In its Judgment in Kone, C-557/12, EU:C:2014:917, the Court of Justice of the European Union (CJEU) has followed the highly controversial proposal of AG Kokott (see my criticism here) and has bought into the theory of 'umbrella damages', hence determining that "Article 101 TFEU must be interpreted as meaning that it precludes the interpretation and application of domestic legislation enacted by a Member State which categorically excludes, for legal reasons, any civil liability of undertakings belonging to a cartel for loss resulting from the fact that an undertaking not party to the cartel, having regard to the practices of the cartel, set its prices higher than would otherwise have been expected under competitive conditions."
In my opinion, this Judgment must be strongly criticised and shows a very dangerous path of judicial activism that the CJEU is for some reason willing to engage with in the area of private law, but that it avoids in the area of public law and fundamental rights (see my remarks on the CJEU's total lack of will to effectively become EU's constitutional court here). Only on this asymmety of approach towards the development of EU rights in the public law / private law area (or, more bluntly, in the fundamental rights/economic rights divide) should give us all some food for thought about the role of the CJEU.
Further than the general criticism already spelled out against AG Kokott's Opinion, I think that the Judgment gives rise to even more specific arguments against the findings of the CJEU on the basis of the 'umbrella damages' theory of harm. I am lucky to have colleagues such as Dr Sebastian Peyer with whom to discuss these issues and, on this occassion, we clearly coincide in our negative reading of the case. In this post, we put together our thoughts. Mine are slightly more general, so they will come first. Sebastian will then follow on with more specific and ellaborate points on the basis of his expertise in private enforcement of EU competition law.
My own criticism
Quite simply, in my view, Kone has carried the application of the principle of supremacy and effectiveness of EU law too far and the contrast between the findings in Kone and its original application to the competition law damages field in Courage and Crehan [C-453/99 EU:C:2001:465, paras. 23 and ff] is simply abysmal. Courage 'just' made the point clear that damages actions should not be impossible and that they were governed by the general principles of equivalence and effectiveness of remedies (para. 29). This general mantra has been repeated over and over but, in its repetition, the effectiveness part has been gaining relevance and, at least in Kone, the CJEU has completely disregarded the principle of equivalence (despite mentioning it in para. 25).
Given the split of competences between the EU and the Member States in many areas of the law and, in particular, in many areas that govern the remedies available for breaches of EU (and domestic) rules, the principle of equivalence needs to be understood as a functional tool to provide effectiveness to EU rights without altering the Member States' competences. In that regard, it seems uncontroversial that, as even an undergraduate student of law can clearly express in an effective way: "The principle of equivalence ensures that EU rights receive the same protection as domestic ones" [David Murray, "EU law rights and national remedies: an uneasy partnership?" (2010) Diffusion 6(1)]. There is no reason to suggest that, in the absence of EU regulatory competences or specific EU remedies, EU rights should receive more intense protection than domestic ones.
However, the CJEU disregards this plain understanding of the general requirements of EU law and its supremacy and goes on to state that:
32 [...] it is, in principle, for the domestic legal system of each Member State to lay down the detailed rules governing the application of the concept of the ‘causal link’. However, [...] national legislation must ensure that European Union competition law is fully effective (see, to that effect, VEBIC EU:C:2010:739, paragraph 63). Those rules must therefore specifically take into account the objective pursued by Article 101 TFEU, which aims to guarantee effective and undistorted competition in the internal market, and, accordingly, prices set on the basis of free competition. In those circumstances [...] national legislation must recognise the right of any individual to claim compensation for loss sustained.
33 The full effectiveness of Article 101 TFEU would be put at risk if the right of any individual to claim compensation for harm suffered were subjected by national law, categorically and regardless of the particular circumstances of the case, to the existence of a direct causal link while excluding that right because the individual concerned had no contractual links with a member of the cartel, but with an undertaking not party thereto, whose pricing policy, however, is a result of the cartel that contributed to the distortion of price formation mechanisms governing competitive markets.
In my view, this is truly far away from a pondered and acceptable balancing of the competing demands of the principles of equivalence and effectiveness and amounts to a suppression of the equivalence element that is essential to the test for compliance by Member States with their duty to ensure the effet utile of EU law under Article 4(3) TFEU and the existing case law.
Moreover, it prevents Member States from adopting clear and streamlined rules that avoid the need to engage in very complicated and costly case by case assessments of every claim, regardless of any indication of remoteness or weakness of basic causality links. Hence, the Kone Judgment should clearly be rejected and its implications limited (ie undone) by the CJEU itself at the closest opportunity.
What Sebastian has to say
The Court's judgement does not only show some dangerous judicial activism, as my colleague and host Dr Albert Sanchez Graells has pointed out, it also raises more questions than it answers.
What do we talk about when we talk about umbrella pricing? In a standard cartel case
the damages claimant, typically a direct customer of the cartel,
has to show that the defendant overcharged him. For umbrella pricing
the situation is different. The claimant has not purchased from the cartelist
but from another firm in the affected market. Consequently, the claimant should demonstrate that the
market price was inflated due to the cartel and that he suffered harm due to
the higher market price. In European jurisdictions this is basically a question of
causation and a question of the proof that is required by the courts whereas US courts deal
with these issues under ‘antitrust injury’. In Kone, the Court has stated that
national courts cannot categorically reject a causal link between the cartel
and inflated market prices charged by non-cartelists (para. 34):
“Consequently, the victim of umbrella pricing may obtain compensation
for the loss caused by the members of a cartel […] 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
The Court addresses the two issues related to umbrella pricing (Was there an effect
on the market? Did the market effect cause damage to the claimant?) in one sentence and merges them into one “be
liable” test. It is left to the Member States to establish the rules and standards for
proving these effects. The Court also seems to introduce some element of knowledge on part of the cartelist ("could not be ignored"). This may turn out to be
impossible to prove.
Sadly, the ruling fits into the line of recent cases that appear to be claimant-friendly but may not contribute much to the effectiveness of enforcement. On the face of it, cases such as Pfleiderer [C-360/09, EU:C:2011:389] or Donau Chemie [C-536/11, EU:C:2013:366] have opened the gates to private damages claims, allegedly improving the effectiveness of competition law enforcement through access to documents. But I think this does not hold true. In those rulings the court replaced categorical rules with a case by case approach. So far, this has not really helped claimants but forced courts to justify why they have decided to, for example, deny access to leniency material (Pfleiderer). With regards to umbrella pricing, the CJEU has followed this approach replacing a 'fixed rule' with a case by case approach. We shall see if the claimants can get anything out of this apart from more complicated litigation.
Overall, the CJEU’s decision is extremely
short for a ruling that could turn out to be expensive for both claimants and
defendants. The cost associated with proving and calculating umbrella pricing could
be prohibitive and adds to the generally high litigation costs of follow-on
damages actions. I would expect most umbrella
claimants to fail at the quantification stage, even if they have actually managed to master the
The implications of this judgement for national
causation rules are also worrying. Member States are supposedly able to govern causation
and remoteness of damages under the procedural autonomy principle the Court stressed
in the Kone ruling but also in Courage, Manfredi, Pfleiderer and Donau Chemie. However, in AG Kokott
(see her opinion in Kone)
and the Court disregard earlier statements that it is for
the domestic legal system to regulate a causal relationship. So, what does this
mean for the domestic legal systems?
Regarding the UK, I could imagine that the
autonomous decision of a third party not to undercut the cartel is an
intervening event breaking the chain of causation. It could also become a struggle to
show that damages were foreseeable because they depend on the buyer's
decision to contract with a non-cartelist and on the non-cartelist’s decision
to charge an inflated price in the shadow of the cartel. However, the TheWagon Mound (No1) holds that only the kind of damage has to be foreseeable,
not the extent of it. The CJEU’s decision in Kone has certainly created many more
questions. Now, the ball is in the national courts.