benefits of EU law closer to the European citizen seems as politically tempting as much an affirmation of the view that EU integration is an “elitist” process (as per Galanter “haves” argument). In the case of antitrust and cases for damages even if the Commission argues that the cost of ineffective private enforcement of competition law is estimated at up to € 23 billion or 0.18 % of the EU’s 2012 GDP (cf IPA attached to Damages Directive proposal), it is hardly likely that it would be the downstream consumers who benefit most from the rights created by ECJ case-law and now the 2014 Damages Directive.
Nevertheless, an aspect of private enforcement of EU competition law concerns the decentralisation of enforcement process and its impact on national courts and NCAs.
The new directive in Article 9 for example (as voted in first reading by the EP) stipulates:
1. Member States shall ensure that an infringement of competition law found by a final decision of a national competition authority or a review court is deemed to be irrefutably established for the purposes of an action for damages brought before their national courts under Article 101 or 102 of the Treaty or under national competition law ▌. This provision is without prejudice to the rights and obligations under Article 267 (ex 234) of the Treaty.
2. Member States shall ensure that a final decision referred to in paragraph 1 given in another Member State may, in accordance with their respective national law, be presented before their national courts as at least prima facie evidence that an infringement of competition law has occurred and, as appropriate, may be assessed along with any other material brought by the parties.
It is interesting to compare this wording with the original version proposed by the Commission in 2013 (Member States shall ensure that, where national courts rule, in actions for damages under Article 101 or 102 of the Treaty or under national competition law, on agreements, decisions or practices which are already the subject of a final infringement decision by a national competition authority or by a review court, those courts cannot take decisions running counter to such finding of an infringement. This obligation is without prejudice to the rights and obligations under Article 267 of the Treaty.)
Notwithstanding the question of procedural autonomy, the model of private enforcement in EU competition law seems to go beyond the objectives of deterrence and compensation for damage done, but also looks to further convergence of legal and procedural standards (e.g. disclosure rules) and ensure recognition of competition enforcement across the EU. Strengthening decentralised enforcement seems to be the objective of the Commission since Reg. 1/2003. Notwithstanding the Commission’s cost-saving motivation for such an approach, it can also imply a high degree of expected convergence of the interpretation of competition rules across national legal systems and a strengthened interface between national and EU enforcement of EU law. At the same time it creates incentives for claimants to actively scrutinise the positions taken not only by the EC but also the NCAs and courts in various Member States.
The objective of multi-level, decentralised enforcement (public-private; EU and national; courts and regulators) is furthered by the wide scope of the eligible claimants (e.g. in Kone with regard to umbrella pricing).
The questions which arise in this context concern the issue of whether more private enforcement at national level can ensure uniformity of protection (as per case-law and the new Directive in reference to which the Commission quotes the EChHR right to effective judicial protection) and coherence. Anyhow part of the result would seem to be to have a more dialectic and a wider-reaching scope of competition enforcement, with greater role of EU rules within Member States jurisdictions applied by national institutions empowered by “Brussels”.