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EC acts on antitrust breaches

Following four years of research, internal consideration and public debate,
the European Commission has published its long-awaited white paper on damages
actions for breaches of EC antitrust rules.

Competition Commissioner Neelie Kroes said the Commission has “moved past the
question of ‘should we have a more effective system of antitrust damages
actions’ to the issue of how a damages action system should operate”.

The paper sets out a series of proposals designed to remove legal and
procedural hurdles which have prevented victims of anti-competitive activity
from obtaining compensation. The Commission’s primary objective is for victims
to receive full compensation for the loss they have suffered, but it also
recognises that effective damages actions are likely to encourage greater
compliance with antitrust rules. The key proposals include:
• To compensate victims by providing single damages for harm suffered;
• Ability to seek collective redress;
• Greater access to evidence; and
• For victims of anti-competitive activity to be able to rely on decisions of
national competition authorities and the European Commission when seeking
damages.

Removing obstacles
In December 2005, the Commission published for public consultation a Green Paper
on antitrust damages actions. This focused on ways of reducing the obstacles
faced by claimants in bringing proceedings of this kind. The concern was ­ and
still is ­ that even though the right of victims to compensation is guaranteed
by Community law, in practice, victims of EC antitrust infringements rarely
obtain recompense for the harm they have suffered, foregoing compensation in the
range of several billion euros every year, according to Commission estimates.

As a result, the white paper sets out proposals for concrete measures to make
it easier for individuals and businesses to claim compensation for the harm they
have suffered as a result of anti-competitive activity.

Susan Bright, partner and head of the competition practice at law firm
Lovells, says that the Commission’s approach to damage awards is to compensate
for losses incurred and to recommend that damages be quantified on a purely
compensatory basis, rather than adopt the US system where damage awards can be
doubled or trebled. She adds that the Commission also believes compensation
should extend not only to the actual loss flowing from the anti-competitive
behaviour, but also the loss of profit resulting from any reduction in sales, as
well as interest.

“Presently, it is very onerous to sue a firm for financial loss caused by
their anti-competitive behaviour. Even in the UK ­ where it is possible to make
such a claim ­ people do not seek financial redress because the legal costs are
prohibitive. For example, virtually no one in the UK would consider trying to
make a claim against a company for a figure as low as £10, but in the US this is
very common because of the maturity of the class action system. The Commission
is trying to make it easier for people to reclaim money that they have been
cheated out of, but it is trying to steer clear of the US idea of treble
damages,” says Bright.

Championing the cause
However, there has been one notable success story where UK customers
successfully won a representative action. Consumer rights group Which?
successfully won its case against sports chain JJB Sports which had unlawfully
overcharged fans for football shirts.

The company was part of a cartel of seven companies fined more than £16m in
2003 for fixing the price of England and Manchester United football shirts in
2000 and 2001. Fans who paid up to £39.99 for these shirts and joined the case
against JJB Sports received a payment of £20 each, while other customers who
were not part of the case were able to claim back £10.

The Commission is looking to replicate such success and champion consumer
rights by suggesting a package of two complementary mechanisms for collective
redress:
• Representative actions. These would be brought by qualified entities such as
consumer or trade associations, as happened in the case against JJB Sports;

• Opt-in collective actions. This would be used when victims decide to combine
their individual claims for the harm they have suffered into one single action.

Lawyers say that any legislation at European and national level is unlikely
to come into force until after 2010. But Bright says that the moves should be
taken seriously.

“There is sufficient political will to make the issue of easier damage claims
a reality. Companies are going to be hit a lot harder for breaches of
competition law ­ by the regulators with heavier fines and through collective
and multiple claims from consumers.”

As a result, businesses need to make sure that:
• They have a compliance programme in place. “Competition authorities are likely
to come down hard on companies that do not take legal compliance seriously.
Ignorance of the law and not properly embedding good standards of corporate
behaviour is simply inexcusable,” says Bright.
• They recognise that they have the opportunity to blow the whistle on
competitors. “Informing the competition authorities about the anti-competitive
activities of a rival firm can result in them getting a massive punitive fine, a
real dent to their corporate reputation and damaging civil actions. It can also
allow your firm to steal a march on their customers in the aftermath.”

Useful links
http://ec.europa.eu/dgs/competition/

http://ec.europa.eu/comm/competition/index_en.html

www.lov
ells.com

* The white paper is open for consultation and interested parties are
invited to submit comments by 15 July 2008.

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