Private Enforcement of Competition

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COMPARATIVE ANALYSIS OF PRIVATE ENFORCEMENT OF COMPETITION LAW INTRODUCTION One of the most important aspects of a robust competition regime is that the persons affected by violations of competition law are adequately and timely compensated.[1] Such actions not only deter anti-competitive behaviour, but also promote consumer welfare.[2] It is common knowledge that competition law directly affects public interest given its repercussions on the market and its participants.[3] However, generally speaking, competition laws do not focus on compensation mechanism for private parties, and focus is more on punishing the violators to curb future violations.[4] It is, therefore, important that adequate provisions are included in competition laws so as to safeguard the rights of private parties. This would help achieve healthy competition and deter unscrupulous business practices that are intended to cheat the consumers so as to control markets.[5] However, with the rise in anti-competitive agreements and exclusive arrangements entered into between parties, the need to protect the rights of the affected persons assumes greater significance in the present times. This paper attempts to analyse the provisions pertaining to the right of private parties to seek compensation for losses suffered by them owing to anti-competitive behaviour. This paper has been divided into seven parts. Post this introduction, the paper analyses the private enforcement of competition law in the United States of America (US), the European Union (EU), Australia, Japan, China, and India. This is followed by conclusions. UNITED STATES OF AMERICA The US is the only major economy in the world where private enforcement of competition law (i.e., filing of direct claims against competition law violators by parties that have incurred losses due to such violations) is more rampant than public enforcement (i.e., penal action taken against competition law violators by the public regulatory authorities).[6] The role played by private enforcement is, therefore, one of the most important features of the US competition law enforcement.[7] Treble Damage Provision In a majority of countries, public enforcement is the preferred way to enforce competition laws. However, in the US, private parties as well as authorities acting on behalf of such private parties are entitled to claim damages from the violators.[8] In terms of the Clayton Antirust Act of 1914 (Clayton Act), recovery of damages by any person injured in his business or property by reason of anything forbidden in the antitrust laws is permitted.[9] This establishes both a private right of action and an award of treble damages (i.e., three times the actual damages).[10] In this regard, the following two key goals have been identified by the US Supreme Court with respect to awarding treble damages in a private action under the Clayton Act: (a) to punish past violations of the law; and (b) to deter future competition law violations.[11] The treble damages provision has become one of the most important tools in the enforcement of competition law in US, resulting in an important deterrent to potential violators.[12] Owing to the punitive nature of the treble damages provision, various US courts have held that this right cannot be waived off by the parties (whether contractually or otherwise).[13] Also, the trebling of damages awarded in a competition case takes place automatically, and the jury is not informed of such trebling upfront.[14] Joint and Several Liability Where more than one parties conspire to undertake anti-competitive practices, each one of them is liable for the damage resulting from its actions as well as the damage resulting from the actions of the other conspirators, thereby resulting in a joint and several liability.[15] This liability is akin to the liability of joint tortfeasors, and ensures that the affected party gets adequate compensation. Similar to the treble damage provision, joint and several liability of competition law violators is aimed at deterring anti-competitive behaviour.[16] Before-and-After and Yardstick Methods The objective of damages under US competition law is to ensure that parties affected by anti-competitive behaviour are put into the same position as they would have been had the anti-competitive behaviour not taken place.[17] This would typically be measured based on the demonstration by the affected party as to how its profits declined in an environment marred by anti-competitive practices as compared to a free and competition friendly environment. Accordingly, the US courts have historically adopted the before-and-after method and the yardstick method for determining the extent of loss caused to the affected party as a result of anti-competitive practices.[18] Under the before-and-after method, the quantum of compensation is measured by analysing the performance of the affected party before and after the anti-competitive practice, and if possible, by analysing as to how the affected party would have performed had the anti-competitive practice not taken place.[19] The yardstick method, on the other hand, uses the performance of businesses that are significantly similar to that of the affected party as a yardstick to establish the extent to which the affected party's business would have performed had the anti-competitive practice not taken place.[20] EUROPEAN UNION Articles 101 and 102 of the Treaty on the Functioning of the European Union (Treaty) set out provisions prohibiting anti-competitive practices in the EU and also permit claims for damages arising out of such anti-competitive behaviour. This forms a key aspect of private enforcement of EU competition law. In terms of Articles 101 and 102 of the Treaty, persons affected by anti-competitive behaviour are entitled to claim damages for the loss incurred by them as a result of such anti-competitive practice. The damages can be sought for actual loss suffered (damnum emergens) as well as the gain which would have been made but for the anti-competitive practice (lucrum cessans) plus interest.[21] In terms of Regulation No 1/2003, the European Commission (EC) and the National Competition Authorities (NCA) are empowered to enforce Articles 101 and 102 of the Treaty.[22] Further, the European Commission is empowered to impose fines on undertakings that have infringed these provisions.[23] The enforcement by the EC and NCAs constitutes the public enforcement of the EU competition law. Additionally, rights under Articles 101 and 102 of the Treaty can also be enforced by the courts of the member states. Such enforcement constitutes private enforcement of the EU competition law. The EC and the NCAs are not empowered to award damages to persons affected by anti-competitive behaviour, and the same falls within the powers of national courts set up under applicable domestic laws. Accordingly, whilst the EC and the NCAs ensure public enforcement of the EU competition law, the private enforcement is administered by national courts.[24] Because of the division of powers between the EC and the NCAs on the one hand and the national courts on the other, private enforcement of competition law in the EU has not been as robust as in the US. Also, it has been emphasised by the European Parliament over and again that public enforcement of competition law is paramount, and the EC must ensure that private enforcement of the EU competition law does not adversely impact the leniency programmes or settlement procedures.[25] Further, the Directive on Antitrust Damages Actions[26] adopted by the EC in 2014 (Directive) sets out provisions aimed at harmonising national rules within the EU so as to ease recovery of damages by persons affected by anti-competitive behaviour. The implementation of the Directive is expected to give a boost to private enforcement of competition law, as well as recovery of compensation. AUSTRALIA Until the enactment of the Trade Practices Act of 1974 (Trade Practices Act), there was no statutory recognition in Australia of private rights for breach of anti-competitive practices. However, under Part IV of the Trade Practices Act, private parties are allowed to initiate claims pertaining to anti-competitive practices before the Federal Court.[27] Parties initiating such litigations may raise a variety of claims, including damages, injunctions, divestiture orders, etc. Further, initiation of a representative or class action suit is also permitted.[28] Private actions are also encouraged by the Trade Practices Commission (the authority vested with powers to monitor and enforce the Trade Practices Act). Abuse of dominant position, anti-competitive agreements, exclusionary provisions, and exclusive dealing are the most commonly faced issues for the enforcement activity. Mergers, on the other hand, are seldom challenged by private parties. It is widely accepted that private enforcement has played a very crucial role in the enforcement of competition law in Australia, including promoting the Trade Practices Act and bolstering the overall compliance of competition law.[29] JAPAN Japanese Antimonopoly Act of 1947 (JAA) regulates anti-competitive behaviour in Japan. In terms of Article 25 of the JAA, persons affected by anti-competitive behaviour are entitled to seek compensation from the violator.[30] In addition, persons affected by anti-competitive behaviour are also entitled to seek compensation from the violator under the general tort provision, i.e., Article 709 of the Japanese Civil Code of 1896 (JCC).[31] It is also noteworthy that a claim under Article 25 of the JAA can be brought only once the competition law regulator in Japan, i.e., the Japan Fair Trade Commission (JFTC), passes its final and binding decision in a competition law matter. Whilst the aforesaid provisions allow private enforcement of competition law in Japan, competition law enforcement in Japan has historically been the main or exclusive preserve of public agencies, not private plaintiffs, unlike the US practice, where private enforcement exceeds public enforcement.[32] Accordingly, for decades, the aforesaid provisions of the JAA and the JCC have remained virtually unused, and there has been almost no private enforcement of competition law in Japan.[33] In recent years, however, private enforcement of competition law in Japan has evolved to a position where around a dozen new cases are seen per year.[34] Through such private enforcement, substantial amount of compensation has been recovered by persons affected by anti-competitive behaviour, which at times, has equalled the total amount of penalties imposed by the JFTC. Despite the aforesaid progress, it can be safely said that private enforcement of competition law in Japan is still of limited significance in posing deterrence to violators and ensuring payment of damages to persons affected by anti-competitive behaviour. CHINA The Anti-Monopoly Law of 2007 (AML), which was enacted in 2008, together with ancillary regulations framed around it, regulates anti-competitive practices in China. The AML was enacted after years of legislative and drafting effort.[35] Whilst government bodies such as the National Development and Reform Commission monitored some aspect of competition prior to 2008, the competition law itself (i.e., the AML) is fairly nascent.[36] Accordingly, it remains to be seen as to how the AML, and the institutions built under it, deliver in terms of enforcement of competition law. With respect to private enforcement of competition law, Article 50 of the AML read as under: “The business operators that implement the monopolistic conduct and cause damages to others shall bear the civil liability accordingly to law.”[37] Thus, the AML clearly recognises rights of persons affected by anti-competitive practices to seek damages from the violator. There have already been a few cases in China where companies have sued other companies for seeking damages arising out of anti-competitive practices.[38] Further, it a customary practice in China that the Supreme Court issues the relevant judicial explanation on the guidelines or implementation of specific laws. Accordingly, on 3 May 2012, China’s Supreme Court issued the relevant rules with respect to private claims resulting from anti-competitive behaviour (Rules). The Rules have attempted to fill various gaps created by the AML in relation to private enforcement of competition law in China. For instance, the Rules attempt to clearly demarcate as to which party will discharge the burden of proof in certain specified situations, which was hitherto a big hindrance in private enforcement of competition law.[39] INDIA In India, the Competition Act, 2002 (the Act) regulates competition matters, and the market regulator is the Competition Commission of India (CCI), a body constituted under the Act. The Act empowers the CCI to investigate and penalize anti-competitive agreements, abuses of dominant position and combinations which have an appreciable adverse effect on competition. Any affected party may approach the CCI with a complaint pursuant to which the CCI makes inquiries, investigates the alleged anti-competitive behaviour and issues an order. The orders of the CCI are appealable before the Competition Appellate Tribunal (COMPAT) established under the Act. The orders of the COMPAT can be appealed before the Supreme Court of India, whose decisions are final and binding. Whilst the above process outlines the public enforcement of competition law by the competition regulator in India, the Act does not provide for a parallel private enforcement of competition law. With respect to claiming compensation for anti-competitive behaviour, Section 53N(1) of the Act provides that any person may make an application to the COMPAT for award of compensation for any loss or damage shown to have been suffered and resulting from violation of the Act. However, such a claim for compensation must arise from: (a) any findings of the CCI or orders of the COMPAT; or (b) any contravention of the orders of the CCI or the COMPAT. Further, whilst it is not expressly stated in the Act, a constructive interpretation of Section 53N(1) would lead to the understanding that a claim can be made by the affected person only once the order of the CCI or the COMPAT, as the case may be, attains finality. In other words, if the order of the CCI or the COMPAT has been appealed against, a claim for compensation by the affected person based on such an order would not be tenable. Consequently, a person affected by anti-competitive behaviour would necessarily need to wait until the CCI, the COMPAT or the Supreme Court (hearing the appeal against the order of the COMPAT), as the case may be, passes a favourable order, and such order attains finality (whether by virtue of being a Supreme Court order, or due to expiry of the statutory limitation period for appeal). Only once such an order attains finality, can the affected party make a claim for compensation. This is similar to the Japanese approach as discussed above. Since the Act has been notified fairly recently and the enforcement jurisprudence under the Act is still at a nascent stage, there have not been instances of affected parties claiming compensation for anti-competitive behaviour in terms of the limited framework available under the Act. However, the CCI has started penalizing large business entities for anti-competitive behaviour, and we may soon expect private parties to approach the COMPAT with claims for compensation. For example, the CCI had imposed a penalty of INR 6.3 billion on DLF Limited (one of the largest real estate companies in India) for abusing its dominant position in the market while providing services of developer/builder in high end residential projects in Gurgaon (which is part of the National Capital Region of India). Recently, the COMPAT upheld the CCI’s decision against DLF Limited, and the matter is presently sub-judice before the Supreme Court of India. There have been media reports indicating that if the Supreme Court also upholds the CCI’s decision, the allottees of the residential project plan to approach the COMPAT with compensation claims. Thus, this may well be the first case of private enforcement of competition law in India.[40] CONCLUSIONS There is little doubt that jurisprudence pertaining to private enforcement of competition law is insufficient in most jurisdictions. Public enforcement of competition law may not always be helpful, as it does not directly cater to the persons who are affected by anti-competitive practices. On the other hand, private enforcement in such scenarios provides direct and speedy compensation to the affected persons. Therefore, it is important for the regulators (across the world) to realise that absence of private enforcement (or a complicated private enforcement regime) would result in the affected persons being left either without a remedy or with inadequate compensation. This gains even more relevance when fines imposed by statutory authorities are insufficient to cover the losses suffered by the affected parties. Accordingly, it is recommended that urgent and concrete steps be taken by the competition law regulators to ensure that an effective and efficient mechanism for private enforcement of competition law is implemented. 1 | 8
[1] AI Gavil, Federal Judicial Power and the Challenges of Multijurisdictional Direct and Indirect Purchaser Antitrust Litigation, (2000) 69 George Washington Law Review 860, cited in Firat Cengiz, Antitrust Damages Actions: Lessons From American Indirect Purchasers’ Litigation, (2010) 59 ICLQ 39, available at: http://www.academia.edu/492202/ANTITRUST_DAMAGES_ACTIONS_LESSONS_FROM_AMERICAN_INDIRECT_PURCHASERSLITIGATION (last accessed on 31 March 2015). [2] Ibid. [3] Why competition matters, A Guide for Policy matters, Office of Fair Trading, available at: http://www.oft.gov.uk/shared_oft/business_leaflets/general/OFT1113.pdf (last accessed on 31 March 2015), cited in Payel Chatterjee and Simone Reis, Private Enforcement of Competition Law Issues Competition Commission of India vis-à-vis Alternate Forums - Is it actually an option?, available at: http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research Articles/Private Enforcement of Competition Law Issues.pdf (last accessed on 31 March 2015). [4] Francesca Richmond and Sarah West, Arbitrating Competition Law Disputes: A matter of Policy, Baker & Mckenzie, cited in Payel Chatterjee and Simone Reis, Private Enforcement of Competition Law Issues Competition Commission of India vis-à-vis Alternate Forums - Is it actually an option?, available at: http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research Articles/Private Enforcement of Competition Law Issues.pdf (last accessed on 31 March 2015). [5] Competition Law to relieve consumers of unhealthy business practice: Shafique, available at: http://www.thefinancialexpress-bd.com/more.php?news_id=135247&date=2012-07-02 (last accessed on 31 March 2015). [6] Daniel A. Crane, Optimizing Private Antitrust Enforcement, (2010) University of Michigan Law School Scholarship Repository, available at: http://repository.law.umich.edu/cgi/viewcontent.cgi?article=1129&context=articles (last accessed on 31 March 2015). [7] Kenneth Ewing, Steptoe & Johnson LLP, Private anti-trust remedies under US law, (2007) Competition 2006/07 Volume 1, available at: http://www.steptoe.com/assets/attachments/2804.pdf (last accessed on 1 April 2015). [8] Ibid. [9] Section 4, the Clayton Act. [10] Volvo Trucks N. Am., Inc. v. Reeder- Simco GMC, Inc., 546 U.S. 164, 176 (2006); Kristian v. Comcast Corp., 446 F.3d 25, 47 (1st Cir. 2006). [11] Albert A. Foer, Randy Stutz, Private Enforcement of Antitrust Law in the United States: A Handbook, (2012), Edward Elgar Publishing Limited, UK; also see, Agency Holding Corp. v. Malley- Duff & Assocs., Inc., 483 U.S. 143, 151 (1987); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 635 (1985); Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984). [12] Albert A. Foer, Randy Stutz, Private Enforcement of Antitrust Law in the United States: A Handbook, (2012) Edward Elgar Publishing Limited, UK. [13] Kristian v. Comcast Corp., 466 F.3d 25, 47–48 (1st Cir. 2006), Gaines v. Carrollton Tobacco Bd. of Trade, Inc., 386 F.2d 757, 759 (6th Cir. 1967). [14] Pollock & Riley, Inc. v. Pearl Brewing Co., 498 F.2d 1240, 1242 (5th Cir. 1974). [15] Supra at 12. Also, In re Cotton Yarn Antitrust Litig., 505 F.3d 274, 284 (4th Cir. 2007); Abraham Constr. Corp. v. Tex. Indus., Inc., 604 F.2d 897, 904 n.15 (5th Cir. 1979)); In re Uranium Antitrust Litig., 617 F.2d 1248, 1257 (7th Cir. 1980). [16] Supra at 12. [17] Claire M. Korenblit, Quantifying Antitrust Damages—Convergence of Methods Recognized by U.S. Courts and the European Commission, (March 2012) 1 CPI Antitrust Chronicle, Sidley Austin LLP, available at: http://www.sidley.com/~/media/Files/Publications/2012/03/Quantifying Antitrust DamagesConvergence of Meth__/Files/View Article/FileAttachment/KorenblitMAR12(1) (last accessed on 31 March 2015). [18] Supra at 12. [19] Kevin Scott Marshall, The Economics of Antitrust Injury and Firm-specific Damages, (2008) Lawyers & Judges Publishing Company, Inc., USA. [20] Ibid. [21] Proposal for a Directive of the European Parliament and of the Council on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, available at: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:52013PC0404 (last accessed on 31 March 2015). Case C-453/99, Courage and Crehan, [2001] ECR I-6297; Case C-360/09, Pfleiderer AG v Bundeskartellamt, [2011] ECR I-5161; and Case C-199/11 European Community v. Otis NV and others, [2012] ECR I-0000. [22] Articles 4 and 5 of Regulation No 1/2003, respectively. [23] Article 23 of Regulation No 1/2003. [24] Id at 21. [25] Ibid. [26] This is the directive issued by the European Parliament with respect to compensation claims in relation to anti-competitive behavior under national laws of the EU member states. [27] Kent Roach and Michael J. Trebilcock, Private Enforcement of Competition Laws, (Fall 1996) Osgoode Hall Law Journal, Volume 34, Number 3, Article 2, available at http://digitalcommons.osgoode.yorku.ca/cgi/viewcontent.cgi?article=1622&context=ohlj (last accessed on 31 March 2015). [28] Ibid. [29] Ibid. [30] Simon Vande Walle, Private Enforcement of Antitrust Law in Japan: An Empirical Analysis, The Competition Law Review, (December 2011) Volume 8 Issue 1, 7. [31] Ibid. [32] Simon Vande Walle, Deterrence of Antitrust Violations: Do Actions for Damages Matter in Japan?, available at: http://www.sef.hku.hk/aslea2011/private/paper/19.%20Simon%20Vande%20Walle%20final%20full%20paper.pdf (last accessed on 31 March 2015). [33] Id at 30. [34] Id at 30. [35] Lessons from Four Years of Antitrust Enforcement in China, (September 2012) Jones Day, available at: http://m.jonesday.com/lessons_from_four_years/ (last accessed on 1 April 201). [36] Competition Policy and Enforcement in China, (September 2014), The US China Business Council, available at: https://www.uschina.org/sites/default/files/AML%202014%20Report%20FINAL_0.pdf (last accessed on 1 April 2015). [37] Zhan Hao, Chinese Anti-monopoly Private Litigation, China Law and Practice, available at: http://www.chinalawandpractice.com/Article/2029237/Channel/16143/Chinese-Anti-monopoly-Private-Litigation.html (last accessed on 1 April 2015). [38] Id at 36. [39] Susan Ning,Liu Jia and Hazel Yin, Supreme Court of China Issues Judicial Interpretation Governing Private Antitrust Litigations, (6 June 2012), King & Wood Mallesons, Antitrust & Competition, available at: http://www.chinalawinsight.com/2012/06/articles/corporate/antitrust-competition/supreme-court-of-china-issues-judicial-interpretation-governing-private-antitrust-litigations/ (last accessed on 1 April 2015). [40] Ravi Teja Sharma, DLF customers in three Gurgaon projects to seek compensation, Economic Times (23 May 2014), available at: http://articles.economictimes.indiatimes.com/2014-05-23/news/50054941_1_competition-appellate-tribunal-belaire-owners-association-park-place-residents (last accessed on 1 April 2015).
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