Nicolas Heaton and Matthew Levitt ask if the European Commission's proposals on antitrust damages will mean more claims against utilities.

Businesses that infringe EC competition law are liable not just to fines, but also to claims for damages by those who have suffered loss. On 2 April, the European Commission published a white paper that set out its proposals on how it could be made easier to bring such claims.

Over the past four years the Commission has been considering how to remove legal and procedural obstacles so antitrust damages claims can become an effective way for victims of anti-competitive practices to obtain compensation. It also recognises that there are limits to the number of complaints it can investigate and believes that a more effective damages regime could help encourage compliance with competition law, as it does in the US.

Businesses operating in highly concentrated markets, such as gas and power utilities, intermediaries, users and final consumers should follow developments in this area closely to assess the risks and opportunities.

While the Commission wishes to make it easier to bring claims, it is concerned not to go too far by encouraging unmeritorious litigation. Competition commissioner Neelie Kroes has said that she wishes to avoid any move that would encourage excessive litigation, a disadvantage of the US system, in which class actions are common.

Pan-European proposals
The Commission has also had to come up with proposals that can be made to work in the legal systems of all 27 members states, which differ greatly, both generally and in their development of antitrust damages claims. The proposals tread a cautious line, seeking to set minimum standards in key areas, while allowing individual member states to take reforms further. The result is a set of proposals that will have greater impact in some member states than others, but should make it easier to bring claims in all jurisdictions.

In earlier publications the Commission had raised the possibility that claimants should be entitled to recover punitive or double damages for certain types of cartel infringements to encourage claimants and deter would-be infringers. Significantly, it has rejected this approach in favour of single damages - damages that purely compensate for loss suffered.

The Commission recognises that victims are unlikely to bring individual claims in cases where the loss suffered is small and/or spread among numerous individual consumers or small businesses. To address this, the white paper recommends two complementary methods that will allow claims to be brought on behalf of groups of consumers or businesses. These are collective actions in which victims expressly agree to combine their individual claims into a single action and representative claims by qualified bodies on behalf of identified or, exceptionally, identifiable parties. The second approach could allow, for example, an action to be brought on behalf of all users of a product or service such as electricity or gas, so the proposals could affect the size of claims that some businesses will face.

Minimum disclosure
Another proposal is that there should be a minimum level of disclosure between parties to damages actions. This should take place under strict judicial control as to the necessity, scope and proportionality of the disclosure request. This is unlikely to have a significant impact in the UK, where parties are already obliged to disclose relevant documents.

Under the proposals in the white paper, if a National Competition Authority (NCA) finds that there has been an infringement of EC competition law, its final decision could be relied on by claimants before the courts of another member state as proof of the infringement. This has the potential to facilitate so-called follow-on damages actions.
However, this has caused some concern given the disparity between the quality of decision making across member state NCAs.

Recognising the importance of leniency arrangements, which offer reduced fines in exchange for "corporate confessions", in uncovering secret cartels, the white paper includes proposals designed to protect confessions by leniency applicants from disclosure.

Claims for loss
The Commission has confirmed that both direct and indirect purchasers of affected goods and services should be entitled to bring claims for the loss they suffer. However, it will be a defence to a claim if a defendant can show that the purchaser was able to pass on the price increase or overcharge caused by an infringement to its own customers. In claims by indirect purchasers there will be a rebuttable presumption that the overcharge has been passed on to them in its entirety.

The impact of any reforms will be felt less in the UK than elsewhere both because it has a more developed system for antitrust damages claims than many other member states and because recent recommendations for reform at a domestic level from the Office of Fair Trading go further than the white paper. The potential significance of these reforms should not be underestimated. Although relatively few cases currently go to court, substantial settlements are being reached behind closed doors.

The Commission's proposals will encourage more claims - but how many? In some areas, such as collective claims, the real impact will depend on how the policy proposals are developed into law. Businesses still have an opportunity to influence this by responding to the Commission's consultation on the proposals, which runs until 15 July.
Producers, intermediaries and users should consider the potential impact of these reforms and make their views known.

Nicholas Heaton and Matthew Levitt are partners in Lovells LLP's competition dispute resolution team.

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