Quantifying Damages in Competition Claims: Quantifying Damages Claims Resulting from Breach of EU Competition Laws – Commission Offers Guidance
The European Commission has published a draft guidance paper (“the 2011 paper”) on quantifying harm in actions arising out of breaches of Articles 101 and/or 102 of the Treaty on the Functioning of the European Union (“TFEU”). The 2011 paper, published on 17th June 2011, is open for comment until 30th September 2011.
The intention of the European Commission is to ensure that the enforcement of competition laws by public bodies is supplemented by private actions for damages. The 2011 paper follows a Green Paper published in 2005, and a White Paper published in 2008 which identified the main obstacles and policy proposals for specific measures. The papers discussed the need for effective mechanisms to ensure victims of infringements are compensated as fully as possible, and identified the difficult issue of determining ‘quantum’, i.e. the amount required to compensate the victim for the harm suffered as a result of the infringement of competition law.
In addition, the 2005 and 2008 papers highlighted that calculating ‘harm’ could be extremely difficult. The 2011 paper seeks to address this problem by providing some practical guidance for the courts and those involved in such disputes on how damages can be calculated.
The 2011 paper makes it clear that its proposals are not intended to bind national courts, and it does not seek to alter the laws applicable in each Member State’s domestic legal system. Instead, the 2011 paper suggests several methods and techniques that can assist with calculating damages.
The aim of these methods and techniques is to put the injured party in the position they would have been in, but for the infringement. Accordingly, the losses actually suffered will be compensated along with any loss of profit and interest payments.
Methods to be Used
Guidance is provided on the main methods and techniques utilised to quantify harm that can be applied to all kinds of infringement.
The 2011 paper discusses various methods, and notes that the most widely used method is a comparative study of the periods of time before, during and after the infringement takes place, and studies of other markets that have not been affected. This method uses real-life data to construct a non-infringement scenario.
The 2011 paper also points to several techniques that can be used to implement these methods of quantifying harm.
Quantifying Harm Suffered by Customers and Competitors
Having discussed general approaches to quantifying harm, the 2011 paper then considers some specific guidance (i) for customers who suffer harm as a result of elevated pricing, and (ii) for competitors who suffer harm as a result of exclusionary practices.
There are two main types of harm customers may experience as a result of elevated prices:
(a) Overcharge – where customers pay more for products/services than they would have done without the anti-competitive infringement. This is of particular relevance when dealing with cartels;
(b) The Volume effect – volume effects are directly linked with price increases as fewer products are bought due to the higher prices. For those using products for commercial purposes the decrease in demand is translated into fewer sales. Therefore, customers lose the profits they would have made but for the infringement.
With regards to overcharging, the 2011 paper goes on to provide some extra guidance concerning the passing-on of overcharges. This is relevant where a claimant is the direct customer of the infringing party, who may argue that the charge has been passed on to an indirect customer.
Competitors who are restricted or prevented from entering a market will often suffer a loss of profits as a result of reduced revenue and/or increased costs. This reduction will normally benefit the infringing party who will enjoy a larger market share than would otherwise have been the case.
To quantify lost profits, a simple comparison between the revenue of competitors during the infringement, and what would have been generated but for the infringement will provide the actual profits lost. This can then be applied to the cost avoided by the harmed party, due to lower production volumes, to calculate value of lost profits.
Future losses, where a competitor is prevented from re-entering or fully recovering from an infringement, can also be compensated. This type of claim will be subject to national rules regarding future loss, but where the loss can still be identified and quantified, it is possible to claim over a reasonable time period.
The 2011 paper notes that this type of claim can prove very difficult to conduct, and urges domestic legal systems to ensure such claimants are not prevented from taking such action merely because it is excessively difficult.
The EU national courts have seen a steady increase in the volume of private actions for damages based on Article 101 and Article 102. These claims have raised difficult issues of quantum which the European Commission is seeking to clarify in its present paper. Those wishing to comment have until 30th September to do so. If you need any assistance in relation to any of the issues raised in the 2011 paper, let us know.