JONES DAY TALKS®: Private Antitrust Litigation in Germany
Jones Day partners Jürgen Beninca and Dieter Strubenhoff discuss how private litigation relating to antitrust and competition enforcement in Germany has changed in recent years, what factors claimants should consider when preparing to file an action, how these proceedings often play out, and what parties to these actions most need to understand.
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Dave Dalton:
In a previous Jones Day Talks podcast, we discussed developments and trends and private antitrust enforcement actions across Europe. For today's program, we're narrowing our focus on private antitrust enforcement in Germany with particular attention to how it has changed in recent years and the unique complexities involved. Jones Day partners, Dr. Jurgen Beninca and Dr. Dieter Strubenhoff are here to talk about what potentially affected parties need to know now. I'm Dave Dalton. You're listening to Jones Day Talks.
Dave Dalton:
Dr. Jurgen Beninca, council's European and US corporate clients on antitrust regulatory compliance and represents businesses before cartel authorities, including the German federal cartel office and European commission and before courts in antitrust matters. And Dr. Dieter Strubenhoff litigates and arbitrates on behalf of clients in matters related to corporate and commercial disputes in both national and international settings. He advises and represents clients in domestic and international arbitration proceedings with a focus on mediation.
Dave Dalton:
Both Jurgen and Dieter are based in the firm's Frankfurt office. Jurgen and Dieter thank you so much for being here today.
Jürgen Beninca:
Hi Dave.
Dieter Strubenhoff:
Hi Dave. Thank you.
Dave Dalton:
You're welcome. And I guess it's going to very, very interesting program today. Let's jump right in. Jurgen in an earlier podcast, we talked about private enforcement of competition laws at a very high level across EU. Today we're focusing specifically on enforcement in Germany. We've all heard about the damages cartels can inflict on businesses and consumers with all this in mind, talk about enforcement in Germany and how that has changed in recent years.
Jürgen Beninca:
Happy to do so. Traditionally German courts and the German Bundeskartellamt of the German Federal Cartel Office believed that it should be up to the private and public enforcement by the Bundeskartellamt and the German Federal Cartel Office to ensure that the antitrust laws are complied with. People actually believed that the antitrust laws only protect the market as a concept and not customers or suppliers.
Dave Dalton:
Okay.
Jürgen Beninca:
That has definitely changed in the early 2000s after a number of groundbreaking decisions by the European court of justice. And for the first case is picked up in the early 2000s. And today, however one can say that raising any trust damages claims is the rule, rather than the exception after it has become known that a cartel has taken place, it was a Bundeskartellamt traces. All of the cases that are being filed in court. It states that from its perspective, almost every cartel leads to a significant amount of additional follow on litigation. On top of the Bundeskartellamt highlights the fact that many claims are settled outside court.
Dave Dalton:
What led to this change in attitude here? You mentioned there were some decisions, some court decisions that came about, it seems like it was almost a 180 degree turn. And the attitude about this in terms of private litigation versus the public enforcement as it were. What do you think happened?
Jürgen Beninca:
That's correct. The game-changer were two decisions issued by the European court of justice and the courage and monthly, the matters in which the European court has held that everybody who is a victim of a violation of the EU and the trust cartel prohibition is entitled to damages. And once that has been settled for the EU European law, if it was clear that the different situation in Germany was untenable and as a result, first, the German courts, and then the German legislators made clear that also a violation of the German antitrust prohibition of the German cartel prohibition entitled the victim to damages.
Dave Dalton:
All right. So there's some background. We laid some groundwork here for the rest of this conversation. Let's go over to Dieter for a second. Dieter, let's say maybe I think I have a claim, an anti-trust, anti-competition kind of claim. And I want to go after this as a private action. What kinds of factors should claimants consider when they're getting ready to file an action for damages in Germany?
Dieter Strubenhoff:
Yes. I think the first action that needs to be analyzed is what type of cases really is. Is this a follow-on case? Or is this a standalone the damage claim? The standalone damage claim would mean that the claimant would have to provide full evidence for all prerequisites of the claim. And that would include in particular, also the evidence for the infringement of competition law itself. Which is a very difficult effect to establish even for cartel or authorities. And that's one of the reasons why as a cartel authorities also involved these leniency programs to establish this fact. In a follow-on action, we have legal framework, which creates a legally binding effect for the follow-on damage action, which means that the claimant would not have to provide evidence for the infringing act for the competition law infringement as such anymore. And that makes it a far easier.
Dieter Strubenhoff:
And that has the consequence that almost all of the cartel damage claims we see in the courts today are follow-on actions. And no standalone actions. Then the next very important junction to take when structuring a claim is the issue of follow-on selection. These claims are by nature international, and that means they provide often a opportunity to choose between different possible courts, where an action could be submitted. And does that mean it's not only different courts in a given country like Germany, but also internationally within the European Union, for example, and so it is an important analysis to be done, which would be the most suitable jurisdiction for the given case.
Dave Dalton:
That sounds interesting. Is that more art than science form selection? I mean, after a while, you must know where your chances might be better. If I can be very blunt and saying that are some forms just kind of maybe this is where we got to take it, or they're not all the same, certainly.
Dieter Strubenhoff:
Yes. As effectors the advantages of one year jurisdiction or the disadvantages of another jurisdiction in terms of litigation procedures and certain aspects of evidence rules, they do not change in the jurisdictions first, but every case is different in the sense that the underlying facts that if different claimants, different respondents, which have a big impact on the follow-on selection and the locations where I see send-off damage, let's say also plays an important role in this analysis.
Dieter Strubenhoff:
That leads to another aspect which needs to be looked at the outset of a case, which means, which is the selection of the proper respondent for such cartel damage action. The cartel by definition has several members and each of these members is a potential respondent in these proceedings, under German law, the cartel members, as they are liable jointly and separately. And that means each of the cartel members is in principle liable for the whole cartel damage.
Dieter Strubenhoff:
And therefore you have another choice to be done here, which means the choice of the right respondent. For your case, you may decide to sue one cartelist or you may decide to sue several or all cartelists. On the other hand, also on the claimant side, as there are choices to be done, we have not yet instruments in Germany, which are very similar to US style class actions, but also in Germany, we have seen more sophisticated approaches to cartel damage in litigation in the past. And as that means, various damages claims are being pulled to different structures in particular through assignments structures. And there's also use of special litigation vehicles. And this is of course, an aspect how to structure as the claimant's party in these proceedings. So you see, there are a lot of choices to be taken before actually initiating proceedings.
Dave Dalton:
Absolutely. Right. I knew it was going to be complicated, but there are a lot of factors to consider before moving forward. Obviously, if the matter does move to court, how do those proceedings play out? What should we expect to see?
Jürgen Beninca:
Let me give you an outline of the procedure. Once the plaintiff has made up his decision and has decided to go to court, it will prepare the complaint. It's this as a kind of formal letter to the court structured in a kind of prayer for relief, and then the reasoning for the jurisdiction of the court, as well as the reasoning for the merit of the case. The court takes note of the complaint decides on the amount of statutory court fees that have to be paid in advance by the plaintiff. Once the statutory court fees have been paid by the plaintiffs, the complaint is served on the defendant or respondent, and the defendant then gets normally two deadlines, one deadline, short deadline to notify the court that it intends to defend itself against the complaint. And a second deadline to respond to the allegations made in the complaint.
Jürgen Beninca:
The letter deadline can be extended as the first one cannot, but that's normally the big picture. And once the defendant has submitted its answer to the complaint as a plaintiff, then gets a chance to respond to that answer to the complaint and that the defendant again, normally gets a chance to raise again his view. And then at that point in time, it's customary is that the court will issue either a kind of indicative court order identifying the legal issues to be clarified on the factual issues as well, or it even may arrange even already at that time for a first oral hearing.
Dave Dalton:
I see. So again, a lot of moving parts, you mentioned an oral hearing and that would come about at some point Dieter, explain what happens there at the oral hearing stage.
Dieter Strubenhoff:
As you already indicated, litigation proceedings in Germany are very driven by written proceedings. And most of the work being done in litigation is done through submissions. That means that the oral hearings are reasonably short. Normally you would only see court hearings to be scattered for a couple of hours, not days as in other jurisdictions.
Dave Dalton:
Sure.
Dieter Strubenhoff:
And what's a court actually does then, is to provide the parties with a preliminary assessment and view of it's analysis of the case facts and legally so far. So the court, unlike in other jurisdictions takes a very active role in the proceedings. And it's often also quite open in expressing its views on the case without having to fear, for example, bias emotions in this regard. Since these cases are extremely complex in cartel litigation, there are also a lot of issues to address. And therefore the first oral hearing may not touch on all the relevant aspects of the matter. It is common that first procedural issues are discussed. If they are relevant, such as jurisdiction or assignment issues, also substantive law issues like applicable law matters. And often in many cases, also limitation period issues are relevant and only then it gets really interesting in terms of damage calculation and scope of damages. And the court may amaze and discuss issues relevant to the taking of evidence for these damages.
Dave Dalton:
After going through all this, when we get to the decision point, well Jurgen let's talk about how decisions are announced. And in some of the notes, you were kind enough to send over to me to prepare for this program. You talked about incentives for defendants to settle at some point, talk about how all this works in context of when the decision comes out, why someone might settle and so forth.
Jürgen Beninca:
I'm happy to do so. Of course, at some point in time, the court will have made up its mind on whether or not the complaint or the plaintiff has met its burden of proof and whether or not indeed there has been a damage and in which amount, and then of course the court will issue at some point a decision. However, as you correctly mentioned, in such case, if the defendant feels that it is likely to lose this case, and in particular, if the defendant is facing similar parallel claims from other plaintiffs in other courts in the same jurisdictions, it will often have an incentive to avoid a public decision. The publicly available decision in which its liability has been determined and more important in which the amount of damage that this plaintiff in this particular case has suffered will become known publicly.
Jürgen Beninca:
And because any such precedent is likely to be used by the other parallel lenders in the parallel proceedings. And as a result, it's often advisable for a defendant in such situation to avoid the negative publicity of a negative decision and to settle that to avoid that. It's the defendant therefore I have strong incentives to settle, to avoid as the publicity of a negative decision.
Dave Dalton:
What if you to guess, what percentage of these cases settle before the decision comes out?
Jürgen Beninca:
Let's put it this way. In most cases, we don't see any negative decisions.
Dave Dalton:
Okay.
Jürgen Beninca:
Any kind of mass litigation cases in which it is known that a significant number of plaintiffs have fired parallel claims like in the German cement case, in the German sugar cartel case, in the German cases relating to the trucks cartel and all of these cases, we only see negative decisions, i.e. decisions in which the plaintiffs lose. We do not see positive decisions, and unfortunately we cannot make up the mass to determine what kind of ratio the negative decisions have. And as a result, it's very difficult to guess.
Dave Dalton:
Sure.
Jürgen Beninca:
As I said, the mere fact that we do not see negative decisions in these mass litigation cases makes it pretty likely that cases are being settled.
Dave Dalton:
Yeah.
Jürgen Beninca:
Yeah. That's substantial amounts.
Dave Dalton:
Sure.
Jürgen Beninca:
Sure. And it's certainly understandable that's for certain.
Dave Dalton:
Okay. Dieter we've talked about and outlined the process. How long does the typical cartel damage case anti-competitive case usually take?
Dieter Strubenhoff:
Well, these are very complex cases. And as you would expect for complex cases, they take a long time. This long duration may mean that they can stretch out from a few too many years. And it's very difficult to make any particular predictions for a particular case. It can actually vary quite a lot.
Dave Dalton:
Okay.
Dieter Strubenhoff:
Some cases and we have seen this in Germany also quite recently, which are being dismissed on a purely legal grounds, such as the assignments, which are the basis for the claims have been held invalid by the court. And then as the court was able to dismiss the entire case based on this legal finding. That can be reasonably fast and after the first rounds of submissions and maybe one or two court hearings. But if the case goes, was the whole agenda of illegal prerequisites and the necessary evidence for damage calculation and everything it's taking in this regard, it may actually take many years and you have to bear in mind that this is an ongoing legal development, which also adds legal complexity and therefore duration to the proceedings.
Dieter Strubenhoff:
Then of course you have to bear in mind, the instances possible for litigation proceedings in Germany. So that means after the first instance, judgements there is one appeared possible to the second level civil court, which takes at least another two years in these cases. And then as there is subject to further requirements, even a second appeal to the federal court in Germany, which can then take more years. And in fact it is even possible that the court comes back from the federal record to the lower instances for further evidence taking. So if this is really played out through the whole procedure, it can take many, many years.
Dave Dalton:
Okay. I guess it's complex as these matters are, I guess I'm not shocked to hear that and moving back to Jurgen I probably wouldn't also be surprised that in terms of the cost of this type of litigation, that probably varies a lot too. Am I correct?
Jürgen Beninca:
You're absolutely right. Dieter highlighted already the complexity and the length of the proceedings. And also, let me give it a couple of examples, which in our experience have led to significant costs in bringing this case, even up to the court of first instance. And that is in particular working with the necessary evidence to prove that the plaintiff has purchased the goods affected by the cartel. In this particular circumstance, the plaintiff needs to show and needs to provide evidence in form of invoices and other documents showing that it indeed purchased the cartel affected goods. And that's often in many cases, it's really a complex exercise. Second as Dieter already mentioned the issue of damage calculation is highly complex.
Jürgen Beninca:
You need an economic expert as the defendant will have an economic expert. And then at some point in time, the court may want to decide to hire an own expert, which is essentially acting as a kind of referee on which expert of either side is going to be more persuasive. So these kinds of cases are complex. The proceeding, the legal submissions are pretty long, can be anything between 50 and 300 pages. This is significant work. The stakes are high. There are many unresolved legal issues that will hopefully be addressed by the German federal Supreme court in the next 10 years or so. But right now it is a really lengthy and costly exercise.
Dave Dalton:
Yeah. Costly, complicated, like you said, lengthy likely expensive, all that. So interesting area of the law that's for certain. Dieter you talked about damages briefly before, but give us an overview. Can you talk about the extent of damages, how they're typically calculated or what someone should watch for, if they're in this sort of situation.
Dieter Strubenhoff:
That is a very difficult one because in fact there is hardly any legal guidance by publish court decisions. The fact of the matter is that there are in fact less than a handful of cases in Germany which may be given an indication about specific damages. As the reason is again, that at the end of the day, sooner or later in the process, many of these cases, or most of these cases are likely to be settled in order to avoid negative precedents from the respondent side. And on the other hand, if the claims may fail on other legal grounds, as I have made already an example for, then obviously you also don't have an indication and decision as to the damage calculation.
Dieter Strubenhoff:
So you do not find this type of published decisions in Germany, but one thing can be said, and that is that the interest claims on cartel damages in Germany are playing an important role as well, because these cases usually address a long duration of more than 10 years of cartel duration. And that means interest becomes a relevant factor and this interest is calculated in Germany based on a statutory interest rate of 5% or to be more precisely 5% above the general interest rate of the European Central Bank. And therefore the interest claims have a relevant role in the overall damage calculation in particular also bearing in mind that in real time, we don't know much of interest anymore. It's constantly.
Dave Dalton:
Yeah. Exactly. And the rates are near zero, but that is interesting though, because as these cases move on, if as you said, they can go on very long, 5% is no small amount of money when you're talking about the kinds of awards or damages or the settlement, however it's worked out so that's quite a factor. I had a note to myself about the importance of evidence in these cases. And you talked about it a second ago, you said receipts, proof that a consumer had purchased this or been damaged somehow talk about the importance of evidence in these cases at a high level.
Jürgen Beninca:
So German courts have been that this has become apparent over the last couple of years. They are very restrictive. They require essentially the presentation of invoices for the purchased goods on which the damage claims are based. And that is often really significant burden for any potential lender, simply because you may not have access to these invoices any longer, even determining the amount of price that you have paid may constitute a challenge. In particular, if you have complex pricing arrangements, if you have complicated rebate schemes that cover a long term supply agreement where you have annual rebates or you have special rebates and stuff like that.
Jürgen Beninca:
And all of these kinds of cases make raising a damage claim pretty complicated. And then again, with respect to the amount of damages, everything boils down to expert opinions. Tests turned out that there are significantly less economic experts. And there are lawyers as a result, in many cases, in which a number of plaintiffs have filed cases against defendants that have had difficulties identifying suitable economic experts, because experts were already working for somebody else or even working on the other side. So that often constitutes a significant challenge.
Dave Dalton:
All right, we've talked about the process. We've talked about the likelihood of a settlement. We've talked about how complex these matters are. There are a couple of things I want to make sure we talked on because I think they're very relevant here in researching this and getting ready for this program. I saw the term umbrella losses used in this context. Talk about what that means.
Jürgen Beninca:
Umbrella losses are relevant in the following scenario, let's assume that we have a cartel that agrees to raise prices and members of the cartel, however, they only account for, let's say roughly 80% of the total market participants. In such a situation, economic experts are likely to argue that these cartel members accounting for 80% of the market are nevertheless able to raise prices above the competitive level with a result that a victim that buys cartel affected goods, not only from the cartel, but also from the outsiders of the cartel will likely pay higher prices than normal.
Jürgen Beninca:
With respect to goods purchased from cartel members, as well as goods purchased from the outsiders of the cartel. And these second type of losses, they are called umbrella losses. For umbrella losses, it also can be said that they lay a much more important role in textbooks, legal textbooks, and in reality, and that is mainly due to the fact that they're extremely difficult to prove.
Dave Dalton:
I see.
Jürgen Beninca:
German courts have held that say recognize in principles, a possibility of umbrella losses. But again, as I said is showing that that's have been indeed such losses is often extremely tricky.
Dave Dalton:
Difficult to prove. I see. All right, let's wrap it up with this and I'm going to go to Dieter first, but you're going to weigh in also, what we haven't talked about? What do clients need to know or understand about these cases in Germany that we may not have covered? Do you have a takeaway for us Dieter?
Dieter Strubenhoff:
Let's look shortly at the big picture of these cases. These cases are part of an ongoing legal development, which has been compared throughout this podcast and many issues are still in the process. And we are waiting for a settlement by the highest courts in Germany. Not withstanding the fact that the infringement of the competition laws is already established with binding effect by the cartel authority decisions. These cases are still full of legal and factual issues of complex nature, which needs to be addressed. And therefore the proceedings have a long duration. On the other hand, these are generally very high value, high stakes cases. And for high stakes cases, you would expect also to have complex cases.
Dave Dalton:
Sure.
Dieter Strubenhoff:
In any case we have specialized and very qualified courts in Germany for these cases. We also have a suitable and flexible procedural litigation framework in Germany. And this applies not withstanding the fact that we do not know as a large discovery or disclosure exercises in our litigation framework. We have other instruments in our litigation rules. And therefore overall, you can say that the German courts produce good results at appropriate cost in these cases. I would therefore conclude that Germany is in fact well-placed as a appropriate jurisdiction for handling this type of cases. And this applies not only for claimants, but also correspondents in fact.
Dave Dalton:
Oh, okay. Interesting. Jurgen anything you'd add to that or any other thing you'd like to leave us with?
Jürgen Beninca:
Yeah. I think it's important to take into account the different perspectives of CA. If you needed to figure out that some of your employees were involved in an illegal cartel, it is important from day one, that you prepare for litigation, not only litigation in Germany, but litigation these days across the world and to take every step in the proceeding of the Bundeskartellamt and of the European Commission or any other competition authority that may be responsible with the future litigation in mind. This is absolutely crucial because you can make big mistakes at the very beginning, which will increase the cost of the entire exercise for your company significantly.
Jürgen Beninca:
If you are on the victim's side, if you find out that you may have purchased goods that have been affected by a cartel, then evidence preservation is key. So it's really important that you do your homework from the very beginning that you carefully assess which products you purchase at which prices at which point in time, and that you preserve this evidence and then discuss with your legal counsel what might be the best option for you to proceed, to assess the validity of your claim and then of course, to decide on how to proceed.
Dave Dalton:
Very good. An astoundingly complex area of the law. Hey, this was great. I appreciate you both being today. These cases are lengthy complex, but again, it's an area of the law that seems to be evolving. We'd like to have you again. Sometime as circumstances and events warrant, but this was great today. Thank you so much for being here Jurgen and Dieter. Thank you so much.
Dieter Strubenhoff:
You're welcome.
Jürgen Beninca:
All right. We'll talk soon.
Dave Dalton:
Okay. A short programming note. This was the second in a series of Jones Day Talks podcast programs focusing on private antitrust litigation throughout Europe. So please watch for more programming in the months ahead. We also plan a podcast focusing on private antitrust litigation in the United States after we complete the series on the situation in Europe. The US podcast is likely to post in June 2021 and then will be followed by a global round table discussion featuring our lawyers discussing private antitrust litigation, sometime in July. That's a lot of information coming from our global cross practice, private antitrust litigation working group. And we look forward to bringing you that content.
Dave Dalton:
For more information on Jones Day Antitrust & Competition Law and Global Disputes practices visit jonesday.com There you can also find complete bios and contact information for you Jurgen and Dieter. And while you're visiting us online, be sure to check out our insights page. There you'll find alerts, commentaries, white papers, videos, more podcasts, newsletters, blogs, and other useful content. Subscribe to Jones Day Talks at apple podcasts and wherever else, quality podcasts are found. And as always, we thank you for listening. I'm Dave Dalton. We'll talk to you next.
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