Quantification of Harm in Actions for Damages

8/11/2019 Quantification of Harm in Actions for Damages

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Master Thesis

Quantification of harm in actions

for damages based on breaches

of Articles 101-102 TFEU

Pamela Vukman

Marco Botta

Submitted in August 2014 at the

University of Vienna School of Law

LLM Program in European

and International Business Law



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Table of content

List of abbreviation…………………………………………………………………… 3

1. Introduction………………………………………………………………………… 4 2. Definition of damages…………………………………………………………….... 7

2.1. Difference between public and private enforcement…………………………... 7

2.2. Definition and types of damages in competition law.......................................... 10

2.3. Actions for damages in the European Union...................................................... 14

3. Quantification of harm…………………………………………………………… 19

3.1. Quantifying overcharge caused by cartels…………………………………….. 19

3.2. Quantification of harm in Manfredi case...…………………....………...…….. 23

3.3. Punitive damages in EU………………………………………………………… 25

4. Methods and techniques used to quantify harm………………………………… 27

4.1. Comparator-based methods……………………………………………………. 27

4.2. Simulation models, cost-based, finance-based analysis and other methods… 32

4.3. Choice of method………………………………………………………………... 34

4.4. Ex aequo et bono quantification.......................................................................... 35

5. Conclusion…………………………………………………………………………. 36

Bibliography………………………………………………………………………….. 40



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List of abbreviations

EU European Union

US United StatesMS Member StateNCA National competition authorityECJ European Court of JusticeECSC European Coal and Steel Community

TFEU Treaty of functioning of European UnionTRIPS Agreement on Trade-related aspects of intellectual property rightsIP Intelectual propertyFCO German Federal Cartel Office



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1. Introduction

Treaty of functioning of European Union (TFEU) is one of the most importantdocuments for EU because it gives principles and rules necessary for undisturbed

functioning of the Union. Among these, one of most important are the principles andrules for protection of the single market, also known as rules on the competition.These are of extreme importance because distorted competition has enormous impact onsingle market and on the welfare of the consumers.

Two of the most important Articles of the TFEU, which are regulating the competitionon the single market, are the Articles 101 and 102.

Ar ticle 101 of TFEU prohibits and declares 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 theinternal market.1

For example, these agreements can directly or indirectly fix purchase or selling price,or any other trading condition, limit or control production, markets, technicaldevelopment or investment, share markets or source of supply, apply dissimilarconditions to equivalent transactions with other trading parties placing them at acompetitive disadvantage or make the conclusion of contracts subject to acceptance bythe other parties of supplementary obligations which, by their nature or according tocommercial usage, have no connection with the subject of such contracts.

However, these practices can be declared as inapplicable if any agreement, decision orconcerted practice between undertakings or association of undertakings contributes toimproving the production or distribution of goods, or to promoting technical oreconomic progress, while allowing consumers a fair share of the resulting benefit, and ifdoes not impose on the undertakings concerned restrictions which are not indispensableto the attainment of these objectives, affording such undertakings the possibility ofeliminating competition in respect of a substantial part of the products in question. 2

Ar ticle 102 of TFEU prohibits abuse of a dominant position by one or more

undertakings within the internal market or in a substantial part of it and it shall be

prohibited as incompatible with the internal market in so far as it may affect tradebetween MS. 3

Such abuse may consist in directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions, limiting production, markets or technicaldevelopment to the prejudice of consumers, applying dissimilar conditions to equivalenttransactions with other trading parties, thereby placing them at a competitivedisadvantage and making the conclusion of contracts subject to acceptance by the other

1 art.101 TFEU2

Ibid3 art.102 TFEU



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parties of supplementary obligations which, by their nature or according to commercialusage, have no connection with the subject of such contracts.4

While these behaviors are strictly prohibited, to this date we can find many breaches ofcompetition law. Even large companies such as Microsoft, France Telecom and manyothers were investigated and fined by European Commission (Commission) for

breaches of these articles.

Main issue arising from the breaches of EU competition law is the question of damages.Infringement may have lasted for years and affected parties may have had damageswhich are sometimes significant.How and will the victims be compensated is a question EU tries to resolve because shewants to achieve exercise of the right to full compensation, making the balance between

public and private enforcement and effective enforcement of EU competition law.

EU is actively resolving this question. Many documents, which main purpose is to makea full compensation possible in practice, were drafted.In 2005 Commission published Green paper which identified many obstacles toefficient system of compensation.5 It was followed by White paper from 2008. Goal ofthis paper was to suggest policy measures needed so that all victims of antitrustinfringement can be fully compensated.6

In 2013 Commission published two important documents.

First one is Proposal for directive of the European Parliament and of the Council on

certain rules governing actions for damages under national law for infringements of thecompetition law provisions of MS and of the European Union (Proposal of antitrustdirective). On April 17th 2014 the European Parliament adopted text of Directive onantitrust damages which is based on the text of Proposal.7

Second document Commission published in 2013 was the Practical Guide onQuantifying Harm in Actions for damages based on breaches of Article 101 or 102 ofthe Treaty on the Functioning of the European Union (Practical guide) which will bediscuss later in detail.8

Practical guide is not legally binding but it offers assistance to national courts and

parties in actions for damages, giving them many relevant information, methods andtechniques available to quantify harm caused by anticompetitive practice.

4 Ibid5 Annex to the Green paper on damages actions for breach of EC antitrust rules COM (2005) 672 final6 White Paper on Damages actions for breach of the EC antitrust rules {COM(2008) 165 final}{SEC(2008) 405} {SEC (2008) 406}7 Directive of the European Parliament and of the Council on certain rules governing actions for damagesunder national law for infringements of the competition law provisions of the Member States and of theEuropean Union8 Practical guide quantifying harm in actions for damages based on breaches of article 101 or 102 of the

Treaty on functioning of the European Union



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Quantification of harm is one of the burning issues in the EU.Victims of infringement of competition law cannot be compensated through publicenforcement. Commission has the right to fine the undertakings which have breached

Articles 101 and 102 but it has no competence to award compensation to the victims.Thus, parties which have been affected by anticompetitive behavior must seekcompensation before of national courts of the MS.

While the right to full compensation is guaranteed by the TFEU itself in the practice itis difficult or almost impossible to get compensation because of applicable rules and

procedures of national laws.Therefore, many victims of the infringement of the EU competition law in practice donot obtain compensation and even if they do, it is not certain are the victims fullycompensated owning to the fact that many courts have difficulties when determininghow to quantify the harm.

Proving and quantifying harm is sometimes costly, long lasting process and most of thetime based on the national rules and procedures. Since these ones are different in manyMS it can lead to the fact that victims of infringement can be fully compensated in oneMS and partially or not compensated at all in others.

Commission has made the basis for damage claims in its Proposal for directive onantitrust damages but both Proposal and directive do not give much practicalinformation. Namely, we understand that, in theory, victims will not have issues to getfull compensation, we noticed there were not many information given how to makeassessment of harm in practice, which is a key issue.

It is not the question whether the victims of infringement have the right to becompensated. The right comes from TFEU itself and it was confirmed by the Proposalof antitrust directive.

Nevertheless, we ask how a judge, who probably has no economic knowledge, shouldmake a correct assessment on the damages, on his own, when there are so manyquestionable issues he will have to resolve.

Therefore, this thesis will mostly follow Practical guide, which gives many methods andtechniques for assessment of the damages. We will try to give and argument opinion onsolutions presented in the Practical guide.

Before we start with techniques and methods suggested by Practical guide, it isimportant to answer some previous questions if we want to make a completely accurateassessment.

Main questions we need to answer are : what damages, what type of damages exist, whois harmed by the infringement of EU competition law, can victims of the infringement

be overcompensated, what is the opinion of the ECJ on the question on damages, whichmethod will court choose to quantify harm.

Answers to the mentioned question will be given in the chapters which follow.



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2. Definition of damages

Enforcement of competition law aims to prevent and sanction violations of prohibitionsimposed by antitrust law and therefore seeks to avoid the occurrence of anti-competitive

conduct and effects.9 This is achieved throughout public and private enforcement.

2.1. Difference between public and private enforcement

Public and private enforcement are two different modes of enforcement of competitionlaw which have different approach and aims.

Public enforcement means that antitrust rules are enforced by state authorities. 10 Key role of public enforcement is detterence and discouragement of anticompetitive

behavior by the undertakings. Those authorities have the right and the power to usespecial procedures to investigate infringement of competition law. Therefore, we can

say that public enforcement is consisted of detection of infringement and intervention by authorities.

Detection means that competition authorities have to separate forms of suspiciousconduct from procompetitive business conducts. In general, there are two fundamentalanswers to this challenge: per se rule and the rule of reason. While a per se ruleapproach generally prohibits well defined forms of bad behaviour (such as, e.g.,horizontal price fixing), the so-called rule of reason approach accommodates the morefrequent case that the procompetitive effects of certain behaviour have to be weightedagainst the anticompetitive effects.11

In the investigation stage competition authorities must decide which type of interventionshould be applied if there is/was an infringement of the competition law.

Private enforcement refers to the litigation which is initiated by an individual, either instand alone or follow on action, before a court, asking remedies for infringement ofantitrust law. If sucessful, a court will impose some legal sanctions on infringingundertaking such as damages, restitution, injunction, nullity or interim relief.

Unlike in US,12 private enforcement is Europe is mostly treated as something new orless important than public enforcement. Antitrust system which gives more importance

to public enforcement has discouraged private enforcement for decades.

It is clear that only public or private enforcement solution has place only in theory. Oneintegrated approach should be the best model for the EU. In the process of creation of

9 Paolisa Nebbia, ‘Damages actions for the infringement of EC competition law: compensation ordeterrence?(2008), E.L. Rev. 33(1), pp 23-4310 Kai Hüschelrath, Sebastian Peyer, ‘Public and private enforcement of competition law – A differentapproach’(2013), <http://ftp.zew.de/pub/zew-docs/dp/dp13029.pdf> accessed 16 July 201411 Ibid.12 Sylvain Bourjade, Patrick Rey, Paul Seabright, ‘Private antitrust enforcement in the presence of pre-

trial bargaining’(2009) <http://idei.fr/doc/wp/2009/private_antitrust.pdf > accessed 16 July 2014



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that model we need to notice that both public and private enforcement have someadvantages and disadvantages.

Firstly, we may assume that public authorities have better access to informations

than private parties. Competition authorities are specialised in their field andhave greater investigative powers than private claimants.13 Secondly, competitionauthorities investigate antitrust behavior. They have evidences which private partiesoften miss and therefore struggle to prove their claims. Thirdly, benefit of the publicenforcement is social welfare, unlike in the action for damages where the party whichseeks for damages is the only one to get benefit. Private enforcers have more personalmotives to initiate proceedings against the infringer and they are often motivated byfinancial gain from reporting. Second motive to bring forward information is to avoidsuffering harm. Fourthly, sanctions imposed by competition authorities are larger thanthe sanctions imposed by the courts in actions for damages.

Because of all mentioned public enforcement has had many supporters which still believe public enforcement must stay dominant. They see only few gains from litigation by victims of the infringement of antitrust law. That may be considered as very narrowand limited view of the public enforcement.

We must not forget the role victims of infringement have in the process of detectinganticompetitive behavior. Customers, suppliers or competitors that are hurt byanticompetitive behavior are likely to have relevant information about such breaches ofcompetition law; giving them an opportunity to bring this information to a court in orderto seek compensation may help punish violators and, in this way, contribute to deterfuture breaches of law.14

Private enforcement may be needed because number of cases to be dealt with may betoo large for the public authorities. It is true victims often have difficulties to prove theirclaims before court because they are lacking evidence. We must not forget that

provisions of Directive on antitrust damages can help victims in their claims.

National courts have authority to impose a disclosure of evidences, even those withconfidential information if they are relevant for the case.With presumption that cartels cause harm burden of proof is now in the hands of theinfringing undertaking.

He has to prove he did not cause harm. We should not believe victims will be free ofmore difficulties to prove their claims. Pfleiderer case, where ECJ discussed whethernational court should allow disclosure of leniency note, which would be such powerfulevidence in the hands of affected parties, showed there will be more issues to resolve.15

Disclosing leniency note can affect efficiency of these programs, but on the other hand,if national courts forbid disclosure of leniency note in every case it may mean victims

13 Roger Van den Bergh, Sonja Keske, ‘Pr ivate enforcement of competition law: Quo vadis?’(2007) European Review of Contract Law Vol.3(4), pp.468-48614 Sylvain Bourjade, Patrick Rey, Paul Seabright, ‘Private antitrust enforcement in the presence of pre-

trial bargaining’(2009), <http://idei.fr/doc/wp/2009/private_antitrust.pdf > accessed 17 July 201415 Case C-360/09 Pfleiderer AG v Bundeskartellamt , [2011] ECR I-5161



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do not have a chance to prove their claim. That must be taken into account and courtsshould not absolutely ban leniency from disclosure.

It is true that victims of infringement seek only for compensation and they do not worry

about social welfare but this conclusion offers no arguments to prove privateenforcement is unnecessary.

Strengthening private enforcement will bring social welfare. With more lawsuitsundertakings who infringe competition law will have to worry not just about beinguncovered and fined by Commission. They will have to worry about the victims as well

because they will put their claims before court and seek for remedies.Settlements awarded by the courts are important, especially if there are more victimswhich have successfully proved their claims. However, main issue with privateenforcers is they may be afraid to initialize an action or reporting illegal conduct.

Creating a better atmosphere and solving legal issues may influence more injured parties to be more likely to sue. Thus, undertakings will be discouraged to infringe law,especially if they are not strong, big companies in the market. This proves actions fordamages do have social welfare, even though otherwise considered.

Both public and private enforcement are costly. Some worry that private enforcementcan have risks and impose unnecessary costs on society, in particular when poorlydesigned substantive rules and/or inadequate procedural rules result in excessivelitigation and discourage procompetitive conduct.16 That may be true but we need tolook on the matter from other perspective.

Private parties may abuse the possibillity of private damage actions detterance andefficiency of public enforcement. Encouraging parties to sue may lead to excessiveactions, mostly because interesting parties may complain for the wrong reasons,especially if the infringing undertaking is a big company with significant funds.

There will always be private enforcers who seek not just to be compensated but also toget a bigger piece of cake. However, we must not forget main objective of EU is toencourage realization of the right to full compensation and excessive litigation cannot

be used as valid argument to ban actions for damages completely.

ECJ has confirmed the right to compensation in Courage&Cehran.

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Consequently, wedo not need to discuss do we actually need private enforcement in EU. What should bediscussed is how to make one parallel, effective system of public and privateenforcement of competition law.Both of these modes of enforcement should exist but we need to have balance betweenthem. EU has noticed same and thus we have more legal documents and discussionsdealing with the question of the right to be compensated and actions for damages.

16 OECD (2011), ‘Private remedies’ , OECD Journal: Competition Law and Policy, Vol. 11/2. <http://dx.doi.org/10.1787/clp-11-5kg9qgf34z5l> accessed 21 July 201417 Case C-453/99 Courage Ltd v Bernard Crehan and Bernard Crehan v Courage Ltd and others [2001]

ECR I-6297



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2.2. Definition and types of damages in competition law

Making correct assessment of harm is not possible without knowing what are damages.Damages are award, typically money, which are paid as compensation for loss or injury.

There are three types of damages. Those are: price overcharge, affecting profits rate ofcompetitors and hampering quality, product choice and adopting new technologies.

Price overcharge or cost effect is the extra price the plaintiff has to pay for thecartelized input.18 It is most common type of damages.

Affecting profits rate of competitors and new entrants refers to exclusionary practice by dominant undertaking which may affect the profit rate of its competitors anddiscourage potential new entrants in the market. Examples for this type of damages are

predatory pricing and tying and bundling.

Predatory pricing is a pricing strategy where price of a product or service is set very lowintending to drive out competition from market or create barries to entry for potentialnew competitors.Tying is practice of a supplier of one product, tying product, requiring to buy a second

product, tied product. Tying may have various forms such as contractual tying, refusalto supply, withdrawal or withholding of a guarantee and technical tying.Bundling is closely related to the idea of tying. It refers to a situation in which two

products are sold in single package at a single price.19 There are two types of bundling: pure, which occurs where it is only possible to purchase two products together andmixed bundling, which occurs where two products are sold separately, however, whenthey are sold together they are available at a discount to the price what would becharged if they were purchased separately. There were not many cases for compensationfor this type of damages due to the fact that it is difficult to quantify harm in these cases.

One of the most important cases for tying and bundling was the Microsoft tying case.20

We will not discuss case in detail, what is neccessary to know is that Microsoft tried totie its Media Player to its personal computer operating system.

Third and last type of damages are hampering quality, product choice and adoption

of new technologies which refer to exclusionary practices by dominant companyaffecting product quality and technological inovation. There are also very few cases for

compensation for this type of damages because it is very difficult to quantify damages.The infringers of competition law cause great harm to the economy, competition and proper functioning on the internal market, especially affecting consumers and otherundertakings. Although infringers will be fined by Commission or National competition

18 Frank Verboven, Theon van Dijk (2009), ‘Cartel damages claims and the passing-on defence’, The Journal of Industrial Economics Vol.57(3), pp 458-49119 Richard Whish, David Bailey, ‘Competition law’,(2012), Oxford Univ. Press, 7th edition, pp 67020 Commission's decision of 6.3.2013 addressed to Microsoft Corporation relating to a proceeding on theimposition of a fine pursuant to Article 23(2)(c) of Council Regulation (EC) No 1/2003 for failure tocomply with a commitment made binding by a Commission decision pursuant to Article 9 of CouncilRegulation (EC) No 1/2003, Case AT.39530 – Microsoft (Tying)



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authorities (NCA) they should also be responsible for harm caused to private parties.Parties which were affected by infringement have to have a possibility to becompensated for harm suffered.

Compensation for harm suffered means placing the injured parties in the position theywould have been if had there been no infringement of Article 101 or 102 TFEU. 21 Full compensation principle was firstly propagated in Green paper, therefore, it is notsurprising to find compensation definition in that document:

Compensation is the grant of an equivalent in kind or in money for the harm suffered. It

differs from restitution that aims at putting the victim in the situation he was in prior to

the infringement. In some Member States compensation may only be given where full

restitution is impossible or excessively difficult.22

One of important questions in actions for damages is what the type of loss victims can

recover. ECJ has discussed the matter in its previous case law.In the 1993 Marshall case Court stated full compensation must count in importantfactors, such as effluxion of time. Court implied payment of interest should beunderstood as covering whole period from time damage occurred until the momentcapital sum awarded was paid.

Next question which arises is who can claim damages? Before we answer this questionin the following figure23 we can see who may be affected by infringement.

Figure 1. Potential victims of breach of EU antitrust law

21 Communication from the Commission on quantifying harm in actions for damages based on breachesof Article 101 or 102 of the Treaty on the Functioning of the European Union (2013/ C167/ 07)22 Annex to the Green paper on damages actions for breach of EC antitrust rules COM (2005) 672 final23 Oxera, ‘Quantifying antitrust damages. Towards non-binding guidance for courts Study prepared for

the European Commission',(2009), <http://ec.europa.eu/competition/antitrust/actionsdamages/> accessed29 July 2014



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From the figure we see it is certain direct purchasers are entitled to claim damages.We need to find out should indirect purchasers, who were not directly harmed by breachof EU competition law, be allowed to claim damages? ECJ has discussed answered this

question in famous Courage&Crehan case.24

Courage&Crehan was the case from 2001 before Court of Appeal (England and Wales) between Courage Ltd and Bernard Crehan.

The background of the case leads to 1990 where Courage, a brewery which had 19%share of the United Kingdom market, agreed to enter into agreement with GrandMetropolitan plc - a company with a range of catering and hotel interests.Goal of the agreement was to merge their leased public houses and their pubs weretransfered to Inntrepreneur Estates Ltd (IEL). Agreement provided that all IEL tennantshad to buy their beer exclusively from Courage.

In 1991 IEL concluded two 20-years leases with Bernard Crehan which imposed on himobligation to buy from Courage. The tenant had to purchase fixed minimum quantity ofspecified beers and IEL agreed to procure the supply of specified beer to the tenant byCourage at the prices shown in the latter's price list.

In 1993, Courage, the plaintiff in the main proceedings, brought an action for therecovery from Mr Crehan of the sum of GBP 15 266 for unpaid deliveries of beer.Mr Crehan contested the action on its merits, contending that the beer tie was contraryto Article 85 of the Treaty. He also counter-claimed for damages.After the case came to the Court of Appeal the Court refered to ECJ for preliminaryruling because of some issued questions.

In the judgement ECJ was of opinion Mr. Crehan must be available to any individualclaim damages for loss caused to him by a contract or by conduct liable to restrict ordistort competition .25

ECJ has given some additional informations, namely, ECJ confirmed there should not be any absolute bar to such an action being brought by a party to a contract whichwould be held to violate the competition rules.26 However, in the absence ofCommunity rules governing the matter, it is for the domestic legal system of each MS to

designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derivedirectly from Community law, provided that such rules are not less favourable thanthose governing similar domestic actions (principle of equivalence) and that they do notrender practically impossible or excessively difficult the exercise of rights conferred byCommunity.27

24 Case C-453/99 Courage Ltd v Bernard Crehan and Bernard Crehan v Courage Ltd and others [2001]ECR I-629725 Ibid para 26.26

Ibid para 28.27 Ibid para 29.



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European Commission discussed this issue in both Green and White paper under theconcept of passing on of defence.

Direct purchasers may pass some of illegal overcharge to the indirect purchasers.

In this case the next line of purchasers, who are only indirectly linked with the initialanti-competitive behaviour (indirect purchasers), suffers a loss by paying a supra-competitive price which has been passed on to them.

If passing on of defence would not be allowed that would lead to the fact that onlydirect purchasers, who have already passed some of illegal overcharge to the indirect

purchasers, now are the only ones who can claim for damage compensation.They will be overcompensated due to the fact that they passed on illegal overcharge toindirect purchasers. This scenario would actually lead to unjust enrichment EU wantedto bypass.

We will not discuss the passing on of defence in detail because we will discuss it in thesome of the chapters that follow. Still, it was important to mention what is passing on ofdefence and how it connected to direct and indirect purchases because it actually gives achance to indirect purchasers to claim damages.

Therefore, to conclude the discussion on question can indirect purchasers claim fordamages we can certainly state that there is no absolute bar against claims of indirect

purchasers. Indirect purchasers should not be discriminated and they have to have theright to put their claim for damages before a court.

Of course, this does not mean that indirect purchasers will actually be able to getcompensation in every case. National courts will still in the end have to decide whethera claimant is entitled to compensation and does a causal relationship between the injuryof the claimant and the infringement of competition law actually exist.

Claims of indirect purchasers run into evidentiary difficulties. In particular, they consistin the obligation to prove both damages and the existence of a direct relation betweenthe damage and violation of competition rules.28

It is certain that plaintiff will have difficulties to prove his claim. Not every plaintiffwill actually be able to be compensated in the practice. Still, this scenario is much better

than one which would totally exclude indirect purchasers from actions for damages for breach of EU competition law.

After discussion on damages and who can claim them we will continue with discussionon actions for damages.Firstly, as comparison we will shortly discuss position of actions for damages in USA.Moreover, we will try to mention what are some issues that follow actions for damagesand how can they be resolved. Furthermore, we will see what is the attitude of ECJ andMS toward actions for damages and we will give some examples of cases where and inwhich countries in EU damages were awarded.

28

Robert Stefanicki, ‘Civil law remedies for violation of competition law’(2012), European Review ofContract Law, Vol.8(4), pp.400-419



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2.3. Actions for damages in the European Union

Damage actions are still underdeveloped in European Union, unlike in US, where in atypical year more than 90% of antitrust complaints filed in the United States are by

private plaintiffs rather than the federal government.29

Nowadays, number of privatelaw cases involving issues related to the enforcement of competition law is very little,only 60 cases involving damages actions based on infringements of competition law arefound all over the EU territory. Moreover, only 28 of those cases lead to an award ofdamages.30

There are several issues which make obtaining compensation difficult. Firstly, onereffers to economical expertise. Judges are experts in law, not in economics. It isneccessary to have an economical expert before court which will help quantify harm.Any abuse by an expert may lead to situation that victims cannot vindicate their claims.Rarely any judge or the jury is able to identify instances where the expert did not

provide unbiased information.This is extremely difficult to spot out in most cases without any previous knowledge ofthe field. It should also be noted that it is rare that experts are sanctioned for violation ofthis duty to the court.31 Secondly, we refer to difficulty of quantifying harm in intelectual property cases.Obligation for such compensation may come from international or statutory documents.For example, according to Article 45(1) of the TRIPS agreement, judicial authoritiesshall have the authority to order the infringer to pay the right holder damages adequateto compensate for the injury the right holder has suffered because of an infringement ofthat person’s intellectual property right by an infringer who knowingly, or with reasonable grounds to know, engaged in infringing activity.32

In US patent law, damages are typically awarded in the form of lost profits orreasonable royalties or both. Damages cannot fall below the floor of reasonableroyalties. Court employs a four-prong test for awarding lost profits in a patentinfringement case. They permit an award of lost profits on the establishment of fourelements: demand for the patented product, absence of acceptable noninfringingsubstitutes, manufacturing and marketing capability to exploit the demand, and theamount of the profit he would have made (the Panduit test).33

When deciding on damages in cases of IP infringement, court will determine reasonable

royalty on several factors, such as entire market value, established royalty based onmarketplace licensing, valuation calculation or any additional, relevant factor. This canlead to situation that damages can be extremely high and therefore private enforcers inUS are motivated to engage in actions for damages because they have possibility to gethigh awards, sometimes triple damages as well.

29 Herbert J. Hovenkamp,‘Quantification of harm in private antitrust actions in the United States’(2011),< http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1758751>accessed 22nd July 201430 Fernando Peña Lopez,‘Issues and problems regarding E.U. competition law private enforcement:damages and nullity actions’(2013), The USV Annals of economic and public administration, pp. 230-23531 Ioannis Lianos, ‘Quantification of damages workshop’(2010), Faculty of Laws, UCL, pp 232

Ibid pp 2833 Ibid pp 29



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Damages in IP infringement in EU have pure compensatory purpose. Their goal is toorder to redress the loss which has been suffered and to award compensation. Onedifficulty exists: how to compensate victims for loss suffered? Loss goes beyond mere

compensation because, as we already mentioned, victims can claim both loss sufferedand loss of profit and in these cases it is difficult to quantify loss of profit. Victimsshould be restored in the position they would have been if no wrong had been done andvictims should be able to recover loss which was foreseeable, caused by infringement,and not excluded from recovery by public or social policy.

When we talk about actions for damages in EU we can talk about countries wheredamages have been awarded or where cases are pending.

In France we can find concept of harm done to economy and by the French law harmdone to the economy is not limited to the actual harm caused to competition. According

to the case law, this concept includes not only disturbances anticompetitive behavior’s are liable to cause to the economic sectors and markets directly or indirectly concerned,

but also negative impact of such anticompetitive behavior’s on the economy in generaland on the consumers.

The ground rules for assesement of harm done to economy can be found reviews ofcourts and practice of Autorité.34 There is no single method used by courts or theexperts, though it is possible to identify two different methods which have been used in

practice: comparisons between the price, costs, margins usually encountered in therelevant market and the price, costs, and margins encountered at the time of theanticompetitive practices (i.e. the before and after approach); and assessing the profitsthat would have been made in the potential markets, based on an hypothetical but for

price by estimating a reasonable profit margin to be added to the unit costs (i.e. the cost based approach and accounting measures of lost profit).35

It is therefore different from individual or collective damages suffered by victims ofanticompetitive practices, including when these victims have locus standi to lodge anantitrust complaint before the Autorité.36

Awarding damages in France has some history. We can find some cases which date tothe 90’s which can show us french attitude toward damages if we compare it to year

2004, where we can notice there was no damages cases in other MS of EU than thosewe have already mentioned. For example, from 1993 we can find Mors Labinal case37

where Labinal, a company specialised for planes with a Tyre Pressure IndicationSystem (TPIS) carried out illegal pricing practice with only purpose to eliminate Mors,

34 Authorité is French national competition authority.35 Emily Clark, Matt Hughes, David Wirth,‘Study on the conditions of claims for damages in case ofinfringement of EC competition law’(2004)

<http://ec.europa.eu/competition/antitrust/actionsdamages/economic_clean_en.pdf> accessed 30 July201436 Oxera, ‘Quantifying antitrust damages. Towards non-binding guidance for courts Study prepared forthe European Commission',(2009), <http://ec.europa.eu/competition/antitrust/actionsdamages/> accessed

29 July 201437 Ibid



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which was a competitor. Mors claimed for damages and in 1998 court decided to awarddamages to Mors for the loss of market caused by Labinal’s infringement, although thecourt did not award damages to Mors for the loss on neighbouring markets.

Second important case is 1985 Ecosystem Peugeot38

, where Peugeot, french carmanufacturer, tried to use many different measures to prevent Ecosystem, active sellerof new cars to individuals, to get Peugeot vehicles from car dealers across EU. In 1996Paris Commercial Tribunal (Tribunal) awarded damages to Ecosystem for Peugeot’s

infringement. Tribunal calculated damages based on loss of operating income anddepreciation of goodwill.

Germany’s modern competition law started developing after Second World War parallel with country’s economic development. German competition law developedagainst the backdrop of U.S. influence, exerted in part directly, during the occupationyears, and in part indirectly, through US involvement in the subsequent shaping of both

German and E.U. competition policy.39 Before US influence Germany even consideredlegality of cartels as fundamental component of German economy. In the 1949 US andWest German Republic jointly started creation of national competition law. It isindisputable that the Law Against Restraints of Competition (GWB), ultimately enactedin 1957 reflects strong U.S. influence - seen perhaps most clearly in the general

prohibition of contractual cartel arrangements.40

After Regionalisation and creation of European Coal and Steel Community (ECSC)competition provisions of ECSC did not mirror US law precisely. US influence ingerman law was not determinative, although it was still present. In the stages ofEuropean integration Germany had important role in creation of competition law

because she had most substantial experience in this field. Therefore, it is not surprisingGermany is one of the countries where damages were awarded. Most important

principle of german competition law is putting victims of infringement in position theywould have been if infringement had not occured. Most popular methods to estimateharm and damages are comparative market approach and cost-based approach.

One of important case comes from 2004 and it is called Vitamin case.41 Before court inDortmund Company X, worldwide producer of sintetic vitamins, was sued for damages

by company Y which was supplied by X with vitamins between September 1989 andFebruary 1999. Claim for damages followed cartel investigation by the US, Swiss and

European authorities into price fixing and market sharing agreements. LandgerichtDortmund awarded damages to Company Y. The names of parties were excised and it isnot clear exactly how the amount of damages was calculated.

38 Ibid39 Hanna L. Buxbaum,‘German legal culture and the globalization of competition law: A historical

perspective on the expansion of private antitrust enforcement’(2006), Issues in Legal Scholarship, 2006,

Vol.6(2, pp 474-49440 Ibid41 Oxera, ‘Quantifying antitrust damages. Towards non-binding guidance for courts Study prepared forthe European Commission',(2009), <http://ec.europa.eu/competition/antitrust/actionsdamages/> accessed

29 July 2014



17

One of the newest cases in Germany is so called German cement cartel case42 and datesto spring 2002 when German Federal Cartel Office (FCO) discovered cartel in cementsector. Customers of cartel had damages and some had been driven out from the market.

Now, they are seeking compensation. We still do not know weather the damages will be

awarded because case is still pending.

In Italy we find, at firtst, Telsystem v SIP case.43 Telsystem sued SIP, who wastelecommunication monopolist, for abuse of dominant position whithin the vocaltelephony service market for a closed group of users. Telsystem required a line to rentfrom SIP to connect to client’s office and SIP was delaying execution of contractsrelating to installation, refusing to fulfil the contracts already executed for theinstallation of urban direct circuits, attempting to dissuade Telsystem’s current and

potential clients from using Telsystem’s services making demands f or the payment ofthe line rental even though the contracts had not been fulfilled. Corte d’Appello ofMilan awarded damages to Telsystem but damage calculation was concentrated on the

plaintiff’s lost business and profits foregone as a direct result of the infringements.

Second case, known as Albacom v Telecom case,44 was similar to the previous one andreffered to the abuse of dominant position by Telecom Italia (Telecom) by foreclosingaccess to the market for services of data transmission through digital subscriber line(DSL) and other technologies. Market had been liberalised and the incumbent withmarket power was required to allow access to the network upon request of potentialcompetitors.However, Telecom denied access to network for data transmission to competitors andabused its dominant position. Case was decided by the Corte d’Appello of Rome in2003. Court stated damages could be calculated only on loss of income suffered by the

plaintiff arising from its exclusion from the market. Court’s assessment of damages was based on the market share held by the plaintiff in the year before the infringementmultiplied by the turnover earned by Telecom in the market for data transmission forthe period of the infringement. Court used a profit margin of 10 cents (Court reducedthe 12 per cent profit margin identified by the Italian telecommunication authority forTelecom, because Albacom was considered an innovator in the market and wastherefore subject to higher costs) to calculate the total damage.One point to note is that there does not appear to have been an adjustment for the factthat profit margins might have fallen if Telecom had permitted access as Telecom mightwell have cut prices its prices in response to the competition from new rivals.45

Sweden had case called Europe Investor Direct Aktiebolag and others v. VPC 46 from2008 where competitors of VPC, central securities depository in Sweden and only

42 Description of case can be found at <http://www.carteldamageclaims.com/portfolios/cdc-german-cement-cartel/> accessed 25 July 201443 Oxera, ‘Quantifying antitrust damages. Towards non-binding guidance for courts Study prepared forthe European Commission',(2009), <http://ec.europa.eu/competition/antitrust/actionsdamages/> accessed29 July 201444 Ibid45Emily Clark, Matt Hughes, David Wirth,‘Study on the conditions of claims for damages in case ofinfringement of EC competition law’(2004)

<http://ec.europa.eu/competition/antitrust/actionsdamages/economic_clean_en.pdf> accessed 31 July2014



18

company holding information on the share registers of Swedish limited companiesrefused to supply claimants with full CD-ROM copies of such share registers.Stockholm District Court constituted abuse of a dominant position and stated VPCshould be ordered to pay damages. Claimants were searching ammount of SEK7.6m

(approximately €750,000) in damages, but Court disagreed and awarded damages ofonly SEK3.9m (approximately €384,000) since it considered claimantshave not

presented full proof with respect to the quantum of their damages.

Reffering to Spain we will mention two cases. First one, Antena 3 TelevisiónSA v. Liga

Nacional de Fútbol Profesional case47 followed after Spain’s NCA decision that Antena3 was illegally excluded from tender for the right to broadcast football matches.Antena 3 claimed damages in ammount between €34m-36m. Madrid First CourtInstance accepted Antena 3 claim partially because it believed claim was flawed andawarded only €25m damages. Antena 3 tried to appeal but spanish Supreme courtrejected appeal in 2009.

Another spanish case, Conduit Europe, S.A. v Telefónicade España S.A.U 48 , reffered toabuse of dominant position by Telefonicade which refuse to give information toclaimant and gave incomplete and inaccurate data. Claimant asked for €6m damages but

only €670.000 were awarded by Court.

After Denmark ’s NCA decision from 2004 that Danish post abused dominant positiondamages were claimed in case known as Forbruger-Kontakt a- s (Søndagsavisen a-s) v.

Post Danmark.49 Danish post charged different prices to its own and consumers ofclaimant, causing claimant to lose 2/3 of its consumers. In its judgment Eastern HighCourt of Denmark found claim was justified and awarded around €10m damages.

In Lithuania there is a case from 2006 UAB Siauliu tara v. AB Stumbras50 , wheredamage claims were filled after NCA’s decision that dominant supplier of alcohol

beverages abused its dominant position and claimant did not get any market paymentother wholesalers did. Court awarded damages but not in the amount claimant asked for

because it believed claimant managed to prove damages partly.

Last case we mention is Austrian case from 2007 called Bundesarbeitskammer v Powerdrive Fahrschule Andritz GmbH.51 Austrian Cartel Court fined five drivingschools for price fixing. Federal Chamber of Workers (Bundesarbeitskammer) broughtclaim on behalf of customers of driving schools who have suffered harm.

Bundesarbeitskammer argued that loss suffered by customers could be quantified as the22% difference between price charged by the driving schools during the two months ofthe cartel’s duration and the lower price once the cartel had ended . Court did notelaborate further, but stated that the prices charged by the cartel members fell fromaround €1,140 to around €900 once the authorities had initiated the investigations.

46 Oxera, ‘Quantifying antitrust damages. Towards non-binding guidance for courts Study prepared forthe European Commission',(2009), <http://ec.europa.eu/competition/antitrust/actionsdamages/> accessed29 July 201447 Ibid48 Ibid49 Ibid50

Ibid51 Ibid



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3. Quantification of harm

Calculating harm can be hard even in the simplest damages cases. Since different MS ofEU have different legal systems this leads to situation that ability of court to calculate

harm varies, which often leads to different results in the same cases.

Directive on antitrust damages shall ensure that, in proceedings relating to an action fordamages, a national competition authority shall be able, if it deems it appropriate, toassist on the determination of the quantum of damages upon request of a nationalcourt.52 This assistance may be needed for quantification of overcharge.

3.1. Quantifying overcharge by cartels

Typical consequence of infringement of competition law is increase of price by cartelsor excessive pricing by dominant undertaking. For this topic increase of price is more

relevant, therefore we will focus on it.

Let’s take a cartel as example, which is one of the typical examples of breach ofantitrust law. Cartels are agreements and concerted practices between two or moreundertakings aimed at influencing the parameters of competition through practices suchas fixing the purchase or selling price or other trading conditions, allocating productionor sales quotas or sharing markets (including bid-rigging). No matter how manyundertakings are in a cartel the customers will eventually pay a higher price if theundertakings breach antitrust law and decide to fix the price.

There is an interesting, well known Christie’s and Sotheby’s cartel case 53 which we canuse to explain cartels easily.

Christie’s and Sotheby’s were the two leading fine art auction houses which decided toenter into cartel. Their goal was to reduce the fierce competition between them.

Namely, their competition was abruptly ended in 1995 by an agreement between thechief executives of the auction houses. At first, Christie’s declared they will charge

seller fixed, non-negotiable commission on the sales price and a month later Sothebyintroduced the same policy.

The weirdest fact in this case is that there was actually no need for cartel agreement

because Sotheby was only real competitor of Christie’s and if they introduced samecommission on basic of pure competition illegal conduct would not exist.

Case itself is interesting because it showed that judge involved in the case had to becreative when the customers began filling civil suits. Judge Louis A. Kaplan agreed toclass action status for the suit and announced that the lead counsel will be decided by anauction. Law firms had to name a dollar amount minimum sum expected to be won for

52 Directive of the European Parliament and of the Council on certain rules governing actions for damagesunder national law for infringements of the competition law provisions of the Member States and of theEuropean Union53

In re Auction Houses Antitrust Litigation, 164 F. Supp. 2d 345 (S.D.N.Y. 2001), aff'd, 2002 U.S. App.LEXIS 15327(2d Cir. 2002) and Kruman v. Christie's International PLC, 284 F.3d 384 (2d Cir. 2002).



20

plaintiffs, excluding fees or expenses. Law firm with the highest bid would claim position of lead council and would receive 25 percent of any settlement in excess of thatdollar amount.54 In September 2001 both auction houses entered into settlement and hadto pay $256m damages each to their plaintiffs (both buyers and sellers) although

plaintiffs had same conditions whether they approached Christie’s or Sotheby’s in themoment of sale. According to the settlement this amount was calculated taking the

price-fixing or buyer’s premium into account. Thus, auction idea judge Kaplan designed proved to be very original and successful. This case showed us that even in the simplestcases of cartels, where we have just two infringing parties, it can be difficult todetermine damages.

Cartels are illegal activity which certainly have impact on markets and customers andeconomical experts warn about similar issues when it comes to the matter of overchargequantification. The results of study done by Commission show that over 93% of allcartel cases lead to overcharge.

We have already mentioned what is overcharge in some of the previous chapters whenwe were mentioning passing on of defence. But why exactly is overcharge important forthe topic of quantificiation? Anticompetitive price overcharge has been commonly usedas a basis for computing damages claims in price-fixing cartels55. Plaintiff can shift the

burden of the price overcharge to its own customers. Usually neglected output effectrefers to the sales that are lost when part of the price overcharge is passed on thecustomers. As the initial overcharge is a transfer of money from the direct customer tothe infringing undertakings, any information that may exist on the illicit profits made byinfringers can also serve to quantify this overcharge, although this will likelyunderestimate the amount of overcharge paid.

To define and quantify overcharge caused by cartel we need to compare the pricesactually paid before or after the infringement, when infringement stopped having effect,and try to reconstruct prices as they would have been if infringement had not occured.It is necessary to determine which prices were affected by the infringement. This meanswe need to find out when cartel infringement began, and had an effect, and at which

point that effect ended. Timing of the cartel infringement may be different from thetiming of the effects of the infringement, therefore it is necessary to look at the timingof the effects of that agreement. Beside time effect overcharge can be quantified bycomparing the prices on another geographic or product market.

We have mentioned that direct purchasers can pass on illegal overcharge to theircustomers. Therefore, we need to introduce the concept of passing on of defence. ECJhas simply restated that Community law does not prevent national courts from takingsteps to ensure that the protection of the rights guaranteed by Community law does notentail the unjust enrichment of those who enjoy them.56

54 Orley Ashenfelter, Kathryn Graddy,‘Anatomy of the rise and fall of a price-fixing conspiracy: auctionsat Sotheby’s and Christie’s, Manor Road Building’,(2004),<http://www.economics.ox.ac.uk/materials/working_papers/paper203.pdf> accessed 2nd August 201455 Frank Verboven, Theon van Dijk (2009), ‘Cartel damages claims and the passing-on defence’, The

Journal of Industrial Economics Vol.57(3), 457-49157 Magnus Strand, ‘The defence of passing on: Comparing Reasons in the Commission White Paper with

those presented by the United States Antitrust Modernization Commission’,(2009), Upsala University, Department of law, pp 1-19



21

In the claim for compensation overcharge pass-on defence can be relevant in two cases:in an action brought by the direct customer claiming reparation for the initial overcharge

paid by him, and in an action brought by an indirect customer against the infringer.

In first case, when action is brought by direct consumer, infringer might argue directcustomer should not be compensated for the overcharge on the basis that directconsumer raised his own price aswell and thus transfered overcharge to his owncustomer. This is what we call pass on of defence.

In both situations claimants and defendants could rely on two different approaches tosubstantiate their claim that overcharge was passed on to the indirect customer: theycould either quantify the initial overcharge and determine the pass-on rate to the indirectcustomer, possibly at several levels of the supply chain and using the econometrictechniques, or use the methods and techniques outlined above to determine whether theindirect customer concerned paid an overcharge. This second approach will often be

easier to implement.57

Where an indirect customer brings a claim for compensation of an overcharge caused bya cartel, that indirect customer can either show that there was an initial overcharge andthat this overcharge was passed on to him or he may quantify the overcharge passed onto his level in the same manner as a direct customer would quantify an initialovercharge, namely by comparing the actual price he paid with the likely price in a non-infringement scenario.

Where the direct customer of the infringing undertakings uses the cartelised goods tocompete in a downstream market, it is likely that the direct customer will normally not

be able to pass on this increase in cost if his own competitors in that downstream marketare not subject to the same or a similar overcharge.

Where all the undertakings in that downstream market are hit by the cartel and are thussimilarly exposed to the payment of the direct overcharge, it is likely that the directcustomer will be able to pass on at least part of that overcharge. The degree of such

pass-on is influenced by the intensity of competition in the downstream market.

In the US the practice of the Supreme court of the United States have combined effectof rejecting the defence of passing on and barring indirect purchaser claims under

federal antitrust law. Regarding the development in the U.S., the starting point is the1968 Supreme Court decision in Hanover Shoe, Inc. v United Shoe Machinery Corp. inwhich it was ruled that the defendant could not use a pass-on defence to avoidliability.58

Defendants are not allowed to invoke the defence of passing on against the claims ofdirect purchasers and indirect purchasers cannot claim damages on the basis that anovercharge has been passed on to them.

38 Practical guide quantifying harm in actions for damages based on breaches of article 101 or 102 of theTreaty on the functioning of the European Union58

Jan Boone, Wieland Müller, ‘The distribution of harm in price-fixing cases’,(2012 ), International Journal Of Industrial Organization Vol.30(2), pp.265-276



22

Nearly 30 years ago, the US court dealt with the issue in the Illinois Brick case59 holding that only direct purchasers can recover for overcharges in federal antitrust casesand that no adjustment is to be made for the passing on of those overcharges.60

Yet Antitrust Modernization Committee (2007), henceforth AMC, rigorously assessingthe U.S. antitrust law, gives the following advice to Congress:

“ Direct and indirect purchaser litigation would be more efficient and more fair if it took

place in one federal court for all purposes, including trial, and did not result in

duplicative recoveries, denial of recoveries to persons who suffered injury, and windfall

recoveries to persons who did not suffer injury. To facilitate this, Congress should enact

a comprehensive statute with the following elements: Overrule Illinois Brick and

Hanover Shoe to the extent necessary to allow both direct and indirect purchasers to

sue to recover for actual damages from violations of federal antitrust law. […]

Damages should be apportioned among all purchaser plaintiffs - both direct and

indirect - in full satisfaction of their claims in accordance with the evidence as to theextent of the actual damages they suffered.61

The other characteristics that may also have an influence on the degree of pass-on insuch situations include: the price elasticity of demand and the question whethercustomers become more or less sensitive to price as prices rise, the variation of marginalcost with output changes, the impact of the infringement on different types of costs andthe duration of the infringement and the frequency of business exchanges.

Harm caused by volume effect is closely connected to pass on of defence and thus weneed to mention how to quantify this type of harm.Where a customer of the infringing undertakings does not pass on the overcharge andthus absorbs it entirely, his own sales will not decrease because of the infringement ashis customers will not experience a rise in prices due to the infringement.Where the overcharge is passed on partly or entirely to the final customer, that customerwill be subject to the rise in prices and will reduce his demand. This in turn will reducedemand upstream in the supply chain.

This loss of profit is harm for which compensation may be awarded and we can use thesame approach as in overcharge by cartel to quantify harm caused by volume.A comparison over time or across markets can be used to reconstruct the sales volume

in the non-infringement scenario. In some instances court may also agree to thesemethods being used in a simplified fashion, for instance by determining an average profit margin per transaction and then multiplying it by the units that were not sold because of the infringement.Since other types of infringement can cause overcharge aswell, such as anticompetitive

joint-venture or abusive charging of excessive prices by dominant undertaking, by thePractical guide the same approach used to quantify overcharge by cartel can be used inthis case aswell.

59 Illinois Brick Co. v. Illinois 431 U.S. 720 (1977)60 Franklin M. Fisher, ‘Economic analysis and antitrust damages’(2006), Kluwer law international, pp 38961

Jan Boone, Wieland Müller, ‘The distribution of harm in price-fixing cases’,(2012), InternationalJournal Of Industrial Organization Vol.30(2), pp.265



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3.2. Quantification of harm in Manfredi case

In the last years we could have find more claims for damages in EU, for example, 2012

case called European Union v Otis&Others62

, one of the most important cases forquantification of harm are already mentioned Courage and Crehan and Manfredi case.Since we have previously discussed the Courage and Crehan case we will now focus onthe Manfredi.

The case dates to the 2006 and it reffers to the preliminary ruling to ECJ from theGiudice di Pace di Bitonto (Italy).

The questions were raised in an action for damages brought by Vincenzo Manfrediagainst Lloyd Adriatico Assicurazioni SpA, by Antonio Cannito against Fondiaria SaiSpA and by Nicolò Tricarico and Pasqualina Murgulo against Assitalia SpA in order to

obtain an order against those insurance companies for repayment of the increase in thecost of premiums for compulsory civil liability insurance relating to accidents caused bymotor vehicles, vessels and mopeds paid due to the increases implemented by thosecompanies under an agreement declared unlawful by the national competition authority.

It was alleged that those companies had participated in an arrangement for the purposeof the tied selling of separate products and the exchange of information betweencompeting undertakings. As regards the present cases, only the arrangement for theexchange of information between competing undertakings is relevant.63

The applicants in the main proceedings brought their respective actions before theGiudice di pace di Bitonto to obtain damages against each insurance companyconcerned for the increase in the cost of premiums paid by reason of the agreementdeclared unlawful.

ECJ had several questions to answer in the preliminary ruling but for us the mostinteresting are those which refer to quantification of harm.

Firstly, importance of Manfredi case was that ECJ clearly stated what type of loss can be compensated. In paragraph 95 we can noticethat ECJ follows the principle ofeffectiveness and claims that the right of any individual to seek compensation for loss

caused by a contract or by conduct liable to restrict or distort competition that injured persons must be able to seek compensation not only for actual loss (damnum emergens) but also for loss of profit (lucrum cessans) plus interest.64

The same principle was taken over in Green and White paper and in 2013 it wasincorporated in Communication from the Commission on quantifying harm.

Secondly, in its judgement ECJ confrirmed that Article 81 EC must be interpreted inthat way that any individual can rely on the invalidity of agreement or practice

62 Case C-199/11 EuropeseGemeenschap v Otis and Others (CJEU, 6 November 2012)63

Joined cases C-295/04 to C-298/04 Manfredi [2006] ECR I-661964 Ibid para 95



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prohibited under that article and, where there is a causal relationship between the latterand harm suffered, claim compensation for the harm.

In the absence of Community rules governing the matter, it is for the domestic legal

system of each MS to prescribe the detailed rules governing the exercise of that right,including those on the application of the concept of causal relationship, provided thatthe principles of equivalence and effectiveness are observed. Moreover, domestic legalsystem of each MS to designate the courts and tribunals having jurisdiction to hearactions for damages based on an infringement of the Community competition rules andto prescribe the detailed procedural rules governing those actions, provided that the

provisions concerned are not less favourable than those governing actions for damages based on an infringement of national competition rules and that those national provisions do not render practically impossible or excessively difficult the exercise ofthe right to seek compensation for the harm caused by an agreement or practice

prohibited under Article 81 EC.

In the absence of Community rules governing that field, it is for the domestic legalsystem of each MS to set the criteria for determining the extent of the damages for harmcaused by an agreement or practice prohibited under Article 81 EC, provided that the

principles of equivalence and effectiveness are observed. Therefore, first, in accordancewith the principle of equivalence, if it is possible to award particular damages, such asexemplary or punitive damages, in domestic actions similar to actions founded on theCommunity competition rules, it must also be possible to award such damages inactions founded on Community rules.

However, Community law does not prevent national courts from taking steps to ensurethat the protection of the rights guaranteed by Community law does not entail the unjustenrichment of those who enjoy them.65

This means that ECJ did not consider punitive damages neccessarily forbiden by theCommunity law, yet it leaves the possibility to national law to choose whether it isallowed to grand punitive damages.

In our opinion ECJ made a correct decision since in the EU we have countries which are based on common law which gives the opportunity to claim punitive damages.Moreover, total ban would mean that courts in these countries would not be able to

award punitive damages even their national law knows the concept.Furthermore, with this decision there is a possibility for civil law system countries todeny punitive damages, if it is contrary by their law, and yet allow some common lawcountries to use the punitive damages.

The judgement in Manfredi confirmed the principle of full compensation and it statedthat the victims of infingement can claim not just actual loss but also loss of profit plusinterest. Punitive damages were confirmed as a possibility and they have their base inthe national law of MS. In the next chapter we will discuss the concept of punitivedamages in the EU.

65 Ibid para 99



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3.3. Punitive damages in actions for damages

The concept of punitive damages was introduced in actions for damages with the judgement in Manfredi case. As we could have already seen, ECJ does not prohibit

punitive damages per se.66

Still, the judgement in Manfredi does not mean that thecourts will actually grant them.

What are punitive damages? The concept of punitive damages comes from the commonlaw system, including US, New Zealand, Canada and Australia.Punitive damages essentially serve four purposes: to punish the off ender for uncivilizedconduct, to deter the off ender and others from similar conduct, to reward the plaintifffor enforcing the law and to supplement inadequate compensatory damages.67 They are not intended to compensate for harm done but are awarded in excess of anycompensatory or nominal damages.68

In the US legal basis for punitive damages are found in Clayton Act which is the mostimportant legal document for antitrust law.69 The concept is opposite of the EU law’s

principle of full compensation and putting victims back in the position they would have been if the infringement had not occurred. In the European Union only the common lawcountries England, Wales, Ireland, Northern Ireland and the mixed system of Cyprus

provide for this specific kind of damages in their respective legal systems.

EU’s attitude toward punitive damages is described as self -contradictory.In the process of drafting Rome II Regulation original proposal, in the Article 24,referred to question of punitive damages: The application of a provision of the lawdesignated by this regulation which has the effect of causing non-compensatorydamages, such as exemplary or punitive damages, to be awarded shall be contrary toCommunity public policy.70

This provision forgot about legal system of Ireland and England which know theconcept of punitive damages and should be allowed to use it, as we have alreadymentioned in the discussion on Manfredi. Therefore, in the final version this provisionwas modified and it was stated punitive damages can be awarded unless it would becontrary to public order of MS. With this provision I believe we are getting an optimalsolution. Those countries who allow punitive damages can still award them and publicorder policy avoids unjust enrichement and over-compensation in countries which do

not allow punitive damages.

Although there were some discussions that punitive damages are unneccessary in EUlaw ECJ has confirmed possibility of having punitive damages in the case law. Manyother agree with this opinion stating that single damages have too low detterance effect

66 Cedric Vanleenhove, ‘Punitive damages and European law: quo vademus?’(2012),<http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2054595> accessed 4th August 201467 Ibid68 Ibid69 Clayton Act, 15 U.S.C. §§ 12-27, 29 U.S.C. §§ 52-5370

Proposal for a Regulation of the European Parliament and the Council on the law applicable tononcontractual obligations (‘Rome II’), 22/07/2003, COM/2003/0427 final.



26

and that many victims of infringement would only be motivated to start actions fordamages if they had a chance to get multiple damages. In the US many lawyers woulddisagree because of the opinion that treble damages reduce firms' incentives to violateantitrust laws, but also increase their incentives to use antitrust laws strategically against

their rivals.71

European Commission obviously tries to squeeze punitive damages in the EUcompetition law because we can find concept of double damages both in Green andWhite paper. Moreover, paragraph 150 of Green paper considers this concept. This

proposal called for the awarding of double damages for horizontal cartel cases and wasseen as a means to provide for an incentive for private enforcement of competition law,inspired by the treble damages of U.S. antitrust law.72 Furthermore, paragraph 181 ofWhite paper mentions the same concept again: The definition of damages could also go

beyond mere compensation in order to provide greater incentives for victims to start anantitrust damages action.73

In that context, the Green Paper asked for comments on the suggestions to award doubledamages for horizontal cartels, and to set an interest rule that compensates morethan real value. It is strange that Practical guide from 2013 yet does not mention doubledamages at all. This can be used to argument behavior from Commission as confusing.

Germany has interesting point of view toward punitive damages. Namely, underGerman law, exemplary or punitive damages are deemed to be contrary to

public policy.74 That did not stop Germany’s Monopolkommission, independent expert

committee which advises German government and legistrature in area of competitionlaw, to publish report in 2004 with lists of measures which do not have purelycompensative nature. Namely, claims for damages for copyright infringement arecollected by GEMA which is entitled to recover double damages under which a 100%addition to the ordinary licensing fee can be made. These facts obviously prove

previous constatation that EU has contradictory attitude toward punitive damages.Punitive damages are taken from common law and they are something unknown in civillaw countries but they are not necessarily a bad idea. We can find many discussionregarding them and we can see they have a benefit. By this moment mixed signals weresent. In Manfredi ECJ gave clear rule regarding punitive damages. Those countries whoknow the concept can award punitive damages. In others concept can be avoidedthankfully to the public policy rule. Yet many countries like Germany do not know

whether they want them or not. They see the benefits in one case but in another they pull the public policy argument.

From our point of view, EU has to make clear statement what does she want regarding punitive damages to avoid further contradictions.

71 Preston R. McAfee, Hugo M. Mialon, Sue H. Mialon, ‘Private v. public antitrust enforcement: Astrategic analysis’(2008), Journal of Public Economics Vol.92(10), pp.1863-1875 72 Cedric Vanleenhove, ‘Punitive damages and European law: quo vademus?’(2012),<http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2054595> accessed 4th August 201473 White Paper on Damages actions for breach of the EC antitrust rules {COM(2008) 165 final} {SEC

(2008) 405} {SEC (2008) 406}74 Ibid para 150.



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4. Methods and techniques used to quantify harm

We have discussed all important questions for the matter of damage quantification.We know what damages are, who can claim them and what position actions for

damages have in the EU. We still have not discussed the methods for quantification ofharm which are on judge’s disposal.

In the last chapter we will focus on Practical guide and we will discuss methods andtechniques which can help quantify harm in actions for damages. As we have previouslymentioned, Practical guide is not binding. It is a recommendation for national courtshow to make assessment of damages.

In the guide we can find comparator-based methods and simulation models, cost-basedand finance-based analysis and other methods. Every method uses different basis andtechniques to make assessment. Following, we will discuss all of them but we will start

with comparator-based methods because comparator-based method is the mostcommonly used methods by judges in actions for damages, both in US and EU.

4.1. Comparator-based methods

Comparator-based methods use data from sources which is external to the infringementto estimate counterfactual.

These methods take infringement scenario and they compare it with a non-infringementscenario that is established on the basis of data observed (prices, profit margins, salesvolumes or other variables) either on the same market at a time before and/or after theinfringement or on a different but similar geographic market or on a different but similar

product market.

Comparator based methods are divided into three classes: comparison with data fromgeographic or product market, comparison over time and combination of previous two,comparison over time and across markets, also known as difference in differencesapproach.

Comparison with data from geographic or product market look data from differentgeographic or product market.75

To make correct assessment we need to know which markets should be used forcomparison. Therefore, it is important to mention what are geographic and productmarket. Definitions of markets can be found in Commissions notice on the definition ofrelevant market for the purposes of community competition law from 1997.76

Relevant geographic market comprises the area in which the undertakings concerned areinvolved in the supply and demand of products or services, in which the conditions ofcompetition are sufficiently homogeneous and which can be distinguished from

75 The method is also known as yardstick approach.76

Commissions notice on the definition of relevant market for the purposes of community competitionlaw (97/C 372/03)



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neighbouring areas because the conditions of competition are appreciably different inthose area.77

Furthermore, the notice defines product market as relevant product market comprises all

those products and/or services which are regarded as interchangeable or substitutable bythe consumer, by reason of the products characteristics, their prices and their intendeduse.78

The more a geographic or product market is similar to the market affected by theinfringement, the more it is likely to be suitable as a comparator market.This means, for example in a comparison across two geographic markets, that the

products traded in the markets compared should be the same or, where this is not possible, sufficiently similar. It does not mean that comparator markets always need to be in its entirety.

Geographic markets on which the same or a similar infringement occurred are, in principle, not good candidates for being used as comparator markets. Also neighbouringmarkets on which no similar infringement occurred may still have been influenced bythe anticompetitive practices on the infringement market.79

Making a comparison with these types of markets usually does not lead to estimate fulldamages but it can be used as a basis to determine lower-bound estimate of the harm.

Comparison over time is a second approach and alternative to comparison on relevantmarket. This approach compares period in which infringement occurred with period inwhich infringement did not take place. Therefore, this approach can use three different

periods for comparison.

First one is so called before and during approach and it is using pre-infringement periodwhich was not under the effect of infringement.Comparison during and after approach is a second one which takes post infringement

period, which was unaffected, and it is comparing prices affected by infringement with prices paid at same market after infringement ended.Last one is before, during and after approach and it is using both pre and postinfringement period as comparison.

It is extremely difficult, or almost impossible to make correct assessment what wouldhappened if infringement had not occurred. Therefore, it is sufficient to re-createsufficiently similar time period which allows non-infringement scenario to bereasonably determined.

Even if we cannot determine non-infringing scenario correctly, if we have relevant datawe can use it can still lead to the fact that we can create lower-bound estimate of harm.

77 Ibid para 8.78 Ibid, para 7.79 Practical guide quantifying harm in actions for damages based on breaches of article 101 or 102 of the

Treaty on functioning of the European Union



29

This approach can be better option than relevant market approach because we candetermine when the infringement ended.

An advantage of this method compared to the simplest time series analysis that allows

for structural breaks is that the beginning and end phases of the cartel are determinedendogenously.

Using comparison over time approach can be a great option when we have all relevantdata from the time before and after infringement. Comparing these facts withinfringement period can lead us to create non-infringing scenario and make correctestimate of damages.

On the other side, this approach has some disadvantages.

Some problems with this method are that if another geographic or product market is

truly comparable to the cartelised one, there are good reasons to believe that theincentives to cartelise are also similar, so that it cannot be avoided that one cartelisedmarket is compared to another, thereby substantially underestimating damage.

Moreover, the case of cartels it is extremely difficult to find out exact moment when didthe cartel start operating and when did the infringement occur. Since some cartels lastfor decades before they are discovered it may be difficult to get the relevant data forcomparison.

Furthermore, even if the infringement ended, in cases of large cartels this does not meanwe will be able to take instantly post infringement data. Sometimes it takes time toeliminate consequences of cartel and equalize the prices.

Which period will be used it is a question it depends from a case to case and from aspecific circumstances, for example, type of industry.There are some arguments for using post-infringement period, e.g. the likelihood ofdamage assessment based on post-cartel prices may in fact create an incentive for

parties to price above the non-collusive price in the post-cartel period. 80

Still, strategic behavior can lead to an underestimation of cartel damages if theassessment is based on post-cartel prices. Therefore there are many arguments to use of

pre-cartel price information as the more appropriate benchmark.

We should take all case circumstances into account. If we can determine exact momentof infringement I agree with the opinion to use pre-infringement price. Otherwise, itmay be the best thing to use post-infringement price.

Comparison over time and across markets or difference in differences method, can beconsidered a combination of time series analysis and cross sectional analysis, either theaverage prices in the two markets can be compared or additional factors can

80 Theon van Dijk, Frank Verboven, ‘Quantification of damages’,(2005),

<http://www.econ.kuleuven.be/public/ndbad83/frank/papers/Van%20Dijk%20&%20Verboven,%202006. pdf> accessed 5th August 2014



30

be considered by using a regression analysis.

Depending on a circumstances of case or applicable national law, data can be compareddirectly or we can use other simple techniques, such as deriving a comparator value

from a range of data observations is linear interpolation.

If we have more price series before and after infringement and price during theinfringement we can create a line between pre-infringement and post-infringement priceand a comparator value can be read for every relevant period.

If method has been chosen it needs to be decided how to implement it in practiceTwo dummy variables, one for the cartelized market and onefor the cartel period areintroduced as well as an interaction term that is defined as the product of the twodummy variables. The estimated coefficient of this interaction term gives an estimate ofthe cartel induced price increase. Application of the difference-in-differences method,

however, often encounters data constraints so that the basis for a time series comparisonacross different geographic markets is not always given.81

Judges also have two simple methods on their disposal: linear interpolation andregression analysis.

Linear interpolation can be used to make an assesment if we have relevant data.For example, if we know that infringment had effect in year 2000 and stopped havingeffect in 2005 we can use the price which was paid in the infringing period and compareit with pre and post-infringement period.

Connecting the actual prices from pre and post infringement period gives usapproximate estimated price. Comparing this price with price which was actually paidin the infringement period gives a good basis to estimate damages.

Second technique we can also apply is regression analysis.Regression analysis therefore makes it possible to assess whether, and by how much,observable factors other than the infringement have contributed to the difference

between the value of the variable of interest observed on the infringement market duringthe infringement period and the value observed in a comparator market or during acomparator time period.

Regression analysis is thus a way to account for alternative causes for the difference between the compared data sets. All comparator-based methods are, in principle,capable of being implemented through regression analysis provided that sufficient dataobservations are available.82

Regression analysis has two approaches. It uses either only data fom non-infrigement period to build regression equation which is later used to forecast effect of variable of

81 Frank Maier-Rigaud, Ulrich Schwalbe, ‘Quantification of antitrust damages’(2013)<http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2227627> accessed 6th August 201482

Practical guide quantifying harm in actions for damages based on breaches of article 101 or 102 of theTreaty on functioning of the European Union



31

interest during the infringement period on the basis of the pattern identified outside this period. This is called forecast approach.

Second approach uses data from infringement period to estimate regression and effect of

infringement accounted for in the regression equation through a separate indicatorvariable. This approach is known as dummy variable.

Which approach will be used it depends from a case circumstances.

Forecast approach shows us connection between the input costs and price.For example, if the price of flour was 140 in the infringement period and price of cerials(input) was 60 and we can see that input in the infringing period was 50 than we canmake a forecast and state price of flower in non-infringement period should be 120.

Dummy variable shows us actual price in all periods, pre-infringement, during and post

infringement and compares this price with estimated prices in pre and post-infringement period. Therefore, it is possible to make estimate what would price be if infringementdid not occur.

It is extremely important to know the industry and have all the important variables toapply these methods and get correct, estimated price.

Although it is clear that although comparator-based methods have many advantages oneof the disadvantages of these methods is that we need to have all relevant factors. It isdifficult to distinguish between of infringement and separated factors.

As we have already mentioned, which method will the court use depends from thecircumstances of case, national law, whether sufficient data are available to the partycharged with the burden of proof and whether the costs involved are proportionate to thevalue of the damages claim at stake.

We must be cautios when using this approach.Firstly, former cartelists expecting damages claims in the aftermath of the cartel episodewill find it in their interest to maintain higher prices than would otherwise be warranted,to the extent that the profit loss associated with such higher prices is overcompensatedfor by lower damages claims if post-cartel prices are used in the estimation of damages.

Secondly, the breakdown of a cartel could result in a price war and the exceptionallylow prices during this period do not reflect prices that would prevail under normalcompetitive conditions.

Thirdly, some cartel cases exist where the competition authority was not satisfied withfining the cartelists and implementing a cease and desist decision but also tried toreduce the future possibility of tacit collusion. As a result, prices observed after thecartel ended may remain supra-competitive and it may be prudent to give such prices alower weight than pre-cartel prices in estimating the counterfactual price. 83

83

David Ashton, David Henry, ‘Competition damages actions in the EU: law and practice’(2013), Edward Elgar Publishing Limited, pp 239



32

4.2. Simulation models, cost-based, finance-based analysis and other methods

Beside comparator-based methods there are also other methods which are supposed toestablish and simulate non-infringement scenario.

Cost-based method as alternative comparator-based method for determining thecounterfactual scenario involves using the variable cost of production and adding anappropriate mark-up in order to derive a counterfactual price in a 'bottom-up' way.The mark-up could be estimated using information on margins in comparable

competitive markets or theoretically determined information.84 The resulting estimatefor a per unit non-infringement price can be compared to the per unit price actuallycharged by the infringing undertakings to obtain an estimate of the overcharge.

Various cost measures can in principle be used: for example, short-run incrementalcosts, long-run incremental costs or average unit production costs. Which of these is

most appropriate in a particular case depends, amongst others, on the time-horizon takenin the analysis.85

This method is likely to be applied because of its simplicity. The main informationrequired for computing the competitive but-for price is accounting information tocompute cost, and assumptions on what constitutes a reasonable competitive profitmargin.86 First step in cost-based method is to determine production cost per unit. Thiscost can be calculated by dividing actual relevant production costs incurred by theinfringer for the relevant business activity by the total number of products produced.This approach is simple to use for companies produce only one main product. Thesecompanies sometimes publish their costs in their audited accounts with public registries.Therefore, it can be easy to use these costs and apply cost-based method. In other casesit would be very difficult to assess these data.

It may be that these data were affected by infringement of Articles 101 and 102. In thiscase we would have to make appropriate adjustment of costs. Otherwise, it would not bedesirable to use costs, although they can still use to make lower-bound estimate of the

possible price overcharge.

The second step of the cost-based method requires a reasonable profit margin to beestimated and added to the per unit production costs.87 Various approaches to make

estimate profin margin exist and they are similar tp comparison over time or acrossmarkets, or on economic models methods.

Moreover, estimate for the profit margin that could reasonably be expected in a non-infringement scenario maybe derived from the profit margins made by similar

84 Ibid pp 243 85 Theon van Dijk, Frank Verboven, ‘Quantification of damages’(2005),<http://www.econ.kuleuven.be/public/ndbad83/frank/papers/Van%20Dijk%20&%20Verboven,%202006.

pdf> accessed 6th August 201486 Ibid87




33

undertakings in a comparable geographic market not affected by the infringement or incomparable product markets. Furthermore, another approach to estimating a reasonable

profit margin is to consider nature of competition and the characteristics of the marketabsent the infringement and to derive a likely profit margin from the insights from

industrial organisation models. Both estimation have issues that need to be considered,for example, how to obtain access to data that may be in the possession of the opposing

party or a third party.

Simulations (theoretical modelling) is closely related to cost-based approaches as itoften requires some cost information. However, this methodology uses an explicitmodel of competition, which is used to ‘simulate’ the profit margins. In addition to data

on costs, simulations thus require information on market structure and demand (such asdemand elasticities). As before, various empirical techniques exist to implement this:individual parameters of the theoretical model can be adjusted to replicate the knownfacts of the industry. Alternatively, one may estimate the parameters econometrically,

which is more demanding with respect to data.88

This methodology uses an explicit model of competition, which is used to simulate the profit margins.89 Economic studies show how market functions and what competitive behavior of companies is. These studies can help us predict outcome of market, forexample, market price or profit margins. Various models can predict various outcomes.Choosing right type model is of extreme importance.

Simulation models can be built to make estimate price which would have existed ifinfringement had not occur. The simulation model should be constructed in such a waythat it replicates the most significant factors influencing supply (in particular, the waycompetition takes place between firms (competitive interactions) and the cost structureof firms) and demand conditions (in particular, the extent to which customers respond to

price changes).90

Each simulating model relies on theoretical and factual assumptions regarding marketcharacteristics and behavior of producers and consumers. They can provide usefulinsight regarding damages. Even model still depends very much on the rightassumptions being made, in particular regarding the central questions of what is thelikely mode of competition and the likely customer demand in the non-infringementscenario.

It is also important to mention that there are also other methods beside mentioned butthey are not mentioned in Practical guide, for example, those who estimate upper andlower bound or approximate estimate for harm suffered. These methods can allso beapplied under applicable rules and if principles of equivalence end effectiveness of EUlaw. Which of mentioned methods will be used it is up to court to decide.

88 Hans W. Friederiszick, Lars-Hendrik Röller, ‘Quantification of Harm in Damages Actions for AntitrustInfringements: Insights from German Cartel Cases’(2010)<http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1588126> accessed 7th August 201489OECD, ‘Quantification of harm to Competition by National Courts and Competition Agencies’,(2011),

pp 37.90




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4.3. Choice of method

Every method we have mentioned can be used to quantify harm occured by infringmentof competition law. Although these methods cannot completely and correctly predict

what would happend if competition law was not breached, they can only help makeestimate version of non-infringing scenario. Also, they can help judge not justdetermine price overcharge but also sales volume and loss of profit.

Although courts in USA and Europe use comparator-based methods more often nomethod is more significant or better than others. Simulation models can be used if wehave relevant data and circumstances of the case allow to rely on economic situation.Methods based on financial analysis take the financial performance of the claimant orthe defendant undertaking as the starting point for estimating whether the claimant hassuffered harm and the amount of that harm.91 These data can be relevant if we, forexample, use the data which refer to profitability.

We have previously mentioned that Practical guide is not binding and it is up to courtdo decide which methods will be used. What court should take into account, whenchoosing method, are the provisions of Directive on antitrust damages. Beside

presumption that cartel cause damages these provisions give possibility to court to askhelp from NCA in damage quantification. Since NCA has more experience withcompetition law it would be good idea to actually consider involving NCA in the

process of choice of method and the process of quantification of harm.

Moreover, Directive claims it is for the domestic legal system of each MS to determinetheir own rules on quantifying harm and for MS and for the national courts to determinewhat requirements the claimant has to meet when proving the amount of the harmsuffered, how precisely he has to prove that amount, the methods that can be used inquantifying the amount and the consequences of not being able to fully meet the setrequirements. However, these domestic requirements should not be less favourable thanthose governing similar domestic actions (principle of equivalence), nor should theyrender the exercise of the Union right to damages practically impossible or excessivelydifficult. 92Thus, national courts should take these provisions in their mind whendeciding which method will they use.

If oposing parties use different methods and get similar results this can lead a legal

system to attribute stronger evidentiary value to the damages estimate. In contrary, itwould not be appropriate to choose average of two results nor would it be appropriate toconsider that the contradictory results cancel each other out in the sense that bothmethods should be disregarded.93 In this case court should re-think about choice ofmethod. It will have to look circumstances of the case, data on its disposal, facts whichled to two opposing results,strenghts and weaknesses of all methods and compare itwith case circumstances and in the end find the best option and implement it in the case.

91 Ibid92 Directive of the European Parliament and of the Council on certain rules governing actions for damagesunder national law for infringements of the competition law provisions of the Member States and of the

European Union93 Ibid



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4.4. Ex aequo et bono quantification

Last relevant question for damage quantification is question of application of ex aequo

et bono rule, also known as ex aequo et bono quantification.

What is the concept of this rule and its historic origin? Namely, the term ex aequo et bono is taken into law from latin and, if translated, it would mean in the name of equity(fairness) and concience. The concept is taken into most legal systems and applied inthe manner that in certain case court has the right to decide on the basis what is fair and

just under the circumstances of the case and not on the strict rules of law.

In the documents European Commission has published we can find ex aequo et bono

quantification. First document which had it mentioned was Green paper and later it wasmentioned in White paper aswell. Moreover, White paper has even made a paralell

between ex aequo et bono quantification and methods used to quantify harm.

Namely, White paper states that from a legal perspective, the use of simpler modelscould be underpinned by an ex aequo et bono estimation of damages. The latter wouldimply that it is not always necessary to prove the exact amount of the damage, since itallows the court to award a reasonable amount, based on some economicapproximation.94

The basic rule, operating in many MS is that where exact quantum is difficult to prove, proof of exact damage can be waived and the court can award a reasonable amount in its place (this is often called an ex aequo et bono estimation). In a few MS, this possibilityonly applies to certain categories of damage, most notably loss of future profit.95

The rule is neccessary from one reason, at least. Namely, in a few MS this lowering ofthe required standard of proof of the claimant in relation to the quantification ofdamages does not exist. That means that if the claimant is unable to prove the exactloss, the claim fails.96 To avoid this scenario court has the power to apply the rule and award damages becausefollowing the law strictly would not be fair if we take into account case circumstances.

One of the new cases in the EU which mentioned use of this rule was the italian casecalled Fondiaria SAI SpA v. Nigriello case.97 Supreme Court, which was also resolving

question of causal link between infringement and damages on basis of probabilistic presumption in order to deduce the relationship between antecedents and consequents,was discussing the question of application of this rule.The Supreme Court confirmed that when the exact quantum of the loss is difficult to

prove, the Italian Courts can rely on Article 1226 of the Italian Civil Code and award anequitable amount of damages (ex aequo et bono).

94 White Paper on Damages actions for breach of the EC antitrust rules {COM(2008) 165 final}{SEC (2008) 405} {SEC (2008) 406}95 Jürgen Basedow, ‘Private enforcement of EC Competition law’, (2007), Alphen aan den Rijn [u.a.]:Kluwer Law Int. pp 308.96

Annex to the Green paper on damages actions for breach of EC antitrust rules COM (2005) 672 final97 OECD, ‘Quantification of harm’,(2011), pp 124.



36

5. Conclusion

Creation and further development of EU is longlasting process which last untill this day.Through the time EU became strong politic and economic Union with its own rules and

applicable law. Creation of single market led to many abuses by undertakings which didnot want to respect competition law provisions. Therefore, EU had to focus more on

public enforcement although there is another mode of enforcement of competition law, private enforcement, which has been left behind.

We have seen some arguments pro and contra private enforcement. EU needs to givemore attention to private enforcers. Private claimants sometimes have more informationthan Commission has. Damages payed can help discourage undertakings to breach EUcompetition law. Excuses have been used by lawyers against claims just in EU.

In US 98, for example, some fear that claims lead to many settlements which are not based on meritous claim because undertakings are afraid of claims, especially if there is possibility of class actions. Some fear these actions discourage legal competitive behavior. For these and related reasons many members of antitrust community call forthe curtailment of private enforcement, some even of its abolition.99

These arguments and others which mention lack of social welfare, fines set too low todeter, are not convincing. Eu does not need to leave out private enforcement. Althoughit is ungrateful to compare EU with any MS, because EU is not a state like, we still needto make a parallel between national and EU law.

Private enforcement is not something new, both public and private enforcement existand they are both applied in every MS. National laws would not discourage privateenforcers to claim for damages although there is strong public enforcement. Not anylawyer would reject a client wanting to sue because damages obtained would be toolow, they do not have social welfare, they do not discourage other parties to breach lawor affect behavior of other party. Some would not agree with this comparison and wouldclaim it is impossible to make a parallel comparison between EU law and the law ofMS.Yes, we agree EU is not a clasical state but EU has its own bodies which create EUlaw, has its own court, it has even introduced concept of EU citizenship. Why shouldnot we use comparison?

Those supporting public enforcement agree sometimes fine imposed by Commission,does not deter companies, which make huge profits, to breach law. EU has createdsingle market and it would be perfect if there were no breaches of law in practice. Still,we must accept big players are on the market and they do not want to follow rules oncompetition. They are interesting only in making profits and do not care aboutcompetition law. They will try to earn more and if earing more means breaking rules.Since public enforcement cannot fight these big players by its own it is time to activelyinclude private enforcers.

98 Albert A. Foer, Jonathan W. Cuneo, The International handbook on private enforcement of competition

law,(2010), Edward Elgar Ltd , pp 1-61399 Ibid



37

We will not come to situation there will be no more infringements but worrying aboutsome issues like Commissions fine and compensation they will need to pay will detersome undertakings. Of course we have not see benefits from private enforcement when

there are not many claims.

We have many cases where infringement occur but we would not be able to name 100cases where private enforcers were actually compensated for harm suffered. Maybe EUneeds to consider strengtening concept of collective damages which is now still notdeveloped.

We have previously said not all private enforcers will behave in manner they should,many will try to get compensation even if they were not harmed but national courtscould deal with those type of parties. For countries which do not have courts withspecial jurisdiction, one of the solutions could be to create these courts which would

focus only on cases from competition lawand avoid courts being cluttered with damageclaims. This would not be easily conducted in national law, there would be manydifficulties. Still, it would be easier to resolve these issues than leave privateenforcement in behind, especially because we do have and will have more benefits withstronger private enforcement. Public and private enforcement need to coexist and onlywith this integrated approach we can make results.

We have seen most courts follow compensatory principle when determing ammount ofdamages. Compensatory principle is based on the idea that a person that suffered antitrust

injury has to be made whole of the loss sustained.100 This type of damages is supposed to deter further infringements, serve as correcting justice,

namely putting parties in position they would have been and protect internal market.

Oposite to compensatory principle is the concept of punitive damages and there aremany disputes on this topic. Manfredi judgment made by ECJ showed punitive damagesshould not be banned per se.

We need to take into account some countries in EU have common law system and it isnot fair to discriminate and forbid them to use punitive damages just because the rest ofcivil law countries in EU does not like it. Moreover, Manfredi showed that in somecases awarding damages following principle of effectiveness and proportionality maynot be fair. For example, damages awarded following these principles may be set toolow and in these situations courts should consider following ex aequo et bono rule andaward treble damages.

We are aware punitive damages are not classical civil law institute. They are contrary to public policy and civil law countries focus only on full compensation. Therefore it is notsurprising many lawyer’s rebel and protest against punitive damages. But to be clearand honest we have already taken and incorporated in EU competition law one common

100 CEPS, EUR, LUISS, ‘Making antitrust damages more effective in EU: welfare impact and potentialscenarios’,(2007),

<http://ec.europa.eu/competition/antitrust/actionsdamages/files_white_paper/impact_study.pdf> accessed8th August 2014



38

law institute, leniency note. We have many benefits from leniency: infringers reportanticompetitive behavior because they want to avoid being fined by Commission,competition authorities get necessary evidence and impose fines on infringingundertakings and victims of infringement can get compensation. We have already taken

and implemented something foreign in EU competition law. Then why do we have sucha hostile attitude toward punitive damages?

Law is not static, it grows and evolves. We saw leniency had many benefits and wehave already incorporated in in EU law. Why not consider doing same with punitivedamages. Of course, we should not take every foreign concept and implement it in EUlaw but we should make more studies to see how they could be implemented, what areexpected results and then make decision.

Punitive damages would make much effective deterrence although it would probably bring some other problems, for example overdetterence. Even if most of the claims in

private cases are meritorious, many believe that treble damages, especially in light ofthe other existing antitrust sanctions, lead to overdeterrence.101

Message sent by Commission is confusing and it feels like punitive damages areunwanted child of EU law. Germany’s case and idea to allow double damages in casesof cartel are contradictory.102 It is up to EU and us to decide what we want. If we do not want them we need to makeclear statement there is no place for punitive damages in MS which have civil lawsystems.

Another issued question in action for damages in EU is price overcharge and passing onovercharge. We agreed with Commission, direct purchasers should not be only to becompensated. We should allow all victims of infringement to be compensated,otherwise direct purchasers will be overcompensated and will be unjustly enriched.EU does not support that idea, same as punitive damages, therefore we should retain thesame approach in case of indirect purchasers, otherwise we are having contradictorydecisions in same cases.

We have seen it is up to judge to choose a method he believes it is the best regardingcircumstances of the case.Judges use comparator-based methods more often but they should not favor them.

All methods have their advantages and flaws.We should not favor comparator-based method and not even trying to apply othermethods to the case because it may be actually shown that other methods suit the case

better than comparator based method.

101 Joshua P. Davis, Robert H. Lande,‘Defying conventional wisdom: the case for private antitrustenforcement’,(2013), < http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2217051> accessed 3rd August 2014102 CEPS, EUR, LUISS, ‘Making antitrust damages more effective in EU: welfare impact and potentialscenarios’,(2007),

<http://ec.europa.eu/competition/antitrust/actionsdamages/files_white_paper/impact_study.pdf> accessed8th August 2014



39

Last, we need to discuss Practical guide completely. As we have seen, Practical guidegives many solution. Commission has made many efforts to make it complete,comprehensive guide for judges.

Commission made only one mistake – she did not make Practical guide legally binding.What is the point of a document which is not binding for all MS? How should theymake equal rules and avoid victims being differently treated in same cases if same rulesand procedures are not applied in same cases?

Judges have all the freedom in damage claims when making assessment of damages.They can choose method they like, they make decision which evidences will bedisclosed and how high will be compensation. There is a question why did Commissioncreate Practical guide and how should guide help if it is not binding?

Judges do not have to rely on it, they can still hold on the rule of ex aequo et bonoquantification and decide on damages regarding circumstances of case.Problem is that different cases lead to different solutions. Judges interpreted differentlyfairness and equity.

Applying ex aequo at bono quantification instead of Practical guide will not resolveissues Commission wanted to overcome when she published the guide.Therefore, Commission should reconsider its decision and make Practical guide

binding.

We have seen that Commission has made many efforts to help both victims and judgesoverpass issues which arise in actions for damages.

Still, Commission will have to be more consistent when it comes to her publications.With such practice she will be able to achieve goals she wants to achieve.If she avoids solving this issue it will not matter how much time and energy is and will

be invested in the future, she will not be able to surpass it.Victims of infringement will stay in unenviable positions and all efforts Commissionmade will be useless.

We have seen that national courts awarded damages in some cases. ECJ and its case law

acted as their guide and offered them assistance. With consistent practice byCommission and good will of MS we can build one effective system of privateenforcement which will co-exist with public enforcement of competition law.

Only integrated approach of public and private enforcement will be able to deterundertakings from further breaches of competition law. They need to know their

behavior will not be tolerated, both by Commission, which will continue to find themand by private enforcers, who will claim and get compensation for harm suffered.



40

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Documents

Quantification of Harm in Actions for Damages