The European Union's New Antitrust Law Reforms
By ANTHONY J. SEBOK and SPENCER WEBER WALLER
|Tuesday, Apr. 29, 2008|
It is old news to say that America has begun to have second thoughts about its relatively liberal rules of civil litigation. Tort reform has been the order of the day at both our state and federal legislatures. Meanwhile, the federal courts, led by the Supreme Court, have made it more difficult for consumers and workers to sue by limiting class actions, heightening pleading requirements, and expanding the scope of federal preemption.
Ironically, while the United States is trying to make it harder to sue, the European Union ("EU") is trying to make it easier to sue, at least in one important area of the law. In this column, we will describe the latest reforms in antitrust law proposed by the European Commission. Our goal in this column is not to evaluate the proposals, but merely to bring to the attention of American readers the development that Europe, like America is reforming its civil justice system, and the interesting contrast that its reforms point in exactly the opposite direction as ours.
The EU's Review of the Effectiveness of Its and Its Members States' Antitrust Enforcement
A few years ago, as part of an overall modernization of EU competition law, the Competition Directorate of the European Commission began an intensive review of the effectiveness of antitrust law as enforced by the EU and its member states. The Competition Directorate, the EU's antitrust enforcer, was concerned that public enforcement of the EU's competition laws simply wasn't effective enough, on its own. The goal of the review, therefore, was not to change the substantive law, or to change the enforcement of the public laws, but rather to create for the first time an effective private right to damages to complement the existing work of the Commission and its member states.
The enforcement gap, it was suspected, arose from the fact that victims of antitrust violations—especially consumers—were not receiving compensation for well-established price fixing and cartel violations. The problem was not the law, but the practical inability of private plaintiffs to bring damage actions in the courts of the EU member states.
The EU's Solution: Borrowing Antitrust Concepts from the U.S. and Elsewhere
The Competition Directorate looked at the United States and elsewhere and sought to adapt basic concepts for application in the now 27 EU member states. In 2005, it issued a "Green Paper" asking for comment on the basic issues in designing private right of action. The Green Paper set out a series of questions, asking, for example, for opinions from lawyers, bar associations, and business groups about the possible impact of adopting "American-style" procedures for discovery and class actions.
Hundreds of comments received from around the world, and it was the subject of intense study within the Competition Directorate and the Commission more generally. This month, the EU issued its long awaited "White Paper" and "Staff Working Paper". The White Paper is a short summary of the Directorate's final recommendations, and the Staff Working Paper is a 99-page report detailing the reasons for the recommendations in the White Paper.
While not widely known outside the antitrust community, the White Paper is a fascinating look at what one thoughtful jurisdiction would propose building a class action system from scratch while deliberately trying to avoid what they viewed as the excesses of the U.S. What emerged has pluses and minuses, but represents a road map to the member states to reform their legal systems for antitrust cases, and perhaps eventually to consumer causes of action and beyond.
The White Paper's Key Proposals
The White Paper does not advocate the adoption of the U.S. system of treble damages; it would not add any damages multiplier. However, the White Paper adds the ultimate kicker to damages, one that may ultimately make its solutions even more effective than those of the US system – prejudgment interest (that is, interest running from the date of the violation, to the date the judgment is rendered.)
As to class actions, the White Paper suggests two complementary mechanisms to address a familiar problem: Small claims must be aggregated if they are to be litigated at all. (Importantly, if such claims are not litigated, a violation that causes millions in overall damages may go unpunished, because it costs each victim only a small amount, and it is thus not worthwhile for any individual victim to sue.)
First, the White Paper suggests "representative actions," in which entities like consumer groups and trade associations may bring claims on behalf of identifiable victims of anticompetitive conduct. This mechanism is unknown in the United States, but already exists in certain EU member states, and the entities that invoke them include groups like the Consumers Association of the United Kingdom, which brings group damage claims on behalf of victims of price fixing.
Second, the White Paper proposes a mechanism that an American would readily recognize as a class action. However, once the class is defined, members join it on an opt-in basis rather being swept in initially on the opt-out basis embodied in the U.S.'s Rule 23 of the Federal Rules of Civil Procedure.
Putting aside some of the issues unique to antitrust law (such as whether both direct purchasers and indirect purchasers should have the right to sue), the White Paper also addresses a number of important general procedural issues beyond the availability and workings of class actions. Although it endorses fact pleading (rather than the more forgiving "notice" pleading of the American system) and strict judicial control of discovery, the White Paper also suggests expanding discovery rights between the parties beyond what is generally available in the civil law system, and providing effective sanctions against destruction of evidence or non-disclosure. It further suggests an expanded statute of limitations that would not even begin to run until after the completion of any public enforcement action, and suggests limiting, in the antitrust context, the traditional European rules that would requiring a losing plaintiff to pay the other side's costs and attorney fees.
Assessing Two of the White Paper's Key Proposals
Two recommendations in the White Paper deserve special comment. First, the idea of opt-in (as opposed to opt-out) in class actions may strike some American consumer activists and plaintiffs' lawyers as almost as bad as a total ban on class actions. After all, the efficiency of the American class action comes from the imposition of group-wide liability on defendants with the minimal involvement of those whom the defendant injured. If this advantage were to be removed, as the European proposal suggests, then it is possible that the class action would no longer be cost-effective. We are sympathetic with this worry, and it is important to note that neither the White Paper nor the Staff Working Paper sets out in any detail how victims of antitrust violations would be notified of their right to opt-in to a class action, or how costly it would be to reach these victims, and there certainly is no effort by the White Paper's authors to estimate the percentage of the total population of potential plaintiffs who would bother to make the effort to opt-in.
Second, the idea of expanded discovery may strike some American tort reformers and defense lawyers as an invitation to disaster. Both the White Paper and the Staff Working Paper are filled with caveats about how they do not intend to introduce American-style "fishing expeditions" into the European civil justice system, but it is a fair question whether discovery can be adopted in half-measures. After all, American civil procedure reformers have struggled to find language that would give courts the authority to reduce the amount of discovery that inevitably follows the denial of a motion to dismiss, and so far, there seems to be no evidence that they have succeeded. Still, this does not mean that the Europeans are wrong to call for the liberalization of discovery—it only means that they should not have unrealistic expectations about the costs, as well as the benefits, of liberal discovery rules.
Whether you love or hate this complex and interconnected series of proposals, one thing is certain: There will be plenty of time before they are implemented. There is a further period for public comment, and then there will follow a long struggle to implement the final proposal into the national laws of all EU member states.
Regardless of the final outcome, it is interesting to note the very different starting and ending points of this exercise by the Commission from much of the current debate in the US. Rather than exhibiting fear and loathing of the private plaintiff, the Commission views that figure as a vital part of competition enforcement and seeks to change the law and culture of the member states to make private litigation in this area a meaningful reality—but wants to do so in a more European style.