I think it’s time to take a break from state aid as a source of commentary and turn our attention to another very important decision of the broader competition law sphere. The decision which is going to be presented in the following lines finds itself in the branch of the private competition law (as opposed to the public competition law whose main constituents are state aid and public procurement) and, more specifically, refers to the private enforcement of competition rules (as opposed to the public enforcement of competition law).
Only some days ago, the much awaited decision on the legal standing and consequences of umbrella pricing, as a market condition, came to be clarified by the CJEU in its terse decision C‑557/12, KONE and Others. Although fierce criticism had been waged among legal commentators, after the delivery of Advocate General Kokott’s Opinion on 30 January 2014, the Court finally followed the essence of the AG’s thinking. That means it confirmed it is absolutely plausible to acknowledge umbrella pricing as a legitimate reason for awarding compensation to individuals whose alleged loss was caused not by the members of a cartel directly, but, indirectly, by other market operators who capitalized on the distorted market conditions shaped by the former. For the sake of clarity, it has to be noticed here that the (umbrella) claim to compensation turns against and burdens the members of the cartel, while the accountability, borne by other undertakings as outsiders, for applying inflated prices above the normal figures, goes unpunished or remains out of the quandary. This situation, as matter of law, seems to be problematic. However, we are going to limit our focus on the legal and moral rightfulness of holding cartel members liable for incidental and sequential damage caused to consumers by third non-coordinated undertakings.
That being the basic sense of the operative part of the decision, it could be said, with a mood of witticism, that the Elevator Cartel case did manage to elevate umbrella pricing as a reason for establishing civil liability of cartel members for losses incurred by customers of undertakings acting outside the cartel mechanism.
In order to fully understand the question upon which the CJEU was called to rule it is necessary to quote the preliminary question:
‘Is Article 101 TFEU (Article 81 EC, Article 85 of the EC Treaty) to be interpreted as meaning that any person may claim from members of a cartel damages also for the loss which he has been caused by a person not party to the cartel who, benefiting from the protection of the increased market prices, raises his own prices for his products more than he would have done without the cartel (umbrella pricing), so that the principle of effectiveness laid down by the Court … requires the grant of a claim under national law?’
The Court first went back to its well-established and context-related case law. It first recalled that “…articles 101(1) TFEU and 102 TFEU produce direct effects in relations between individuals and create rights for the individuals concerned, which the national courts must safeguard” and continued by reiterating that “…the full effectiveness of Article 101 TFEU and, in particular, the practical effect of the prohibition laid down in paragraph 1 of that provision would be put at risk if it were not open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition”. It then admitted that it is for the domestic legal orders to set down the exact rules regulating the requirements to claim compensation for the harm ensuing from an agreement or practice prohibited under Article 101 TFEU, including those on the application of the concept of ‘causal relationship’, provided that the principles of equivalence and effectiveness are observed. The judgment concluded in a central upshot. It held that the victim of umbrella pricing may obtain compensation for the loss caused by the members of a cartel, even if it did not have contractual links with them, where it is established that the cartel at issue was, in the circumstances of the case and, in particular, the specific aspects of the relevant market, liable to have the effect of umbrella pricing being applied by third parties acting independently, and that those circumstances and specific aspects could not be ignored by the members of that cartel. Thereby, it dispensed with the absolute requirement of having contractual ties in order to seek successfully compensation in cases of umbrella claims.
The judgment seems to accept tacitly what the AG’s Kokott recommended in its opinion. On the basis of the final upshot of the decision, umbrella claims can find their way to their eventual award under case-specific circumstances and on a case by case examination of every set of facts. The universality of the right of any individual to seek compensation for loss caused by virtually any market operator, when the latter shapes its pricing policy amid a distorted by cartelist activity market is the core underpinning of the decision. The decision also confirmed the view that national legal orders should restrict themselves in setting the particular procedural conditions of how the compensation is to be granted, rather governing the question of whether compensation is to be granted. The last element of the eligibility for compensation is conditioned by European law and by the need of ensuring that it is applied effectively, uniformly and invariably throughout the internal market and regardless of tort law discrepancies met in each member state. In addition, the decision did not adopt the analysis of the AG upon the establishment of a direct causal link between the loss and the cartel’s behaviour. In my opinion, this is not sort of an essential omission insofar as the Court preferred to denounce the casual link itself as a requirement for upholding umbrella claims. Still, the line of arguments used by the AG to prove that the umbrella effect of cartel’s conduct is totally foreseeable by its members could be used by future case law as the underlying rationale of allowing under conditions umbrella claims. This rationale could also be used as a counter-argument against the followers of the opposite view, which sees the loss by umbrella pricing and the cartel’s action as remote and extraneous to each other.
Another part of the decision that merits to be mentioned is the possible interconnection of between civil liability and the leniency programmes at large. It was held by the defendants and some interested parties that the over-expansion of the scope of application of civil liability could affect the involuntary participation of cartelists to leniency programmes. The Court easily overcame this allegation by answering in the same vein as AG Kokott treated this question. It aligned itself with the AG view that even though damages may be likely to dissuade the undertakings concerned from assisting the competition authorities to investigate cases, which runs contrary to the principle of effectiveness, leniency programmes, as an exceptional procedure created by the Commission, cannot deprive individuals of the right to obtain compensation before the national courts for loss sustained as a result of an infringement of Article 101 TFEU. Indeed, the decision and AG’s opinion concur in the sense that a careful weigh between the deterrence in whistleblowing produced by upholding, under conditions, umbrella claims and the justified interests of injured parties in obtaining financial restitution logically favours the prioritization of the second over the first. In any case, the expansion of civil liability so that it covers also umbrella pricing protects pro-competitive market conditions as a first best policy option rather than the second best policy choice of disallowing umbrella claims in general or making their award subject to burdensome requirements (such as proof of causal relationship) to keep the leniency programme as appealing as some would like to.
To the best of my understanding, the upshot of the judgment reflects accurately the letter and the spirit of article 101 TFEU. Article 101 TFEU reads as follows:
The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which:
(a) directly or indirectly fix purchase or selling prices or any other trading conditions;
(b) limit or control production, markets, technical development, or investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
The umbrella pricing is neither an agreement nor any sort of concerted practice prohibited directly by article 101 TFEU. Umbrella pricing is the result of the agreements and concerted practices which certain cartel members adopt. To use the language of the Treaties, it is the effect of anticompetitive conduct outlined in the article 101 TFEU. To make umbrella claims dependent on the existence and proof of a causal link does not comply with the scope or objectives the EU competition provisions are meant to serve. Moreover, to hinge umbrella claims upon the condition of a causal link would be tantamount to revising the Treaties by adding an extra requirement to article 101 TFEU. Cartel members can argue that umbrella pricing could not have been foreseeable on their part and therefore they should not bear responsibility for making good damages of consumers, other than their own, but it is a fundamental principle of competition law that diagnosis of its infringements is based on exclusively objective assessment and on effects-based criteria, since the purpose or the object of undertakings could not be safely measured, ascertained and relied upon as an esoteric situation.