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This article was first published on LexisPSL Competition on 6 February 2014. Click here for a free 24h trial of LexisPSL

Are cartels liable for umbrella pricing claims?

06/02/2014

Competition analysis: Peter Crowther, managing partner of Winston & Strawn's Brussels office, explains the legal position surrounding umbrella pricing and assesses the implications for private enforcement of Advocate General Kokott's Opinion in Kone.

Original news
Opinion in Case C-557/12 Kone AG and Others, LNB News 31/01/2014 17 The Advocate General (AG) has issued an Opinion on whether the liability of cartels should extend to umbrella pricing. The AG decided consumers should be able to claim against cartel members for the price increases they have faced through umbrella pricing. The Opinion, which is not legally binding, has said member states should have laws identifying how such claims can be made and enforced. For more detail on the case, see Case C- 557/12 Kone and others.

What was the background to this case?

The issue of 'umbrella pricing' Kone concerns a claim for damages brought in the Austrian courts following the Austrian Competition Authority's earlier decision (upheld on appeal) that Kone and others had breached the Treaty on the Functioning of the European Union, art 101 (TFEU) in relation to the supply of elevators and escalators in Austria. Essentially, the purpose of the cartel was to secure, by allocating bids among its members, higher prices in the supply of new machinery for elevators and escalators than would have been possible had there been competition. Approximately one third of the Austrian market was subject to specific agreements.

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The unusual feature of this case, and the principal reason for the reference from the Austrian court to the Court of Justice of the European Union (CJEU), is that the claimant (the Austrian Federal Railways) is seeking to claim not only for losses suffered in respect of direct and indirect purchases made from the cartel members, but also for losses arising in relation to purchases made from companies that were not members of the cartel (known as 'umbrella pricing'). Umbrella pricing occurs when a company that is not a member of a cartel takes advantage of a cartel's activities to generate profits that would not be available absent the cartel's activities. Although the profits accrue to the non-cartellist, liability rests with the cartel participants. Under Austrian law, umbrella pricing claims are excluded and so the CJEU has been asked to decide whether EU law requires grant of a claim under national law to ensure the effectiveness of EU law. The implications of Manfredi for its (umbrella pricings) assessment in the context of private damage actions Cases C-295/04 and C-298/04 Manfredi [2007] All ER (EC) 27 The ECJ's judgment in Manfredi expressly recognised that 'any individual can claim compensation for the harm suffered where there is a causal relationship between that harm and [an infringement]'. In this regard, the case law already suggests that umbrella pricing could be the subject of a damages claim, although until now the point has not been expressly dealt with by the CJEU.

Is there a connection (or common thread) between this review and the ongoing discussion regarding the rights of indirect purchasers to bring damage claims?
Whatever the outcome, in the AG's Opinion, the CJEU's judgment will 'without doubt be ground breaking in the context of the further development of European competition law'. As the AG recognises, the Kone case comes at a time when the proposed Damages Directive is being debated in the Council/European Parliament, and there is already draft text in the proposed Directive dealing with the position of indirect purchasers and the liability of cartel participants for umbrella pricing. Indirect purchasers are set to have standing to bring claims, and according to art 2(1) of the proposed Directive:

'[A]nyone who has suffered harm caused by an infringement of Union or national competition law shall be able to claim full compensation for that harm'. Since art 2(1) does not limit liability to customers of the cartel members, it seems clear that, in principle, losses can be claimed for umbrella pricing. This conclusion is reinforced by a specific carve out in art 11(4) which is designed to preserve the incentive for would-be immunity applicants to use the leniency system 'to the extent that the infringement caused harm to injured parties other than the direct or indirect purchasers...the amount of contribution of the immunity recipient shall be determined in the light of its relative responsibility for that harm'.

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Beyond answering the main question referred by the Austrian court, what were AG Kokott's main conclusions?
The AG has recommended that the CJEU rule that the exclusion of umbrella pricing claims is in breach of EU law. Her conclusions are such that, if the CJEU follows her Opinion, cartel members will be liable not only for damage caused by their own sales but also for the sales of companies that did not participate in the cartel but which were able to take advantage of the existence of the cartel (usually through selling at prices higher than those at which the companies would otherwise have been able to sell their products).

In the event the AG's Opinions is followed by the CJEU, what are the implications for private enforcement in Europe (and is there a risk of the floodgates opening in terms of damages claims)?
While there is of course no guarantee that the proposed Directive will be adopted, the requisite political will appears to exist, and it is against this background that the implications of the forthcoming judgment in Kone should be assessed. In the unlikely event that the proposed Directive is not adopted, however, it is difficult to imagine that the CJEU would not follow the AG's Opinion, taking the view that there is no obvious public policy justification for allowing, as a matter of principle, the exclusion of certain kinds of non-contractual liability for competition law infringements. Otherwise, the argument would run, the effectiveness of EU law may be undermined. Furthermore, any such judgment would be consistent with the CJEU's earlier judgment in Manfredi. However, it is to be hoped that the CJEU will stop short of the position taken by the AG on causation. Causation is a matter for the national courts and, although the parties made representations on the point, causation was not part of the question that was asked by the referring Austrian court. Nonetheless, AG Kokott felt able to conclude that umbrella pricing, 'in a case such as this...is most certainly not unforeseeable', based apparently on some rudimentary observations about the size of the market accounted for by the cartel members, as well as underlying price transparency. Should the CJEU follow the AG this far, the judgment would indeed be 'ground breaking' and not in a welcome way. It is to be hoped instead that the CJEU will reiterate that causation is a fact-based assessment to be conducted according to robust standards of evidence and in accordance with national procedures.

Does this approach contrast with the courts' approach in the US (and if so, what explains any divergence particularly given the otherwise claimant friendly environment in the US)?

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The AG made the point that US case law on umbrella claims is inconsistent. As yet, the United States Supreme Court has not given any clarification on the issue--until it does so the courts are likely to remain inconsistent in their approach to umbrella pricing. Interviewed by Jenny Rayner. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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