Germany: Private Antitrust Litigation

Alexander Rinne and Tatjana Mühlbach

SJ Berwin

With the Seventh Amendment to the German Act against Restraints of Competition (ARC), effective from 1 July 2005, the German legislature amended the ARC with the specific intention to facilitate private antitrust enforcement. Until then, private antitrust enforcement focussed mainly on anti-competitive behaviour by dominant undertakings, whereas hard-core cartels were rarely subject to private-party claims. Although private damages actions based on cartel infringements are still not widespread, they have become more common and it is to be expected that in particular follow-on actions will become well established within the German civil law system.
This chapter deals with private actions in Germany based on cartel infringements and on anti-competitive behaviour by dominant undertakings. Since EC rules provide neither for private antitrust claims as such nor for the relevant procedural rules for such claims under articles 81 and 82 of the EC Treaty, private antitrust litigation in Germany is governed by national provisions.

Types of action

Action to refrain from a certain conduct

The party affected by the breach of competition law (the party concerned) may apply to the relevant regional court for an order that the party in breach refrains from such conduct.¹ This applies to a breach of both national provisions and articles 81 or 82 of the EC Treaty. Applicants may also be associations with legal capacity representing professional interests.² The party concerned has standing to sue and may require the party in breach to refrain from taking certain action even when there is only a threat that an infringement will take effect.
The most common causes of action for an injunction concern abusive or discriminatory practices by dominant undertakings or by undertakings with superior market power in relation to small or medium-sized undertakings. The obligation to refrain from such conduct can also include a positive obligation towards the party concerned. If, for example, a dominant undertaking ceases to supply a customer contrary to the prohibition preventing it from abusing its dominant market position, the party concerned may insist on being supplied.
Moreover, the party concerned may apply for interim measures. This is, again, of particular importance in cases in which an undertaking abuses its dominant market position. The court may issue a preliminary injunction provided that the party affected by the anti-competitive behaviour is able to provisionally substantiate with evidence that the party in breach abused its dominant position and, in addition, that there is a particular urgency which requires interim measures. The injunction may be issued without an oral hearing. In practice, in urgent cases the injunction may even be issued on the same day as the application.

Damages claims

Section 33(3) of the ARC provides that whoever commits an infringement of the provisions of the ARC or articles 81 or 82 of the EC Treaty shall be liable for damages arising therefrom. The breach of competition law must have been committed intentionally or negligently³. However, there is only very limited scope to argue that an infringement was not committed in such a manner. In particular, errors of law do not fall outside the scope of this provision unless the defendant can rely on legal advice from a specialist external competition lawyer.⁴
Damages claims may either be filed as an action for affirmative relief or as an action for a declaratory judgment. The action for affirmative relief may be the appropriate type of action if the plaintiff – at the time the claim is made – is able to calculate the exact amount of damages suffered as a result of the infringement. If the plaintiff is not able to determine the exact amount of loss suffered and the claim runs the risk of being barred on limitation grounds, the plaintiff may apply for a declaratory judgment, which if successful will give rise to the opportunity to sue the defendant for the exact amount of money corresponding to the loss at a later date. Moreover, a declaratory judgment often forms the basis for a settlement.

Course of action

Cartel infringement

A private action against members of a cartel may be based on national competition law, section 33 of the ARC in conjunction with section 1 of the ARC, or on European law, section 33 of the ARC in conjunction with article 81 of the EC Treaty. In line with article 81 of the EC Treaty, section 1 of the ARC prohibits agreements between competing undertakings, decisions by associations of undertakings and concerted practices that have as their object or effect the prevention, restriction or distortion of competition.
Private actions in relation to cartel infringements, in particular hard core cartels, will most often be damages actions. However, the party concerned may also seek to prevent the party in breach from applying the agreement, eg, the price scheme.⁵ This will most likely be the case when there is doubt as to whether section 1 of the ARC or article 81(1) of the EC Treaty are applicable to the agreement in question.

Abuse by dominant undertakings or undertakings with superior market power

In line with article 82 of the EC Treaty, undertakings holding a dominant market position must not abuse their dominant position.⁶ The notion of dominance within the ARC essentially follows the principles as set out by European competition law. An abuse exists, inter alia, if a dominant undertaking refuses to allow another undertaking access to its own networks or other infrastructure facilities in return for adequate remuneration. Moreover, it is prohibited for dominant undertakings to discriminate against or hinder another undertaking in an unfair manner.⁷
In addition to the prohibition laid down in article 82 of the EC Treaty, the ARC contains even stricter rules on unilateral conduct for undertakings. According to these rules, the concept of dominance is extended to undertakings with superior market power.⁸ Undertakings with superior market power are undertakings on which small or medium-sized enterprises depend as suppliers or purchasers of goods or services in such a way that sufficient or reasonable possibilities of resorting to other undertakings do not exist.

Violation of the boycott prohibition

A further special provision in German antitrust law is section 21(1) of the ARC, which prohibits undertakings from requesting another undertaking to refuse to sell or purchase goods or services to or from third companies with the intention of unfairly harming certain undertakings.

Parties entitled to claim

According to section 33(1), sentence 1 of the ARC, the party entitled to claim is the party concerned. Sentence 3 of the same provision defines the notion of the ‘party concerned’ as the person who is affected by the breach as a competitor or as another market participant. There is no statutory limitation on the parties entitled to claim damages suffered as a consequence of a competition law infringement. According to the legislative history, even end-users are considered to be included in this definition. Moreover, legislative history confirms that the legislator extended the notion of a party concerned, pointing out that an action for damages should not be excluded on the sole ground that the claimant participated in the infringement.

Party directly affected by the illegal behaviour

It is undisputed that the party concerned includes any person or undertaking directly affected by the illegal behaviour. In most cartel cases, these are persons or undertakings which are either a direct supplier or a direct purchaser of the undertaking in breach. Competitors of the parties to an agreement which infringes section 1 of the ARC or article 81(1) of the EC Treaty can also be directly affected if they might lose business due to the cooperation within the cartel. In cases of discriminatory or abusive practises by a dominant undertaking, competitors can for example be directly affected where the dominant undertaking, by means of exclusionary pricing practices, forecloses the market for competitors.

Party indirectly affected by the illegal behaviour

It has not yet been decided by the German courts whether the party concerned can also be a person indirectly affected by the illegal behaviour, for example, an end-distributor or even private consumers. In accordance with the decision of 2001 of the European Court of Justice (ECJ) in Courage v Crehan,⁹ in which there was a specific ruling that everybody is entitled to ask for compensation for damages incurred through anti-competitive behaviour, the German legislature intended to amend German law to reflect the ECJ ruling. In its Manfredi judgment of 2006,¹⁰ the ECJ expressly confirmed that everyone who establishes loss caused by anti-competitive behaviour is entitled to damages.
Against this background, German courts are very likely to accept a damages claim submitted by any person who establishes loss and an infringement of competition law being the cause thereof. However, in order for an indirect purchaser to demonstrate loss caused by anti-competitive behaviour it must establish that the direct purchaser passed on the excessive prices. Moreover, regarding the end-user as a potential indirect purchaser, it is unlikely that such actions for damages by end-users will become relevant in practice, given the lack of availability of class actions.

Damage claims via third parties

Despite the lack of class-action lawsuits in German law, end users as well as smaller companies might submit damages claims via third parties. In relation to a cement cartel, where the German Federal Cartel Office (FCO) imposed fines of approximately €660 million in April 2003, the Regional Court of Düsseldorf on 21 February 2007 admitted a damages claim that was submitted by Cartel Damage Claims SA (CDC), a company established under Belgian law. CDC has bought the claims of various companies relying on the argument that the price for cement as purchased from the members of the cement cartel was anti-competitive and therefore too high. As there is no legal basis for class-action lawsuits in relation to private antitrust claims in Germany, the cartel victims assigned their individual claims to CDC for payment of €100 and a certain amount of the proceeds which will be obtained through the court proceedings. CDC is now in the process of enforcing the respective claims on its own behalf.
On 14 May 2008, the Higher Regional Court of Düsseldorf upheld the decision by the Regional Court of Düsseldorf that the action was admissible. Whether the assignment of receivables is valid is a question of substantive law and has not yet been decided.

Determination of damages

The basic principle in the German Civil Code (BGB)

The calculation of damages suffered by the claimant is primarily based on section 249 of the BGB, which provides that damages are calculated on the basis of the difference between the financial position of the claimant after the loss occurred and the financial position that the claimant would have been in had the loss not occurred. The financial status of the affected party has to be considered as a whole, and therefore not only its losses in income and wasted investment have to be taken into account, but also any benefits received as a consequence of the anti-competitive behaviour. Pursuant to section 252 of the BGB, the damage to be compensated for also comprises the lost profits. Those profits are considered lost that in the normal course of events or in the special circumstances, particularly due to the measures and precautions taken, could probably be expected.
Applying the principle as described above to cartel cases, loss may result in two ways. First, the purchaser of goods or services may have been charged higher prices on the basis of the cartel agreement than would have been the case had the cartel agreement not existed. Second, the purchaser may suffer lost profits in circumstances where demand is reduced as a result of higher prices. The argument in this regard is that had there been lower prices, the purchaser could have sold greater quantities, achieved higher margins and thus realised more profit.

Methods of calculating the damage

The FCO, in a 2005 discussion paper, has described three different methods to determine the difference between the plaintiff’s financial position after the competition law infringement has occurred and the financial position the plaintiff would have been in had the harmful event not occurred.
For the ‘comparable market test’, it is necessary to first establish a market which is comparable to the market on which the infringement occurred, but on which competition was not distorted. This can be a different product market, a different geographic market, or the same product market at a different time. In a second step the price development on the two markets will be compared, assuming that the prices on the comparable market are also the prices which would have been charged on the affected market absent the infringement. The ‘cost test’ determines the average cost for the product which was subject to the cartel agreement and adds a hypothetical margin which is deemed adequate. Any price above this amount is deemed to result from the cartel agreement. The ‘simulation test’ tries to simulate, on the basis of complex economic models, the development on the relevant market in the absence of the cartel.
Although these methods are primarily targeted at calculating damages in cartel cases, they can also serve as a useful guidance in cases of abuse of a dominant position.

Passing-on defence

In the light of the principles set out above, according to which any benefits received by the affected party as a consequence of the anti-competitive behaviour may be factored in, the question arises as to whether a member of a cartel may defend itself by arguing that the claimant passed on higher prices to its own customers, and therefore the anti-competitive behaviour did not damage the claimant’s financial situation (the ‘passing-on defence’).
Before the entry into force of the Seventh Amendment to the ARC, the German courts decided that the passing-on defence was admissible. Consequently, an action for damages in such cases was not well founded. However, despite being dismissed at first instance, all or at least most of the cases have been settled in the meantime. There was only one decision of a German court which held that the defendant could not raise the passing-on defence and that, therefore, the action for damages was successful.¹¹
In light of these conflicting decisions, the legislature decided to clarify the position so that the defendant may only defend itself with the argument that the claimant passed on the excessive prices to its own customers in very limited circumstances. In section 33(3) of the ARC, a new sentence was inserted: ‘If a product or a service has been purchased at an excessive price, the damage is not excluded because the good or service has been resold’. Thus, under the current law, it can no longer be argued that the purchasers do not suffer damage when they have resold the goods or services to customers in downstream markets. However, the law does not provide for a clear-cut prohibition of the passing-on defence, leaving some leeway for the courts to take benefits resulting from the passing-on of the higher prices into account.
However, the amendment of section 33(3) has led to a reversal of the burden of proof, that is, the party in breach of competition law has to establish that the purchaser of goods or services managed to reduce its loss by passing on the excessive prices to its own customers. This might be particularly difficult if the burden of proof also extends to the question whether the same number of customers bought the products or services for an excessive price as would have done so had a (lower) price prevailed on a competitive market. In addition, even if the defendant is able to demonstrate that the purchaser passed on the excessive purchase price, the passing-on defence is not available if it leads to an unjustified benefit for the defendant. This is, in particular, the case if the indirect purchasers who actually suffered the loss form a large group of individual potential claimants (eg, end-users or many small distributors), which makes it very unlikely that the damages will be claimed at all since class actions are not available in Germany.

Estimation of damages

For the claimant, establishing excessive prices and loss of profits is difficult, given how exceedingly complex it is to determine exactly how the market would have developed in the absence of the infringement. To compensate for potential difficulties in obtaining sufficient evidence, the legislature introduced an alleviation of proof in section 33(3), sentence 3 of the ARC by referring to section 287 of the German Civil Code of Procedure (ZPO). Section 287 of the ZPO provides a general alleviation of proof entitling the judge to estimate the amount of damages on the basis of certain facts. Section 33(3) of the ARC clarifies that, in estimating the amount of damages, the profit achieved by the defendant as a consequence of the infringement may be taken into account. Therefore, it is sufficient if the claimant presents the basis for the calculation or an estimate of the damages and specifies the range of possible damages, usually by indicating a minimum amount.¹²

Interest

To avoid compensation for the loss incurred being partially devalued, the party in breach of competition law is obliged to pay interest on pecuniary damages.¹³ Interest is calculated from the date the loss arose. The obligation to pay interest is particularly important in relation to follow-on actions when the plaintiff waits until the competition authority renders a decision. Affected parties carrying on business, that is, in cases where consumers are not involved, may ask for the higher interest rate provided for in sections 291 and 288(2) of the BGB, which is 8 per cent above the basic interest rate, with the basic interest rate being regularly adjusted in accordance with the European Central Bank’s basic interest rate.

Skimming off additional proceeds

As regards administrative sanctions, the FCO may not only impose fines against the party in breach, but can also order the party in breach to pay an amount to the state equivalent to the additional proceeds earned as a result of the infringement.¹⁴ However, the FCO may not order the payment of the additional proceeds if they have already been paid out as the result of an award of damages in the context of civil court proceedings. If the additional proceeds have already been paid to the FCO and the party in breach is subsequently obliged to pay damages in a private action, the FCO must refund these additional proceeds to the party in breach. As a result, the party in breach is only required to reimburse the profits that it gained as a result of the anti-competitive behaviour once. Associations with legal capacity may also ask for payment of sums corresponding to the additional proceeds.¹⁵

Procedural questions

Binding effect

Final and absolute decisions taken by the FCO, the European Commission or by competition authorities of other member states have a binding effect on the German civil courts – section 33(4) of the ARC. The intention of this provision is to facilitate private follow-on actions, as national courts will not take further evidence on the competition law infringement after a final and absolute formal decision has been made by a competition authority.
Section 33(4) of the ARC also applies to decisions against applicants for leniency. Although such applicants might be granted immunity and thus not be fined by the FCO the decision has binding effect in relation to the findings that the (successful) applicant infringed competition law. Paragraph 24 of the leniency notice, which was issued by the FCO in 2000, explicitly states: ‘This notice has no effect on the private enforcement of competition law.’
As section 33(4) of the ARC aims to facilitate private follow-on claims, the binding effect is limited to actions for compensation of loss. For this reason, the binding effect of section 33(4) of the ARC does not apply to other legal disputes in which the establishment of an anti-competitive infringement is relevant, for example, to proceedings in which the plaintiff claims the invalidity of a certain agreement based on breach of competition law. However, in this regard the national courts will have to take into account the binding effect as established by article 16(1) of Regulation 1/2003 in relation to decisions of the European Commission. According to this provision, national courts ruling on agreements, decisions or practices under article 81 or article 82 of the EC Treaty, which are already subject to a European Commission decision, cannot take a decision running counter to the Commission’s decision.
Finally, the wording of section 33(4) of the ARC indicates that civil courts are only bound by a positive finding of an infringement. Should the competition authority not make a finding of an anti-competitive infringement, the party concerned may prove the existence of an infringement within the context of a civil claim. However, in practice, it will be difficult to establish the existence of an infringement if the FCO – after hearing the evidence – decided not to make a finding of illegal behaviour.

Access to records

The decision by the FCO, even if it establishes the infringement, will often not contain sufficiently detailed facts to establish the amount of damages. To further facilitate the proof of damages, section 46(1) and (3) of the Regulatory Offences Act in conjunction with 406(e) of the German Code of Criminal Procedure allows the plaintiff access to records. This can be particularly valuable in cases in which the FCO has searched the defendant’s premises and confiscated evidence, since access to records extends to such evidence. However, the FCO has certain discretion in relation to granting access to records and can deny access to all or specific documents if the defendant’s legitimate interests in keeping the records confidential prevail. The protection of business secrets may be such a legitimate interest. However, given that the specific aim of the right to access records is to enable victims of criminal and administrative offences to gain clarity on loss in order to substantiate potential damages claims, the defendant’s interest in keeping information which would allow for the determination of damages confidential cannot prevail. Furthermore, as the right to access records may only be enforced by qualified German lawyers, the protection of business secrets is less stringent than it would be if private persons could claim such access to records. Yet, the FCO in a 2005 discussion paper has expressed its opinion that an applicant for leniency could be privileged in such a way that any documents that were provided to the FCO by the leniency applicant should in the regular course of events not be passed on to any third party.

Suspension of the statute of limitation

For damages claims, the regular period of limitation is three years.¹⁶ According to section 33(5) of the ARC, the statute of limitation is suspended as soon as the FCO institutes proceedings based on an infringement of the ARC or articles 81 and 82 of the EC Treaty. The same applies if the European Commission or the competition authority of another member state initiates proceedings based on articles 81 or 82 of the EC Treaty. The relevant suspensions expire six months after termination of such proceedings.
The following two issues have to be considered in this regard. First, it is unclear whether proceedings initiated by foreign courts acting as competition authorities also suspend the statute of limitation. Second, it has not yet been decided how the suspension period has to be calculated if several competition authorities initiate proceedings simultaneously. The suspension of the statute of limitation might commence with the institution of the first proceedings. If so, the suspension of the statute of limitation would then end six months after the decision of this competition authority becomes final and absolute. However, the wording of section 33(5) of the ARC is not entirely clear in this regard. Therefore, it could be argued that the suspension of the statute of limitations only ends six months after the closing of the final set of proceedings.

Jurisdiction

According to section 87(1), sentence 1 of the ARC, regional courts have exclusive jurisdiction over civil actions based on national competition law or articles 81 and 82 of the EC Treaty, regardless of the amount in dispute. The federal states in Germany have been granted the authority to designate a single regional court in each district as a court of appeal entitled to decide exclusively on competition matters.¹⁷ Most of the federal states have exercised this authority. Within the regional courts, special chambers have been established to deal exclusively with competition matters.
The parties may appeal a decision of a regional court to the courts of appeal. Again, the federal states in Germany may determine a single court of appeal in each federal state that has exclusive jurisdiction over competition matters. In addition, these courts of appeal have established specialist competition divisions. Both the regional courts and the appeal courts are trial courts, that is, courts to which the parties submit facts and before which the taking of evidence is possible. The decisions of the courts of appeal may be challenged before the German Federal Court of Justice if the court of appeal gives leave to do so. Appeals to the Federal Court of Justice may only be on points of law. If the court of appeal refuses leave to an appeal on points of law, this refusal may be challenged separately before the Federal Court of Justice.
The time to trial is around one year in first instance, one to two years on appeal before the higher regional courts, and up to two years on appeal before the Federal Court of Justice.

The future

The possibility for injured parties to bring private actions for damages before German courts has been significantly enhanced by German legislation in 2005: the group of parties entitled to take action now generally includes all parties that have suffered loss resulting from the infringement. Under certain circumstances, even indirectly affected parties, such as end-consumers, may claim damages. Case law in the meantime has allowed cartel victims to assign their individual claims to a plaintiff who enforces the respective claims on its own behalf. Regarding the passing-on defence, German legislation has clarified that the party in breach has to bear the burden of proof for the fact that the injured party reduced its loss by passing on excessive prices to its own customers. Furthermore, the German legislation has facilitated follow-on actions. Third parties may now base their private follow-on actions on a decision of a competition authority and thus benefit from the existence of an infringement decision.
These changes in legislation will further encourage injured parties to bring private antitrust claims before the German courts. It is to be expected that in particular follow-on actions will become well established within the German civil law system. An important consequence of the strong position of potential follow-on claims is that cartel members, when applying for leniency, must now carefully balance the advantage of immunity from fines against the risk of follow-on damages actions taken by third parties.
Whether Germany will provide a level playing field for private follow-on claims in the future will also depend on how German jurisdiction will answer the remaining legal questions which have not yet been tested in the courts, and how the FCO, in the light of its leniency programme and possibly informal settlements, will react towards private antitrust enforcement.

Notes

1 ARC, section 33(1).
2 ARC, section 33(2).
3 ARC, section 33(3), sentence 1.
4 Federal Supreme Court, 26 May 1981 – Ölbrenner II, WuW/E 1891, 1894.
5 OLG Düsseldorf 28 August 1989, WuW/E DE-R 233.
6 ARC, section 19(1).
7 ARC, section 20(1).
8 ARC, section 20(2).
9 20 June 2001, case no. C-453/99.
10 Case No. C-295/04, rec 63, 13 July 2006.
11 Regional Court Dortmund, Decision of 1 April 2004, 13 O 55/02 Kart.
12 Higher Regional Court of Düsseldorf of 14 May 2008, VI-U (Kart) 14/07.
13 ARC, section 33(3), sentence 4.
14 ARC, section 34(1).
15 ARC, section 34a(1).
16 BQB, section 195.
17 ARC, section 89.

An extract from The European Antitrust Review 2009