After taking their own punishment, cartel members may be liable to customers who were overcharged by competitors not even involved in the cartel.
The European Court of Justice recently elaborated on the civil liability of companies participating in a cartel in Kone AG v. ÖBB-Infrastruktur AG (Case C557/12, judgment of June 5, 2014).
The case was an offshoot of the well-known proceedings against the Kone, Otis, Schindler and ThyssenKrupp corporations. In those proceedings, the companies were held liable for price collusion in the market for escalators and elevators in various EU member states. They were also fined by the European Commission as well as the Austrian competition authorities.
One of the problems with being fined under antitrust law is that this is by no means the end of your misery. After the decision is issued, you should expect lawsuits from your customers who overpaid you because of your arrangement with competitors. The courts considering their claims will take the decision from the antitrust authorities as the final proof that you breached the law, and will award damages accordingly. Any fine you already paid is not going to be discounted against the damages—just to rub in the lesson that creating a cartel was not the finest display of entrepreneurship.
Who pays the price?
Until recently, that was about how badly you could be beaten for a gentlemen’s agreement guaranteeing a healthy price for your products. But the ECJ ruling in Kone made it far worse. In an Austrian court, a subsidiary of Austrian Federal Railways sued the participants in the cartel in the market for elevators (Kone and others).
But the plaintiff had not purchased its elevators or escalators from the cartel participants. Instead, it alleged that because of the cartel, it had to pay more for the equipment, which otherwise would have been cheaper. This difference in price was a loss to be recouped in court proceedings.
This is because of the so called umbrella effect. When a cartel (or a dominant undertaking) succeeds in raising prices, other firms may follow suit to reap higher profits. As the products are already being traded above their original market price, joining the cartel’s pricing will not result in losing market share.
The Austrian court had its doubts whether the participants in the cartel may be successfully sued by non-customers, and referred the question to the ECJ. The ECJ answered that yes, indeed, the participants in the cartel are liable for damages caused by raising the price for products covered by their collusion. They may be liable to parties that bought products from suppliers not involved in the cartel, as long as the products were bought more expensively than they would have been in the absence of the cartel. This is because the autonomous decision by the uninvolved supplier is influenced by the distorted market price.
Price and punishment
The implications of the ECJ’s decision are potentially farreaching. On the surface, the ruling establishes an EU-wide tort in competition law. This itself is significant as it opens new possibilities for firms indirectly concerned with anticompetitive behavior. While the judgment addresses cartels, there is nothing that prevents it from being extended to abuse of a dominant position. If a dominant firm keeps prices above their free-market level, causing an umbrella effect, it should in principle be liable for higher prices customers are forced to pay anywhere in the market.
We were discussing the state of affairs from the standpoint of a colluding party, but what if we change the perspective to that of a law-abiding citizen? Did the market malfunction, forcing you to accept unreasonable prices for some products? Now, finally, you may sue the true perpetrators even though you did not buy from them.
This is the next development of the private-law enforcement mechanism in EU antitrust law: Not only counterparties of the infringers but all businesses affected may recover their losses. In addition to redressing losses caused by any anticompetitive behavior, this makes anticompetitive behavior even more costly. It also breaks the link between gains and losses from infringing the law. As long as only customers were able to sue infringers, any damages awarded were in fact recovery of the inflated price. However, the participants in the cartel had no gain from the higher price imposed by their uninvolved competitors. Quite to the contrary: These competitors will actually benefit twice from the cartel. First, they were able to charge a higher price—with impunity. Second, their cartel-involved competitors will now pay back this difference in price— thereby being worse off than the competition.
Indirect effects of the ruling
If we go deeper than the surface, the ruling may have quite profound effects on civil law in the member states. For all intents and purposes, it is impractical to maintain different rules of tort liability depending on whether the tort was made against EU antitrust law or against other regulations.
In the Kone judgment, the link between the action and resulting damage is rather indirect. One may expect that such indirect links will be accepted in other areas of tort liability for the sake of keeping the law consistent. And the essential idea behind the ECJ decision is very unfavorable for tortfeasors: They are liable for making the world a worse place to live in.
Miejsce publikacji: American Investor, Winter 2015