Damages Actions: The Interplay Between The Passing-On Defence And Indirect Purchaser Compensation

Originally published in Competition Law Insight,

July 2008

This is the second of a two-part article on the European

Commission's recent white paper. This instalment deals with

the following train of thought: if the passing-on defence is

allowed, the principle of effective compensation requires that

indirect purchasers are:

entitled to claim damages for loss suffered due to a

cartelist's prohibited behaviour; and

financially capable of initiating a damages action, which

in turn requires that there is a large enough loss to justify

bringing a claim.

If this is not the case, the cartelist will get away with

not compensating the loss caused by its anticompetitive

behaviour at all, which is clearly an undesirable outcome from

a public policy perspective. This is particularly the case

because such a situation would lead to a decrease in

deterrence. In the authors' opinion, it would be more

acceptable to overcompensate the direct purchaser (thereby

ensuring a deterrent effect) rather than have a situation where

the existence of the passing-on defence - coupled with

indirect purchasers' unwillingness or inability to seek

damages - would lead to the cartelist not being liable

for compensation and the resultant decrease in deterrence. It

does not stand to reason that the cartelist should benefit from

a lack of private enforcement due to structural obstacles at

the indirect purchaser level.

The authors believe that three principles flow from this

situation:

First, the passing-on defence, if it is available at all,

should not be unduly easy to invoke. The cartelist should

bear the full burden of proving the pass-on of loss further

down the supply chain.

Secondly, if the passing-on defence is made available,

indirect purchasers must be entitled to claim damages for

loss caused by the cartelist's prohibited

behaviour.

Thirdly, if it appears likely that indirect purchasers

will not be in a position to claim damages, there must either

be a possibility of launching a collective damages action or

the passing-on defence must not be available in such

circumstances. In the latter case, the authors refer to the

German tort law concept of Vorteilsausgleichung as a possible

model.

Passing-on defence / indirect purchaser

compensation

Objectives of private

enforcement

Private enforcement has two basics aims: full compensation

and deterrence. The European Commission refers to full

compensation as the first and foremost guiding principle of the

white paper. The Commission's proposals recall European

Court of Justice case law (in particular, the Courage v

Crehan and Manfredi cases) that are authority for

the proposition that damages should be available to any injured

person who can show a sufficient causal link with the

infringement.

In relation to deterrence, the white paper notes that

beneficial effects will not necessarily be created directly but

rather inherently, so that a better functioning compensation

culture will force cartelists to be liable for the costs caused

by their illegal actions. However, the authors would argue that

this is not necessarily the case, particularly when the

availability or otherwise of the passing-on defence is

considered. However, if cartelists can invoke the passing-on

defence, in the authors' opinion this necessarily leads to

a decrease in the deterrent effect, because (particularly in

industries where costs are likely to be...