Last week, the EU's highest court, the European Court of
Justice (ECJ), held that Member State laws may not categorically
prohibit consumers from recovering from cartel members damages
attributable to purchases from non-cartel participants
that—acting independently—were able to charge inflated
prices as a result of market-wide price effects from cartel
behavior. Much remains to be determined in the national courts, and
plaintiffs will continue to face significant barriers to recovery
based on this theory. In certain circumstances, however, companies
alleged to have engaged in cartels could face increased potential
civil exposure in Europe. Particularly in light of the EU's
upcoming directive on competition damages actions (expected this
fall at the latest), which will provide substantial guidance
regarding private actions for alleged competition violations, the
decision is another sign that Europe may become a hotbed for
antitrust litigation.
Umbrella Theory of Liability: The U.S. Experience
Although the issue is relatively new in Europe, in the United
States private plaintiffs purchasing from non-cartel members have
on occasion sought to hold cartelists liable on theories that by
raising market-wide prices, the collusion created a pricing
"umbrella," enabling non-cartel members to independently
price higher than they would have but for the cartel. These
theories have found little success in U.S. courts.
In Mid-West Paper Products Co. v. Continental Group, Inc.,
596 F.2d 573, 584 (3d Cir. 1979), for example, the plaintiff
claimed to have been injured by purchasing paper bags from rivals
of participants in an industry cartel that were allegedly able to
charge artificially inflated prices as a result of the cartel's
umbrella effect. In rejecting this damage theory, the court relied
heavily on Illinois Brick v. Illinois, 431 US 720 (1977),
in which the U.S. Supreme Court held that federal antitrust law
does not provide a damages cause of action for indirect purchaser
claims based on overcharges imposed on direct purchasers that were
"passed on" to them. Among several concerns about
allowing indirect purchaser claims, the Supreme Court cited the
"massive evidence and complicated theories" inherent in
"attempt[ing] to trace the effect of the overcharge through
each step in the distribution chain from the direct purchaser to
the ultimate consumer." Id. at 741.
The Third Circuit analogized the umbrella theory to indirect
purchaser claims because "in both situations the plaintiff
seeks to recover for higher prices set by, and paid by it to,
parties other than the defendants." Mid-West Paper,
596 F.2d at 584. Moreover, the Third Circuit observed that because
independent pricing decisions are determined by many factors,
umbrella claims are inherently speculative and trying to determine
why a non-cartel member charged a certain price would necessarily
lead to the sort of complex economic proceedings that Illinois
Brick cautioned against. Id. at 585; see also,
e.g., FTC v. Mylan Laboratories, Inc., 62 F. Supp. 2d 25, 39
(D.D.C. 1999) ("The main difficulty with the umbrella theory
is that, even in the context of a single level of distribution,
ascertaining the appropriate measure of damages is a highly
speculative endeavor. There are numerous pricing variables which
this Court would be bound to consider to approximate the correct
measure of damages.").
The Kone Decision
The Kone decision arose from litigation in Austria brought by a
builder subsidiary of Austrian Federal Railways against several
participants in a market allocation scheme involving installation
and maintenance of elevators and escalators in Austria and several
other EU Member States, resulting in a EUR 992 million fine by the
European Commission. Case C-557/12, Kone AG, et al. v.
ÖBB-Infrastruktur AG, (ECJ 2014). Relying on an umbrella
theory, the plaintiff sought to recover for alleged overcharges
incurred when it purchased elevators and escalators from non-cartel
members, arguing that market-wide price effects from the cartel
allowed the non-member to charge prices higher than it would have
been able to but for the cartel. Id. at ¶10. The case
eventually made its way to the Federal Supreme Court of Austria.
That court found that, as a matter of Austrian national law, the
plaintiff's umbrella theory was too attenuated to support a
claim. Id. at ¶ 15. But it stayed the proceedings to
seek a determination from the ECJ whether EU law, which here has
primacy over Member State law, prohibits Member States from
categorically rejecting umbrella liability claims. Id. at
¶ 17. The court referred the following question to the
ECJ:
"Is Article 101 TFEU [the EC Provision prohibiting agreements in restraint of trade] 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?"
Id. Answering the referred question in the affirmative,
the ECJ found that "the full effectiveness of Article 101 . .
. 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," so long as
"there is a causal relationship between that harm and an
agreement or practice prohibited under Article 101."
Id. at ¶¶ 20-21. Although it is generally the
province of each Member State to "lay down the detailed rules
governing" claims for compensation based on violations of
Article 101," national rules "must not jeopardise the
effective application of Articles [101 and 102]." Id.
at ¶¶ 24, 26. The ECJ went on to observe that depending
on various factors such as "the nature of the goods or the
size of the market covered by [a] cartel," a "competing
undertaking, outside the cartel in question," might choose to
set prices higher than "it would have chosen . . . in the
absence of that cartel." Id. at ¶ 29.
The ECJ concluded that "the victim of umbrella pricing"
may obtain compensation from cartel members "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 for the effect of umbrella pricing by third parties
acting independently, and those aspects could not be ignored by the
members of the cartel." Id. at ¶ 34. In other words, the
possibility of umbrella liability recovery must be available in
Member State private litigation where (i) the plaintiff proves a
sufficient causal connection between the cartel activity and
inflated prices paid to a non-cartel member and (ii) the cartel
participants had a sufficient basis to recognize that would be the
case. Id. Importantly, however, the ECJ found that
"[i]t is for the referring court to determine whether those
conditions are satisfied." Id.
Implications
The Kone decision could have substantial implications for
companies accused of participating in cartels that are alleged to
have injured consumers in EU Member States. Depending on the
circumstances, the decision could increase total potential exposure
for cartelists selling in Europe, or at least open the door to
claims by plaintiffs that previously may not have considered
bringing a claim.
Importantly, however, the decision leaves much for national courts
to determine. Member States may no longer categorically deny
umbrella liability claims. But, as the ECJ made clear, it will be
up to the national courts to determine the critical questions of
whether (i) on the particular facts, inflated prices paid to
non-cartel members were sufficiently linked to market-wide effects
from the cartel and (ii) cartel members had a sufficient basis to
recognize their conduct would lead to inflated prices, even for
those buying from non-cartel members. Outcomes in future cases will
undoubtedly turn on the specifics of each case—e.g.,
the particular type of cartel conduct at issue, the nature of the
cartelized product, the proportion of market supply accounted for
by cartel members, and the methodology non-cartel members use to
set prices. Outcomes will also turn on particulars of national law
governing proof of causation and the like for private competition
claims. In practice, it will continue to be challenging for
plaintiffs to prove the requisite causal connection between cartel
activity and inflated prices for purchases from non-cartel members.
As the European national courts proceed to adjudicate umbrella
theories, it may be the case that—like many courts in the
United States—many national courts will find umbrella
theories are too speculative to permit recovery.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.