Damages

 

Author Definition

 

Definition

Damages are a monetary relief available for the party harmed by a competition law infringement. The term refers to the sum of money that the claimant seeks compensation for and is causally connected to the anticompetitive conduct that injured the claimant in her business. Damages awards for competition law infringements compensate the overcharge and loss of profits caused by the infringement, plus interest. Damages can also compensate the loss of chance and, occasionally, non-material harm.

 

Commentary

Introduction

Infringements of competition law, such as cartels and abuses of dominant positions, have a double negative effect. Firstly, they distort competition and have a negative impact on social welfare in general and consumer welfare in particular, Inter alia, they cause price increases, limitations in output or the exclusion of market actors. Secondly, the price increase caused by the infringement obliges customers of infringers (direct purchasers) to pay a higher price than the one that would have been set absent the infringement. This difference, known as the overcharge, is the basis for quantifying the anticompetitive harm suffered. It must be noted that direct purchasers can absorb the effects of the infringement or, if market conditions allow it, pass it on to their own customers (indirect purchasers).

Damages awards compensate the individual harm caused by infringements of competition law. According to national tort law rules, claimants will have to prove that (i) there was an infringement of competition law, (ii) they suffered a harm, (iii) there was a causal relationship between the injury and the anticompetitive conduct and, when appropriate, (iv) the defendant’s fault. Victims can claim for the following heads of damage: actual loss (damnum emergens) and the profits lost (lucrum cessans), plus interest (Manfredi). Depending on the jurisdiction, claimants may also seek compensation for loss of chance and non-material harm, such as harm to its reputation, though the latter is rare.

The purposes of damages: compensation and deterrence

Damages for infringements of competition law have a two-fold purpose. Firstly, they seek to compensate the victim and put her into the position she would have been absent the infringement. Secondly, they have a deterrent effect on current or future infringers deciding whether to continue an ongoing anticompetitive conduct or to engage in one. Whereas damages are always compensatory, if emphasis is set on the latter purpose, they may become punitive.

The double nature of damages is undeniable regardless of the legal tradition of each jurisdiction. The European Union and, as a consequence of the partial harmonisation of the damages claims regime by EU 2014 Damages Directive, its Member States too are the paradigm of jurisdictions where the award seeks to compensate victims: they are built upon the principle of full compensation. Thus, passing-on arguments are accepted to grant legal standing to indirect purchasers and to allow defendants to raise the passing-on defence. Furthermore, the Court of Justice of the European Union has stated that damages claims contribute to the effectiveness of the enforcement of the prohibitions laid down in Articles 101 and 102 of the Treaty on the Functioning of the European Union (Courage, Skanska and Sumal). This is a clear recognition of a collateral deterrent effect. Norway’s damages regime is aligned with the EU and the award compensates the net amount of the harm suffered.

In other jurisdictions, however, damages are primarily punitive. In the United States of America at the Federal level, section 4 of the Clayton Act allows victims to seek treble damages, i.e. an award of up to a threefold of the harm. There, the enforcement of competition law relies on private actions and encouraging them and keeping the treble damages system operating efficiently had spill over effects, such as the denial of both the passing-on defence and the legal standing for anyone who is not a direct customer of the infringer (Hanover Shoe and Illinois Brick). Punitive damages are also present in Brazil and Turkey, where courts may award double or treble damages, respectively, provided that certain conditions are met.

Quantifying damages

Quantifying damages is one of the main challenges that claimants, defendants and courts face in damages actions. The specific market circumstances of the affected market and the impossibility to observe the counterfactual scenario render it especially burdensome. Parties must nonetheless provide a quantification of the award as accurately as possible.

Therefore, the European Commission issued the Practical Guide on quantifying antitrust harm in competition law damages claims in 2013 and the Guidelines for national courts on how to estimate the share of overcharge which was passed on to the indirect purchaser in 2019. Those guidelines set forth several methods to assist parties elaborating the counterfactual scenario that will allow them to quantify the impact of the infringement and estimate the net harm suffered. With enough data, economic experts can prepare their reports and quantify the damage that both direct and indirect purchasers may have suffered: actual loss, including the share passed on, lost profits and loss of a chance, plus interest.

The guidelines are also useful for judges that need to appraise the economic reports provided by the parties and decide whether they are robust enough to present a plausible result and supported by evidence. If the report is robust and based on sound economic theory, damages may be awarded in full. If courts consider that the economic evaluation is not well founded or presents methodological issues, the result may be the dismissal of the action or a reduction of the damages awarded and its setting by judicial estimation. The latter may happen if the court considers that the claimant proved all other requirements and tried to offer a precise economic assessment, but quantifying the harm is excessively difficult or practically impossible. In these cases, courts may do an ex novo estimation of the damage or use one of the reports provided as a starting point. For instance, such has been the case for appellate judgments in the paper envelopes cartel and trucks cartel litigation in Spain.

Damages and collective redress

In the EU, the principle of full compensation requires that all victims have a right to damages. Depending on the extension of legal standing, anyone from customers of the infringers to final consumers can claim damages, as well as customers of the infringers’ competitors (Kone) and other undertakings key to the functioning of a market that are not active operators therein (Otis GmbH). Usually, the more distanced from the origin of the damage, the lower is the amount of the harm accrued and the harder its quantification becomes, especially taking into account that it should not overcompensate them.

When it comes to small and scattered (or dispersed) harm, collective redress mechanisms may become a suitable mean to foster damages claims. The issue, however, is setting the amount of damages per each victim so that they are fully compensated, especially if the action is opt-out, i.e. where victims are included in the group unless they expressly renounce to be part thereof. In these cases, the amount set is likely to be an aggregation of the harm suffered by the class as a whole (Merricks) and victims may be over- or undercompensated since the individual harm is not quantified.

See also Collective redress (class action)

 

Case references

  • European Union

Case C-453/99, Courage Ltd v Bernard Crehan and Bernard Crehan v Courage Ltd and Others (“Courage”), ECLI:EU:C:2001:465.

Joined cases C295/04 to C298/04, Vincenzo Manfredi v Lloyd Adriatico Assicurazioni SpA, Antonio Cannito v Fondiaria Sai SpA and Nicolò Tricarico and Pasqualina Murgolo v Assitalia SpA. (“Manfredi”), ECLI:EU:C:2006:461.

C-557/12, Kone AG and Others v ÖBB-Infrastruktur AG (“Kone”), ECLI:EU:C:2014:1317.

C724/17, Vantaan kaupunki v Skanska Industrial Solutions Oy and Others (“Skanska”), ECLI:EU:C:2019:204.

C-435/18, Otis Gesellschaft m.b.H. and Others v Land Oberösterreich and Others (“Otis GmbH”), ECLI:EU:C:2019:1069

Case C-882/19, Sumal, S.L. v Mercedes Benz Trucks España, S.L. (“Sumal”), ECLI:EU:C:2021:800.

  • European jurisdictions

Mastercard Incorporated and Others v Walter Hugh Merricks CBE (“Merricks”), [2020] UKSC 51

Judgment of the Court of Appeals of Barcelona 60/2020, of 13 January, ECLI:ES:APB:2020:184 (an example of the paper envelopes cartel litigation in Spain).

Judgment of the Court of Appeals of Asturias 882/2021, of 7 October, ECLI:ES:APO:2021:2713 (an example of the trucks cartel litigation in Spain).

  • United States of America

Hanover Shoe v United Machinery Corp, 392 US 481 (1968) (“Hanover Shoe”).

Illinois Brick Co. et al. v Illinois et al., 431 US 720 (1977) (“Illinois Brick”).

 

Bibliography

Richard Posner, Antitrust Law, 2nd edn, University of Chicago Press, 2001.

Herbert J. Hovenkamp, “A Primer on Antitrust Damages”, Faculty Scholarship at Penn Law 1846, 2011.

Barry Rodger, Miguel Sousa Ferro, Francisco Marcos, The EU Antitrust Damages Directive: Transposition in the Member States, Oxford University Press, 2018.

Rafael Amaro and Jean-François Laborde, La réparation des préjudices causés par les pratiques anticoncurrentielles, 2nd edn, Concurrences, 2021.

Rafael Amaro (Editor), Private Enforcement of Competition Law in Europe. Directive 2014/104/EU and Beyond, Bruylant, 2021.

This article is being reviewed by the Editors of the Dictionary.

The information and views set out in this text are those of the author(s).

Author

Quotation

Ignacio García-Perrote Martínez, Damages, Global Dictionary of Competition Law, Concurrences, Art. N° 86653

Visites 1923

Publisher Concurrences

Date 1 January 1900

Number of pages 500

 

Institution Definition

According to the Communication from the Commission on quantifying harm in actions for damages based on breaches of Article 101 or 102 of the Treaty on the Functioning of the European Union : "Infringements of Article 101 or 102 of the Treaty on the Functioning of the European Union (“TFEU”), hereafter the “EU competition rules”, cause great harm to the economy as a whole and hamper the proper functioning of the internal market. In order to prevent such harm, the Commission has the power to impose fines on undertakings and associations of undertakings for infringing EU competition rules. The objective of the fines imposed by the Commission is deterrence, i.e. sanctioning the undertakings concerned (specific deterrence) and deterring other undertakings from engaging in, or continuing, behaviour that is contrary to Articles 101 and 102 TFEU (general deterrence).

Moreover, infringements of Article 101 or 102 TFEU cause great harm to consumers and undertakings. Anyone who has suffered harm through an infringement of EU competition rules has a right to compensation. This is guaranteed by EU law, as the Court of Justice has repeatedly emphasised. While the objective of the fines is deterrence, the point of damages claims is to repair the harm suffered because of an infringement. More effective remedies for consumers and undertakings to obtain damages would, inherently, also produce beneficial effects intterms of deterring future infringements and ensuring greater compliance with those rules. (...) Anyone can claim compensation for the harm suffered where there is a causal relationship between that harm and an agreement or practice prohibited by the EU competition rules. Compensation for harm suffered means placing the injured parties in the position they would have been in had there been no infringement of Article 101 or 102 TFEU. Parties injured by an infringement of directly effective EU rules should therefore have the full real value of their losses restored: the entitlement to full compensation covers the actual loss (damnum emergens), as well as compensation for loss of profit (lucrum cessans) suffered as a result of the infringement ; and entitlement to interest from the time the damage occurred." © European Commission

See also Collective redress (class action) and Private enforcement

 
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