Case C-557/12, KONE AG and Others, Opinion of Advocate General Kokott of 30 Jan 2014

Papinian

The pseudonymous author has not been directly or indirectly involved in the case at hand.

On 30 January 2014 Advocate General Kokott rendered her Opinion in the Kone case, which concerns claims for damages by victims of so-called “umbrella pricing”. We do not disagree with the conclusions and the proposed dispositif of the learned Advocate General’s Opinion.  However, her undisputed authority may mislead into accepting all the premises of her Opinion’s argumentation without sufficient questioning.  We believe that certain parts of the Opinion’s reasoning are flawed and contradict the Court of Justice’s case law in the area of private antitrust enforcement. The Opinion also misses and mischaracterises the central point of the preliminary reference, which is the question of standing.

The referring court, the Austrian Supreme Court, was asking the following question:

Is Article 101 TFEU (Article 81 EC, Article 85 of the EC Treaty) to be interpreted as meaning that any person may claim from members of a cartel damages also for the loss which he has been caused by a person not party to the cartel who, benefiting from the protection of the increased market prices, raises his own prices for his products more than he would have done without the cartel (umbrella pricing), so that the principle of effectiveness laid down by the Court of Justice of the European Union requires grant of a claim under national law?

The Austrian court’s view was that such actions by umbrella pricing victims should not be admissible a priori, because the loss alleged is not covered by the “protective purpose of the competition rules” (a theory that has tarnished private antitrust enforcement in Germany, Austria and to a lesser extent Italy) and because it did not consider that there was an adequate causal link between the unlawful conduct and the alleged harm.  However, to its credit, the national court had some doubts as to whether its interpretation of Austrian law was compatible with EU law and decided to send a reference to Luxembourg.

On the positive side, the Opinion starts from the premise that, contrary to the referring court’s views, the principle of individual liability for competition law violations is a matter of Union and not national law.  Indeed, the Advocate General makes, very aptly, a distinction between the existence and the exercise of civil claims.  Existence is a matter of Union law, while exercise a matter of national law.  This should hardly come as a surprise to seasoned observers of the Court of Justice’s case law in this area ever since the Courage ruling in 2001 and in the wake of a number of post-Courage rulings, in particular, Manfredi, City Motors, Pfleiderer, Otis, and Donau Chemie.  The Kokott Opinion is quite explicit in that sense and puts an end to any remaining doubt.  So far so good.

At this point, however, the Opinion falls into a number of inconsistencies and flaws.  Most of these flaws have to do with the conditions of the Union right to damages.  This is regrettable because the Opinion did cite Advocate General’s van Gerven Opinion in Banks and presumably should have been aware of Walter van Gerven’s and other authors’ writings, which make a clear distinction between the “constitutive” and “executive” elements of remedies.

This distinction was implicitly accepted by the Court in Manfredi, where the Court distinguished between the “existence” and “exercise” of the right to damages.  That the “existence” of the right is a matter of EU law is obvious from the fact that the Court reiterated the most important pronouncements of Courage (paras 60, 61, 63, 89-91 of Manfredi, citing paras 25-27 of Courage).  In this context, it is also clear that the Court proceeded to define, as a matter of EU law, what Walter Van Gerven calls the “constitutive” conditions of the right to damages:

It follows that any individual can claim compensation for the harm suffered where there is a causal relationship between that harm and an agreement or practice prohibited under Article [101 TFEU]” (para. 61).

In other words, the right to damages is open (a) to “any individual” as long as there is (b) “harm”, (c) a competition law violation, and (d) a “causal relationship” between that harm and that violation.  In thus defining the EU law constitutive conditions of the right to damages, the Court produced a broad rule of standing, which means that national rules following more restrictive rules on standing are contrary to the constitutive conditions in EU law of the Courage/Manfredi right to damages.

The first problem of the Opinion in Kone is that it misses the central point of the reference, which is the question of standing.  Indeed, the word “standing” does not appear in the text of the Opinion.  Instead of debating this basic question of principle, the Opinion falls into a detailed but confused argumentation and seems to qualify its analysis by the fact that the competition law violation at stake was a cartel (e.g. para. 32).  Yet, the above seminal rulings of the Court never qualified the conditions of the Union right to damages by the nature of the competition law violation.  The Opinion should have squarely answered the referring court’s questions by simply explaining that standing is a constitutive condition of the principle of liability governed by EU law.  EU law gives a broad and liberal meaning to standing (“any individual”), and therefore any restrictive national rule should be set aside.  In fact, since the conditions of liability, including standing, are governed by EU law it should be the principle of supremacy and not the principles of effectiveness and equivalence that come into play here.

In addition, the Opinion should not have delved into the question asked by the referring court about whether the loss resulting from umbrella pricing falls outside the “protective scope” of EU competition law (para. 54).  Advocate General Kokott is always happy to entertain questions about the objectives or protective scope of the competition rules, which may explain her haste to entertain this question.  Indeed, here too, she had something to say about this:

the objectives of European competition law cannot be reduced to allowing undertakings active on the internal market to operate as cost-efficiently as possible. In a European Union based on the rule of law which has set itself the objective of achieving a highly competitive social market economy (Article 3(3) TEU), functioning markets characterised by undistorted competition are in themselves an asset beyond all cost-benefit considerations” (para. 66).

However, all this rhetoric hits the wrong target.  The Opinion should have not fallen into this trap in the first place.  The “protective scope” theory is a feature of some national laws (for example, of German and Austrian law) but has not been found favour with the Court of Justice.  Indeed, Courage and Manfredi have rendered redundant any effort to make distinctions based on the “protective scope” of Articles 101 and 102 TFEU (van Gerven, “Private Enforcement of EC Competition Rules”, Paper Presented at the Joint IBA and European Commission Conference on Antitrust Reform in Europe: A Year in Practice (Brussels, 9-11 March 2005)).  Such distinctions are incompatible with EU law and, pursuant to the principle of supremacy, should be set aside (Komninos, “New Prospects for Private Enforcement of EC Competition Law: Courage v. Crehan and the Community Right to Damages”, 39 CMLRev. 447 (2002); Eilmansberger, “The Relationship between Rights and Remedies in EC Law: In Search of the Missing Link”, 41 CMLRev. 1199 (2004)).  Besides, the Opinion contradicts itself: if it is true that the conditions of civil liability for competition law violations and the existence of the right to damages find their basis in EU law, why should we enquire about the protective scope of the Treaty competition rules?  The Court never qualified its case law by referring to the German “protective scope” theory.

A further flaw of the Opinion here is its incompatibility with Manfredi, when it comes to the text of the Opinion that refers to causation.  In our view, the Opinion engages in a lot of unnecessary discussion as to the appropriate kind of causation that should be applied, with the occasional rhetorical explosions:

the model for trading on the internal market should come in the form of undertakings that comply with the competition rules, not those that seek to engage in illegal practices there at the expense of others. Should the recognition of an obligation on cartel members to pay compensation for umbrella pricing have the effect of keeping black sheep away from the market, this would hardly be detrimental to competition” (para. 68).

These are all nice statements that, no doubt, we should from now on expect to find in all Statements of Objections, infringement decisions, complaints and actions of the kind, but again we think that the Opinion should not have gone into this analysis in the first place.

With regard to causation, national laws, depending on the legal tradition to which they belong, employ notions of foreseeability and remoteness and provide that the plaintiff bears the burden of proving that the defendant’s unlawful conduct caused the harm and that it is the predominant cause of the plaintiff’s loss.  It is also true that the EU liability case law of the Court of Justice follows the direct causal link theory (Dillenkofer).  Whether these notions are so different as to affect the effectiveness of EU law remains unclear.  The Commission appears to take a less interventionist approach and considers that all these various national notions of causation are equivalent.  A similar approach was taken by the Court of Justice in Manfredi, which mentioned the causal link as one of the constitutive conditions of individual civil liability, but deferred to the national laws for the more detailed or “executive” conditions of that causal link.

In other words, the Court in Manfredi stresses that as a matter of Union law, causal link is one of the conditions of civil liability for antitrust-related injuries, while at the same time accepting that it is for the domestic legal system of each Member State to prescribe “the detailed rules governing the exercise of that right, including those on the application of the concept of ‘causal relationship’, provided that the principles of equivalence and effectiveness are observed” (para. 64).  This is also in line with the Francovich and Brasserie du Pêcheur/Factortame III case law on Member State liability.

Therefore, rather than engaging in an interventionist and maximalist approach and arguing about the appropriate causation that, as a matter of principle, should apply, the Opinion should have deferred to national law and on the national court’s analysis, and should have only performed an effectiveness control.  Such control could and would probably lead to the same dispositif in this particular case but the reasoning cannot be incompatible with the Manfredi ruling.  In other words, the national court cannot see here causation in abstracto and adopt an a priori principle of no standing, but that does not mean to say that the Court of Justice can dictate to the national legal order how causation should be applied to the ultimate detail.

2 thoughts on “Case C-557/12, KONE AG and Others, Opinion of Advocate General Kokott of 30 Jan 2014

  1. I think Kokkot is right and you are wrong in the two first questions. You can not separate the question of standing from the question of standing for what? If you have standing to get damages compensation, you need to give criteria to show which damages you are entitled to recover. And, therefore, you have to go into the question of the “protective scope” of the rules whose infringment gives you standing to sue the infringiners asking for damages (http://de.wikipedia.org/wiki/Schutzzweck_der_Norm). The question of causality has to be also addressed but, as you say, probably only in terms of effectiveness.

  2. Regarding your causality argument, I strongly believe that AG Kokott did not intented to deprive the national courts from their power to rule on whether a particular situation of umbrella pricing has a direct causal link with a cartel. From my point of view she is proving that in general and under particular conditions the umbrella effect can be connected with a cartel. She wants to establish that the umbrella effect won’t be shut out by national legislation IN GENERAL and not in particular. She makes it completely clear that the “how” of a compensation is exclusively a matter of national law but the “whether” there is a violation is a matter of EU law. So her causality argument on the relationship among umbrella pricing and a cartel refers simply to the fact that there can be a strong causality link and therefore a private claim for damages from an umrella pricing cannot be precluded from national legislation in general. It should be allowed and only if the claim does not fullfill some conditions it should then be dismissed in accordance with national legislation.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s