How much of a cartel's overcharge was borne by the ultimate customer? A Commission study sets out some factors for judges to consider.

Ahead of the Damages Directive coming into force, the EU Commission has published a study to assist the courts in assessing whether cartel-related overcharges were passed on by intermediate purchasers to their own customers.

Pass-on claims

We have previously reported on the changes to competition follow-on claims across the EU arising from the Damages Directive.  The Directive must be implemented in less than a month (by 27 December 2016) and legislation is being prepared in the Member States to achieve this.  The Competition Commissioner, Margrethe Vestager has recently urged Members States to “make a final push” to ensure consumers can benefit from the new rules by the deadline.

In addition to the work required by individual Member States, Article 16 of the Directive requires the EU Commission to prepare guidelines on estimating the share of any overcharge which was passed on to an indirect purchaser.  This is an important issue, since the “pass-on defence” may be invoked by defendants facing claims from purchasers of the overpriced products: they often assert that any excess was simply passed on, and no damages can therefore be claimed by the direct purchaser.  An indirect purchaser’s claim will also depend on the extent to which it can show the overcharge was passed on to it, although such claimants will be assisted by the presumption introduced by the Directive that there has been pass-on (unless proved otherwise).

The Commission’s Study on the Passing-on of Overcharges

The Commission has now published a “Study on the Passing-on of Overcharges”.  This study is a prelude to a consultation by the Commission, following which it will produce its Article 16 guidelines in 2017.  The Study includes a discussion of the economic theory behind pass-on, and how it might be quantified, as well as a review of the existing national case law at EU level and in Member States.  The Study also considers the related question of the impact of any “pass-on” on the volume of goods sold (since higher prices generally lead to lower sales).

Of more general interest, however, it also begins the process of educating judges who need to consider the pass-on question in cases coming before them.  For some this will be new territory since cartel damages claims are a rarity in many EU Member States, and in some countries the “pass-on defence” has never been considered at all.  A lengthy chapter on “Guidance for judges on managing and assessing evidence related to pass-on” is followed by the (arguably ambitious) 39-step “checklist” for judges.

All economic assessments of pass-on effects will be fact-dependent.  General principles of the sort set out in the economic theory sections of the Study may not apply to all products or markets, so the checklist will not lead judges to “the answer”.  The aim of the checklist therefore seems to be to give judges the tools to assess whether the expert reports before them are adequate and plausible, by highlighting the areas that the economists should have addressed, and setting out the pros and cons of the different approaches they might have taken.

It seems likely, therefore, that the checklist for judges could in fact become a checklist for economists acting as experts in court claims.  It seems certain that they will want to bear it in mind when preparing their reports.  The questions in the meantime are whether other economists find any fault with the study and how much of its checklist finds its way into the published guidelines next year.