The European Commission and Competition Litigation: Embracing Private Enforcement through Collective Actions

Photo Credit: Claudio Munoz[1]

By: Aaron Schwartz

On June 11, 2013, after years of deliberation, the European Competition Commission[2](Commission) introduced the recommendation on common principles for injunction and compensatory collective redress mechanisms in the Member States concerning violations of rights granted under Union Law.[3]The stated purpose of the recommendation is to “facilitate access to justice,” and ensure “a high level of consumer protection” by allowing individual victims of anti-competitive schemes to band together and seek redress through collective actions.[4]The agency’s recommendation is not a legally binding document for Member States, but it is a statement of policy by the European Commission. The recommendation also includes a favored method for implementing the injunctive and collective redress mechanisms.

I. The Impact of Collective Actions on Enforcement

The recommendation marks a significant development in how the European Union enforces competition law. Member States and the Commission have traditionally relied on regulatory actions, rather than equitable relief and plaintiff classes to punish anti-competitive agreements in restraint of trade.[5]

By encouraging all Member States to adopt injunctive and collective redress mechanisms, the European Commission is adding an effective and meaningful method by which consumers and regulators can prosecute anti-competitive actions within the European Union. This is because jurisdictions that do not permit collective actions indirectly foreclose compensation for most consumers injured by anti-competitive restraints of trade. For example, suppose a group of competitors agree to form a cartel that sets the price of a particular good or service €100 above the competitive price. Each consumer that purchases the good or service at this inflated price is said to suffer an antitrust injury. However, the rational individual consumer lacks an incentive to redress this wrong because litigation costs are astronomically higher than the damages suffered. In this sense, the collective action can be understood as creating an economy of scale where injured consumers can band together to efficiently, and with greater dispatch, recover damages brought on by the cartel’s anti-competitive agreement.

The collective action also helps ease the Commission’s administrative burdens. In traditional European competition enforcement the Commission alone represented the principal enforcer of competition law. However, because collective actions incentivize consumer lawsuits, the marketplace indirectly acquires an additional policing mechanism.

II. Implementation and Procedural Guidance for Injunctive and Compensatory Collective Redress Mechanisms

The recommendation provides Member States with a significant amount of guidance regarding the procedure and implementation of collective action regimes. First, Member States should codify collective redress compensation and injunctions for violations of European Union law.[6] Second, only public authorities and not-for-profit organizations with objects related to the dispute should have standing to bring representative actions.[7] Third, whether plaintiffs satisfy the conditions for collective action should be assessed “at the earliest possible stage of litigation.”[8] Fourth, plaintiffs should declare at the beginning of litigation where the funds supporting the litigation came from.[9]Fifth, “the party that loses a collective redress action reimburses necessary legal costs borne by the winning party (‘loser pays principle’).”[10] Sixth, damages should be compensatory, as opposed to punitive or exemplary.[11] Lastly, and perhaps most significantly, the recommendation advises that claims should be based on the “opt-in” principle.[12] This requires individual consumers or competitor companies to actively consent to the litigation and demonstrate antitrust injury.

The Commission’s guidance exhibits an unmistakable aversion to U.S.-style class action, which the Commission views as too permissive of frivolous claims and abusive litigation.[13]In the United States, for example, any lawyer that is accomplished in identifying and investigating class actions, knowledgeable in the relevant area of law, and able to adequately and fairly represent the interests of the class may bring forth the lawsuit.[14]The U.S. also does not require plaintiffs demonstrate where they acquired the funds supporting litigation, as it is up to class counsel to demonstrate sufficient resources to adequately represent the class.[15] This requirement makes sense because unlike the European “loser pays” system, in the U.S. “each party must [generally] bear its own cost of litigation, including attorney’s fees.”[16]The U.S.also authorizes punitive damages after antitrust injuries are established.[17] The theory behind the U.S. treble damage provision is that punitive damages promote policing of the market because it encourages citizens to sue for violations detrimental to society.[18] Lastly, in the U.S.,injured consumers are bound to the outcome of the case unless they actively “opt-out” of the class. This is significant because “while opt out rights cannot always guarantee the fairness of a settlement, they can ensure that class members, particularly those with high stakes claims, will have the option of avoiding the agency problems frequently associated with class litigation and pursuing individual actions for redress.”[19]

It is too early to tell whether the Commission struck the appropriate balance between encouraging efficient collective actions that help police the market and shielding courts from frivolous and abusive litigation. However, the recommendation undoubtedly provides European consumers a meaningful method to recover damages caused by anti-competitive restraints of trade.

 

Aaron L. Schwartz is a third year law student at The Pennsylvania State University – The Dickinson School of Law. He is an active member of the Student Bar Association, the Journal of Law and International Affairs, and the Moot Court Board (Jessup Team). Mr. Schwartz graduated from the University of Wisconsin—Madison.


[1] http://media.economist.com/images/images-magazine/2011/07/09/am/20110709_amd001.jpg.

[2]“The European Commission, together with the national competition authorities, directly enforces EU competition rules . . . to make EU markets work better, by ensuring that all companies compete equally and fairly on their merits. This benefits consumers, businesses and the European economy as a whole.” Competition Policy in the European UnionEuropean Commission, http://ec.europa.eu/dgs/competition/index_en.htm (last visited December 19, 2013).

[3]Commission Recommendation on common principles for injunction and compensatory collective redress mechanisms in the Member States concerning violations of rights granted under Union Law, COM (2013) 3539/3 (June 11, 2013) [hereinafter Commission Recommendation].

[4]Id. at ¶¶1, 10.

[5]Competition litigation: Major new proposals from the EU and the UK, Norton Rose Fullbright, http://www.nortonrosefulbright.com/knowledge/publications/99667/competition-litigation-major-new-proposals-from-the-eu-and-the-uk (last visited November 6, 2013).

[6]Commission Recommendation, at ¶¶ 7, 8. Notably, the recommendation advocates for expanded use of injunctive relief and collective actions beyond competition law.

[7]Commission Recommendation, at II(3)(d).

[8]Commission Recommendation, at III(8).

[9]Commission Recommendation, at III(14).

[10]Commission Recommendation, at III(13).

[11]Commission Recommendation, at V(31).

[12]Commission Recommendation, at V(21)-(24).

[13]Press Release, European Commission, Commission Recommends Member States to have Collective Redress Mechanisms in Place to Ensure Effective Access to Justice (June 11, 2013), available at http://europa.eu/rapid/ press-release_IP-13-524_en.htm.

[14]F.R.C.P. 23(g)(1).

[15]Id.

[16]Edward D. Cavanagh, Attorneys’ Fees in Antitrust Litigation: Making the System Fairer, 57 Fordham L. Rev.51 (1988).

[17]15 U.S.C. § 15.

[18]See, e.g., Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483 U.S. 143, 151 (1987).

[19]Steven T.O. Cottreau, The Due Process Right to Opt Out of Class Actions, 73 N.Y.U. L. Rev. 480, 481 (May, 1998).

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