Price Fixers Beware

For many years, the U.S. was the world's antitrust supercop, policing antitrust infractions, assessing heavy fines against offenders, and providing a forum for injured parties to recover damages through civil suits. That's not the case any longer. The European Union is doing its share to make the world a more uncomfortable place for collusive business practices.

Over the past few years, the EU Competition Commission has conducted a large number of antitrust investigations and bagged quite a few offenders, including a number of chemical companies. And now Competition Commissioner Neelie Kroes hopes to make it easier for victims of price-fixing conspiracies to go to court and sue their suppliers for damages, just as victims long have been able to do in the U.S.

Last December, the commission issued a green paper−a government document that proposes approaches to a problem−on antitrust practices. It also solicited public comments on the paper and posted those comments on its website this spring. The commission is now mulling over those comments. According to the commission's spokesman, Jonathan Todd, the EU body could come out with its proposals to facilitate lawsuits by private parties against cartel operators either later this fall or at the beginning of 2007.

According to Kroes, "Businesses and individuals who suffer losses because of illegal activities such as cartels have a right to compensation. Currently, this right is all too often theoretical because of obstacles to exercising this right in practice."

Certainly, firms found guilty of cartel behavior have paid millions of dollars in fines. But the penalties flow to the EU's treasury and do not compensate victims.

Cartel operators would be forced to deal with additional investigations and penalties in civil court if Kroes has her way. They would, as she put it, pay more "for the harm they do." And civil suits would act as a further deterrent against those who would seek to boost profits through collusive behavior, she has said.

Any firm that suffers because of cartel behavior can sue in an EU member state court to recover damages, Todd says. But in practice, he says, such actions rarely take place.

In a study for the commission, Ashurst, an international law firm, found that the number of damage claims filed in civil courts throughout EU's 25 member states was very low. The "astonishing diversity" in approaches that member states take on the subject complicates the ability of those who suffer harm to bring court action, the study found.

To smooth the process for cartel victims filing suit, the commission offered a number of proposals in its green paper. One proposal would make it easier for plaintiffs to obtain documents already submitted to competition authorities. Another suggests that antitrust decisions by the commission and member-state competition authorities could be made binding on the civil courts. This proposal would help plaintiffs establish that they have been harmed.

The green paper also considers whether it would be possible to allow individuals with small claims to form a group and together bring damage claims against a defendant in what could be a European version of the class-action suits now allowed in the U.S. The paper also suggests that claimants might be exempted from court costs even if their suit is unsuccessful.

Valerie Y. Suslow, associate professor at the Stephen M. Ross School of Business at the University of Michigan, points out that plaintiffs outside the U.S. have tried unsuccessfully to use the U.S. court system to obtain redress from illegal cartel operators. In June 2005, the U.S. Supreme Court ruled in a case involving vitamin price-fixing that non-U.S. plaintiffs could not sue international companies in U.S. courts for antitrust violations occurring outside the U.S. Firms named in that suit included Aventis, BASF, and Roche.

At the time, Suslow says, the legal and business community debated the merits of allowing foreigners to have legal standing in the U.S. courts. Many in the EU believed that, because the case involved companies with headquarters in Europe, the European court systems ought to adjudicate such cases, she says.

In comments on the green paper, the European Chemical Industry Council (CEFIC) notes that since 2001, the commission has collected more than $5 billion in fines from companies that have fixed prices. That figure proves that "enforcement by public authorities is already today highly effective and deterrent." The group says it is not convinced that private lawsuits would enhance enforcement of EU competition law.

A spate of private suits against cartel operators "runs the risk of creating a system of over-enforcement at much higher social costs than any under-enforcement of the current regime" would entail, CEFIC claims. The group also warns against the creation of a "litigation industry" and appeals to the commission not to allow a U.S.-style system, which CEFIC said racked up legal costs of $250 billion in 2003.

The European Federation of Pharmaceutical Industries & Associations (EFPIA) and the Pharmaceutical Research & Manufacturers of America (PhRMA) submitted a joint statement that agreed with many of CEFIC's points. In general, the two drug groups say, government enforcement authorities such as the EU Competition Commission and member-state equivalents are "best suited to remedy harm to competition."

The two groups add that, on the basis of the their members' experiences in the U.S., the green paper proposals carry "a great risk of inhibiting competition due to the threat of litigation and of imposing great costs on the EU economy."

Because the EU has become especially vigilant against cartel behavior over the past decade, it is logical to expect the EU to encourage private lawsuits against cartels, Suslow says. Mario Monti, Kroes' predecessor, left behind an aggressive antitrust agency, and Kroes hopes to augment the agency's bite through enabling court action against collusive behavior.

In adding this new weapon against cartels, however, the commission says it does not want to introduce what it calls "a U.S.-style litigation culture in Europe," and thereby "increase the risk of unmeritorious claims being brought." It says that it trusts judges to take "appropriate actions−according to their own national legal systems−to avoid unmeritorious litigation and abuse of process."

The commission also proposes some protection for a cartel participant that has received immunity for turning evidence over to the commission. Such a participant's leniency application would not be available for plaintiffs to use as evidence.

But the green paper does propose that double damages be awarded to plaintiffs "to create a sufficient incentive to bring the action in relation to the most serious infringements." And it says that the award "could be automatic or at the discretion of the court hearing the case." In the U.S., awards for violations against federal antitrust laws are automatically trebled.

At a conference in Brussels this March to consider the green paper, Kroes said the paper was meant to describe hurdles blocking effective damage suits and suggest various options that could eliminate those hurdles.

And in answer to organizations like CEFIC, EFPIA, and PhRMA, which do not want to enable civil actions against companies that fix prices, Kroes insisted, "Citizens and businesses should be able to claim damages."