Move forward in award of damages for competitive injury
13/10/2005 International Law Office
One of the main downsides of the antitrust system is that private parties seeking to bring claims for damages caused by antitrust infringements face many obstacles. The reason for the lack of litigation in this area is twofold. Firstly, companies carrying out business in Spain litigate less frequently than US companies, for example, on grounds of antitrust infringements. The reason for this difference is cultural and might also relate to the fact that antitrust laws were introduced into the Spanish legal system only in 1989. The second tier of the explanation lies in the enforcement system established by the Antitrust Act. Unlike in the United States - where enforcement of antitrust laws is left mostly to private parties and where judges play an important enforcement role - the Spanish legislature wanted antitrust laws to be enforced by administrative bodies, as these bodies were seen as aimed exclusively at protecting free competition (ie, a public policy goal) and not private interests. Thus, the US practice of filing lawsuits seeking private damages (frequently as class actions) under Section 4 of the Clayton Act or the relevant state antitrust law (normally after the antitrust division of the Department of Justice has begun an investigation) is rather unusual in Spanish litigation practice.
In this legal environment, it is therefore unsurprising to find a provision in the Antitrust Act - Section 13(2) - which establishes that actions for damages based on infringements of the act are subject to two procedural conditions: (i) the antitrust authorities must have declared that there was infringement of the act; and (ii) the authorities' decision must be final (ie, no further appeals are possible).(1)
Section 13(2) has been subject to a vast amount of scholarly research in an attempt to find a loophole in the system which would speed up claims for damages in antitrust matters. The general understanding is - based on the wording of Section 13(2) - that courts shall decline jurisdiction to adjudicate actions seeking damages for antitrust infringements that do not fulfil the two requirements in question.
This approach is consistent with the case law of the Supreme Court, which declared that judges are not empowered to adjudicate antitrust cases based on the Antitrust Act. However, the same principle does not apply to Article 81 and 82 of the EC Treaty: because of the direct effect of these provisions (declared in the 1960s by the European Court of Justice), they can be relied on by economic operators before the competent ordinary Spanish courts. Whether a previous declaration of infringement of Article 81 and/or 82 of the EC Treaty by the Spanish antitrust authorities or the European Commission is necessary to file a lawsuit for damages is also unclear. However, in light of the direct effect of these articles, it is arguable that no prior declaration is necessary to file a lawsuit for damages before a Spanish court based on Articles 81 and/or 82 of the EC Treaty.
Despite the different enforcement regulations applicable to the Antitrust Act and Articles 81 and 82 of the EC Treaty, and the fact that it is easier (at least in theory) to file an action for damages for infringement of EU competition law than it is for the same infringement under the Antitrust Act, judgments dealing with antitrust damages actions have been, in both cases, very rare.
Decisions Ordering Compensation for Antitrust Injuries
There are only two judgments in which a Spanish court has ordered an infringing company to pay compensation for antitrust injury. The first judgment(2) was issued by a court of first instance and later upheld by the Gerona Appellate Court on April 16 2002. The second judgment was issued on June 7 2005 by a Madrid court of first instance.
Gerona Appellate Court decision
In the first case, the Spanish antitrust authorities found that the defendant (a power company) had abused its dominant position - thereby infringing Article 6 of the Antitrust Act - by setting predatory prices with the aim of excluding a competitor from the market. The injured competitor filed an action for damages based on the Unfair Competition Act (which contains a provision forbidding predatory pricing policies), which may indicate that plaintiffs seeking damages are reluctant to rely on the Antitrust Act.
The claim was upheld by a court of first instance and the Gerona Appellate Court. Unlike the court of first instance, the appellate court expressly considered the infringement of the Antitrust Act and the decision of the antitrust authorities. The court, however, did not measure the amount of damages as, under the former civil procedure rules, this matter could be settled during the procedure to enforce the judgment.
Madrid court of first instance decision
The second judgment was issued on June 7 2005 by a Madrid court of first instance and represents, to date, the clearest and most relevant example of the application of Article 13(2) of the Antitrust Act. Unlike the Gerona Appellate Court, the first instance judge fixed the compensation amount against the liable entity in accordance with the Civil Procedure Act now in force.
The first ruling in this case dates from the early 1990s, when the Court for the Defence of Competition declared that an entity had abused its dominant position and imposed fines. The court's decision was upheld by the appellate court and subsequently by the Supreme Court. Once the Court for the Defence of Competition decision was final, one of the injured entities filed an antitrust damages action in a Madrid court of first instance, claiming several million euros in compensation for the injury caused by the anti-competitive conduct of the defendant. The claim was based on the Court for the Defence of Competition decision and the confirming judgments issued by the appellate court and the Supreme Court. The amount of damages was based on an expert witness report submitted to the court by the plaintiff. The defendant opposed the claim by denying the existence of any injury and submitted its own expert witness reports. In addition, the defendant argued that the Court for the Defence of Competition decision had made no reference to the injury caused to the plaintiff by the antitrust conduct.
The Madrid court of first instance rejected almost all of the defendant's arguments. It partially upheld the plaintiff's claim and awarded 75% of the amount claimed. The court ruled that actions for damages based on Section 13(2) of the Antitrust Act must comply with the requirements established for general tort actions under Section 1902 of the Civil Code.(3) This provision - similar to other provisions in the code and common law jurisdictions - requires the existence of an act or omission caused by fault or negligence, as well as a causal link between the conduct and the injury caused. In the case at hand, the court easily found the two elements in the facts of the case. It first ruled that it was irrelevant that the Court for the Defence of Competition decision made no reference to the injury derived from the anti-competitive conduct. The only relevant aspect was that the existence of the unlawful conduct leading to liability had been established by the Court for the Defence of Competition and later upheld by the Supreme Court. This was enough to establish that the first requirement to award damages under Section 1902 of the Civil Code had been fulfilled.
The Madrid court of first instance also ruled that there was a sufficient causal link between the conduct of the defendant and the injury caused to the plaintiff, based on the fact that such link was established by the Court for the Defence of Competition. The court thus focused on measuring the damages to be awarded to the plaintiff. Article 1106 of the Civil Code establishes that an injured party can recover both the actual and the expected damages. Punitive damages, however, are not provided by tort law. In the case at hand, the claim for damages referred to expected damages, which are normally more difficult to determine than actual damages. The judicial standard to determine the lost gains that may be claimed as expected damages takes into account gains which are not merely a possibility but are "very likely to have been obtained", should the illegal conduct not have occurred.
The court then took into account the reports submitted by both parties and the depositions of the expert witnesses, and concluded that the report submitted by the plaintiff was "reasonable, equitable and in accordance with the law". In particular, the court noted that the defendant's reports were drafted without the experts having had access to all the accounting figures of the defendant. Moreover, the reports had been drafted by experts who were not specialized in the sector in which the anti-competitive conduct had taken place. Consequently, and in view of the consistent grounds on which the plaintiff's report had been drafted, the court ordered the defendant to pay several million euros in compensation for the gains lost by the plaintiff as a result of the defendant's abuse of a dominant position. Although this judgment has been appealed, it constitutes a landmark decision on the possibility of filing antitrust damages actions in Spain. It also clarifies how antitrust damages claims interact with general tort principles and rules of evidence applicable to actions for damages.
The two judgments reveal an accepted reality - namely that, today, obtaining compensation for injuries caused by infringements of the Antitrust Act may be very time consuming. However, the situation may change radically if the reform proposed by the White Paper on the Reform of the Spanish Antitrust System, submitted by the government in January 2005, is finally implemented. The white paper tackles the practical problems arising from the lack of jurisdiction by ordinary courts to apply the competition rules of the Antitrust Act and the obstacles to awarding damages created by the current system. The white paper also states that courts should have jurisdiction to apply the act in a dispute between private parties, to declare null agreements or practices that are contrary to antitrust regulations and, if requested, to award damages without having to wait for a final administrative decision declaring such infringement. Should this happen, antitrust litigation and damages disputes are likely to be much more frequent.
(1) Article 13(2) reads as follows: "Compensation for injuries, based on the illegal nature of the conducts prohibited by this act, may be requested by the injured parties, once there is a final administrative and, where appropriate, jurisdictional ruling. The substantive and procedural regulations applicable to the compensation for injuries shall be that established in the civil legislation."
(2) JUR 2002/165978, No 495/2001.
(3) Section 1902 of the Civil Code reads as follows: "He who causes damage to another by his actions or omissions through his own fault or negligence must repair the damage or harm caused."