potential impact of more effective antitrust damages actions

671 Pages·2008·5.46 MB·English

by  Andrea Renda

Making antitrust damages actions more
effective in the EU: welfare impact and
potential scenarios

FINAL REPORT
Done in Brussels, Rome and Rotterdam, 30 March 2008

Project Team:

Centre for European Policy Studies (CEPS)
Prof. Andrea Renda (coordinator)
Prof. John Peysner
Prof. Dr. Alan J. Riley
Prof. Barry J. Rodger

Erasmus University Rotterdam (EUR)
Prof. Dr. Roger J. Van Den Bergh
Sonja Keske

Luiss Guido Carli (LUISS)
Prof. Roberto Pardolesi
Dr. Enrico Leonardo Camilli
Dr. Paolo Caprile

REPORT FOR THE EUROPEAN COMMISSION

CONTRACT DG COMP/2006/A3/012
PAGE 1 OF 671
TABLE OF CONTENTS

EXECUTIVE SUMMARY ............................................................................... 10
1 INTRODUCTION ................................................................................ 27
1.1 The Green Paper on Antitrust Damages and the upcoming
White Paper 33
1.2 Current development of private damages actions in European
member states 37
2 METHODOLOGICAL NOTES ON THE PRESENT STUDY .................... 45
3 STRUCTURE OF THE STUDY .............................................................. 48

PART I: POTENTIAL IMPACT OF MORE EFFECTIVE ANTITRUST
DAMAGES ACTIONS .......................................................................... 51
1 DOES ANTITRUST CONTRIBUTE TO SOCIAL WELFARE? .................. 51
1.1 Private and public enforcement: face-off 56
2 AN ANALYSIS OF THE IMPACT OF ENHANCED PRIVATE
ENFORCEMENT IN THE EU ............................................................... 65
2.1 Can private enforcement achieve greater deterrence? 70
2.2 Private enforcement and corrective justice 77
2.3 Would enhanced private enforcement increase administrative
burdens? 80
2.4 Costs of enforcement and litigation: the case of the US 85
2.5 Macroeconomic impacts 89
2.6 Bringing competition policy closer to consumers 92
3 ASSESSING THE IMPACT OF MORE EFFECTIVE PRIVATE
ANTITRUST DAMAGES ACTIONS: A THOUGHT EXERCISE ............... 94
3.1 Estimating the social loss and welfare transfers induced by
cartels 94
3.2 Refinements 110
4 OTHER TYPES OF INFRINGEMENT .................................................. 117
4.1 Impact Assessment 124
5 REFINEMENTS AND CAVEATS ......................................................... 136
5.1 Settlement, litigation, and procedural rules 137
5.2 Enforcement and litigation costs 150
5.3 Reputational effects and risk-aversion 152
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5.4 Stand-alone v. follow-on suits 153
6 ASSESSMENT OF THE IMPACT OF MORE EFFECTIVE PRIVATE
DAMAGES ACTIONS ........................................................................ 155
6.1 Additional simulations 159
6.2 Macroeconomic impact of more effective antitrust damages
actions 164
6.3 Summary of findings 166

PART II: ASSESSMENT OF SPECIFIC ISSUES ............................................. 171
1 COSTS AND REWARDS OF ANTITRUST DAMAGES ACTIONS ........ 174
1.1 The plaintiff‘s incentive to sue: a simple model 175
1.2 The effect of fee shifting rules on corrective justice and
deterrence 176
1.3 Punitive or multiple damages 192
1.4 Contingency fees 201
1.5 Avoiding frivolous and unmeritorious suits 213
1.6 Impact assessment 216
1.7 Refinements 260
2 GROUP LITIGATION ....................................................................... 268
2.1 Definition of different types of group action and their
conformity with the legal systems of the Member States 268
2.2 Advantages, disadvantages and the design of group litigation 276
2.3 Specific problems related to the design of group litigation 284
2.4 Impact assessment 297
3 ACCESS TO EVIDENCE .................................................................... 345
3.1 A brief comparison of civil law and common law procedural
disclosure rules 347
3.2 Impact assessment 357
3.3 Summary tables on access to evidence 406
4 DAMAGES ....................................................................................... 412
4.1 Types of awarded damages 415
4.2 Impact assessment 416
4.3 Methods of calculation 441
5 PASSING-ON DEFENCE ................................................................... 457
5.1 Impact assessment 461
5.2 Further remarks 480
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5.3 Refinements 481
5.4 Summary of the main findings 486
6 INTERACTION BETWEEN LENIENCY PROGRAMMES AND
PRIVATE ENFORCEMENT ................................................................ 492
6.1 Theoretical issues and the current framework 493
6.2 Rebate on damages 501
6.3 Removal of joint liability for the applicant 515
7 LIMITATION PERIODS .................................................................... 533
7.1 The costs and benefits of limitation periods 535
7.2 Stand-alone actions 536
7.3 Follow-on actions 539
7.4 Conclusions 543

PART III: ASSESSMENT OF THE IMPACT OF ALTERNATIVE
SCENARIOS ...................................................................................... 545
1 THE SELECTED SCENARIOS ............................................................ 546
2 IMPACT ASSESSMENT OF THE SELECTED SCENARIOS .................. 549
2.1 The ―no policy change‖ scenario 551
2.2 Assessment of Scenario 1 561
2.3 Assessment of Scenario 2 579
2.4 Assessment of Scenario 3 596
2.5 Assessment of Scenario 4 610

ANNEX I – FUNDING OF ANTITRUST LITIGATION .................................. 616
ANNEX II – BIBLIOGRAPHY ..................................................................... 628

PAGE 4 OF 671
LIST OF TABLES

Table 1 – Damages awards by type of claim, 2004- 3Q2007 .................................. 42
Table 2 – Estimates on cartel detection rates ........................................................... 73
Table 3 – Informational contribution of private plaintiffs: the vitamin case ...... 75
Table 4 – Size of the overcharge – early studies ...................................................... 98
Table 5 – Ex ante deterrence for a global cartelist, without EC private
damages actions ...................................................................................... 101
Table 6 – Ex ante deterrence with EU private damages actions ......................... 103
Table 7 – Deterrence for a global cartelist .............................................................. 105
Table 8 – Impact of status quo, EU-wide cartels ................................................... 107
Table 9 – Yearly impact of cartel private enforcement, with damage
multiples (Euros) ..................................................................................... 109
Table 10 – Yearly impact of status quo, EU-wide and domestic cartels ............ 111
Table 11 – Effect of industry mix of cartel on overcharge - all cartels ............... 112
Table 12 – Effect of industry mix – modern international cartels ....................... 113
Table 13 – Effect of industry mix of cartel on overcharge in Europe and the
US - all cartels .......................................................................................... 114
Table 14 – Effect of industry mix overcharge in Europe and the US –
modern international cartels ................................................................. 114
Table 15 - Median Average Overcharges (in percent) by Year and Legal
Status ........................................................................................................ 116
Table 16 – Private actions in the Georgetown study, by type of plaintiff ......... 118
Table 17 – Allegations in private actions in Australia and US ............................ 127
Table 18 – Probabilities of settlement and plaintiff‘s victory at trial .................. 128
Table 19 – Simulation on yearly damage recovery for all types of
infringement ............................................................................................ 135
Table 20 – Impact of beliefs and costs on settlement and plaintiff win rate ..... 146
Table 21 – Estimated yearly recovery for all infringements (EU and
domestic), according to damage multiple (Euros) and cost
allocation rule .......................................................................................... 156
Table 22 – Yearly recovery for all infringements (EU and domestic),
damage multiple and fee allocation for three different cartel
detection rates (Euros) ........................................................................... 158
Table 23 – Estimated yearly recovery by type of plaintiff, damage multiple
and cost allocation rule .......................................................................... 161
Table 24 – Estimated yearly recovery by type of plaintiff, double damages
for cartels and cost allocation rule ........................................................ 162
PAGE 5 OF 671
Table 25 – Estimated yearly recovery by type of plaintiff, double damages
for cartels and cost allocation rule, plus prejudgment interest ........ 163
Table 26 – Fee agreements, fee allocation and probability of success ................ 213
Table 27 – Options on costs/rewards of damages actions .................................. 218
Table 28 – Zero option .............................................................................................. 224
Table 29 – Option 1a (double damages for cartel cases) ...................................... 238
Table 30 – Option 1b (double damages for all cases) ........................................... 239
Table 31 – Option 1c (decoupled damages, double for cartels) .......................... 240
Table 32 – Option 1d (decoupled damages for all cases) ..................................... 241
Table 33 – Option 1e (NCA as amicus curiae) ....................................................... 242
Table 34 – Option 2a (one-way fee-shifting) .......................................................... 254
Table 35 – Option 2b (one-way fee-shifting and double damages for
cartels)....................................................................................................... 255
Table 36 – Option 2c (one-way fee-shifting and double damages for all
cases) ......................................................................................................... 256
Table 37 – Option 2d (one-way fee-shifting, decoupled damages, double
damages for cartels) ................................................................................ 257
Table 38 – Option 2e (one-way fee-shifting and decoupled damages) .............. 258
Table 39 – Option 2f (one-way fee-shifting and amicus curiae) ......................... 259
Table 40 – Existing forms of group litigation in a number of Member States .. 295
Table 41 – Zero option .............................................................................................. 337
Table 42 – Opt-in collective actions ......................................................................... 338
Table 43 – Opt-out collective actions ...................................................................... 339
Table 44 – Opt-in representative actions ................................................................ 340
Table 45 – Opt-out representative actions .............................................................. 341
Table 46 – Mandatory representative actions ........................................................ 342
Table 47 – Joinder of parties and test cases ............................................................ 343
Table 48 – Joinder of claims ...................................................................................... 344
Table 49 – Harmonisation costs for option 2 – groups of countries ................... 371
Table 50 - Percentage of US attorneys reporting specific effects of initial
disclosure on the fairness of the outcome. .......................................... 375
Table 51 – Initial disclosure and litigation expenses after the reform of the
FRCP in 1993 ............................................................................................ 377
Table 52 - 80th Percentile of disclosure expenses, for respondents reporting
any discovery expense (Willging et al., 1998) ..................................... 380
PAGE 6 OF 671
Table 53 – Final Survey on Litigation Costs - Annex III of Woolf Report on
Access to Justice in UK - Components of bills by case type
(Hazen Genn survey, 1996), Commercial (N=106+102). ................... 380
Table 54 – Harmonisation costs for option 3 – groups of countries ................... 383
Table 55 – Assessment of average administrative burdens for option 2 ........... 405
Table 56 – Zero option .............................................................................................. 406
Table 57 – Option 1 (Specific documents) .............................................................. 407
Table 58 – Option 2 (Classes of documents) .......................................................... 408
Table 59 – Option 3 (Initial Disclosure) .................................................................. 409
Table 60 –Option 6 (compared with Option 1 alone) ........................................... 410
Table 61 – Option 7 (compared with Option 1 alone) .......................................... 411
Table 62 – Option ―Harm-based‖ plus interest since harm occurred ................ 453
Table 63 – Option ―Gain-based available in addition to harm-based‖ plus
―prejudgment interest since harm occurred‖ ..................................... 454
Table 64 – Option ―harm-based‖ plus ―pre-judgement interests since
infringement occurred‖ ......................................................................... 455
Table 65 – Option ―gain based‖ plus ―pre-judgement interests since
infringement occurred‖ ......................................................................... 456
Table 66 – Option 1 (passing-on defence allowed, indirect standing
allowed) .................................................................................................... 488
Table 67 – Option 2 (passing-on defence not allowed, indirect standing not
allowed) .................................................................................................... 489
Table 68 – Option 3 (Passing-on defence not allowed, indirect standing
allowed) .................................................................................................... 490
Table 69 – Option 4 (Passing-on defence not allowed, indirect standing
allowed for claims to direct purchasers) ............................................. 491
Table 70 – Option zero .............................................................................................. 530
Table 71 – Option ―Rebate on damages‖................................................................ 531
Table 72 – Option ―Removal of joint and several liability‖ ................................. 532
Table 73 – Selected scenarios.................................................................................... 548
Table 74 – Impact assessment of ―no policy change‖ ........................................... 560
Table 75 – Impact assessment of scenario 1 ........................................................... 578
Table 76 – Harmonisation costs for scenario 2 – groups of countries ................ 591
Table 77 – Impact assessment of scenario 2 ........................................................... 595
Table 78 – Impact assessment of scenario 3 ........................................................... 609
Table 79 – Impact assessment of scenario 4 ........................................................... 615

PAGE 7 OF 671
LIST OF FIGURES

Figure 1 - Cases by type and year, 2004-3Q2007 ..................................................... 41
Figure 2 - Number and Period of Settlements in the UK, 2000-2005 ................... 43
Figure 3 – Partial equilibrium analysis and the social cost of monopoly ............ 52
Figure 4 – Public and private enforcement .............................................................. 66
Figure 5 – Administrative Burden versus Administrative Cost ........................... 81
Figure 6 – Information obligations, data requirements and activities ................. 82
Figure 7 – Government antitrust cases filed in US District Courts, 1980-
2004 ............................................................................................................. 86
Figure 8 – Public and private filings on vertical restraints in the US, 1945-
2000 ........................................................................................................... 130
Figure 9 – Optimal amount of private litigation with and without
settlement ................................................................................................. 151
Figure 10 – Multi-stage litigation when each party bears own costs ................. 188
Figure 11 – Multi-stage litigation and the loser-pays rule ................................... 189
Figure 12 – Multi-stage litigation and one-way fee-shifting ............................... 190
Figure 13 – Limitation periods in the EU25 ........................................................... 533
PAGE 8 OF 671
Making antitrust damages actions more
effective in the EU: welfare impact and
potential scenarios

EXECUTIVE SUMMARY

Private enforcement of antitrust rules has been possible in the European Union
since the 1957 Treaty of Rome. The role of private enforcement in
complementing public enforcement by competition authorities has been often
stressed by the European Commission, and gained new momentum after the
modernisation of EC competition law. As recalled in Regulation 1/2003, the
role of national courts in protecting subjective rights and awarding damages to
victims of infringements complements that of the competition authorities. The
European Court of Justice (ECJ) decisions in Courage v. Crehan and in Manfredi
recognised that the full effectiveness of the Treaty would be put at risk if it were
not open to any individual to claim damages for loss caused to him by conduct
liable to restrict or distort competition. At the same time, the ECJ held that there
is an obligation to provide for effective means to exercise the right to
compensation of harm suffered as a result of an antitrust infringement.
Against this background, private enforcement of antitrust laws through private
damages actions has been found to be in a state of ―total underdevelopment‖ in
a study carried out in 2004 for the European Commission, and the analysis we
performed (contained in Section 1.2.2 of the Introduction to our Report)
suggests that things have not significantly improved since then, although in a
very narrow set of countries antitrust damages actions seem to be slowly
becoming more frequent. As a matter of fact, 17 of the 27 Member States still
have no trace of private antitrust damages actions, and also in other Member
States private antitrust litigation seems very sparse and related to isolated
streams of cases. In the EU27, public enforcement remains by far the most
common remedy for antitrust infringement, whereas in other countries, the vast
majority of all antitrust cases are pursued by private parties as opposed to the
competent public authority (in the US, for example, the ratio of private to public
cases is approximately 9:1).
The potential benefits of effective antitrust damages actions in the EU include:
(i) increased corrective justice – i.e. securing that victims of anticompetitive
conduct are fully compensated for the loss sustained; (ii) enhanced deterrence –
i.e., ensuring that undertakings that violate Community antitrust law
completely internalise the negative externalities they impose on society by
means of anticompetitive conduct, expressed in terms of overcharges and
INTRODUCTION - PAGE 9 OF 671
MAKING ANTITRUST DAMAGES ACTIONS MORE EFFECTIVE IN THE EU
(additional) deadweight loss; (iii) internal market benefits – i.e., ensuring that EU
businesses and citizens are put in similar conditions to exercise their right to
damages throughout the territory of the EU, and reducing legal uncertainty for
undertakings wishing to engage in cross-border trade.; (iv) bringing competition
law closer to the citizen – i.e., raising the awareness of citizens as regards the
benefits of effective competition policy as well as their right to claim damage
compensation in case of antitrust injury can contribute to the development of a
solid culture of competition in Europe; and (v) macroeconomic impacts – e.g.,
positive effects in terms of competitiveness, growth and jobs due to more
competitive markets, which reduce allocative inefficiency by leading to greater
output, lower prices and better quality.
The path towards achieving the goal of effective antitrust damages actions in
Europe must be approached with caution, in order to secure the potential
advantages of creating a ―second pillar‖ of enforcement in Europe, without
incurring the drawbacks of badly designed private damages actions. The
European Commission identified possible policy options in the 2005 Green
Paper on damages actions for breach of EC antitrust rules. The adoption of a
White Paper on antitrust damages actions is expected in 2008.
The present study is conceived to support the impact assessment of the
upcoming White Paper. The study is composed of three main parts: in Part I,
we review the existing literature and academic debate, illustrate the impact of
the current ineffectiveness of antitrust damages actions in the EU and assess the
maximum expected impact of a more effective system of private antitrust
damages actions, intended as the ―frontier‖ Europe could reach if actions for
damages developed substantially in the years to come; in Part II, we assess the
impact of alternative policy options for seven different proposed measures,
ranging from multiple damages to fee-shifting rules, rules on group litigation,
access to evidence, limitation periods, the treatment of leniency applicants in
private damages cases and methods to calculate damages; in Part III, we
combine our assessment of these specific issues into a scenario analysis. The
main findings of our analysis are summarised below.
1 The potential impact of more effective private damages
actions
Predicting the future development of private damages actions in Europe is not
straightforward, as the legal changes that would be introduced in order to
facilitate private actions for damages are not defined yet. In Part I of our Report,
we develop a range for the potential impact of more effective private damages
actions for breach of the rules prohibiting cartels and other types of
anticompetitive behaviour, by relying mostly on data from a jurisdiction with
effective private enforcement, i.e. the US, although it is often observed that in
the latter jurisdiction a ―litigation culture‖ has emerged in the past years.
Accordingly, the results we obtain are to be considered as a mere indication of
EXECUTIVE SUMMARY - PAGE 10 OF 671