1. 1 Common Principles of Regulatory Law Lectures: Dr. Marie Nioche Tutorials: Mr. Rafael Amaro Module VIII - Law of Regulation

2. Private Enforcement of Competition Law Tutorial 2 Changping, 7th of March 2012 Rafael AMARO

3. Definition of Private Enforcement of Competition rules “Private enforcement in this context means application of antitrust law in civil disputes before national courts. Such application can take different forms. Article 81(2) [now art. 101 TFEU] of the Treaty states that agreements or decisions prohibited by Article 81 are void. The Treaty rules can also be used in actions for injunctive relief. Also, damages awards can be awarded to those who have suffered a loss caused by an infringement of the antitrust rules.” GREEN PAPER on Damages actions for breach of the EC antitrust rules, COM(2005) 672 final

4. Content 1. Principles of Private Enforcement in Competition Law 2. Obstacles to the Efficiency of Private Enforcement

5. 1. Principles of Private Enforcement in Competition Law

6. Content 1.1. Founding reasoning 1.2. Legal framework

7. 1.1. Founding reasoning Law and Economics theories Studies at the end of the 1960’s and during the 1970’s started to analyze the efficiency of Private actions to enforce law. Founding study: Becker and Stigler, followed by Posner’s works. Content 1.1.1. “Intrinsic function” and “Instrumental function” 1.1.2. Advantages of private enforcement

8. 1.1.1. “Intrinsic function” and “Instrumental function” The Three Main Functions of Private Enforcement of Competition rules “ From a purely competition law perspective, antitrust enforcement pursues three systematically different, yet substantively interconnected, objectives. The first one is injunctive, i.e. to bring the infringement of the law to an end, which may entail not only negative measures, in the sense of an order to abstain from the delinquent conduct, but also positive ones to ensure that that conduct ceases in the future. The second objective is restorative or compensatory, i.e. to remedy the injury caused by the anti-competitive conduct. The third one is punitive, i.e. to punish the perpetrator of the illegal acts in question and also to deter him and others from future transgressions. Ideally, these three basic objectives can be pursued inside an enforcement system that combines both public and private elements. Private actions, in particular, may well - directly or indirectly - pursue all three objectives. A. P. Komninos,"Public and Private Antitrust Enforcement in Europe: Complement? Overlap? ", The Competition Law Review, Vol. 3, december 2006, p. 5-26

9. 1.1.1. “Intrinsic function” and “Instrumental function” “ Intrinsic function” (restorative function) Individuals’ protection. Compensation: traditional function of Private Law. It allows victims of antitrust infringements to seek compensation for the damages caused by illegal behaviours. Market’s protection. Restoration of the victim’s commercial capacities in order to strengthen the competition affected by the unlawful conduct.

10. 1.1.1. “Intrinsic function” and “Instrumental function” “ Instrumental function” (injunctive and punitive functions) Repressive and deterrent effect. Injunctive effect: –Injunctive and emergencies measures. Ex: commitments, injunctions to cease an activity, behavioral or structural remedies. –Nullity: end contracts having anticompetitive effects. Instead, Congress chose to permit all persons to sue to recover three times their actual damages every time they were injured in their business or property by an antitrust violation. By offering potential litigants the prospect of a recovery in three times the amount of their damages, Congress encouraged these persons to serve as "private attorneys general." Hawaii v. Standard Oil Co. of California, 405 U.S. 251 (1972)

11. 1.1.2. Advantages of private enforcement –Private enforcement is an effective way to deal with certain types of cases, especially those involving a commercial dispute between two parties and those where the claimant has close access to evidence concerning the defendant's business activities. –The Commission and the national competition authorities do not have sufficient resources to deal with all cases of anticompetitive behaviour. –Actions before the courts can offer speedier interim relief to undertakings than public proceedings. –Courts can order the unsuccessful party to pay the successful party's legal costs. An undertaking's legal costs are not recoverable in the case of a complaint to a public authority. –Private actions will further develop a culture of competition amongst market participants, including consumers, and raise awareness of the competition rules (D. Woods, A. Sinclair and D. Ashton, ”Private enforcement of Community competition law: modernisation and the road ahead”, Competition Policy Newsletter, no 2, summer 2004).

12. 1.2. Legal framework 1.2.1. Contrast Experienced legal framework in the US Old tradition in the US – Compensatory vocation of private actions following an infringement to Antitrust rules is an old tradition. It was first allowed by the Clayton Act of 1914. Brand new and unfinished legal framework in the EU Recent concern in the EU - Even if the ECJ has allowed follow on actions in the 1960’s, it stayed completely theoretical and seriously underdeveloped until the late 2000’s. Main texts: –Courage and Manfredi Cases –Green and White Paper "Culture of Competition” It has been emphasized that compensation for harms caused by infringements to antitrust law was highly important for US citizens, much more than in the EU where the “competition culture” is weak.

13. 1.2.1. Contrast Antitrust cases filed in U.S. District Courts Cases brought before Courts by private actions per year Sourcebook of criminal justice statistics Online http://www.albany.edu/sourcebook/pdf/t 5412006.pdf YearPercentActions 200696.3967 200594.4796 200495.1731 200394.3729 200294.8806 200194.1707 200090.0811 199083.4452 198094.91,457

14. 1.2.1. Contrast Ashurst Comparative Report in the EU: “Study on the conditions of claims for damages in case of infringement of EC competition rules”, 2004 “The picture that emerges from the present study on damages actions for breach of competition law in the enlarged EU is one of astonishing diversity and total underdevelopment. As regards the latter point, the study has revealed only around 60 judged cases for damages actions (12 on the basis of EC law, around 32 on the basis of national law and 6 on both). Of these judgments 28 have so far resulted in an award being made (8 on the basis of EC competition law, 16 on national law and 4 on both).”

15. 1.2.2. US Legal Framework USC, TITLE 15, CHAPTER 1, 15. Suits by persons injured (a) Amount of recovery; prejudgment interest (Clayton Act of 1914) “Except as provided in subsection (b) of this section, any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee. ”

16. 1.2.2. US Legal Framework Federal Rule 23. Class Actions (1) “(a) Prerequisites. One or more members of a class may sue or be sued as representative parties on behalf of all members only if: (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.”

17. 1.2.2. US Legal Framework Federal Rule 23. Class Actions (2) “(B) For (b)(3) Classes. For any class certified under Rule 23(b)(3), the court must direct to class members the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort. The notice must clearly and concisely state in plain, easily understood language: (i) the nature of the action; (ii) the definition of the class certified; (iii) the class claims, issues, or defenses; (iv) that a class member may enter an appearance through an attorney if the member so desires; (v) that the court will exclude from the class any member who requests exclusion; (vi) the time and manner for requesting exclusion; and (vii) the binding effect of a class judgment on members under Rule 23(c)(3).”

18. 1.2.3. EU Legal Framework –Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty –ECJ Courage Ltd. v. Crehan [2001] Case C-453/99 –ECJ Manfredi v. Lloyd Adriatico [2006] Cases C-295/04 to C- 298/04 –GREEN PAPER, Damages actions for breach of the EC antitrust rules, COM(2005) 672 final –WHITE PAPER on Damages actions for breach of the EC antitrust rules, COM(2008) 165 final

19. 1.2.3. EU Legal Framework “ Article 3 of the Regulation provides that national courts shall apply Community competition law to anticompetitive behaviour which may affect trade between Member States where they apply national competition law to such behaviour. It is anticipated that private enforcement will thus increase as a result of the Regulation.” (D. Woods, A. Sinclair and D. Ashton, ”Private enforcement of Community competition law: modernisation and the road ahead”)

20. 1.2.3. EU Legal Framework Strong doctrinal stream Regulation (EC) 1/2003 Recital (7) “National courts have an essential part to play in applying the Community competition rules. When deciding disputes between private individuals, they protect the subjective rights under Community law, for example by awarding damages to the victims of infringements. The role of the national courts here complements that of the competition authorities of the Member States. They should therefore be allowed to apply Articles 81 and 82 of the Treaty in full.”

21. 1.2.3.1.Courage and Manfredi cases of the ECJ 1.2.3.1.1.Protection of individuals rights by EC law Direct vertical effect of competition rules Courage case 19 […] Just as it imposes burdens on individuals, Community law is also intended to give rise to rights which become part of their legal assets. Those rights arise not only where they are expressly granted by the Treaty but also by virtue of obligations which the Treaty imposes in a clearly defined manner both on individuals and on the Member States and the Community institutions (see the judgments in Case 26/62 Van Gend en Loos [1963] ECR 1, Case 6/64 Costa [1964] ECR 585 and Joined Cases C-6/90 and C- 9/90 Francovich and Others [1991] ECR I-5357, paragraph 31).

22. 1.2.3.1.Courage and Manfredi cases of the ECJ Direct horizontal effect of competition rules Courage case “ 23 Thirdly, it should be borne in mind that the Court has held that Article 85(1) of the Treaty and Article 86 of the EC Treaty (now Article 82 EC) produce direct effects in relations between individuals and create rights for the individuals concerned which the national courts must safeguard (judgments in Case 127/73 BRT and SABAM [1974] ECR 51, paragraph 16, (BRT I) and Case C-282/95 P Guérin Automobiles v Commission [1997] ECR I-1503, paragraph 39). 24 It follows from the foregoing considerations that any individual can rely on a breach of Article 85(1) of the Treaty before a national court even where he is a party to a contract that is liable to restrict or distort competition within the meaning of that provision.”

23. 1.2.3.1.Courage and Manfredi cases of the ECJ 1.2.3.1.2. Eradicative function of nullity Courage case “20 Secondly, according to Article 3(g) of the EC Treaty (now, after amendment, Article 3(1)(g) EC), Article 85 of the Treaty constitutes a fundamental provision which is essential for the accomplishment of the tasks entrusted to the Community and, in particular, for the functioning of the internal market (judgment in Case C-126/97 Eco Swiss [1999] ECR I-3055, paragraph 36). 21 Indeed, the importance of such a provision led the framers of the Treaty to provide expressly, in Article 85(2) of the Treaty, that any agreements or decisions prohibited pursuant to that article are to be automatically void. 22 That principle of automatic nullity can be relied on by anyone, and the courts are bound by it once the conditions for the application of Article 85(1) are met and so long as the agreement concerned does not justify the grant of an exemption under Article 85(3) of the Treaty (on the latter point, see inter alia Case 10/69 Portelange [1969] ECR 309, paragraph 10). Since the nullity referred to in Article 85(2) is absolute, an agreement which is null and void by virtue of this provision has no effect as between the contracting parties and cannot be set up against third parties (see the judgment in Case 22/71 Béguelin [1971] ECR 949, paragraph 29)”

24. 1.2.3.1.Courage and Manfredi cases of the ECJ 1.2.3.1.3. Repressive and deterring function of damages actions Courage case “26 The full effectiveness of Article 85 of the Treaty and, in particular, the practical effect of the prohibition laid down in Article 85(1) would be put at risk if it were not open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition. 27 Indeed, the existence of such a right strengthens the working of the Community competition rules and discourages agreements or practices, which are frequently covert, which are liable to restrict or distort competition. From that point of view, actions for damages before the national courts can make a significant contribution to the maintenance of effective competition in the Community. 28 There should not therefore be any absolute bar to such an action being brought by a party to a contract which would be held to violate the competition rules.”

25. 1.2.3.1.Courage and Manfredi cases of the ECJ 1.2.3.1.4. Quantum of damages Manfredi case “ 99 Therefore, first, in accordance with the principle of equivalence, if it is possible to award specific damages, such as exemplary or punitive damages, in domestic actions similar to actions founded on the Community competition rules, it must also be possible to award such damages in actions founded on Community rules. However, Community law does not prevent national courts from taking steps to ensure that the protection of the rights guaranteed by Community law does not entail the unjust enrichment of those who enjoy them. 100 Secondly, it follows from the principle of effectiveness and the right of individuals to seek compensation for loss caused by a contract or by conduct liable to restrict or distort competition that injured persons must be able to seek compensation not only for actual loss (damnum emergens) but also for loss of profit (lucrum cessans) plus interest.”

26. 1.2.3.2. Green and White papers Green Paper: based on a broad study by Ashurst law firm which pointed out: - The regulatory potentialities of civil actions. - The inability of European civil proceedings to provide an effective framework for civil actions. White Paper: less ambitious. Disrupted the deterrence approach and set it aside because of national resistances. It favored only the compensatory functions of civil actions. “The primary objective of this White Paper is to improve the legal conditions for victims to exercise their right under the Treaty to reparation of all damage suffered as a result of a breach of the EC antitrust rules. Full compensation is, therefore, the first and foremost guiding principle. [...] The Commission followed the further guiding principle that the legal framework for more effective antitrust damages actions should be based on a genuinely European approach. The policy choices proposed in this White Paper therefore consist of balanced measures that are rooted in European legal culture and traditions. ”

27. 1.2.3.2. Green and White papers Backward step: "Instrumental measures" rejected by the White paper Opt out class actions At point 2.1. the WP calls for opt in collective actions Punitive or gain-based damages At point 2.4.: “The Court emphasised that victims must, as a minimum, receive full compensation of the real value of the loss suffered. The entitlement to full compensation therefore extends not only to the actual loss due to an anti-competitive price increase, but also to the loss of profit as a result of any reduction in sales and encompasses a right to interest.” Exclusion of passing on defence At point 2.6. the passing on defence is admitted pursuant the compensatory principle

28. 2. Obstacles to the Efficiency of Private Enforcement

29. 2. Obstacles to the efficiency of private enforcement Content 2.1. Lack of a pan-european private litigation 2.2. Conceptual antagonisms

30. 2.1. Lack of a pan-european private litigation Content 2.1.1. Civil law vs Common law 2.1.2. Forum shopping and misapplication of competition law 2.1.3. Issues related to Community Legal order and policy

31. 2.1. Lack of a pan-european private litigation 2.1.1. Civil law vs Common law Anglo-American origins of private enforcement Private enforcement of competition law is primarily based on the US experience. Its efficiency is narrowly related to typical Anglo-American proceedings like class actions, punitive damages and discovery. Autonomy principle: According to the current ECJ case-law, each Member State applies its own procedural rules to civil lawsuits. Doubts may arise about the ability of Civil legislations to host such logics in their private laws. In France for instance: deterrent effect of tort law and f punitive damages are rejected by an important part of the opinion.

32. 2.1.1. Civil law vs Common law Disclosure and access to evidence “The common law lawyer is under an obligation towards the court to disclose all evidence, both supportive and harmful to his case, whereas lawyers in civil law systems are, generally speaking, obliged only to produce to the court those materials which are necessary to prove the case. The civil law lawyer cannot rely on the disclosure obligation on the other party to obtain the evidence needed to prove his case to the extent that the common law lawyer can. Therefore, the potential claimant in civil law jurisdictions needs to have at his disposal sufficient evidence to satisfy the burden of proof before launching an action, whereas the common law system offers more scope for launching actions on the grounds that evidence favourable to the claim might be found during discovery.” (D. Woods, A. Sinclair and D. Ashton, ”Private enforcement of Community competition law: modernisation and the road ahead”).

33. 2.1.1. Civil law vs Common law Green paper, point 2.1. Solution: Access to evidence Actions for damages in antitrust cases regularly require the investigation of a broad set of facts. The particular difficulty with this kind of litigation is that often the relevant evidence is not easily available and is held by the party committing the anti-competitive behaviour. Access by claimants to such evidence is the key to making damages claims effective. It must therefore be considered whether obligations to turn over documents or otherwise provide access to evidence should be introduced. This is particularly important for stand-alone actions. In a similar vein, consideration could be given to placing an obligation on the defendant to disclose documents submitted to a competition authority. In cases in which the Commission or an NCA has undertaken an investigation, it is likely to hold relevant evidence which could be important for a claimant in follow-on cases. Use of those materials in subsequent civil actions could be helpful in proving the damages claim. In order to limit the administrative burden on competition authorities, access to those documents should be arranged between the parties. Rules on burden and standard of proof can also help the claimant in this respect. The question of the evidentiary value of NCA decisions is of particular importance.

34. 2.1.1. Civil law vs Common law White paper, point 2.2. Disclosure inter partes “national courts should, under specific conditions, have the power to order parties to proceedings or third parties to disclose precise categories of relevant evidence ; - conditions for a disclosure order should include that the claimant has: - presented all the facts and means of evidence that are reasonably available to him, provided that these show plausible grounds to suspect that he suffered harm as a result of an infringement of competition rules by the defendant; - shown to the satisfaction of the court that he is unable, applying all efforts that can reasonably be expected, otherwise to produce the requested evidence ; - specified sufficiently precise categories of evidence to be disclosed; and - satisfied the court that the envisaged disclosure measure is both relevant to the case and necessary and proportionate ; - adequate protection should be given to corporate statements by leniency applicants and to the investigations of competition authorities;”

35. 2.1.1. Civil law vs Common law Class actions Exemplary damages

36. French "Mobile phone cartel" French civil law context: Class actions, punitve damages and discovery do not exsist. The current proceedings appear clearly inefficient to satisfy both compensatory and deterrent functions of mass lawsuits. E. g.: "Mobile phone cartel" Cartel: price fixing and market sharing cartel from 2000 to 2002 between the three French operators (Orange, SFR, Bouygues). Victims: 20 million subscribers Estimated civil damages: 1.2 to 1.6 billion euros (estimation from a prominent consumers association: UFC Que Choisir) Fine imposed by the French competition authority: 534 million euros. Reprensentative action brought by UFC Que Choisir (Consumers Association): 12.500 validated demands for representation (on 20 million victims...). All of them succeeded, which means that just 0.06 per cent of the victims were compensated. Illegal gain: 0.6 to 1.1 billion euros.

37. 2.1.2. Forum Shopping and Misapplication of Competition Law Risks of forum shopping, if jurisdictions chosen by the victims decide to reject demands and to decline their competence, plaintiffs could fail before other jurisdictions that would apply less favorable proceedings. Depending on the Member-State where plaintiff will sue, they will not be able to defend their subjective rights in the same way. It will also create uncertainty for plaintiffs to asset the resources needed to sue and succeed in private litigation.

38. 2.1.3. Issues Related to Community Legal Order and Policy Restrictions to the procedural autonomy principle ECJ, Mostaza Claro [2006] C-168/05: 24 “Under the principle of the procedural autonomy of the Member States, provided that they are not less favourable than those governing similar domestic situations (principle of equivalence) and that they do not render impossible in practice or excessively difficult the exercise of rights conferred by the Community legal order (principle of effectiveness) (see, inter alia, Case C-78/98 Preston and Others [2000] ECR I-3201, paragraph 31, and Joined Cases C-392/04 and C-422/04 i-21 Germany and Arcor [2006] ECR I-0000, paragraph 57). ”

39. 2.1.3. Issues Related to Community Legal Order and Policy Subsidiarity principle Statement of N: Kroes: “I can assure you I know my basics--the fundamental principles of subsidiarity and proportionality--and will apply them. I will only recommend European actions if they add demonstrable value and deliver something which Member States alone cannot. We will look carefully at all the possible options and their impact."

40. 2.1.3. Issues Related to Community Legal Order and Policy Undermining the principle of effectiveness Manfredi case, point 71 “Secondly, as follows from paragraph 62 of this judgment, in the absence of Community rules governing the matter, it is for the domestic legal system of each Member State to designate the courts and tribunals having jurisdiction and to prescribe the detailed procedural rules governing actions for safeguarding rights which individuals derive directly from Community law, provided that such rules are not less favourable than those governing similar domestic actions (principle of equivalence) and that they do not render practically impossible or excessively difficult the exercise of rights conferred by Community law (principle of effectiveness).” Restrain to the principle of effectiveness, as some Civil law rules could render excessively difficult the exercise of rights. Issues related to competition policy and construction of the common market. Private enforcement is viewed as a new mean to regulate economy, some countries providing an efficient framework to civil actions will be more competitive and better regulated.

41. 2.2. Conceptual antagonisms Content 2.2.1. Public vs Private Enforcement 2.2.1. Private Law vs Competition Law

42. 2.2.1. Public vs Private Enforcement Issues “[…] any private interest is subsumed within the public interest in protecting effective competition or is it independent and only directed by Private law logics? Community principle that national courts must not contradict decisions by the Commission is not indicative of a primacy of public over private antitrust enforcement but rather of Community over national measures, always under the final control of the Court of Justice." A. P. Komninos,"Public and Private Antitrust Enforcement in Europe: Complement? Overlap? ", The Competition Law Review, Vol. 3, p. 5-26, december 2006

43. 2.2.1. Public vs Private Enforcement 2.2.1.1. Leniency issue White Paper, point 2.9 Threat of disclosure “Interaction between leniency programmes and actions for damages It is important, for both public and private enforcement, to ensure that leniency programmes are attractive. Adequate protection against disclosure in private actions for damages must be ensured for corporate statements submitted by a leniency applicant in order to avoid placing the applicant in a less favourable situation than the co-infringers. Otherwise, the threat of disclosure of the confession submitted by a leniency applicant could have a negative influence on the quality of his submissions, or even dissuade an infringer from applying for leniency altogether."

44. 2.2.1. Public vs Private Enforcement White Paper, point 2.9 Possible solution “The Commission therefore suggests that such protection should apply: to all corporate statements submitted by all applicants for leniency in relation to a breach of Article 81 of the EC Treaty (also where national antitrust law is applied in parallel); regardless of whether the application for leniency is accepted, is rejected or leads to no decision by the competition authority. This protection applies where disclosure is ordered by a court, be it before or after adoption of a decision by the competition authority. Voluntary disclosure of corporate statements by applicants for immunity and reduction of fines should be precluded at least until a statement of objections has been issued. A further measure to ensure that leniency programmes continue to be fully attractive could be to limit the civil liability of successful immunity applicants.”

45. 2.2.1. Public vs Private Enforcement 2.2.1.2. Risk of incoherence Current legislation: No binding effect of NCA’s decisions. Consequence: national jurisdictions will have to reexamine the facts and the application of competition rules. Risks of incoherence: national jurisdictions can disapprove the NCA’s appreciation and adopt a solution that could conflict the first decision.

46. 2.2.1. Public vs Private Enforcement White Paper: point 2.3. (1) Binding effect of NCA’s decisions “A rule to this effect would ensure a more consistent application of Articles 81 and 82 by different national bodies and increase legal certainty. It would also significantly increase the effectiveness and procedural efficiency of actions for antitrust damages: if defendants can call into question their own breach of Article 81 or 82 established in a decision by an NCA and, possibly, confirmed by a review court, the courts seized with an action for damages are required to re-examine the facts and legal issues already investigated and assessed by a specialised public authority (and a review court). Such duplication of factual and legal analysis leads to considerable extra costs, duration and imponderability for the victim’s action for damages. The Commission therefore suggests the following rule: - national courts that have to rule in actions for damages on practices under Article 81 or 82 on which an NCA in the ECN has already given a final decision finding an infringement of those articles, or on which a review court has given a final judgment upholding the NCA decision or itself finding an infringement, cannot take decisions running counter to any such decision or ruling.”

47. 2.2.1. Public vs private enforcement White Paper: point 2.3. (2) “ Whenever the. European Commission finds a breach of Article 81 or 82 of the EC Treaty, victims of the infringement can, by virtue of established case law and Article 16(1) of Regulation 1/2003, rely on this decision as binding proof in civil proceedings for damages. For decisions by national competition authorities ( NCAs ) finding a breach of Article 81 or 82, similar rules currently exist in only some Member States. The Commission sees no reason why a final decision[9] on Article 81 or 82 taken by an NCA in the European Competition Network (ECN), and a final judgment by a review court upholding the NCA decision or itself finding an infringement, should not be accepted in every Member State as irrebuttable proof of the infringement in subsequent civil antitrust damages cases.”

48. 2.2.1. Private Law vs Competition Law Ashurst Report The greatest obstacle here generally seems to stem from lack of clarity, either because what the legal basis actually is for such claims is unclear or because the interaction between the specific legal basis and general provisions on conditions for liability is unclear. The absence of a legal basis does not in itself seem to create any specific obstacles although the existence of such a legal basis may raise the profile of and thus encourage private actions.

49. 2.2.1. Private Law vs Competition Law 2.2.1.1.Nullity of contracts under competition law Cumulative effect and distorsion with the traditional theory of nullity Traditional approach of nullity: contract is void if it is contrary to the public order or if the consent is invalidated. Competition law approach of nullity: Courage case 34 Referring to the judgments in Case 23/67 Brasserie de Haecht [1967] ECR 127 and Case C-234/89 Delimitis [1991] ECR I-935, paragraphs 14 to 26, the Commission and the United Kingdom Government also rightly point out that a contract might prove to be contrary to Article 85(1) of the Treaty for the sole reason that it is part of a network of similar contracts which have a cumulative effect on competition.

50. 2.2.1. Private Law vs Competition Law Inapplicability of nemo auditur rule Courage case “34 […]In such a case, the party contracting with the person controlling the network cannot bear significant responsibility for the breach of Article 85, particularly where in practice the terms of the contract were imposed on him by the party controlling the network. 35 Contrary to the submission of Courage, making a distinction as to the extent of the parties' liability does not conflict with the case-law of the Court to the effect that it does not matter, for the purposes of the application of Article 85 of the Treaty, whether the parties to an agreement are on an equal footing as regards their economic position and function (see inter alia Joined Cases 56/64 and 58/64 Consten and Grundig v Commission [1966] ECR 382). That case-law concerns the conditions for application of Article 85 of the Treaty while the questions put before the Court in the present case concern certain consequences in civil law of a breach of that provision.”

51. 2.2.1. Private Law vs Competition Law Price Position in the distribution chain Undertaking A Producer OFFENDER Undertaking B Wholesaler DIRECT PURCHASER Undertaking C Retailer/consumer INDIRECT PURCHASER Competition Price of purchase (no infringement) Sells without overcharge 80 Costs: 20 100 Cartel Price of purchase (infringement committed) WITH PASSING ON Sells with overcharge: 10 90 Costs:20 Overcharge: 10 Loss: 00 110 Loss: 10 Cartel Price of purchase (infringement committed) WITHOUT PASSING ON Sells with overcharge: 10 90 Costs:20 Overcharge: 00 Loss: 10 100 Loss: 00

52. 2.2.1. Private Law vs Competition Law 2.2.1.2. Issues raised by the admission or the rebuttal of passing on defense Both situation can be highly problematic as regard to private law and competition policies: Rejecting the defense would: –contravene the compensatory function of tort law (for Civil law legislations) because the application of the non bis in idem principle will disallow indirect purchaser to sue offenders. –contravene the unjust enrichment prohibition because direct purchasers will obtain compensation for a loss they have not suffered.

53. 2.2.1. Private Law vs Competition Law Admitting the defense would: –enable direct purchaser to sue offenders and discourage the deterrent effect they could impulse. Direct purchaser predominantly are professionals aware of bad conducts. They can easily detect price overcharges. By the substantial gain they would obtain in sueing infringers, they will be have great incentives to intent civil actions. –raise some serious difficulties to determine the amount of loss suffered by each indirect purchaser. Especially when the overcharges occur at different levels of the supply chain. –manifold the number of potential plaintiffs and create long, expensive and complicated proceedings. –Encourage indirect purchasers to sue, despite the insignificant loss they had suffered (it is worth to keep in mind that they often are consumers). US Case law: Choice of the deterrent approach, a competition law based approach more than a classical private law/tort law based approach. Deterrence of antitrust practices more than compensation of individual damages.

54. 2.2.1. Private Law vs Competition Law Hanover Shoe & Co v United Shoe Machinery Corporation, 392 US 481 (1968), n° 493 et 494 “Equally difficult to determine, in the real economic world, rather than an economist's hypothetical model, is what effect a change in a company's price will have on its total sales. Finally, costs per unit for a different volume of total sales are hard to estimate. Even if it could be shown that the buyer raised his price in response to, and in the amount of, the overcharge, and that his margin of profit and total sales had not thereafter declined, there would remain the nearly insuperable difficulty of demonstrating that the particular plaintiff could not or would not have raised his prices absent the overcharge, or maintained the higher price had the overcharge been discontinued. Since establishing the applicability of the passing-on defense would require a convincing showing of each of these virtually unascertainable figures, the task would normally prove insurmountable. On the other hand, it is not unlikely that, if the existence of the defense is generally confirmed, antitrust defendants will frequently seek to establish its applicability. Treble damage actions would often require additional long and complicated proceedings involving massive evidence and complicated theories. In addition, if buyers are subjected to the passing-on defense, those who buy from them would also have to meet the challenge that they passed on the higher price to their customers. These ultimate consumers, in today's case, the buyers of single pairs of shoes, would have only a tiny stake in a lawsuit, and little interest in attempting a class action. In consequence, those who violate the antitrust laws by price-fixing or monopolizing would retain the fruits of their illegality because no one was available who would bring suit against them. Treble damage actions, the importance of which the Court has many times emphasized, would be substantially reduced in effectiveness. ”