Germany - The Strategic View - Competition Litigation 2016

Dr. Jan Dreyer and Dr. Michael Holzhäuser provide an insight into competition litigation in Germany: discussing the increasing number of damage claims, as well as legislative changes which have assisted in making the country a more attractive venue for claimants to lodge claims

Contributing firm

1       Are there any particular sectors in your jurisdiction which tend to be a focus for competition damages actions? Why do you think this is the case? 

German competition law provides for compensation for damages resulting from anti-competitive conduct without specifically targeting particular sectors.  Hence, damage claims can be brought under the relevant procedural rules with regard to any infringement of competition law before the competent German civil courts.

The revision of the procedural rules of German competition law as regards damage claims in the course of the 7th amendment of the German Act against Restraints of Competition (ARC) back in 2005 has, in fact, led to a significant lowering of thresholds for potential claimants.  However, as damage claims are, generally speaking, still a rather young phenomenon in Germany, the legal experience is limited to the last couple of years.  Since then, we have seen a considerable rise in damage claims over all industry sectors.  This i.a. relates to damage claims following findings of the Federal Cartel Office (FCO) or the EU Commission in the sectors of sugar, cement (building), air cargo (transport) and railway production (construction), etc.  Whereas typically follow-on damage claims are lodged, stand-alone claims are rather rare. 

Due to the nature of the subject, damage claims occur more often in sectors that are less fragmented as regards the level of competition then others.  This is obviously the case because it is more attractive for purchasers ordering bigger quantities to seek for compensation than it is for buyers having smaller purchase volumes and, hence, smaller damages resulting from excessive pricing, as it is usually also true for consumers, for example.  Specifically, significant consequences were triggered, e.g., by the sugar cartel (three participants) that led to unusually high activities by claimants.

2       Who do damages claims tend to be brought by in your jurisdiction? (e.g. direct purchasers, indirect purchasers, end consumers?) If claims are not currently being brought by indirect purchasers and/or end consumers, why do you think this is?

Damage claims may be brought by any legal entity or individual that has suffered damages resulting from anti-competitive conduct.  This relates to the entire supply chain and, thus, includes direct purchasers and indirect purchasers, as well as consumers.

However, as indicated under question 1 above, since consumers usually purchase small quantities of a given product, a potential damage resulting from an excessive price of this product due to illegal price fixing between suppliers is usually also comparably small.  This aspect does not increase the attractiveness for such claims in the view of consumers, particularly considering the absence of an effective legal system for class actions under German law.  Attempts to establish comparable instruments in Germany were initially successful; although, recently, the Higher Regional Court of Düsseldorf considered the bundling of claims via the special purpose vehicle Cartel Damages Claims SA (CDC) as invalid.  However, a claim may be legally transferred to another entity or individual by the claimant under German law and the reasoning of the Higher Regional Court of Düsseldorf was based on the individual arguments specific to the case (invalidity due to uneven distribution of cost risks, breach of the law on rendering legal services).  Thus, the bundling of claims may still be a viable option in the future and, therefore, Germany be an attractive forum for damage claims.

However, currently the majority of claims are in practice still brought by individual undertakings being direct purchasers rather than indirect purchasers, let alone end consumers.  Consumers may often not even know about the existence of anti-competitive agreements, or are discouraged by difficulties to prove potential infringements or by significant costs and lengthy judicial proceedings that are connected with claiming damages.

Damage claims may also be brought under German competition law by associations acting on behalf of a multitude of member companies or other incorporations capable of holding rights and entitled to bring claims in the interest of end consumers.  There is, however, hardly any case law relating to these kind of claimants.

The legislative initiative on EU level in terms of the Directive on Antitrust Damage Actions is not expected to dramatically change the legal landscape in Germany in this instance as many of the aspects provided for in the directive, such as the binding character of findings by competition authorities or the passing-on defence, have already been incorporated in German law.  However, other aspects, particularly with regard to provisions relating to disclosure of evidence, may very well cause an additional incentive for (smaller) claimants to pursue their rights.

3       What approach are the courts taking to claims that originate from investigations or infringements arising out of the jurisdiction?

With regard to actions for cartel damages, the applicable procedural rules, as well as the legal principles of private international law, apply to the same extent as in relation to any other infringement of statutory laws.  In view of the procedural prerequisites, (foreign) entities may be held liable for infringements originating outside of the German territory, provided the defendant has its place of domicile in Germany.  This follows from the Brussels-I regulation in relation to EU domiciled defendants and from the German Code of Civil Procedure (Zivilprozessordnung) as regards non-EU domiciled defendants.

From a material law perspective, German civil courts may be competent to rule on damage claims originating outside the German jurisdiction if a specific conduct led to effects within the German territory.  Therefore, any infringement of the German ARC or Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) having an effect within the scope of application of the ARC, even if it was caused outside the scope of its application, may serve as a basis for a claimant to bring an action before a German civil court against a defendant that is domestically domiciled.

Moreover, any injured party – whether it is a direct purchaser or ultimately a consumer – wishing to initiate a follow-on or stand-alone damage claim may base its claim on a final and non-appealable decision by the FCO, the European Commission, or the competition authority – or court acting as such – in another Member State of the European Union.

4       Do claimants favour your jurisdiction when they have a choice as to where to lodge a claim? Why?

As the situation has considerably improved for potential claimants following the legislative changes in the course of the latest amendments of the relevant laws (see question 1 above), Germany faces increased activity concerning damage claims.  Courts do increasingly accept English submissions and in general are aware of a "forum competition" with other jurisdictions.  However, there is still a limited number of international claimants having the choice between different jurisdictions choosing Germany.  In particular, the fact that – at least for the time being – German law does neither provide for specific provisions relating to pre-trial disclosure nor class actions does not seem to encourage potential claimants to bring claims in Germany.  Unlike common law jurisdictions, German courts are also not entitled to grant punitive damages.  However, there is development in third party funding which may, despite potentially lengthy proceedings, also lead to an increase of small or medium claimants bringing damage claims in Germany to court.

5       In practice, are the courts generous to claimants when awarding disclosure, including pre-action disclosure?

As indicated above, German procedure law does not provide for specific provisions relating to pre-trial discovery as common in Anglo-Saxon legal tradition.  According to Section 142 of the German Code of Civil Procedure, the adverse party or a third party may be ordered by the court to produce documents or other data in its possession that one of the parties has referred to.  This requires a coherent and substantiated pleading and the applicant is, moreover, required to accurately designate the document in question.  There is no specific case law relating to this question, but it does not appear likely that civil courts would order the FCO to produce leniency applications, for example.  Further, this provision is less of a useful procedural instrument as an order for document production may be requested by a party but is ultimately subject to the discretion of the competent court.

Enforcement of alternative procedural provisions that a claim may be based on mainly depend on the existence of legitimate interests of the party in possession of the documents.  Considering the interest of the FCO not to disclose information provided by a cartel member in the context of a leniency application, a claim based on these provisions does not promise to be successful. 

However, the burden of proof may be on the defendant in specific situations which may have similar effects to discovery when used efficiently.

6       How do the dynamics of a settlement really work in your jurisdiction? Is there a mechanism by which a "global settlement" can be approved/enforced?

Under the German jurisdiction, in the first instance, a claimant has the right to withdraw claims at any stage of the proceeding by way of a formal pleading to the court according to Section 269 German Code of Civil Procedure (for example, in case of an out-of-court settlement).  Thus, there is no permission of the court required.  However, the defendant’s consent is a mandatory requirement once an oral hearing has taken place.  The parties have the option to agree to discontinue the lawsuit by either submitting a settlement proposal to the court or by accepting a settlement proposed by the court according to Section 278 (6) German Code of Civil Procedure.

7       How long do damages actions take? What is the likely range of costs required to defend a claim?

German law uses a two-tier appellate system against judgments; the two tiers being appeal (Berufung) and a second appeal (Revision).

Decisions of the Regional Courts (Landgerichte) can be appealed before the Higher Regional Courts (Oberlandesgerichte) based either on questions of fact or law.  For such an appeal, the appellant needs to be aggrieved by the first instance decision.  This situation occurs if the verdict does not correspond to the motion made before the lower court and the change is detrimental to the (legal) interests of the party filing the motion.

The Federal Court of Justice (Bundesgerichtshof) has the competence for a legal review if a second instance decision is appealed under certain circumstances.

Generally, the average duration of civil litigation proceedings at first and second instance is about eight to ten months each.  In case there is an appeal to the Federal Court of Justice later, the proceedings for that will approximately require an additional 12 to 24 months.  The total length of proceedings if the said courts are all involved is therefore about two-and-a-half to three years on average.  While the parties in German civil proceedings, in principle, have no rights to accelerate proceedings that are specifically stipulated in legal provisions, German procedural law contains several general provisions that serve the purpose of accelerating proceedings.  Examples are estoppel and rules about deadlines set by the court, both of which tend to be handled by the courts in a rather strict manner.  However, due to the complex economic issues involved and the regular need for expert evidence in relation to damages calculations, cartel damages actions will take three years or more in the first instance, especially where international cartel arrangements with multiple participants are concerned.

The allocation of the legal costs, i.e. the court fees and expenses, as well as the statutory attorney fees, relates to the outcome of the case; that is, usually, the losing party has to bear the legal costs.  In Germany the legal costs are foreseeable to a large extent.  This is because the courts’ fees as well as the statutory attorney fees (which are in principle the only recoverable fees) are not based on the amount of work involved in dealing with the case but on the value in dispute.  Therefore, each party can calculate in advance the cost risk it is facing in a worst case scenario in addition to its own attorney’s costs.  Moreover, legal costs in Germany are usually significantly lower than in the US and the UK, given the absence of expensive disclosure proceedings and barristers.  As a result, third-party funding plays a less prominent role in Germany than in the US or UK.  However, the usage of third-party funding has increased in the last decade.  Cartel victims can share their costs by filing their claims together in one lawsuit.

8       What funding options are available for (i) claimants and, (ii) defendants, in your jurisdiction?

In Germany, there is no after-the-event insurance, which is common, for example, in the UK.  As mentioned above, the court allocates the legal costs, i.e. the court fees and expenses, as well as the statutory attorney fees, on a pro rata basis in relation to the outcome of the case.  Generally, the losing party bears the legal costs.

However, under German law, a third party is permitted to fund the litigation costs and thus various litigation financing companies offer these services in the German funding market.  Typically, these companies receive a certain percentage of the profit regained by the claimant for their services. Subject to an appropriate chance of success, the company therefore bears the financial risk of proceedings, and in return bears the civil litigation costs.

Remarkable is the appearance of special purpose entities as a current development in German competition law litigation.  Their business is first to aggregate and take assignment of cartel damage claims and then to litigate them.  In this context, the cement cartel ruling of the Higher Regional Court of Düsseldorf of 18 February 2015 in relation to CDC (see above under question 2) needs to be considered.  By identifying that this party had not received enough funding to finance the legal costs in case of a defeat in court, the court stated that the contract was not in line with German law and this ruling has slowed down the trend regarding third-party funding.

In addition, legal aid is provided in Germany in all types of procedures, including competition damages actions, to natural and, under certain circumstances, legal persons with very low financial resources.

Finally, following Section 89a of the ARC, the amount in dispute may be adjusted in certain cases.  If, within a damages claim, a party states that its economic situation would be seriously jeopardised if it had to bear the costs of litigation calculated on the basis of the full value in dispute, the court may, upon such party's application, order the obligation of this party to pay the court fees to be assessed on the basis of a part of the value in dispute which is adjusted to its economic situation.  The order entails that the benefiting party also has to pay its lawyer's fees only according to the adjusted part of the amount in dispute.  Where costs of litigation are imposed upon or assumed by the benefiting party, it shall reimburse the opposing party for court fees paid and the fees of its lawyer only on the basis of the adjusted value in dispute.  Where the extra-judicial costs are imposed upon or assumed by the opposing party, the lawyer of the benefiting party may recover his fees from the opposing party according to the value in dispute applying to the opposing party.

9       Do you anticipate any significant increase in damages actions in your jurisdiction over the next year or two? If so, where and why do you anticipate these increases coming?

The number of damages actions in Germany is growing steadily, similar to the development in most EU countries.  Through various measures of the FCO like the Leniency programme (which grants the first whistle-blower immunity from fines) and the implementation of the Special Unit for Combating Cartels (Sonderkommission Kartellbekämpfung, SKK) the prosecution of cartels has been strengthened.  These indicators suggest that the number of damages actions will continue to grow for the time being.  Whether it will lead to a permanent and significant increase of damages actions in the future is unforeseeable.  There might be a small increase due to the extension of the limitation period from currently three years to five years brought by the EU Damages Directive, as this should lead to a lower number of claims becoming time-barred.

10   In your opinion, what are the key changes (if any) required in your jurisdiction to improve the effectiveness of private enforcement of competition law?  

Standalone actions without preceding NCA decisions do not play a significant role in German competition litigation.  This is because of the very limited disclosure opportunities provided by German civil procedural law, which makes it difficult for claimants to prove a cartel law infringement.  Also, small consumer claims are rare in Germany as no mechanism for collective redress exists, neither by the use of opt-in nor opt-out.

However, the main issue remains to be the long duration of proceedings in Germany due to a lack of personnel at German courts.  Final judgments are still a rarity.

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The Strategic View - Competition Litigation

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