EU Wants to Foster Anti-Cartel Popular Class Action Culture in Europe
December 29, 05EU Wants to Foster Anti-Cartel Popular Class Action Culture in Europe
December 29, 2005
When De Beers agreed to pay some $250 million in damages to settle four rather frivolous class action cases in the United States, without, of course, admitting to any wrongdoing, they probably didn’t expect that this could become a powerful precedent for similar actions in Europe. The aforementioned money is earmarked for U.S. consumers who were allegedly “overcharged” for their diamond jewelry because of the abuse of dominant power by the cartel. The issue of “how much” each injured party will receive has not yet been established – and it is quite a challenge to find a justifiable and reasonable method to set the level of damages. In another, still continuing, lawsuit, Leider versus Ralfe et al, professors and others have presented models to say how much damage consumers incurred (somewhere between 1 - 3 percent of jewelry purchase value), but, as far as I know, the court has up to now rejected all these formulas.
While the focus in class actions and damages is very much on the United States, the diamond business (the diamantaires, De Beers, others) must now keep a sharp eye on the EU Antitrust Commissioner, Neelie Kroes.
Kroes went on a marketing spree this week selling European consumers on the need to file more private and class actions (“collective actions”, were her words) against cartels. She is suggesting changing the rules to the automatic “doubling of damages.” This means that if you can establish actual losses, no matter the amount, you automatically receive double. This would make investing in law suits an extremely attractive business – but what is puzzling is the urgency and the vigor by which Kroes is publicizing her message. She wants class actions – and anyone seeing the frivolous actions in the U. S. cannot help but wonder whether this is really what we need in Europe.
Kroes has concluded that the European public – or, more precisely, people and parties that feel that they have incurred commercial or financial losses because of the illegal behavior of cartels – have somehow failed to make effective use of the national courts in demanding damages. She argues that too many parties in Europe wait for years to see what the EU decides when an antitrust complaint has been filed and then, after a decision has been made, these parties may seek damages in a national court. She believes that too few damages are paid to affected parties, especially to consumers, because the legal community feels uneasy starting cases in national courts.
This week Kroes’ EU Competition Office published papers, studies and other documents, which include economic models on how to calculate damages, in order to encourage more private claims by consumers in anti-trust issues. We are all aware of the litigation culture in the U.S. in which huge law firms first spend a few years developing a massive claim on antitrust issues - even well before they have a client. (The latter, who serves as formal plaintiff, can always be found later.)
After the release of the EU documents, the Financial Times, in a very understated way, commented that “a move towards more private actions in Europe would be lucrative for law firms that specialize in competition law, as well as for companies that launch a successful damages claim.” It is inevitable that European law firms will review the U.S. legal scenery to get “inspiration” and “ideas” for similar actions in Europe. Any U.S. precedent thus holds the potential of being used – repeatedly – in Europe.
Kroes, with almost missionary zeal, says “businesses and individuals who suffer losses because of illegal activities such as cartels have a right to compensation. Currently this right is all too often theoretical because of obstacles to exercising this right in practice.” Therefore, Kroes has published a paper in which she identifies these obstacles and calls for a debate on various options designed to address “the underlying problem” – to remove the obstacles to more private anti-trust consumer actions.
Kroes is suggesting measures to reduce obstacles, such as lowering the burden of proof for claimants and giving them access to documents obtained by competition authorities. And Kroes wants reactions from the general public to her new proposals, which is the purpose of the so-called Green Paper, dealing with the question of damages actions for breach of EU Treaty competition rules’ ban on restrictive business practices (such as cartels) and abuse of a dominant market position as contained in Articles 81 and 82 respectively of the EU Treaty (EU antitrust rules).
Consumers generally want money. But intermediate players may often ask for concrete forms of actions for nullity (such as those who are asking the EU to withdraw the approval for Supplier of Choice) or actions for injunctive relief, e.g. actions to stop anti-competitive behavior or actions for enforcement of a contract.
The Green Paper deals only with damages actions and not with the other possible avenues of relief. What is Kroes’ final objective? To make it easy for any consumer or any party who feels he/she has been “injured” by cartel behavior to get his day in court – and get money, far above the real losses.
Kroes believes that this will make dominant suppliers ‘more careful’. “Put frankly,” she says, “the more likely one is to be caught, the more incentive one has to comply. Compliance with the rules also increases in proportion to the sanctions one risks for violating the rules. It is clear that the risk of having to pay damages for the harm caused by an infringement of the competition rules has a strong deterrent effect. And this is independent of whether or not damages come on top of the sanctions that can be imposed by competition authorities.”
She says being convinced that “fostering private anti-trust enforcement as a complement to public anti-trust enforcement can thus be reasonably expected to help make those who might contemplate violating the competition rules think twice. And it goes without saying that a higher level of compliance with the competition rules further develops a culture of competition amongst market participants, including consumers, and thus strengthens the competitiveness of the European economy.”
I have often wondered whether the U.S. class action culture – with all its precedents (and precedents still to come in the diamond and diamond jewelry industry) – would ever be exported to Europe. I never expected, however, that the EU would launch a whole campaign to import such a culture into Europe.
From a competition law perspective, 2006 promises to be an interesting year.
Happy New Year.