COMPETITION BULLETIN

The Competition Bulletin is pleased to welcome a guest blog from Louise Freeman of King & Wood Mallesons LLP. Louise specialises in (among other things) complex competition litigation. In this blog, she addresses the implications of the recent CJEU decision in Case C‑557/12 Kone AG and others v ÖBB-Infrastruktur AG.

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Anyone with even a cursory awareness of the existence of competition law will know that engaging in anti-competitive behaviour can be a costly exercise.  If one were to imagine a thoughtful and well-informed potential cartelist weighing up the cost/benefit analysis before deciding whether to pick up the phone to his competitors to kick off a cartel in the European market for widgets, just what would he be weighing up in that analysis and how does the recent Kone decision affect his analysis?

The potential benefits of collusive activity will, of course, be market and infringement-specific but may well include increased selling prices, certainty of market share, and avoiding competitive pressures.  Those anticipated benefits would have to be significant, however, to outweigh the potential downside cost risk if the cartel is uncovered.  Our potential cartelist could be exposing his company not only to the significant fines that could be levied by the relevant competition authority but also to the full and expanding scope of civil liability for his actions (as well as exposing himself to the risk of imprisonment in the UK or potentially elsewhere).

That civil liability will include liability to his customers for the increase in the price charged by his company for the widgets.  In addition, across most of Europe it will also include potential liability for the price increases levied by those competitors to whom he picks up the phone or has a chat over dinner, on the basis of joint and several liability of joint tortfeasors.  Although this remains untested in England, the better view would seem to be that one cartelist can be pursued for loss caused by all cartelists.

This is the case even if some or all of those competitors manage to overturn the decision against them in light of the Supreme Court decision in Deutsche Bahn (see the blog here).  In that case, the Supreme Court applied ECJ caselaw that a non-appealing party does not take the benefit of a successful appeal by another addressee and so remains bound by the original decision identifying the scope of and parties to the cartel, regardless of other successful appeals.

Now our potential cartelist should also very seriously consider the risk that his competitors to whom he does not pick up the phone will increase their prices as well, under the protective umbrella of the cartel (an “umbrella effect”), and that customers who buy from those competitors will also look to his company for redress (claiming “umbrella damages”).  This risk is enhanced as a result of the recent decision of the Court of Justice of the European Union in Kone.  The CJEU found that national courts are precluded from excluding liability of cartelists for umbrella effects.  Umbrella damages have long been debated in academic literature but this was the first time that the CJEU has had to tackle them.

The judgment makes it clear that the question of whether umbrella damages are available is a question of fact.  Whilst acknowledging that it is for domestic courts to lay down rules as to the application of the concept of a causal relationship (at paragraph 24 of the judgment), it goes on to find that a “victim of umbrella pricing may obtain compensation for the loss caused by the members of the cartel… where it is established that the cartel in issue was, in the circumstances of the case and, in particular, the specific aspects of the relevant market, liable to have the effect of umbrella pricing being applied by third parties acting independently, and that those circumstances and specific aspects could not be ignored by the members of that cartel” (paragraph 34).

As the Court also found that umbrella damages are “one of the possible effects of the cartel, that the members thereof cannot disregard” (paragraph 30), the decision seems likely to impact the application of national tests of foreseeability.  The decision is an important example of how the EU principle of effectiveness may require national rules to be reconsidered, to ensure that a remedy is available (or could be, depending on the facts) in such circumstances.

Kone therefore gives our potential cartelist even more food for thought and adds an additional weight to the “cost” side of his scales.  Whether this, together with less readily quantifiable effects such as reputational damage and the impact on commercial relationships, would lead our potential cartelist to conclude that the costs outweighed the benefit would no doubt depend on his own and his company’s current situation – as everyone knows, cartels are often borne of difficult economic pressures.  Certainly, for a company uncovering anti-competitive behaviour within its ranks, Kone indicates that the cost of civil liability for collusion may be even higher than many commentators had once believed.