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ANTITRUST DAMAGES ACTIONS: LESSONS FROM AMERICAN INDIRECT PURCHASERS' LITIGATION

Published online by Cambridge University Press:  27 January 2010

Firat Cengiz
Affiliation:
Tilburg Law and Economics Center (TILEC), Tilburg Law School, University of Tilburg, the Netherlands.

Abstract

This article aims to draw policy lessons from the American indirect purchasers' litigation experience for the design of the European private antitrust regime in the light of the European Commission's White Paper on damages actions. The article shows that in multi-level polities procedural aspects of antitrust litigation and judicial cooperation are as crucial as the substantive standards for the success of private enforcement regimes. From this perspective the article criticizes the White Paper for the lack of procedural assessment and urges the Commission to give due consideration to procedural standards and mechanisms of judicial cooperation before taking any legislative action.

Type
Article
Copyright
Copyright © 2010 British Institute of International and Comparative Law

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References

1 AI Gavil, ‘Federal Judicial Power and the Challenges of Multijurisdictional Direct and Indirect Purchaser Antitrust Litigation’ (2000) 69 George Washington Law Review 860. However for discussion of the desirability of private enforcement from the public policy perspective see CA Jones, ‘Private Antitrust Enforcement in Europe: A Policy Analysis and Reality Check’ (2004) 27 World Competition 13; contrast Wils, WPJ, ‘Should Private Enforcement be Encouraged in Europe?’ (2003) 26 World Competition 473Google Scholar.

2 Ex art 81(3) of the Treaty Establishing the European Community (EC Treaty); Council Regulation (EC) 1/2003 of 16 December 2002 on the application of arts 81 and 82 of the EC Treaty (hereinafter the ‘Modernisation Regulation’) [2003] OJ L 1/1, art 1.

3 Ex arts 81 and 82 of the EC Treaty; ibid art 6.

4 Ashurst, ‘Study on the Conditions of Claims for Damages of Infringement of EC Competition Rules, Comparative Report’ (hereinafter the ‘Comparative Report’) (31 August 2004) 1.

5 Commission (EC), ‘Green Paper on damages actions for breach of the EC Antitrust Rules’ (hereinafter the ‘Green Paper’), COM(2005) 672 final, 19.12.2005.

6 European Commission, ‘White Paper on Damages actions for breach of the EC antitrust rules’ (hereinafter the ‘White Paper’) COM(2008) 165 final, 2.4.2008.

7 ibid 2.

8 ibid 3.

9 European Commission, ‘Staff Working Paper accompanying the White Paper’ (hereinafter the ‘Staff Working Paper’) SEC(2008) 404, 2.4.2008, 66–67, 98; Commission (EC), ‘Staff Working Document Accompanying document to the White Paper, Impact Assessment’ (hereinafter the ‘Impact Assessment Report’) SEC(2008) 405, 2.4.2008, 57.

10 White Paper (n 6) 4; Staff Working Paper, ibid 19–21, 98; Impact Assessment Report, ibid 57.

11 In the context of this article consistent judicial application does not refer to uniform interpretation of articles 101 and 102 TFEU which is sustained through the preliminary rulings mechanism under article 267 TFEU. Rather, ‘inconsistency’ is used here to mean inconsistency between national courts as to whether or not to award damages or as regards the amount of awarded damages in related antitrust damages actions. Such inconsistency may emerge because of the application of different standards or because, while applying the same standard, different conclusions are reached regarding the interpretation of technical aspects of damage actions such as the calculation of passing-on.

12 White Paper (n 6) 3.

13 Antitrust Modernization Commission Act of 2002, Pub L. No. 107–273, §§ 11051–60, 116 Stat. 1856.

14 Antitrust Modernization Commission, ‘Report and Recommendations’ (hereinafter the ‘AMC Final Report’) (April 2007) <http://govinfo.library.unt.edu/amc/report_recommendation/amc_final_report.pdf> accessed 28 September 2009.

15 F Cengiz, ‘Passing on Defense and Indirect Purchaser Standing in Actions for Damages against the Violations of Competition Law: what can the EC learn from the US?' (2007) ESRC Centre for Competition Policy Working Paper 07-21 <http://www.uea.ac.uk/polopoly_fs/1.104616!ccp07-21.pdf> accessed 28 September 2009, 8. See also V Sarris, The Efficiency of Private Antitrust Enforcement: The Illinois Brick Decision (Garland Publishing, New York and London 1984) 117; Gavil (n 1) 860; BD Richman & CR. Murray, ‘Rebuilding the Illinois Brick: a Functionalist Approach to the Indirect Purchaser Rule’ (2007) Duke Law School Legal Studies Research Paper Series 155, 3.

16 However, such close relationship between the undertakings involved in anticompetitive activity may also create disincentives for the direct purchasers to bring antitrust damages actions and impede the effectiveness of a private enforcement regime. Firstly, in some cases, particularly when the upstream market is concentrated, and therefore when they rely on supplies from the undertakings involved in anticompetitive activity, direct purchasers might not be willing to disturb their relationship with their suppliers by bringing a damages claim. In such cases indirect purchasers may prove more effective plaintiffs than the direct purchasers. It has also been proven that the upstream firms are capable of sharing the anticompetitive profit with the purchasers through a tacit sustainable agreement to curb their incentives to sue: See MP Schinkel, J Tuinstra, J Ruggeberg, ‘Illinois Walls: How Barring Indirect Purchaser Suits Facilitates Collusion’ (2005) Amsterdam Center for Law & Economics Working Paper 2005-02 <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=730384> accessed 28 September 2009. For empirical analysis of the effects of indirect and direct purchaser damages actions on the effectiveness of private enforcement regime see ES Snyder, ‘Efficient Assignment of Rights to Sue for Antitrust Damages’ (1985) 28 Journal of Law and Economics 469; JM Joyce and RH McGuckin, ‘Assignment of Right to Sue under Illinois Brick: An Empirical Assessment’ (1986) 31 Antitrust Bulletin Spring 235.

17 WM Landes and RA Posner, ‘Should Indirect Purchasers have Standing to Sue under the Antitrust Laws? An Economic Analysis of the Rule of Illinois Brick’ (1979) 46 University of Chicago Law Review 602; G Werden and M Schwartz, ‘Illinois Brick and the Deterrence of Antitrust Violations—An Economic Analysis’ (1984) 35 Hastings Law Journal 629. Contrast Harris, RG and LA, Sullivan, ‘Passing on the Monopoly Overcharge: A Comprehensive Policy Analysis’ (1980) 128 University of Pennsylvania Law Review 269CrossRefGoogle Scholar. Many jurisdictions design collective redress mechanisms such as class actions or damages actions brought by public bodies in order to overcome such weaknesses of consumer damages actions. However, besides their benefits those mechanisms involve certain costs, disadvantages and complications as well. Substantive analysis of collective redress mechanisms is outside the scope of this article. For a broad overview of the American private antitrust regime from this perspective see F Cengiz, ‘The Role of State AGs in the US Antitrust Policy: Public Enforcement Through Private Enforcement Methods’ (2006) ESRC Centre for Competition Policy Working Paper 06-19 <http://www.uea.ac.uk/polopoly_fs/1.104496!ccp06-19.pdf> accessed 28 September 2009.

18 Landes and Posner (n 17).

19 For the analysis of such options, see Green Paper (n 5) Options 21–24.

20 EE Pollock, ‘Standing to Sue, Remoteness of Injury, and the Passing-on Doctrine’ (1966) 32 Antitrust Law Journal 5. Compare Keogh v Chicago & NW Ry 245 US 531 (1918); Ohio Valley Electric Corp v General Electric Co 244 F Supp 914 (SDNY 1965) and Commonwealth Edison v Allis-Chalmers Mfg Co. 315 F 2d 564 (7th Cir 1963).

21 Hanover Shoe v United Shoe Machinery Corp 392 US 481 (1968).

22 ibid 492–93.

23 ibid 493.

24 ibid 494.

25 Illinois Brick Co v Illinois 431 US 720 (1977).

26 ibid 728.

27 ibid. The sequence of cases played a dramatic role in the development of American federal policy on the passing-on defence and indirect purchaser standing. As Justice Blackmun observed in his dissent, ‘the plaintiffs-respondents in this case … [were] the victims of an unhappy chronology’: see Illinois Brick, ibid, (Blackmun, J dissenting), 765. See also Gavil, AI, ‘Antitrust Remedy Wars Episode I: Illinois Brick from Inside the Supreme Court’ (2005) 79 St. John's Law Review 553Google Scholar.

28 Illinois Brick (n 25) 734–735. Illinois Brick is also perceived as one of the series of cases where the Court established Chicago School rationales into federal antitrust jurisprudence such as Continental TV, Inc v GTE Sylvania Inc 433 US 36 (1977) holding that vertical territorial restrictions are not illegal per se and Brunswick Corp v Pueblo Bowl-O-Mat, Inc 429 US 477 (1977) establishing the ‘antitrust injury’ standard. Therefore, the Supreme Court's exclusive effectiveness perspective in Illinois Brick is explained as an effect of the Chicago School philosophy: see EC Cavanaugh, ‘Brick, Illinois: A Look Back and a Look Ahead’ (2004) 17 Loyola Consumer Law Review 1, 17Google Scholar; Gavil (n 1), 865–866.

29 Illinois Brick, ibid 734–735.

30 See eg HR 1942, 95th Cong, 2d Sess (1978); S 1874, 95th Cong, 2d Sess (1978); HR 9132, 95th Cong, 1st Sess (1977); HR 8516, 95th Cong, 1st Sess (1977); HR 8359, 95th Cong, 1st Sess (1977); HR 2004, 96th Cong, 1st Sess (1979); HR 2060, 96th Cong 1st Sess (1979); S 300, 96th Cong, 1st Sess. (1979).

31 ‘Report of the American Bar Association Antitrust Law Section Task Force on Legislative Alternatives concerning Illinois Brick Co v Illinois’ (1997) 46 Antitrust Law Journal 1137; ‘Report of the American Bar Association Section of Antitrust Law Task Force to Review Proposed Legislation to Repeal or Modify Illinois Brick’ (1983) 52 Antitrust Law Journal 841; ‘Report of the American Bar Association Section of Antitrust Law Task Force to Review the Supreme Court's Decision in California v ARC America Corp.’ (1990) 59 Antitrust Law Journal 273; ‘Report of the Indirect Purchaser Task Force, Section of Antitrust Law American Bar Association’ (1995) 63 Antitrust Law Journal 993.

32 Rahl, JA, ‘Towards a Worthwhile State Antitrust Policy’ (1960) 39 Texas Law Review 753, 753Google Scholar–54; Sieker, GF, ‘The Role of the States in Antitrust Law Enforcement-Some Views and Observations’ (1960) 39 Texas Law Review 873Google Scholar; Mosk, S, ‘State Antitrust Enforcement and Coordination With Federal Enforcement’ (1962) 21 Antitrust Law Journal 358Google Scholar; May, J, ‘The Role of the States in the First Century of the Sherman Act and the Larger Picture of Antitrust History’ (1990) 59 Antitrust Law Journal 93, 98Google Scholar.

33 Hart-Scott-Rodino Antitrust Improvements Act of 1976, Pub.L. 94-435, 15 USCA § 18(a).

34 Cengiz (n 15) 19.

35 American Bar Association Section of Antitrust Law, Indirect Purchaser Litigation Handbook (American Bar Association, 2007) 26; Folsom, R, ‘Indirect Purchasers: State Antitrust Remedies and Roadblocks’ (2005) 50 Antitrust Bulletin 181, 182CrossRefGoogle Scholar; KJ O'Connor, ‘Is the Illinois Brick Wall Crumbling?’ (2001) 15 ANTITRUST 34; JT. Tomlin, DJ Giali, ‘Federalism and the Indirect Purchaser Mess’ (2005) 11 George Mason Law Review 157. Although in California v ARC America Corp 490 US 93 (1989) it was argued that state indirect purchaser laws have been preempted by the federal law, the Supreme Court rejected this argument.

36 American Bar Association ibid 26; Folsom ibid.

37 American Bar Association ibid.

38 Gavil (n 1) 863; Davis, RW, ‘Indirect Purchaser Litigation: ARC America's Chickens Come Home Roost on the Illinois Brick Wall’ (1996) 65 Antitrust Law Journal 375, 396Google Scholar; JT Prud'Homme, Jr, ES Cooper, ‘One More Challenge for the AMC: Repairing the Legacy of the Illinois Brick’ (2005) 40 University of San Francisco Law Review 675, 676.

39 Cengiz (n 15) 22.

40 28 USC 1367.

41 28 USC 1332 (a).

42 ibid. See also Ben-Hur v Cauble 255 US 356 (1921); Zahn v International Paper Co 414 US 291 (1973); Exxon Mobil v Allapath Services, Inc 125 U.S. 2511 (2005).

43 28 USC §§ 1332(d), 1453, 1711–1715.

44 Professor WB Rubenstein, UCLA Program on Class Actions, ‘Understanding the Class Action Fairness Act of 2005’ <http://www.classactionprofessor.com/cafa-analysis.pdf> accessed 28 September 2009, 2.

45 Cavanaugh (n 28) 47–48; AMC Final Report (n 14) 271; Testimony of Mark J Bennett and Ellen S Cooper before the Antitrust Modernization Commission (17 June 2005), 15; Prepared Statement of Professor Andrew I Gavil, before the Antitrust Modernization Commission (27 June 2005) 22.

46 Gavil (n 1) 863; Cavanaugh ibid 30; Prepared Statement of Michael I Denger, before the Antitrust Modernization Commission, (27 June 2005) 12.

47 F Cengiz, ‘Management of Networks between the Competition Authorities in the US and the EC: Different Polities, Different Designs’ (2007) 3 European Competition Journal 315, 324–331.

48 Antitrust Modernization Commission Act (n 13).

49 AMC Final Report (n 14) 266.

50 ibid.

51 ibid.

52 ibid 267.

53 Case 453/99 Courage Ltd v Bernard Crehan ECR [2001] I-6297, para 26; Case C-295/04 Vincenzo Manfredi v Lloyd Adriatico Assicurazioni SpA ECR [2006] I-06619, para 61 (emphasis added).

54 White Paper (n 6) 3.

55 ibid 4; Staff Working Paper (n 9) 15.

56 Cengiz (n 15) 30.

57 Case 127/73 Belgische Radio en Televisie v SV SABAM and NV Fonior [1974] ECR 51.

58 Manfredi (n 53) para 26.

59 ibid para 61 (emphasis added).

60 See eg Joined Cases 64 & 113/76, 239/78, 27–28 & 45/79 Dumortier Freres SA and Others v Council of the European Communities (Maize Gritz Cases) [1979] ECR 3091; Case 238/78 Ireks-Arkady GmbH v Council and Commission of the European Communities (Quellmehl Cases) [1979] ECR 2955.

61 See eg Case192/95 Societe Comateb v Directeur General Des Douanes et Droits Indirects [1997] ECR I-165; Joined Cases 441-42/98 Kapniki Michailidis AE v Idryma Koinonikon Asfaliseon (IKA) [2000] ECR I-7145.

62 T Eilmansberger, ‘The Green paper on Damages Actions for Breach of the EC Antitrust Rules and Beyond: Reflections on the Utility and Feasibility of Stimulating Private Enforcement Through Legislative Action’ (2007) 44 Common Market Law Review 431, 474; N Reich, ‘Horizontal Liability in EC Law: Hybridization of Remedies for Compensation in case of breaches of EC Rights’ (2007) 44 Common Market Law Review 705, 712; see also the Opinion of Mr Advocate General Van Gerven in Case 390/98 H.J. Banks & Co. Ltd v British Coal Corporation [1994] ECR I-1209.

63 Art 340 TFEU.

64 Joined Cases 6 &9/90 Francovich and Bonifaci v Italy [1991] ECR I-5357; Joined Cases 46 &48/93, Brasserie du Pêcheur SA v Bundesrepublik Deutschland and The Queen v Secretary of State for Transport, ex parte: Factortame Ltd and others [1996] ECR I-1029.

65 Principles of equivalence and effectiveness are EU law principles developed by the Court of Justice which establish that the national laws governing the actions brought by individuals in exercise of their directly effective EU rights shall not be less favourable than those governing similar domestic actions (equivalence) and that they shall not render the exercise of directly effective EU rights practically impossible or excessively difficult (effectiveness). See Case 33/76 Rewe v Landwirtschaftskammer fuer das Saarland [1976] ECR 1989; Case 45/76 Comet v Produktschap voor Siergewassen [1976] ECR 2043; Case 68/79 Hans Just v Danish Ministry for Fiscal Affairs [1980] ECR 501; Case 199/82 Amministrazione delle Finanze dello Stato v San Giorgio [1983] ECR 3595. Note that, this principle differs from the ‘consideration of effectiveness’ discussed in the text at n 15.

66 Courage (n 53) para 30; Manfredi (n 53) para 94.

67 Cengiz (n 15) 32.

68 Comparative Report (n 4) 6.

69 ibid 78.

70 ibid 38.

71 Mainz District Court, decisions of 15 January 15 2004, Cases 12 HK.O 52/02, 12 HK.O 55/02 and 12 HK.O 56/02 [2004] NJW-RR 478; Mannheim District Court, decision of 11 July 2003, Cases 7 O 326/02, published in [2004] GRUR 182; Karlsruhe Court of Appeal, decision of 28 January 2004, Case 6 U 183/03, published in [2004] WuW DER 1229, all cited in C Ryngaert, ‘Foreign-to-Foreign Claims: the US Supreme Court's Decision (2004) v the English High Court's Decision (2003) in the Vitamins Case’ (2004) 25 European Competition Law Review 611, 615. Compare to Provimi Ltd v Aventis Animal Nutrition SA; Trouw (UK) Ltd v Rhodia Ltd, Provimi Ltd v Roche Products Ltd, Trouw (UK) Ltd v Roche Products Ltd. [2003] 2 All E.R. (Comm.) 683.

72 U Boge, K Ost, ‘Up and Running, or is it? Private Enforcement—The Situation in Germany and Policy Perspectives’ (2006) 27 European Competition Law Review 197, 200.

73 ibid 200–201.

74 White Paper (n 6) 8; Staff Working Paper (n 9) 98.

75 Office of Fair Trading, ‘Response to the European Commission's Green paper, Damages Actions for Breach of the EC Antitrust Rules’ (2006) <http://www.oft.gov.uk/shared_oft/reports/oft_response_to_consultations/oft844.pdf> accessed 28 September 2009, 2; Comments of the Federal Ministry of Economics and Technology and the Federal Cartel Office on the Green paper of the EU Commission, 1–2.

76 F Marcos, and A Sánchez Graells, ‘Towards a European Tort Law? Damages actions for breach of the EC antitrust rules: harmonising Tort Law through the back door?’ presented at the IV International Congress of European Private Law Beyond the CFR, Lleida (Spain), 25–26 October 2007 <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1028963> accessed 28 September 2009; F Cengiz and K Wright, ‘Strategies for a European Judicial Network From the Perspective of Competition Policy’ presented at the UACES Conference, Exchanging Ideas on Europe 2008 Rethinking the European Union, 1–3 September 2008, <http://www.uaces.org/pdf/papers/0801/2008_Cengiz.pdf> accessed 28 September 2009, 9.

77 White Paper (n 6) 4; Staff Working Paper (n 9) 19–21, 98; Impact Assessment Report (n 9) 57.

78 Council Regulation (EC) 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (hereinafter ‘Brussels I Regulation’) [2001] OJ L 12/1.

79 ibid art 2(1).

80 ibid art 5(3).

81 Case 21/76 Handelskwekerij G J Bier BV v Mines de potasse d‘Alsace SA [1976] ECR 1735, para.11.

82 Case 68/93 Fiona Shevill and Others v Presse Alliance SA [1995] ECR I-415.

83 Brussels I Regulation (n 78) art 5(4).

84 ibid art 5(5). The Court of Justice's broad interpretation of this provision suggests by analogy that this provision would also apply to the acts of subsidiaries in the context of competition law infringements. See eg Case 33/78 Somafer v Saar-Ferngas [1978] ECR 2183; Case 439/93 Lloyd's Register of Shipping v Campenon Bernard [1995] ECR I-961.

85 Brussels I Regulation (n 78) art 6(1). For liberal interpretation of this provision by an English court see Provimi (n 71).

86 Brussels I Regulation, ibid art 27.

87 ibid art 28(3).

88 P Stone, EU Private International Law (Elgar European Law, Cheltenham, 2006) 100.

89 Council Regulation (EC) 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (hereinafter ‘Rome II Regulation’) [2007] OJ L 199/40.

90 ibid art 6(3)(a). According to art 6(3)(b) in cases where multiple national laws come into play, the plaintiff has the choice to employ lex fori (the law of the forum) instead, provided that such forum is the domicile of the defendant and among the markets affected by the violation in question. However, since under the current standards of jurisdiction multiple defendants are likely to bring parallel cases in multiple forums, this provision falls short of solving the problem.

91 At the 1999 Tampere Summit, the European Council reiterated the goal of creating a Union of freedom, security and justice and firmly established that action would be taken at the EU level to facilitate judicial cooperation as a means of achieving this goal. See the Presidential Conclusions of Tampere Council, 15–16 October 1999. <http://www.europarl.europa.eu/summits/tam_en.htm> accessed 28 September 2009.

92 Council Regulation (EC) 1348/2000 of 29 May 2000 on the Service in the Member States of Judicial and Extrajudicial Documents in Civil or Commercial Matters [2000] OJ L 160/37; Council Regulation (EC) 1206/2001 of 28 May 2001 on Cooperation between the Member States in the Taking of Evidence in Civil or Commercial matters [2001] OJ L 174/1.

93 Council Decision (2001/470/EC of 28 May 2001 establishing a European Judicial Network in Civil and Commercial Matters [2001] OJ L 174/25.

94 Report from the Commission to the Council, the European Parliament and the European Economic and Social Committee on the Application of Council Decision 2001/470/EC establishing a European Judicial Network in Civil and Commercial Matters COM(2006) 203 final, 16.5.2006, 5.

95 White Paper (n 6) 8.

96 ‘The Commission suggests the following rule: national courts that have to rule in actions for damages on practices under art 81 and 82 on which an NCA [national competition authority] in the ECN [European competition network] 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.’ (emphasis in original) ibid 6.

97 Article 267 TFEU.

98 The work allocation rules of the ECN, however are regulated by a soft-law measure, and therefore are subject to the discretion of national competition authorities. See Commission Notice on Cooperation within the Network of Competition Authorities [2004] OJ C 101/43, 2.1.Principles of Allocation.

99 ibid para 8.

100 This rule would not conflict with the principle of procedural fairness either, as procedural fairness requires protection of the weaker party of the conflict in question which happens to be the plaintiff (rather than the defendant as usual) in the context of antitrust damages actions, in particular in indirect purchaser actions.

101 Modernisation Regulation (n 2) art 15(3).

102 Modernisation Regulation (n 2) art 15, see also Commission Notice (EC) on the co-operation between the Commission and the courts of the EU Member States in the application of EC Treaty arts 81 and 82, [2004] OJ C101/54, paras 15–35.

103 See text to (n 101).

104 This database is called ‘ECN Interactive’. The information is supplied by national competition authorities under Modernisation Regulation, (n 2) art 11.

105 Under the Modernisation Regulation Member States are under a duty to submit to the Commission copies of the national court decisions applying articles 101 and 102 TFEU. See Modernisation Regulation, ibid, art 15(2). The Commission publishes those decisions on its website <http://ec.europa.eu/comm/competition/elojade/antitrust/nationalcourts/> accessed 28 September 2009. However, this mechanism is not suitable to alert the courts about the parallel cases litigated before other national courts, since only final judgments are communicated to and published by the Commission. Additionally, some studies reveal that the current database of national judgments is incomplete. See Kathryn Wright, ‘European Commission Opinions to National Courts in Antitrust Cases: Consistent Application and the Judicial-Administrative Relationship’ (2008) ESRC Centre for Competition Policy Working Paper 08-24, <http://www.uea.ac.uk/polopoly_fs/1.104682!ccp08-24.pdf> accessed 28 September 2009.

106 Cengiz and Wright (n 76) 11.