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Print articlePrivate Enforcement of Competition Law: Harmonisation, Forum Shopping and Culture Clash
May, 2007 - Sebastian McMichael
The purpose of this article is to provide a short update as to the legal and policy developments in the area of private enforcement of competition law. Regulatory scrutiny and judicial developments continue to be principally focussed on the issue of follow-on damages actions for infringements of competition law, especially in the cartel arena. However, as can be seen in the English High Court's recent judgement in SanDisk Corporation vs. Koninklijke Philips Electronics NV and Others, private enforcement of competition law outside this area remains a hot topic as claimants seek to exploit differences in national systems to find the most favourable forum for their claim.
Policy Developments
At the European level, the Commission has signalled that it will follow up its December 2005 Green Paper on damages actions with a White Paper anticipated to be published later this year/beginning of next. In the Green Paper, the Commission identified a number of obstacles to the bringing of private damages actions and a number of suggestions as to how these obstacles could be overcome. It is likely that the White Paper will firm up the Commission's view as to what issues may require European legislative intervention and what issues can be dealt with, in the words of Neelie Kroes, by more "informal instruments".
Meanwhile, in the UK, the Office of Fair Trading published on 18 April a consultation paper intended to stimulate debate on how to make redress for breaches of competition law more effective. The consultation period ends on 13 June. Thereafter, the OFT intends to recommend to the Government what steps can be taken to improve the current system. The OFT also plans to use the consultation exercise as the basis of its response to the Commission's White Paper.
The issues raised at both the UK and EC level are broadly similar, ranging from what should be the appropriate level of damages (in particular, whether exemplary damages should be available) to evidential issues and discovery rules. While it is not proposed to go through the proposals in detail, common themes can be identified.
A Paucity of Actions
Despite clear European Court jurisprudence on an individual's right to obtain damages for an infringement of EC competition law, the anticipated flood of claims brought by the now empowered "private enforcers", has not, on the whole, materialised. This has led the Commission to conclude, somewhat morosely, that damages actions for breach of competition law are underdeveloped in Europe.
The OFT has more reason to be cheerful. It is well established that damages are, in principle, available in the UK courts for EC and UK competition law infringements, and with the establishment of the Competition Appeal Tribunal private damages actions for infringements of both EC and UK competition law are becoming more prevalent.
For example, in Scotland, it is understood that Arla Foods has, in October 2006, brought a £15 million damages action in the Court of Session against nine defenders further to the provisional findings of the OFT that the latter had been involved in unlawful price fixing in the Scottish milk sector. In England, Kellogg brought an action in the English High Court against its main supplier of cartonboard after a Commission decision that the latter had been involved in a EU wide price fixing cartel. The case was ultimately settled. In addition, it is understood that there have been a number of cases settled out of court, albeit not publicised.
Before the CAT, the damages action brought by Healthcare at Home Limited against Genzyme Limited subsequent to a finding that Genzyme had breached UK competition law, was settled on 11 January 2007. However, the CAT awarded interim damages of £2 million. Further, on 5 March 2007, the Consumers' Association lodged a damages claim (further to an infringement finding by the OFT/CAT) on behalf of some 130 individual consumers against JJB Sports plc in respect of price fixing arrangements in the sale of replica football kit. The Consumers' Association is seeking, in addition to compensatory damages, exemplary damages to the sum of 25% of the relevant turnover of the defendant. The CAT is also due to consider (in June) whether it should allow a damages action to be brought against a number of parties involved in a cartel, even where some of them have appealed the Commission's infringement decision to the European Courts (Emerson Electric case).
As the OFT notes in its April consultation paper, most of the main structural and legal elements for effective private actions in competition law are already in place in the UK. However, the devil is to an extent in the detail and a number of substantive and procedural issues remain to be determined. The relatively developed nature of the UK enforcement system does, however, reveal another common concern, namely…
The Lack of a Pan-European Level Playing Field
The judicial policy and the procedural rules of certain jurisdictions are more attractive to claimants and plaintiffs than others both in relation to damages actions and more general competition actions. This is obviously an issue for the Commission in the light of the general EU policy imperative of market integration. However, it is also one faced by the UK, particularly in relation to pan-European business practices where England presents a rather favourable forum for would-be litigants to centralise a potential claim/action, but also at a more local level given the differences in domestic legal systems, particularly Scotland and England. For example, exemplary damages are, in principle, available in England where as in Scotland there would not appear to be a substantive legal basis for such an award. It is not surprising, therefore, that the need for some degree of EU-wide alignment is specifically recognised by the OFT in its April consultation paper, at least insofar as certain matters are concerned.
European Harmonisation
The Brussels Regulation/the Lugano Convention set out rules for determining which national courts will have jurisdiction to determine both contractual and non-contractual disputes for the EEA. In addition, the Rome Convention (which the Commission is seeking to transform into an EC regulation) provides rules determining the law applicable to contractual obligations and the proposed Rome II Regulation will do the same for non-contractual obligations. However, these measures do not serve to harmonise Member States' substantive process/law. To date, what European harmonisation there has been has largely been led at the judicial level by the European Court of Justice.
The ECJ has applied its standard approach to remedies for breaches of EC law to competition private enforcement, namely it will respect the "procedural autonomy" of the Member States subject to national procedural rules not treating claims based on EC law less favourably than claims based on national law (the principle of equivalence) and subject to the national procedural rules not making it impossible in practice for an individual to exercise their EC law rights (the principle of effectiveness).
The second criterion has traditionally been used by the ECJ to create certain EC remedial rights when it considers this to be necessary to ensure the effectiveness of EC law. Therefore, in Crehan (2001) the ECJ established a general EC right to damages for loss occasioned by a breach of Article 81 on establishment of a casual relationship between the infringement and the harm suffered, and subsequently in Manfredi (2006) held that the EC right to damages entailed the right to seek compensation not only for actual loss but also for loss of profit plus interest. However, the ECJ in Manfredi did not recognise an EC right to exemplary damages and it is for the national courts to determine according to national rules whether there is a sufficient degree of casual connection to give rise to an EC right to damages (in both cases, subject to the principle of equivalence and the national court's application, at first instance at least, of the effectiveness principle).
ECJ judicial harmonisation (especially through the preliminary reference procedure) is obviously not the most effective or transparent way of addressing regulatory concerns as to the private enforcement of competition law nor for creating the pan-European level playing field that would mitigate the need for forum shopping. The very fact that the ECJ in Manfredi was asked to consider the legitimacy of national limitation periods despite jurisprudence stretching as far back as 1991 is testament to the inherent deficiencies in a court led harmonisation process.
Forum Shopping in England
With diverging national rules across the EU, England remains a fairly attractive forum for would be litigants, particularly as English discovery rules and quantification of damages rules are more claimant-friendly than many other EU jurisdictions. In addition, there is of course the High Court's decision in Provimi, that, broadly, companies who have purchased cartel-affected products across the EU can choose to proceed against an English subsidiary of a cartelist in respect of all European losses instead of having to pursue separate claims in multiple jurisdictions. Whether this decision will open the proverbial flood gates is likely to be seen in the near future as the Commission continues to intensify its efforts to root out pan-European cartels and impose substantial fines.
Culture Clash
Both the Commission and the OFT are acutely conscious of the need to foster a compliance culture while simultaneously guarding against the development of a litigation culture.
In SanDisk, the High Court has also made clear that it will not allow England to become some sort of enforcement utopia and there is a limit to the English courts' jurisdiction to entertain private competition actions. Here, the claimant (which imported and sold unlicensed MP3 players in the EU) sought to challenge the validity of a number of patents held by the defendants and certain measures brought against it by them. In particular, the patentees sought to enforce their patents against SanDisk by obtaining border detention orders in the Netherlands and seizures in Germany and Italy of MP3 players imported by SanDisk. In essence, the claimant argued that the defendants were dominant in certain markets and that their conduct in enforcing the patents constituted an abuse of dominance. The claimant brought an action in the High Court, in addition to a number of other European jurisdictions, despite the fact that none of the abuses complained of took place in England, that no immediate damage had been caused to the claimant in England by reason of the alleged abuses, and that none of the defendants were domiciled in England. The High Court considered that this was a bridge too far and that the courts in other EU jurisdictions were better placed to determine the claim.
Conclusion
Both Provimi and SanDisk turned on an interpretation of the Brussels Regulation/the Lugano Convention, the central proposition of which is that a defendant is to be sued in the courts of the jurisdiction where that person is domiciled. This, however, is subject to certain exceptions and the measures do not prevent all jurisdictional conflicts meaning that several courts might find themselves with jurisdiction to hear a particular dispute.
It can be envisaged that jurisdictional/procedural issues will be considered more and more as the competition authorities continue the push for private damages actions and as claimants seek out the "best jurisdiction" in which to bring a claim as well as engineering novel and more sophisticated actions based on competition law.
Neelie Kroes has stated that the Commission does not propose to "tear up the procedural rules of the Member States for the hell of it", though there does appear a real likelihood that the Commission will seek some degree of uniformity for the application of what is after all a substantively uniform law. Given a fully harmonised system of pan-European remedies is likely to remain a utopian pipe dream, it is preferable that the European legislature cherry picks what rules to harmonise rather than leaving it for the national and European courts to do so in what will always be a piecemeal fashion.
Sebastian McMichael and Ben Kemp are solicitors specialising in competition law/litigation with UK commercial law firm Shepherd and Wedderburn LLP.
Policy Developments
At the European level, the Commission has signalled that it will follow up its December 2005 Green Paper on damages actions with a White Paper anticipated to be published later this year/beginning of next. In the Green Paper, the Commission identified a number of obstacles to the bringing of private damages actions and a number of suggestions as to how these obstacles could be overcome. It is likely that the White Paper will firm up the Commission's view as to what issues may require European legislative intervention and what issues can be dealt with, in the words of Neelie Kroes, by more "informal instruments".
Meanwhile, in the UK, the Office of Fair Trading published on 18 April a consultation paper intended to stimulate debate on how to make redress for breaches of competition law more effective. The consultation period ends on 13 June. Thereafter, the OFT intends to recommend to the Government what steps can be taken to improve the current system. The OFT also plans to use the consultation exercise as the basis of its response to the Commission's White Paper.
The issues raised at both the UK and EC level are broadly similar, ranging from what should be the appropriate level of damages (in particular, whether exemplary damages should be available) to evidential issues and discovery rules. While it is not proposed to go through the proposals in detail, common themes can be identified.
A Paucity of Actions
Despite clear European Court jurisprudence on an individual's right to obtain damages for an infringement of EC competition law, the anticipated flood of claims brought by the now empowered "private enforcers", has not, on the whole, materialised. This has led the Commission to conclude, somewhat morosely, that damages actions for breach of competition law are underdeveloped in Europe.
The OFT has more reason to be cheerful. It is well established that damages are, in principle, available in the UK courts for EC and UK competition law infringements, and with the establishment of the Competition Appeal Tribunal private damages actions for infringements of both EC and UK competition law are becoming more prevalent.
For example, in Scotland, it is understood that Arla Foods has, in October 2006, brought a £15 million damages action in the Court of Session against nine defenders further to the provisional findings of the OFT that the latter had been involved in unlawful price fixing in the Scottish milk sector. In England, Kellogg brought an action in the English High Court against its main supplier of cartonboard after a Commission decision that the latter had been involved in a EU wide price fixing cartel. The case was ultimately settled. In addition, it is understood that there have been a number of cases settled out of court, albeit not publicised.
Before the CAT, the damages action brought by Healthcare at Home Limited against Genzyme Limited subsequent to a finding that Genzyme had breached UK competition law, was settled on 11 January 2007. However, the CAT awarded interim damages of £2 million. Further, on 5 March 2007, the Consumers' Association lodged a damages claim (further to an infringement finding by the OFT/CAT) on behalf of some 130 individual consumers against JJB Sports plc in respect of price fixing arrangements in the sale of replica football kit. The Consumers' Association is seeking, in addition to compensatory damages, exemplary damages to the sum of 25% of the relevant turnover of the defendant. The CAT is also due to consider (in June) whether it should allow a damages action to be brought against a number of parties involved in a cartel, even where some of them have appealed the Commission's infringement decision to the European Courts (Emerson Electric case).
As the OFT notes in its April consultation paper, most of the main structural and legal elements for effective private actions in competition law are already in place in the UK. However, the devil is to an extent in the detail and a number of substantive and procedural issues remain to be determined. The relatively developed nature of the UK enforcement system does, however, reveal another common concern, namely…
The Lack of a Pan-European Level Playing Field
The judicial policy and the procedural rules of certain jurisdictions are more attractive to claimants and plaintiffs than others both in relation to damages actions and more general competition actions. This is obviously an issue for the Commission in the light of the general EU policy imperative of market integration. However, it is also one faced by the UK, particularly in relation to pan-European business practices where England presents a rather favourable forum for would-be litigants to centralise a potential claim/action, but also at a more local level given the differences in domestic legal systems, particularly Scotland and England. For example, exemplary damages are, in principle, available in England where as in Scotland there would not appear to be a substantive legal basis for such an award. It is not surprising, therefore, that the need for some degree of EU-wide alignment is specifically recognised by the OFT in its April consultation paper, at least insofar as certain matters are concerned.
European Harmonisation
The Brussels Regulation/the Lugano Convention set out rules for determining which national courts will have jurisdiction to determine both contractual and non-contractual disputes for the EEA. In addition, the Rome Convention (which the Commission is seeking to transform into an EC regulation) provides rules determining the law applicable to contractual obligations and the proposed Rome II Regulation will do the same for non-contractual obligations. However, these measures do not serve to harmonise Member States' substantive process/law. To date, what European harmonisation there has been has largely been led at the judicial level by the European Court of Justice.
The ECJ has applied its standard approach to remedies for breaches of EC law to competition private enforcement, namely it will respect the "procedural autonomy" of the Member States subject to national procedural rules not treating claims based on EC law less favourably than claims based on national law (the principle of equivalence) and subject to the national procedural rules not making it impossible in practice for an individual to exercise their EC law rights (the principle of effectiveness).
The second criterion has traditionally been used by the ECJ to create certain EC remedial rights when it considers this to be necessary to ensure the effectiveness of EC law. Therefore, in Crehan (2001) the ECJ established a general EC right to damages for loss occasioned by a breach of Article 81 on establishment of a casual relationship between the infringement and the harm suffered, and subsequently in Manfredi (2006) held that the EC right to damages entailed the right to seek compensation not only for actual loss but also for loss of profit plus interest. However, the ECJ in Manfredi did not recognise an EC right to exemplary damages and it is for the national courts to determine according to national rules whether there is a sufficient degree of casual connection to give rise to an EC right to damages (in both cases, subject to the principle of equivalence and the national court's application, at first instance at least, of the effectiveness principle).
ECJ judicial harmonisation (especially through the preliminary reference procedure) is obviously not the most effective or transparent way of addressing regulatory concerns as to the private enforcement of competition law nor for creating the pan-European level playing field that would mitigate the need for forum shopping. The very fact that the ECJ in Manfredi was asked to consider the legitimacy of national limitation periods despite jurisprudence stretching as far back as 1991 is testament to the inherent deficiencies in a court led harmonisation process.
Forum Shopping in England
With diverging national rules across the EU, England remains a fairly attractive forum for would be litigants, particularly as English discovery rules and quantification of damages rules are more claimant-friendly than many other EU jurisdictions. In addition, there is of course the High Court's decision in Provimi, that, broadly, companies who have purchased cartel-affected products across the EU can choose to proceed against an English subsidiary of a cartelist in respect of all European losses instead of having to pursue separate claims in multiple jurisdictions. Whether this decision will open the proverbial flood gates is likely to be seen in the near future as the Commission continues to intensify its efforts to root out pan-European cartels and impose substantial fines.
Culture Clash
Both the Commission and the OFT are acutely conscious of the need to foster a compliance culture while simultaneously guarding against the development of a litigation culture.
In SanDisk, the High Court has also made clear that it will not allow England to become some sort of enforcement utopia and there is a limit to the English courts' jurisdiction to entertain private competition actions. Here, the claimant (which imported and sold unlicensed MP3 players in the EU) sought to challenge the validity of a number of patents held by the defendants and certain measures brought against it by them. In particular, the patentees sought to enforce their patents against SanDisk by obtaining border detention orders in the Netherlands and seizures in Germany and Italy of MP3 players imported by SanDisk. In essence, the claimant argued that the defendants were dominant in certain markets and that their conduct in enforcing the patents constituted an abuse of dominance. The claimant brought an action in the High Court, in addition to a number of other European jurisdictions, despite the fact that none of the abuses complained of took place in England, that no immediate damage had been caused to the claimant in England by reason of the alleged abuses, and that none of the defendants were domiciled in England. The High Court considered that this was a bridge too far and that the courts in other EU jurisdictions were better placed to determine the claim.
Conclusion
Both Provimi and SanDisk turned on an interpretation of the Brussels Regulation/the Lugano Convention, the central proposition of which is that a defendant is to be sued in the courts of the jurisdiction where that person is domiciled. This, however, is subject to certain exceptions and the measures do not prevent all jurisdictional conflicts meaning that several courts might find themselves with jurisdiction to hear a particular dispute.
It can be envisaged that jurisdictional/procedural issues will be considered more and more as the competition authorities continue the push for private damages actions and as claimants seek out the "best jurisdiction" in which to bring a claim as well as engineering novel and more sophisticated actions based on competition law.
Neelie Kroes has stated that the Commission does not propose to "tear up the procedural rules of the Member States for the hell of it", though there does appear a real likelihood that the Commission will seek some degree of uniformity for the application of what is after all a substantively uniform law. Given a fully harmonised system of pan-European remedies is likely to remain a utopian pipe dream, it is preferable that the European legislature cherry picks what rules to harmonise rather than leaving it for the national and European courts to do so in what will always be a piecemeal fashion.
Sebastian McMichael and Ben Kemp are solicitors specialising in competition law/litigation with UK commercial law firm Shepherd and Wedderburn LLP.
