Glimmer of Hope or Shining Beacon? the Damages Directive in France
| Jurisdiction | European Union |
| Author | Sophia Harris* |
| Publication year | 2019 |
| Citation | Vol. 27 No. 2 |
Sophia Harris*
The practice of competition/antitrust law in Europe has traditionally been through public enforcement: the European Commission ("the Commission") and the competition authorities of the Member States present, in effect, prosecutions against companies alleged to have committed anti-competitive practices. The area of private enforcement — individual companies or groups of consumers bringing civil damages actions against other companies suspected of committing anti-competitive practices — has, by contrast, been relatively undeveloped. This is because the anti-competitive conduct (especially, cartels) is hidden, and private entities do not have the same coercive powers of enforcement agencies, such as the power to conduct searches and seizures at the premises of suspected cartel infringers.
EU Regulation 1/2003 provides that when national courts address issues already resolved through a Commission decision finding a competition infringement, they cannot go against those decisions in their own deliberations.2 This means that national courts are bound by a decision of the Commission finding an anti-competitive practice, and claimants in civil proceedings may use the prior infringement decision as irrefutable proof that an addressee of the decision committed the anti-competitive practice. In most of the Member State legal systems, the prior decision thus relieves the claimant of the obligation of proving the fault or breach element of a civil damages claim in the subsequent action. Civil damages actions based on a pre-existing infringement decision are known as "follow-on" actions because they follow on from the Commission's infringement decision. This is in contrast to "stand alone" actions, where the claimant does not already have a Commission infringement decision as proof of the anticompetitive practice.3
In the Manfredi case,4 the Court of Justice of the European Union (CJEU) confirmed that "any individual can claim compensation for the harm suffered where there is a causal relationship between that harm and an agreement or practice prohibited under Article 81 EC."5
The Commission's view has always been that private enforcement, particularly damages actions, complements public enforcement of competition law and should be encouraged and facilitated.6 However, private enforcement was still rare — with only a handful of "follow-on" actions introduced prior to 20137 — when the Commission published its draft Directive on actions for damages under national law for infringements of competition law.8 The Directive that became the Damages Directive9 was finally signed into law on November 26, 2014, with a transposition date of December 27, 2016.10 Its stated objective is to facilitate competition damages actions in the national legal systems of the Member States.11 The Damages Directive was transposed into French law by Ordonnance n° 2017-303 of 9 March 2017 and its adopting decree, Decree n° 2017-305 of 9 March 2017.
In the years since the adoption of the Directive, there have been an increasing number of follow-on damages actions in Member States, but only very rarely in France.12 This article examines one possible reason for this disparity, and also discusses recent developments which may presage a change.
France, generally, has not welcomed competition damages follow-on actions. The few actions that have been introduced have mostly failed. One of the main reasons is passing-on of the cartel overcharge. "Passing-on" is a concept, consistent with general principles of tort law, which provides that the victim should only be compensated for the harm actually sustained: if victims have passed the harm on to a third party by, for example, increasing prices, they have not sustained a harm from the breach, or they have sustained a lesser harm and should be compensated accordingly. As an EU law concept, passing-on was first recognized in the context of reimbursement of taxes or charges levied in breach of EU law13 and has subsequently been recognized in the competition damages context.14 It is recognized in the Damages Directive as a defense available to cartelists.15
[Page 29]
Starting from Arkopharma v. La Roche16 in 2006, based on the European-wide price-fixing cartel by vitamin manufacturers,17 passing-on has been a hurdle to overcome in any follow-on action introduced in France. Follow-on actions in France are filed under the general tort law provision, Civil Code article 1240,18 which requires proof of fault, prejudice, and a causal link — as would be expected in a tort law provision. Civil Code article 135319 lays down the general principle, present in most legal systems, that the party alleging a thing must prove the thing. As noted earlier, for a follow-on action, fault is pretty easily established through a pre-existing infringement decision by the Commission. In France, it can also be established by a decision of the French Competition Authority. Prejudice, usually taken to be a reduction in the commercial margin, comes down to a counterfactual analysis (which is not always provided by the claimant). The last element, the causal link, has become increasingly difficult to prove, as will be seen in the following cases.
In Arkopharma, the Nanterre Commercial Court found that Arkopharma was able to pass on the cartel overcharge to consumers because (i) the cartel was global, meaning all of Arkopharma's competitors were also forced to take the cartel overcharge and so Arkopharma could have passed on the overcharge without fearing competition; and (ii) the Commission, in its decision, had found that the cartel overcharge had been passed on to consumers. Arkopharma had the possibility of passing the overcharge on to its customers and failed to do so: Arkopharma "decided its pricing policy free of constraint and the responsibility of the defendant [cartelists] cannot be engaged."20 Thus, the Court found an absence of a causal link.21
Then in Juva v. La Roche22 in 2007, also based on the vitamins case,23 the Paris Commercial Court found, first, no reduction in Juva's commercial margin because (i) for health products, consumer demand is inelastic (i.e., does not vary with changes in price); and (ii) the cost of the cartelized product represented a very small part of the finished product's sale price, meaning that a very small increase in price would have been sufficient to offset a very large increase in cost. And, in fact, Juva's prices had increased above and beyond those small increases, and Juva's sales had more than doubled. Again, the Court found no causal link.
These are trial court decisions which do not appear to have been appealed. We could have hoped for a more sophisticated analysis from higher courts that have addressed the issue, but this would be in vain: in Doux v. Ajinomoto Eurolyne24in 2010, the Court of Cassation, France's highest civil and criminal court, reprimanded the Court of Appeal for not having verified whether or not the party had passed on the cartel overcharge. This confirms that such an assessment is compulsory for the decider of the facts. Similarly, in 2012, the Court of Cassation, citing the principle set out in article 1353 (which we saw earlier25), held that:
[T]he passing-on of costs is the usual and normal commercial practice[. Since the claimants] have not demonstrated that they were unable to pass-on the cartel overcharge[, the claimants] do not prove that they have suffered a prejudice resulting from the overcharge of lysine due to the cartel.26
On remand from the Court of Cassation in Doux I, Doux succeeded in demonstrating both that passing-on was not "normal and usual" (economic operators cannot change their pricing every time their costs increase, pricing policy being determined by many economic factors and not just cost increases), and that passing-on was not possible for them: they were a price taker from supermarkets and the cartelized product represented only 1% of the overall cost of the product, such that an increase in its price did not give Doux an argument to increase its prices. The Paris Court of Appeal awarded damages.27
The current case law position in France is therefore that: (i) the trial judge must check whether the claimant passed on the cartel overcharge; and (ii) the claimant must demonstrate that passing-on of the overcharge was impossible before the defendant cartelist raises passing-on as a defense.
Questionable on its own internal logic, this jurisprudence — as will be shown in the next sections — also violates the EU principles of effectiveness and equivalence, and represents a potentially delinquent jurisprudence which the Damages Directive has had to rectify.
[Page 30]
A. "Normal and usual commercial practice" in cartelized marketsFirst, we look at the idea that "passing-on of costs is a normal and usual commercial practice."29 In Kone,30 the CJEU examined the mechanisms of price-setting in the presence of cartels, holding that:
[I]t should be noted that market price is one of the main factors taken into consideration by an undertaking when it determines the price at which it will offer its goods or services. Where a cartel manages to maintain artificially high prices for particular goods and certain conditions are met, relating, in particular, to the nature of the goods or to the size of the market covered by that cartel, it cannot be ruled out that a competing undertaking, outside the cartel in question, might choose to set the price of its offer at an amount higher than it would have chosen under normal conditions of competition, that is, in the absence of that cartel. In such a situation, even if the determination of an offer price is regarded as a purely...
To continue reading
Request your trial