What is driving private antitrust enforcement? The German approach Abstract Sebastian Peyer

What is driving private antitrust enforcement? The German approach
Sebastian Peyer∗
(DRAFT – Please do not quote without permission)
Abstract
Private antitrust enforcement in Germany seems to flourish. Litigation data show that harmed
individuals and firms bring lawsuits for the violation of German and European competition law
before the courts. These lawsuits are not confined to follow-on damages actions against cartels. On
the contrary, claimants employ a multitude of remedies against diverse antitrust violations.
However, the state of play of private antitrust enforcement in Germany is often ignored or thought
to be based on idiosyncrasies of German competition law.
The purpose of this paper is to provide a brief overview about antitrust litigation in Germany and to
identify some of the factors which presumably foster private actions. I will argue that, based on the
German experience, private actions can complement public enforcement if they are cheap to
pursue, quickly resolved, and not primarily aimed at cartel violations. In order to appeal to many
potential victims private actions do not need to offer full compensation but ought to provide readilyavailable and flexible remedies more suitable for the small pockets of medium-sized firms and
consumers. The paper implicitly rejects the purported main function of private actions, namely to
make victims of cartels whole. It seems that the real impact of private enforcement in the German
law tradition stems from small cases which are not pursued by competition authorities.
∗
Post doctoral research fellow at the ESRC Centre for Competition Policy & Norwich Business School,
University of East Anglia. Comments are welcome at [email protected].
1
A.
INTRODUCTION
Private antitrust enforcement has been thriving in Germany for many years. Unfortunately, this goes
mostly unnoticed. There is the obvious language barrier that reduces the outreach of German cases
but also the rather incoherent reporting that distorts the perception of German cases. The few
damages cases that are being brought before the courts receive more attention than the hundreds
of low-profile cases. Most observers are very familiar with private follow-on actions against German
or European cartel members but may not be aware of the non-damages actions that actually
constitute the majority of private cases. The European Commission and others have picked up on the
‘underdevelopment’ of private antitrust in Europe and suggested various measures to overcome
obstacles to civil litigation.1
Trying to understand private enforcement in Germany may leave the observer puzzled. Why do
plaintiffs file private actions in Germany? German competition and procedural laws do not know
most of the rules which are thought to encourage the bringing of claims and that are commonly
associated with a flourishing system of private actions. Damages are not multiplied since exemplary
damages or damages exceeding the amount of harm would be against principle. There is not pretrial or trial discovery that enhances access to crucial information. Lawyers do not act as ‘bounty
hunters’.2 ‘No win no fee’ agreements (contingency and conditional fee agreements) are only
allowed in very limited circumstances and will, in all likelihood, seldom be used in antitrust cases.
The purpose of this paper is to identify some of the factors that potentially facilitate private actions
in the German framework and, thus, may help to explain the observed level of antitrust litigation.
This paper hypothesises that rules encourage private litigants in Germany because they limit
litigation costs and make outcomes predictable. In order to appeal to many potential victims private
actions ought to provide readily-available and flexible remedies more suitable for the small pockets
of medium-sized firms and consumers.
In the next part B, I will sketch the characteristics of German antitrust litigation using data on private
cases which were decided between 2005 and 2007. I will provide, inter alia, an overview about the
number of cases, the remedies being sought, the allegations on which legal actions are based, and
the success rate of these actions. In section C I will discuss some of the explanatory variables
1
European Commission, ‘Green Paper - Damages Actions for Breach of the EC Antitrust Rules’ (Brussels 2005);
European Commission, ‘White Paper on Damages Actions for Breach of the EC Antitrust Rules’ (Brussels 2008);
European Commission, ‘Commission Staff Working Document, Public Consultation: Towards a Coherent
European Approach to Collective Redress’ (Brussels 2011).
2
See, for example, John C Coffee, ‘Rescuing the Private Attorney General: Why the Model of the Lawyer as
Bounty Hunter is not Working’ (1983) 42 Maryland Law Review 215–288.
2
potentially driving litigation in Germany. I will look, among others, at the substantive law, the cost of
litigation, and the remedies. Section D concludes.
B.
PRIVATE ANTITRUST CASES IN GERMANY
This section briefly outlines the typical features of private cases that were decided by German courts
between 2005 and 2007. The findings are likely to be biased in so far as they are based on cases
concluded on the merits and thus ignore settlements or dropped private actions. There were a
number of problems with the initially collected data I have described elsewhere.3
Between 2005 and 2007 the courts decided 368 private antitrust cases. This is a conservative
measure and probably the lowest estimate for private antitrust actions. It is likely that 150 to 250
cases are pending before the courts each year including proceedings at the appeal stages. Roughly
half of the 368 cases were brought to the appeal instance including 24 proceedings that proceeded
to the Federal Court of Justice, the highest civil court. The distribution of cases shown in Figure 1
implies a trend towards less private enforcement but this trend is caused by data collection
problems rather than an actual development of private litigation. The line graphs dip during the
winter probably being caused by the data arrangement. The cases are organised corresponding to
the respective decision date. This is an arbitrary measure as more complicated cases may take much
longer until a judgement on the merits is handed down. Due to more public holidays in December
fewer cases are dealt with and resolved in the winter influencing the shape of the curves in Figure 1.
The data reveal that private antitrust cases are not evenly distributed across the 16 federal states.
There is no free choice of court in Germany. Plaintiffs must normally file their claim in the regional
court where the defendant has its seat.4 More than 40 per cent of all cases are litigated in North
Rhine-Westphalia, the economically strongest state and, coincidentally, the state where the Federal
Cartel Office (FCO) has its seat. Bavaria is second (16.3 per cent) followed by Hessen (9.8 per cent)
and Baden-Württemberg (7.3 per cent). The data suggest that we observe something like an eastwest divide which probably has its roots in the differing strength of state economies. In addition to
the varying economic strength of regions, the allocation of big firms also determines the allocation
of antitrust cases. Twenty two of the 73 biggest companies, based on domestic added value and with
3
The various data problems are explained in Sebastian Peyer, ‘Myths and Untold Stories - Private Antitrust
Enforcement in Germany’ (2010).
4
See sections 12, 13, 17 of the Civil Procedure Code.
3
their headquarters in Germany, are located in North Rhine-Westphalia.5 Baden-Württemberg comes
second with 16 companies, Bavaria and Hessen share the third place with 11 companies having their
seat in these states respectively. Since the defending firm’s seat normally determines the jurisdiction
and big firms are more likely to be dominant or involved in legal disputes, the location of
headquarters of big firms in Germany has probably influenced the distribution of private antitrust
cases across states.
Figure 1
Number of private antitrust cases per month 2005 - 2007
25
Total cases
Appeal cases
First instance cases
20
15
10
5
0
Figure 2 shows that private antitrust litigation constitutes a considerable part of the overall
enforcement scheme when compared with the enforcement activity of the FCO during the
observation period. 6 The FCO commenced a total of 438 proceedings and completed 577
investigations regarding the cartel prohibition, the abuse of dominance and economic dependency.7
5
Monopolkommission, Mehr Wettbewerb, wenig Ausnahmen: 18. Hauptgutachten der Monopolkommission
gemäß § 44 Abs. 1 Satz 1 GWB (Bonn 2010) 86.
6
Investigations of the European Commission, other national competition authorities and the competition
authorities of the German federal states are omitted from the analysis.
7
Bundeskartellamt, ‘Bericht des Bundeskartellamtes über seine Tätigkeit in den Jahren 2005/2006 sowie über
die Lage und Entwicklung auf seinem Aufgabengebiet’ (Bonn 2007); Bundeskartellamt, ‘Bericht des
Bundeskartellamtes über seine Tätigkeit in den Jahren 2007/2008 sowie über die Lage und Entwicklung auf
seinem Aufgabengebiet’ (Bonn 2009). The competition authorities of the federal states commenced 1501
antitrust proceedings between 2005 and 2007.
4
These proceedings include, for instance, administrative procedures aimed at fines, cease and desist
orders, and other remedies against anticompetitive behaviour. The majority of those public
proceedings was closed and not further investigated. Cease and desist orders and fines add up to 22
formal infringement decisions in the observation period. In 84 cases the undertakings concerned
ceased the illegal behaviour. At the same time, 368 private antitrust proceedings were concluded.
Figure 2
Number of concluded public and private cases 2005 to 2007
350
318
300
250
200
150
Private cases
153
147
135
131
Public cases
90
100
50
0
2005
2006
2007
Private litigation in Germany is characterised by very little follow-on litigation. Only eight cases,
which represent 2.2 per cent of the sample, followed a prior decision of the German or European
competition authorities. In four cases (1.1 per cent) the data did not allow a final conclusion as to
the nature of the proceedings. In three proceedings the plaintiffs followed cartel-related
investigations: the German Concrete cartel, the worldwide Vitamins cartel and the European
Carbonless Paper cartel.8 In the remaining follow-on actions plaintiffs sought relief from the abuse of
dominance. In two cases the claimants referred to preliminary findings of an investigation of the
8
European Commission, COMP/E-1/37.512, Vitamins [2001] OJ L6/1; European Commission, Case COMP/E1/36.212, Carbonless Paper [2001] OJ L-115/1. The Vitamins decision of the European Commission attracted
more follow-on damages claims in Germany though those cases fell outside the observation period. See
Landgericht Mainz, 12 HK O 55/02, 56/02, Vitaminkartell; Landgericht Mainz, 12 HK O 52/02, Vitaminkartell
[2004] NJW-RR 478; Oberlandesgericht Karlsruhe, 6 U 183/03, Vitaminkartell [2004] NJW 2243; Landgericht
Dortmund, 13 O 55/02, Vitaminkartell [2004] EWS 434.
5
Federal Cartel Office. The competition authority had probed into allegations of abusive conduct in
the telecommunication sector and settled the cases after it had accepted commitments from the
undertaking concerned. In three private proceedings the plaintiffs drew on FCO decisions in the
postal services sector.
Customers of the defendant initiated more than half of all claims in the sample (57.6 per cent) while
competitors only filed 17.7 per cent of the cases. Consumer actions in the sample are rare – only one
case was identified as consumer case without a doubt. The available data impeded the identification
of those claims and the data issues may be partly responsible for the low number. Most litigated
cases featured a vertical relationship which is also reflected in the type of allegations plaintiffs
brought forward. Horizontal violations played a role in roughly 10 per cent of the antitrust cases
while vertical breaches of competition law were alleged in 16 per cent of the proceedings. The vast
majority of plaintiffs raised concerns about the abuse of market power: 60 per cent of all cases dealt
with various types of abusive conduct. Many of these cases involved refusal to deal issues (16 per
cent) or accusations of discriminatory behaviour (20 per cent). Judges heard very few cases (11
proceedings or 3 per cent) on anticompetitive horizontal agreements. In many of these horizontal
proceedings plaintiffs asserted the use of anticompetitive non-compete clauses rather than hardcore cartel constraints. Non-compete clauses are a routine element of contracts between businesses
or shareholders and, as it turned out, triggered legal disputes about potential antitrust violations. It
is interesting to note that plaintiffs refer more often to European law when horizontal and vertical
constraints are concerned while dominance is predominantly dealt with under Germany law. Of the
66 lawsuits in which plaintiffs referred to Article 101 or 102 TFEU almost 75 per cent dealt with a
private remedy on the basis of Article 101. When German competition law was concerned almost 75
per cent of the cases were based on the abuse of dominance according to sections 19 to 21 ARC.
This study reveals that plaintiffs used diverse civil law remedies. Figure 3 shows that damages
actions are not the most important remedy and only rank fourth, even behind interim relief. Actions
aimed at monetary relief amount to almost 20 per cent of litigated cases adding up damages and
unjust enrichment (restitution) claims. The sometimes issued concern that nullity applications are
behind many antitrust actions in Europe seems to be partly true for Germany as the high ratio of
voidness requests suggests. Not surprisingly, in almost all of these claims the initial defendant
invoked contract-voiding competition law issues in order to defend himself against the plaintiff’s
claim (counterclaim). As for the prospect of success, restitution actions based on competition law
appear to be the most promising remedy. While plaintiffs successfully litigated 30 per cent of the
cases in the sample, i.e. in one out of three proceedings the court confirmed a violation of
6
competition law, the chances to win a restitution claim are much higher: one in two claims or 52 per
cent are won. Damages claims have a much lower success rate: only 17.5 per cent of the cases in the
sample were decided in favour of the plaintiff. The chances to win an injunction are slightly above
the sample mean: in 37 per cent of the proceedings the plaintiffs won or partly won the case.
Figure 3
Primarily requested remedies
30.0
28.5
25.0
22.8
Remedies in percent of total
20.0
15.0
13.6
12.5
10.9
10.0
7.9
3.8
5.0
0.0
Injunctions
Voidness
Interim relief
Damages
Unjust
enrichment
Others
Missing value
The length of the proceedings was estimated for 365 out of 368 proceedings. The exact start date of
the proceedings was unknown and set to the 01 January of the respective year. Cases are likely to be
initiated more randomly and distributed over 12 months rather than being started on the first day of
each year. Due to data limitations I measured the length of the proceedings for the final instance in a
given case. It means that Figure 4 refers to the time period a plaintiff had to spend in a given
instance. The minimum time plaintiffs spent in court to obtain a decision was one month while the
greatest time interval for a proceeding was 175 months. It is difficult to tell whether the extreme
maximum is an outlier or caused by faulty data. The data are greatly dispersed around a mean of
17.01 months.9 The courts conclude many cases in less than two years and, if the start date for each
case was arbitrarily set to the middle of the respective year instead of the beginning, the average
time being spent in a given instance would fall to roughly a year. Of the four cases that lasted more
9
The standard error is 16.14.
7
than 100 months three dealt with damages. Damages actions take generally more time to be
resolved: the mean length including outliers being 28.98 months (based on 40 observations) and
20.73 months ignoring some outliers (based on 37 observations). Courts dealt with claims for
permanent injunctive relief in 19.25 months on average.
Figure 4
Length of proceedings in month
35
30
Frequency
25
20
15
10
5
0
1
3
5
7
9
11
13
15
17
19 21 23 25
Length in months
27
29
31
37
40
42
44
>48
Private enforcement is, contrary to common belief, not very rare in Germany. The data sketched
above show that private cases exist in various shapes and in considerable numbers. Damages actions
do not play the major role though and neither do legal actions against cartels. In the following
section, I will explore potential explanations for why private antitrust enforcement has evolved that
way in Germany.
C.
WHAT SHAPES PRIVATE ANTITRUST ENFORCEMENT?
Various factors influence the victim’s decision to bring an antitrust case. From an economic
perspective, legal provisions incentivise or disincentives victims of anticompetitive conduct to seek a
8
dispute resolution in court by reducing or increasing the cost of legal actions.10 The cost of accessing
information, court charges and lawyers fees as well as the loss of time influence the willingness of
firms and individuals to engage in litigation.11 Uncertainty about the outcome and the risk of losing
money due to an adverse court ruling shape the decision of private parties. Procedural and
substantive rules are able tweak private incentives encouraging or deterring legal actions. In
practice, it proves difficult to establish a strict causal link between the level of antitrust enforcement
and the multitude of rules that govern civil law cases. In this section, I will point at some factors that
may have encouraged victims to bring their case and influenced private antitrust enforcement.
I.
Substantive provisions
The substantive provisions governing market behaviour are provided for in the Act Against Restraints
of Competition, Gesetz gegen Wettbewerbsbeschränkungen, (ARC). Section 1 ARC prohibits
horizontal and vertical agreements between undertakings, decisions by associations of undertakings
and concerted practices which have as their object or effect the prevention, restriction, or distortion
of competition. Article 101 TFEU is applied parallel to section 1 ARC if the trade between the
member states is affected.12 Section 2 ARC contains a provision similar to Article 101(3) TFEU. Prior
to the 7th amendment of the ARC, which came into effect on 1 July 2005, vertical agreements were
not included in section 1 ARC and their control differed from EU law.13 Sections 19, 20 and 21 of the
ARC regulate the abuse of market power and other anticompetitive conduct. Section 19 ARC
prohibits the abuse of dominance similar to Article 102 TFEU. However, unlike EU competition law,
section 20 ARC also imposes duties on non-dominant undertakings to refrain from discriminating
and unfairly hindering small or medium-sized firms which depend on them as suppliers or
purchasers. A small or medium-sized undertaking is dependent if it cannot reasonably switch to
other suppliers or purchasers or switching is not sufficiently possible. This, so-called, economic
dependency or relative market power has played its part in German legal practice.14 Section 21
prohibits calls for boycotts against other undertakings and threatening behaviour to induce third
parties to carry out actions that are prohibited under the ARC.
10
Steven Shavell, ‘Suit, Settlement, and Trial: A Theoretical Analysis Under Alternative Methods for the
Allocation of Legal Costs’ (1982) 11 Journal of Legal Studies 55–82, 71.
11
Richard A Posner, ‘An Economic Approach to Legal Procedure and Judicial Administration’ (1973) 2 Journal of
Legal Studies 399–458, 401.
12
For simplicity, references herein to Articles 101 and 102 TFEU include the preceding incorporations, namely,
Articles 85 and 86 EEC and Articles 81 and 82 EC.
13
Rules governing vertical agreements were laid out in sections 14 to 19 of the ARC prior to the 2005 changes.
14
See for instance the Bundesgerichtshof, KZR 1/75, Rossignol Ski [1976] WuW/E 1391, 1394.
9
It is sometimes asserted that the stricter German rules on the abuse of dominance are the driving
force behind the majority of private actions. The concern about the disparity of national statutes
regulating the abuse of dominance has prompted the European Commission to tender a study into
the impact of unilateral conduct rules that diverge from Article 102 TFEU.15 Although the data
presented above do not allow conclusions as to the prevalence of cases being underpinned by
economic dependence rather the dominance, the case law suggests that section 20(2) ARC is less
frequently employed than the critics of this statutory provision suggest. Conduct that falls under
section 20(2) ARC can, in a majority of cases, equally be dealt with under Article 102 TFEU if it
affected the traded between Member States or section 19 ARC and section 20(1) ARC.16 The German
Federal Court of Justice has classified cases which were brought under the economic dependency
rule as violations that would meet the requirements of Article 102 TFEU applying the standard set
out Magill.17 The use of section 20(2) ARC may also be exaggerated since courts refrain from a final
decision on the abuse of dominance as they see the requirements of section 20(2) ARC being met “at
any rate.” In those cases judges forgo the decision of whether or not the firm was actually dominant
in the affected market is forgone. An interesting question is whether or not section 20(2) ARC sends
a signal to potential victims that the threshold to actually succeed in court is lower.
The substantive law may not differ much after all but this still leaves room for interpretation and
varying applications in the court room. It appears from the reasoning in many cases that judges use
little or no economic evidence, especially in non-damages cases. The use of economic evidence and
the individual assessment of each case (‘more economic approach’) is still viewed rather critically.18
The increasing use of economic evidence will help to avoid errors and improve decision making but,
at the same time, is likely to increase the cost of litigation. Fewer per-se rules also reduce legal
certainty which may adversely affect the motivation to bring a lawsuit. The infrequent references to
economics in many Germany competition cases may result in a greater error rate but also speed up
proceedings, improve predictability, and help to control cost. Obviously, there is a trade-off between
rules that are more differentiated and more precise but costly and those that are rather formal but
relatively cheap to apply.19 Arguably, the application of antitrust law in German courts may still fall
15
See http://ec.europa.eu/competition/calls/2010_nationalrules/call_en.pdf accessed 02 March 2012.
Monika Taube, Das Diskriminierungs- und Behinderungsverbot für "relativ marktstarke" Unternehmen:
Wettbewerbs- oder individualschützende Funktion des § 20 Abs. 2 GWB (Duncker & Humblot, Berlin 2006).
17
Bundesgerichtshof, KZR 82/07, Reisestellenkarte [2009] WuW/DE-R 2708; European Court of Justice, Joined
Cases C-241/91 P and C-242/91 P, Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP)
v Commission of the European Communities (Magill), [1995] ECR I-743.
18
Jürgen Basedow, ‘Das Kartelldeliktsrecht und der "More Economic Approach"’ (2006) Europäische Zeitschrift
für Wirtschaftsrecht 97.
19
See also Arndt Christiansen and Wolfgang Kerber, ‘Competition Policy with Optimally Differentiated Rules
Instead of "Per se Rules vs. Rule of Reason"’ (Marburg 2006) accessed 21 September 2009.
16
10
into the second category and may also have contributed to the comparatively large number of
proceedings.
II.
Remedies
Private enforcers have a number of national remedies at their disposal to proceed against breaches
of EU and German competition law.20 Plaintiffs can ask the court to order a contract or contract
clause invalid if it violates German or European competition law. This claim is based on section 134
of the German Civil Code. Section 134 is a sweeping clause voiding a legal transaction breaching a
statutory prohibition unless the breached statute allows a different conclusion. Article 101(2) TFEU
also arranges for voidness of horizontal or vertical anticompetitive agreements and enables even the
party of such an agreement to invoke nullity. 21 Section 33 of the Act Against Restraints of
Competition contains the injunction and damages remedy against the infringement of EU or German
competition law. Victims can seek a permanent injunction against repeated, imminent or ongoing
anticompetitive conduct according to section 33(1) ARC. Section 33(3) ARC grants a compensation
claim if the plaintiff suffered loss from the infringement of German or European competition law.
Damages do not include damages multiples or punitive elements as this is against principle.22
Another way of obtaining monetary relief is to file for an unjust enrichment action available under
section 812 of the German Civil Code. An individual is enriched if he obtained something as the
result of the performance of another individual without legal grounds. A contract usually provides
the legal ground for a performance or financial transfer.23 This means that this remedy is of
particular importance in vertical contract relationships where the agreement or part of it is declared
null as the consequence of anticompetitive conduct. The party who received the payment is then
normally enriched as the legal ground for the transfer has ceased to exist. In such a case the plaintiff
will ask the defendant to reverse the transfer but will be asked in turn to return what he has
received under the agreement. The liability to undertake restitution or to reimburse the value is
subject to some restrictions, for instance, if the recipient is no longer enriched. In an unjust
enrichment action the plaintiff inherently postulates that the legal ground for the transaction is null
20
In the absence of community rules member states regulate remedies on the national level European Court
of Justice, C-453/99, Courage Limited v Bernard Crehan [2001] ECR I-06297; European Court of Justice, C295/04, Manfredi v Lloyd Adriatico Assicurazioni SpA [2006] ECR I-6619 para 62.
21
Courage Limited v Bernard Crehan (n 20).
22
For antitrust damages in general see Hans P Logemann, Der kartellrechtliche Schadensersatz: Die
zivilrechtliche Haftung bei Verstößen gegen das deutsche und europäische Kartellrecht nach Ergehen der VO
(EG) Nr. 1/2003 und der 7. GWB-Novelle (Duncker & Humblot, Berlin 2009).
23
Gerhard Dannemann, The German Law of Unjustified Enrichment and Restitution: A Comparative
Introduction (Oxford University Press, New York 2009).
11
and void due to an antitrust violation. For a speedy and temporary dispute resolution plaintiffs may
file for an interim remedy. Interim relief is normally granted in terms of injunctions according to
section 935 of the Civil Procedure Rules. Interim relief is a preliminary and speedy remedy that, in
theory at least, precludes a decision on the merits.
The European Commission has stressed the need for effective compensation for consumers and
small firms.24 Its proposals are based on the observation that, particularly, in price-fixing cases
harmed individuals, who often do not have direct dealings with the infringer, find it difficult to
obtain redress.25 If the antitrust violation takes place somewhere upstream in the distribution chain,
losses are likely to be passed-on to consumers depending on the level of competition in the
respective downstream markets.26 The individual harm is scattered on the consumer level where
aggrieved parties suffer only small individual losses and are remote to the actual infringement. The
comparatively high costs and risks of legal actions diminish the incentives to sue.27 With respect to
the difficulties of bringing damages actions, the European Commission could be partly right. There
are not that many damages claim in the sample but the numbers are not so low that the
underdevelopment assumption appears to be justified. If compensation is the main aim of private
antitrust enforcement, one could make the case for measures that encourage plaintiffs to seek
compensation. However, this is likely to increase litigation cost as the assessment of loss and
causation probably require more resources and expenses for lawyer fees.28
The major flaw of the assumptions policy makers operate with is the focus on damages actions. The
German data reveal that there are plenty of requests for permanent injunctive relief. Injunctions are
sought in the majority of cases. A closer look at injunctive relief reveals that these actions are of
particular importance when negotiations between parties fail. The typical antitrust case in which the
plaintiff requests an injunction deals with refusals to deal or to license, or with refusals to grant
access to, what is deemed to be, crucial infrastructure. The vast majority of injunctive relief
24
European Commission, ‘White Paper’ (n 1) 4.
Andrea Renda and others, ‘Making Antitrust Damages Actions More Effective in the EU: Welfare Impact and
Potential Scenarios, Final Report’. Report for the European Commission Contract DG COMP/2006/A3/012
(Brussels, Rome, Rotterdam 2008) 457.
26
Elmer J Schaefer, ‘Passing-on Theory in Antitrust Treble Damages Actions: An Economic and Legal Analysis’
(1975) 16 William and Mary Law Review 883–936; Foad Hoseinian, ‘Passing-on Damages and Community
Antitrust Policy - An Economic Background’ (2005) 28 World Competition 3–23.
27
William M Landes, ‘An Economic Analysis of the Courts’ (1971) 14 Journal of Law & Economics 61–107;
Posner (n 11); John P Gould, ‘The Economics of Legal Conflicts’ (1973) 2 Journal of Legal Studies 279–300;
Steven Shavell, ‘The Social versus the Private Incentive to Bring a Suit in a Costly Legal System’ (1982) 11
Journal of Legal Studies 333–340.
28
The length and complexity of proceedings only affects lawyers’ fees if clients and lawyers have agreed on an
hourly charge. See section C.IV. below for more details on lawyers’ remuneration.
25
12
proceedings are thus based on allegations of the abuse of dominance or vertical restraints.29 The
obvious advantage of injunction proceedings is that plaintiffs do not need to prove (economic)
damages or convince the judge that there is a causal link between the anticompetitive conduct and
the loss they have suffered. Under the German antitrust provisions injunctions are awarded if the
plaintiff’s rights are encroached on by an ongoing, repeated or threatening violation of antitrust law.
If there is a breach and a plausible threat of a future violation, this will satisfy the legal standard.
While the low level access to injunctions encourages victims to seek protection in the courts, it also
raises concerns as to the interference of antitrust law with contract negotiations and, ultimately, as
to the ‘abuse’ of antitrust law. The US experience suggests that special private antitrust rules cause
distortions because they create incentives to turn contract into antitrust cases.30 Private antitrust
actions are also used to alter the conditions of long-term agreement, respond to litigation, extort
settlements from profitable rivals, and impede healthy competition.31 In the German system where
the conditions for contract and antitrust litigation do not differ, the assertion of anticompetitive
conduct will not directly alter the outcome of the lawsuit unless judges are more prone to make
erroneous decisions in antitrust than in contract disputes. One plausible explanation for why
plaintiffs may want to assert an antitrust issue is that it triggers the special competition law
jurisdiction of the respective regional court.32 This could make sense if plaintiffs would like to
remove the case form the district court, for instance. Whether or not those mixed antitrust and
contract cases are really a concern or only create problems when they are brought in an
environment with special rules for antitrust actions will be subject to further research.
German competition law does not provide for class or representative claims to collect scattered,
small individual losses. However, professional associations may claim a restitution of ill-gotten
profits on behalf of their members according to section 34a ARC. For this, the illegal profits must
stem from the anticompetitive conduct which harmed a multitude of buyers or sellers. In cases
where the Federal Cartel Office (FCO) has already collected the illegally gained profits in a public
29
Sebastian Peyer, ‘Injunctive Relief and Private Antitrust Enforcement’ (2011) SSRN eLibrary.
Steven C Salop and Lawrence J White, ‘Economic Analysis of Private Antitrust Litigation’ (1986) 74
Georgetown Law Journal 1001–1064; Edward D Cavanagh, ‘Detrebling Antitrust Damages: An Idea Whose Time
Has Come?’ (1987) 61 Tulane Law Review 777–848, 810; R. P McAfee and Nicholas V Vakkur, ‘The Strategic
Abuse of Antitrust Laws’ (2004) 1 Journal of Strategic Management Education 1–18; Hannah L Buxbaum,
‘Private Enforcement of Competition Law in the United States - Of Optimal Deterrence and Social Costs’ in
Jürgen Basedow (ed), Private Enforcement of EC Competition Law (Kluwer Law International, Alphen a. d. Rijn
2007) 41.
31
Warren F Schwartz, Private Enforcement of the Antitrust Laws: An Economic Critique (American Enterprise
Institute for Public Policy Research, Washington 1981) 2; R. P McAfee, Hugo M Mialon and Sue H Mialon,
‘Private Antitrust Litigation: Procompetitive or Anticompetitive’ (2005) 3. The (over)incentives created by the
US system are also described by Douglas H Ginsburg, ‘Comparing Antitrust Enforcement in the United States
and Europe’ (2005) 1 Journal of Competition Law and Economics 427–439.
32
Sections 87 and 95 of the Act Against Restraints of Competition.
30
13
investigation, an account of profits is no longer available. If an account of profits is successful, the
profits that are skimmed off the violator must be passed on to the federal budget less expenses.
Professional associations have not made use of section 34a ARC so far probably due to its negative
incentive structure. Associations cannot gain anything if they requested an account of profits but are
burdened with the risk of bearing the opponent’s cost if they lose. The Belgium company Cartel
Damages Claims (CDC) has bought damages claims from victims of the German cement cartel and,
subsequently, from victims of other cartels. Claims can be sold and transferred for the purpose of
litigation within the limits of substantive rules.33 In 2005 CDC filed a damages action against the
member of the German Cement cartel. With decision of 07 April 2009 the Federal Court of Justice
finally rejected an appeal against the decision to admit CDC’s claim before the regional court of
Düsseldorf.34 Although CDC’s claim has finally been admitted it still faces legal challenges with
respect to the purchase of claims from cartel victims when the case is heard on the substance. In any
case, the CDC model may work for reasonably large, individual claims where the administrative costs
of identifying and purchasing them are lower than the expected gains from litigation. However, the
administrative costs of the ‘buy-in’ model will probably be too large to make it worthwhile in
consumer cases with very small individual claims.
III.
Access to evidence
The ARC provides for some, but not many, supposedly plaintiff-friendly rules. In damages follow-on
proceedings, plaintiffs benefit from a binding effect of public decisions. Infringement findings from
final decisions of the European Commission, the European courts, the Member States’ courts and
the Member States’ competition authorities are binding before German courts according to section
33(4) ARC. In follow-on proceedings the plaintiff benefit from a binding effect and from access to all
but leniency documents in the possession of the competition authority.35 The district court of Bonn
stated in its Pfleiderer decision that leniency documents are out of the plaintiff’s reach whereas for
all other documents the counsel acting on behalf of an aggrieved person has the right to inspect the
file unless the purpose of the investigation appears to be compromised.36
The legal standing of indirect purchasers and the availability of the passing-on defence were clarified
only in 2011. The Federal Court of Justice ruled that the difficulties for indirect purchasers when
33
Sections 398 Civil Code and 2(2), 3 Legal Services Act.
Bundesgerichtshof of 07 April 2009, KZR 42/08.
35
Amtsgericht Bonn of 18 January 2012, 51 Gs 53/09, Pfleiderer AG.
36
According to section 406e of the Criminal Procedure Code injured parties usually have the right to inspect
the records of the Federal Cartel Office.
34
14
bringing an action against an upstream defendant do not justify excluding them from doing so.37 It
drew a line under an extensive discussion about the related problems of indirect purchaser standing
and the availability of the passing-on defence.38
There is no general duty to disclose information and ‘fishing expeditions’ for evidence are against
principal.39 Access to documents held by the defendant is only possible where the substantive and
procedural provisions allow so. Plaintiffs can inspect documents in the possession of another person
according to section 810 of the Civil Code under the condition that these documents were drawn up
in the interest of the plaintiff. Letters and other documents potentially containing information about
the breach of antitrust statutes qualify as documents in the sense of section 810 of the Civil Code
but they are not normally created in the interest of the plaintiff, especially when the records contain
incriminating evidence. Sections 142 and 144 of the Civil Procedure Code are the procedural
equivalents to sections 809 and 810 of the Civil Code but they are also restricted to specific
documents and objects and cannot be extended to generally obtain information.40 The higher
regional court of Düsseldorf granted access to information based on the principle of good faith in a
case where it had already established the liability of the defendant and needed further information
to determine the amount of damages.41 Courts have also used the instrument of the secondary onus
of proof, sekundäre Beweislast, to facilitate access to information. This means that the defendant
cannot simply contest the assertions of the plaintiff, who initially has the burden of demonstrating
and proving his claim, if it is just and reasonable for the defendant to disclose more detailed
information about the facts concerned, and the plaintiff is so remote to the events described that
the latter does not possess any specific knowledge.42
IV.
Cost rules
The cost of litigation and the allocation of litigation cost determine whether or not an infringement
is worth being pursued. It is generally assumed that rational individuals will only commence legal
37
Bundesgerichtshof of 28 June 2011, KZR 75/10 OWRI.
Volker Emmerich in Ulrich Immenga and Ernst-Joachim Mestmäcker (eds), GWB: Kommentar zum Deutschen
th
Kartellrecht (4 edn Beck, München 2007) § 33 para 29; Eckard Rehbinder in Ulrich Loewenheim, Karl M
Meessen and Alexander Riesenkampff (eds), Kartellrecht: Kommentar (Beck, München 2009) § 33 para 14.
39
Exploratory evidence (Ausforschungsbeweis) is not considered admissible. George Cumming, Brad Spitz and
Ruth Janal, Civil Procedure Used for Enforcement of EC Competition Law by the English, French and German
Civil Courts (Kluwer Law International, Alphen aan den Rijn 2007) 243.
40
Bundesgerichtshof of 11 June 1990, II ZR 159/89; Bundesgerichtshof, XI ZR 277/05 BGHZ 173, 23.
41
OLG Düsseldorf, U (Kar) 15/97, Global One [1998] WuW/E DE-R 143.
42
Rüdiger Wilhelmi, ‘Zugang zu Beweismitteln und Auskunftsanspruch - Die Regelungen des deutschen Recths
und des Weißbuchs im Vergleich’ in Wernhard Möschel and Florian Bien (eds), Kartellrechtsdurchsetzung
durch private Schadenersatzklagen? (Nomos, Baden-Baden 2010) 99.
38
15
actions if they expect a positive cost-benefit ratio. With respect to damages actions it is easy to see
the value of the claim stated in damages which has to be compared with the expected cost of
litigation.43 For other remedies the cost-analysis may be more difficult to carry out. Especially in
common law countries there is a growing concern about high litigation cost.44 This has prompted a
review of litigation costs and litigation funding in the United Kingdom.45 The report filed by Lord
Justice Jackson contains many proposals in response to the problem of high litigation costs in the
United Kingdom. It seems that the trend goes towards easier access to litigation funding as opposed
to reducing or minimising the cost of trials in the first place.
While the high litigation costs in England are thought to be a problem that can be solved with
various types of litigation funding, the Germany system is characterised by comparatively low
litigation cost and a high degree of certainty and predictability of litigation expenses. The guiding
principle for the German civil litigation system is that every victim should have access to justice. This
is the consequence of a constitutional guarantee of free access to justice set out in Articles 2(1), 20
and 3 of the German Constitution. All types of costs, lawyers’ remuneration and court fees, are
tightly regulated.46 Both statutory lawyer fees and court fees are calculated based on the value of
the dispute or amount in question. The system also features a loser pays rule. Since 01 July 2008
lawyers can enter into ‘no win no fee’ agreements with their clients if the client’s economic
circumstances would prevent him from pursuing his rights otherwise. 47 However, this is the
exception rather than the rule as the basic principle is that a lawyer’s fee shall not depend on the
success of his work.48 A ‘no win no fee’ agreement may work when consumers bring competition law
cases but it may be more difficult to satisfy narrow criteria in business to business disputes.
As for the court fees, they are calculated according to the value of the claim.49 These expenses are
known to the plaintiff if the claim as a face value and, if not, when the court preliminary rules on the
value of the claim in more complicated cases.50 As the court charges are based on the value rather
43
Schwartz (n 31) 28.
Christopher Hodges, Stefan Vogenauer and Magdalena Tulibacka (eds), The Costs and Funding of Civil
Litigation: A Comparative Perspective (Hart, Oxford 2010); Cento Veljanovski, ‘Third Party Litigation Funding in
Europe’ (2012) Journal of Law, Economics and Organization.
45
Civil Justice Council, The Future Funding of Litigation - Alternative Funding Structures, A Series of
Recommendations to the Lord Chancellor to Improve Access to Justice through the Development of Improved
Funding Structures (June 2007); Rupert Jackson, ‘Review of Civil Litigation Costs, Final Report’ (2009).
46
See for details Burkhard Hess and Rudolf Hübner, ‘Germany’ in Christopher Hodges, Stefan Vogenauer and
Magdalena Tulibacka (eds), The Costs and Funding of Civil Litigation: A Comparative Perspective (Hart, Oxford
2010) 349.
47
Section 4a Attorney Remuneration Act.
48
Section 49b(2) Federal Attorneys Code.
49
Section 3(1) Court Charges Act.
50
Sections 61 and 63 of the Court Charges Act.
44
16
than on the real cost of adjudicating the claim (i.e. independent of the length and complexity of the
case), large value proceedings tend to subsides small value claims. At the outset, the plaintiffs
advances the court costs but will recoup them if he prevails. Recoverable lawyer fees are limited by
the statutory amounts set out in the Attorney Remuneration Act though parties can make individual
agreements with their lawyers exceeding these limits.51 However, winning parties will not be able to
recover the extra costs if they successfully win or defend their case. Like court charges, lawyer fees
are calculated according to the value of the case. The statutory lawyer fees also undercompensate
for small value claims but overcompensate for high value litigation. This system has repeatedly been
criticised for the high level of regulation and the restrictions it imposes on lawyers but it has also
helped to make court costs predictable. Together with the loser pays principle litigation becomes a
viable option even for risk-averse or small parties. If the plaintiff only partly wins the case cost will
cancel each other out or will be awarded proportionally.
Shavell has early pointed out that the loser pays rule can increase the frequency of suits being
brought.52 Combined with a high degree of predictability this seems to be the case in Germany. Low
litigation cost ease access to justice but also encourage plaintiffs to bring poorly-founded lawsuits53
or cases which, from society’s point of view, are not worth to be brought because the social costs
exceed the social benefits.54 Easy access to the courts may lead to claims that are, from a social point
of view, undesirable because they are too costly. Procedural rules may also provide for incentives to
actually abuse antitrust litigation by way of imposing costs on the defendants.55 Under the German
system a plaintiff can impose costs on the defendant if the latter agrees with his lawyer to be billed
on an hourly rather than statutory basis. But the plaintiff cannot be sure that this is the case and, if
the claim is rather questionable, is likely to foot the bill consisting of court and attorney fees.
Another important cost factor is the time it will take to obtain a court ruling. When faced with the
decision of whether or not to seek the judicial resolution of a dispute, the time the plaintiff has to
spend in court will reduce or increase the incentives to sue. The prospect of several years of
litigation before a final decision is handed down will deter victims from bringing legal actions. Court
procedures that take a long time increase the legal cost for both plaintiffs and defendants and may
51
‘No win no fee’ agreements are only allowed in very limited circumstances and are unlikely to be of
relevance in antitrust litigation.
52
Shavell (n 10).
53
Sylvain Bourjade, Patrick Rey and Paul Seabright, ‘Private Antitrust Enforcement in the Presence of Pre-trial
Bargaining’ (2009) 57 Journal of Industrial Economics 372–409, 407.
54
Steven Shavell, ‘The Fundamental Divergence Between the Private and the Social Motive to Use the Legal
System’ (1997) 26 Journal of Legal Studies 575–612. From an individual’s perspective these cases may still be
worthwhile when the individual costs are lower than the expected individual benefits.
55
McAfee, Mialon and Mialon (n 31) 2.
17
force economically weaker plaintiffs or defendants to prematurely settle the case. The relatively
short time between the, conservatively, estimated point of filing the claim and the decision date I
have observed in Germany may encourage victims to seek a court-imposed dispute resolution.
Whether or not different remedies need significantly more time than others – some damages action
lasted very long – cannot be tested with the data available but will be subject to future research.
Anecdotal evidence suggests that plaintiffs claiming damages spent more time in court than those
requesting other remedies. The difficulties of calculating and proving the economic loss may be one
of the reasons for that.
V.
Final decision and settlement
Although settlements are notoriously difficult to monitor56 the data suggest that the majority of
private cases are litigated until a decision is handed down by the courts. This observation is counterintuitive. The standard assumption is that litigants usually settle before the court finally decides the
case.57 Litigation is costly and, after the parties have exchanged their arguments and know about the
evidence, they should be able to evaluate the chances of success and roughly predict the outcome of
the case. The fact that in Germany many cases are fought until the end implies two contradicting
interpretations. On the one hand, one can argue that the data show only the tip of the iceberg, and
the real number of antitrust cases is much larger. The Georgetown Study on US private antitrust
cases found a settlement rate of 75 per cent of all the claims that were brought. As Figure 5 shows,
the settlement rate for all civil law disputes is generally much lower.58 Settlements are certainly part
of the German litigation practice and I would expect the antitrust settlement rate to be in tune with
the proportion of settled ordinary civil law cases despite that fact that judges usually encourage
parties to come to an agreement as this is one way to reduce the courts’ workload.59
56
Barry J Rodger, ‘Private Enforcement of Competition Law, the Hidden Story: Competition Litigation
Settlements in the United Kingdom, 2000-2005’ (2008) 29 European Competition Law Review 96–116.
57
Jeffrey M Perloff and Daniel L Rubinfeld, ‘Settlements in Private Antitrust Litigation’ in Lawrence J White
(ed), Private Antitrust Litigation: New Evidence, New Learning (MIT Press, Cambridge Mass. 1988) 149.
58
Statistisches Bundesamt, Rechtspflege – Ausgewählte Daten für die Rechtspflege, Fachserie 10, Reihe 1
(Wiesbaden 2012) available at http://www.destatis.de/ accessed 05 March 2012.
59
If the US settlement rate was applied to the German dataset, it implies that almost 1.500 cases were
brought from 2005 to 2007.
18
Figure 5
Proportion of settled and dropped civil law cases*
40
Appeal
instance
35
30
First
instance
Appeal
instance
Appeal
instance
First
instance
First
instance
25
20
15
10
5
0
2008
Settlements first instance (regional courts)
Settlements appeal instance
2009
2010
Dropped cases first instance (regional courts)
Dropped claims appeal instance *excluding family matters
The other conclusion one can draw from the fact that most cases are decided with a decision is that
plaintiffs are overly optimistic about the probability of winning their cases. Low litigation costs
encourage dispute resolution in the courts by lowering the threshold for legal proceedings. The
success rate of antitrust cases of 30 per cent is not great and it suggests that firms and individuals
are relatively litigious. It appears that parties, once they decide to litigate, regularly appeal first
instance rulings but also regularly drop their appeal. Whether or not this indicates high levels of
abusive litigation cannot be said without an in-depth assessment of a subset of cases.
VI.
Interaction of public and private enforcement
Private antitrust enforcement in Germany is characterised by independently initiated litigation. This
raises the question why litigants do not capitalise more on public enforcement activity. Admittedly,
the observation period of only three years does not suffice to explain mid or long-term
consequences of the binding effect provided for in section 33(4) ARC which came into force in July
2005. One explanation could be that the binding effect only applies to damages claims which are
more difficult to bring than, for instance, injunctions because the plaintiff seeking compensation
19
bears the difficult burden of proof for his losses. This increases the costs for damages claims relative
to other remedies. The narrow interpretation of standing rules until 2005 may have also influenced
the willingness to file actions in the aftermath of a public decision. In fact, before the 7th amendment
of the ARC in 2005 the protective law requirement hampered damages actions, for instance, in the
Carbonless Paper and Vitamins litigation. Another possible reason why follow-on actions have not
shaped private antitrust litigation is the lack of final public decisions. The FCO carried out 298
investigations related to the cartel prohibition, the abuse of dominance or the abuse of economic
dependency according to its activity report 2005/2006.60 Only very few investigations lead to final
infringement decisions – a necessary prerequisite for the binding effect in follow-on damages
litigation.61 The high proportion of stand-alone litigation supports appears to comply with the view
that private antitrust enforcement complements public actions.62 Private enforcers seem to be
willing to take up potential anticompetitive behaviour which is not investigated by a competition
authority. However, it appears that high-profile cases like, for instance, cartel investigations need
the prior activity of the competition authorities to trigger private (follow-on) actions. Cartels or
large-scale abuse cases are either complicated to investigate due to hidden and disguised evidence
or are more generally resource-intensive due to the large scale. Those instances of anticompetitive
conduct are likely to deter potential private enforcers because the complexity reduces the
predictability of the outcome. It is also a matter of litigation funding to take on a price-fixing case in
as a stand-alone proceeding.
D.
CONCLUSIONS
It becomes apparent from the previous sections that the German legal framework does not provide
for many of the elements thought to be an essential part of a claim-facilitating legal environment.
Litigation data covering three years (2005 to 2007) show that even in the absence of contingency fee
agreements, far-reaching discovery or multiple damages awards plaintiffs are willing to bring their
case before a judge. Having explored some of the elements of the German law framework, the
60
Bundeskartellamt (n 7).
Similarly, the European Commission concluded only a fraction of all proceedings with a formal infringement
decision. Between January 1999 and February 2004 the number of settlements exceeded the number of
prohibitions with fines. Jordi Gual and Nuria Mas, ‘European Commission Decisions on Anti-Competitive
Behavior’ (2010).
62
Ulf Böge, ‘Public and Private Enforcement: Harmony or Discord’ (2006) 5 Competition Law Journal 114–122,
115.
61
20
analysis suggests that private (damages) actions are not the primary choice in the fight against
cartels but are very useful against anticompetitive vertical restraints and the abuse of dominance.63
Having said all this, what is it that motivates individuals to individually fight anticompetitive
conduct? The German approach shows that ex-ante predictable costs, relative legal certainty, simple
rules, and alternative remedies foster private actions. The cost rules increase the predictability of
the expected costs. Fixed recoverable lawyer’s fees allow an estimate of litigation expenses. The
absence of economic evidence may increase the number of errors but, at the same time, reduces
the complexity of litigation, costs and, possibly, the length of proceedings. The complexity of the
case determines whether it is better taken on by the competition authority or individuals. ‘Simple’
cases can be enforced privately using ‘simple’ rules. Damages actions to achieve the promoted
compensation objective of private enforcement are not a cheap and simple remedy and reduce the
effectiveness of private antitrust. Alternative remedies like, for instance, injunctions seem to be one
of the key elements of the German system of private actions. Injunctions are less suitable against
cartels - this is when compensation prevails – but are an effective tool against vertical restraints and
the abuse of dominance.
The widespread usage of injunctive relief may cast doubts as to the ubiquity of compensation as the
primary objective of private antitrust litigation although a number of claims in the dataset aim at
monetary, but not always compensatory, relief. Private parties do not necessarily pursue hard-core
breaches – a task for which public enforcement agencies are arguably better suited – but seem to
comply with their envisaged role as a complement to agency enforcement. Claimants pick up
infringements that have less impact on the economy as a whole and, thus, their cases do not
duplicate public investigations into hard-core or grand-scale violations. The high ratio of stand-alone
claims shows that private enforcement can fulfil this complementary function if non-damages
remedies and non-cartel violations are taken into account.
The German experience suggests that the attempts of the European Commission and other
stakeholders to mainly promote damages actions for the violation of competition are ill-conceived.
The focus on compensation induces a wasteful duplication of public enforcement efforts, especially
in follow-on litigation, and ignores some of the factors that presumably drive litigation. Designing or
improving an enforcement system is complex and solely regulation one particular tool, damages
63
In an earlier paper, this author came to a different conclusion which is, however, based on the assumptions
laid out in the European Commission’s Green and White Paper. Sebastian Peyer, ‘Cartel Members Only Revisiting Private Antitrust Policy in Europe’ (2011) 60 International & Comparative Law Quarterly 627–657.
21
actions, is unlikely to lead to satisfactory results. Without the narrow focus on damages actions,
private enforcement may be less spectacular but also be more useful in a dual enforcement system
as it increases the deterrence effect.
22