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 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)