The objectives of competition rules will not be accomplished without effective enforcement mechanism. This statement assigns one of the most critical discussions of competition law is the effectiveness of its enforcement systems; because enforcement systems are the only way to force businesses or individuals to compliance with laws. In the subject of competition law, public competition enforcement is the main compliance mechanism in many countries through a competition commission or public prosecutor. However, private competition enforcement cannot be ignored, its role also important in enhancing the compliance with competition law rules.
Because it has two significant undeniable advantages in the enforcement of competition as explained in detail below. Due to the fact that, private competition enforcement has been seen as a part of the discussion of the effectiveness of competition law enforcement in many jurisdictions. As to the examples, the USA and the EU become prominent in the discussion of the effectiveness in the world. Because the function of private competition enforcement has been the subject of the debate in the USA for a long time and, mostly last ten years, in the EU. The critical question is that should the other countries go behind the USA example of private competition enforcement? More specifically, should the EU follow the USA experience? Therefore, it is important examine the USA experience in private competition enforcement.
The USA Private Competition Enforcement Experience
Private competition enforcement in the USA is in demand and public competition enforcement is simply ‘the tip of the iceberg’. Private competition enforcement owed this popularity to liberal discovery rights, the availability of treble damages, the possibility of class action suits, contingency fee arrangements, and the award of costs and attorney fees to the successful plaintiff. These clauses are a part of USA general civil procedure law conjointly; however the only exception is the availability of treble damage, this rule is exceptional in USA competition law. Because underfunded public competition enforcement authorities have created the competition law enforcement gap in the USA and this gap has been tried to fill with the introduction of treble damages. In addition to this, treble damage rule is the main reason for the popularity of private competition enforcement; because the availability to obtain exorbitant financial awards which are triple the amount of the actual damages directs victims to bring private actions against infringers in the courts. For instance, in the case of Conwood Company, L.P. v. U.S. Tobacco Co., private litigants have been granted $1.05 billion in treble damages for the infringement of the Sherman Act; on the other hand, the Antitrust Division of the Department of Justice have accumulated $1.86 billion as criminal fines and penalties after the anti-competition investigations in 2014. This instance clearly illustrates why private competition enforcement is so popular and how high financial awards can be in the favour of private litigants as a result of even one trial.
Public and private competition enforcement get authorisation from Sherman and Clayton Act in the USA. Section 1 of the Sherman Act prohibits violations such as price fixing, bid rigging, market and customer sharing, and other collective anti-competitive behaviours; section 2 of the Sherman Act bans violations about monopolisation. More importantly for private competition enforcement is section 4 of the Clayton Act which has expressed that ‘any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor … shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.’ However, in spite of there is no limitation about standing of purchasers under section 7 of the Sherman Act or section 4 of the Clayton Act; direct injury and target area systems are designated by the court to attenuate the extent of section 4 of the Clayton Act by the courts; thus, the wide language of Clayton Act has been changed into narrow interpretation. As explained below, the standing limitation affects the effectiveness of private competition enforcement unsatisfactorily.
In the first system, which is direct injury, to be proved the causal link between violation and injury is not enough, the plaintiff has to prove the business connection with the violator for obtaining the right to bring an action. Thus, the victims which do not have a business connection with the violator cannot obtain the right to sue. In the case of Loeb Industries, Inc. v. Sumitomo Corp., 306 F.3d 469 (7th Cir. 2002) the court used the direct injury system to designate that the victim’s right to bring a private action. In the second system, which is target area, the plaintiff has to prove that he was in the same business category which the conspiracy was directed and the connection between the injury and violation to claim for the compensation. For instance, in the case of Karseal Corporation v. Richfield Oil Corporation, 221 F.2d 358 (9th Cir. 1955) the court reinforced this system in the USA competition law. However, the target area system is accepted more effective than the direct injury system in the USA doctrine.
There are two consequential cases which are Hanover Shoe Inc v. United Shoe Machine Corp and Illinois Brick Co v. Illinois in the field of private competition enforcement in the USA. These decisions have a significant importance in the private competition enforcement because these rulings remained a critical doubt about the effectiveness and efficiency of the USA private competition enforcement system. In the case of Hanover Shoe v. United Shoe Machinery Corp., the Supreme Court has experienced the issue of passing-on for the first time and rejected the passing-on defence in anti-competition cases. After nine years this decision, the Supreme Court has faced with another issue which is indirect purchaser standing and the Supreme Court expressed that indirect purchasers were not able to compensate their damages under the USA competition law in the case of Illinois Brick Co v. Illinois. Especially, not allowing indirect purchasers to bring a private action and rejection passing-on defence remained a critical doubt about the effectiveness and efficiency of the USA private competition enforcement system. In addition, the competition laws were enacted for ‘the protection of competition, not competitors.’ Not granting permission to indirect purchasers to bring a private competition action serve to competitors, especially for the violator competitor. Because the harm that they have caused will not be compensated by ‘every person’ and ‘any person’. To be brought private actions by ‘every person’ and ‘any person’ is important; because these decisions are opposite the phrasing of the Sherman Act and the Clayton Act that ‘every person’ and ‘any person’. These acts mislaid their intent which allows every and any person who has suffered because of the violation of competition rules can bring a private competition action under the USA competition law. Consistent with this, the Antitrust Modernization Commission has suggested that the cases of Illinois Brick and Hanover Shoe need to be overruled in the favour of effectiveness of competition enforcement systems by allowing indirect purchasers to bring a private competition action to recover their actual damages. In sum up, the system of private competition enforcement in the USA is not very effective because it does not correspond with the effectiveness of private competition enforcement. It has been said that effective private competition enforcement must present a right to every and any person who is a victim of anti-competition behaviour to compensate their damages or losses. In sum up, private competition enforcement, which has a long history with pro et contra as explained above in the USA, should be exemplary for other countries which are adopting and enhancing their private competition enforcement mechanism such as the EU to take into consideration without a doubt.
The EU Private Competition Enforcement Experience
RELATIONSHIP BETWEEN PRIVATE AND PUBLIC COMPETITION ENFORCEMENT
One of the essential parts of the debate of effectiveness of competition enforcement is the relationship between public and private competition enforcement. This relationship is important for the effectiveness of enforcement mechanisms because if private litigants can detect the infringers easily and bring a private action against them, it means that private competition enforcement is the best way for starting legal intervention; however if detection of the violators is difficult and it requires a detailed investigation, public competition enforcement’s intervention is needed. Thus, the balance between public and private competition enforcement should be found for the best protection of competition law. For instance, the intervention of the public enforcer is always needed to detect concealed infringements because of its special investigation powers. Besides powers to get the information about the anti-competition behaviours and the costs of its attainment are not the same in public and private competition enforcement mechanisms. On the other hand, private competition is needed to achieve the corrective justice by removing the injury of a victim. After all, there will be ineffective competition law enforcement if only public or private competition enforcement emphasised, so the effective model for protection of competition law should be developed in the light of an optimal balance. If only private competition enforcement emphasised, it has raised some fundamental questions about the possible negative ‘side-effects’, most notably the risk of seriously undermining the deterrent effect (public competition enforcement) of enforcement within the regime given that guilty firms may end up settling cases with potential plaintiffs and thus avoid litigation in court and the risk of high damages. Because as explained in the next chapters there is an opportunity for alternative dispute resolution under enforcement of competition law. In addition, public competition enforcement provides a superior and less costly mechanism for ensuring that the competition rules are not violated and that corrective justice is unlikely to be served by private competition enforcement. On the other hand, public competition enforcement cannot solely have been emphasised because there are two significant advantages of private competition enforcement to be taken for the effectiveness of competition enforcement.
Advantages of Private Competition Enforcement
There are two subject matters of competition law enforcement can be enhanced by the private competition enforcement. First, private competition enforcement has a significant role in improvement the compliance with competition rules. In other words, it provides additional deterrence function to public competition enforcement. Because, the decisions of awards of damages by the court may have a similar, not the same, influence with the public enforcement’s fines for the violator businesses. Therefore, for instance, private competition enforcement helps to competition authorities especially for the detection and termination of cartel activities. Second, private competition enforcement is the main and only instrument for the damage or loss which have been suffered by private litigants because of anti-competitive behaviours. Besides it is clear that the role of public competition enforcement is important for the effectiveness of competition law enforcement and bring an action effectively against the violator of competition rules also is an important part of the whole effectiveness of competition law enforcement. Because to obtain compensation because of the injury is only probable through private competition enforcement and it is the most important reason for obtaining and enchaining private competition enforcement together with public competition enforcement. However, when obtaining or enhancing private competition enforcement, one of the most important aspect is to use the most effective way to gather public and private competition enforcement.
Gathering Public and Private Competition Enforcement
The relationship between these two mechanisms refers one of more specific and critical issue is to gather public and private competition enforcement to achieve the principal goal of competition law. These systems should be gathered because a complex system or a system which focuses on solely public or private competition enforcement will cause issues and this will affect the market and consumers negatively. Thus gathering public and private competition enforcement in the most effective way is highly important because public and private competition enforcement are ‘two pillars of competition law enforcement’.
The first pillar of competition law enforcement is competition authorities as a public competition enforcement and its mission to detect and punish the infringers of competition rules; therefore to provide a protection to compete fairly by businesses in the market. To provide these duties, the competition authorities has got exclusive powers which are designated by law. These exclusive powers include imposing severe fines for businesses and every person and even imprisonment for every person who has been a part of the cartel activities in various jurisdictions. The USA and the EU competition authorities have these certain special powers as well. In the EU, the Regulation 1/2003 gives the power the European Commission and the NCAs to enforce article 101 and 102 of the TFEU, and to punish businesses which have violated these articles and the fine may be decided up to 10 percent of the annual turnover of the violator company. For example, Saint-Gobain has been punished with €715 million by the European Commission in 2008, it is the most severe cartel fines so far. On the other side of the Atlantic, the Antitrust Division of the United States Department of Justice is responsible for securing the compliance with competition rules and it is entitled to bring criminal competition cases and impose severe penalties as a result of anti-competitive behaviours. For instance, an imprisonment punishment which may up to ten years for every person is designated and companies can be imposed to pay the greater of $100 million or double the gain or loss as a result of anti-competitive behaviours in the USA. In addition to the Antitrust Division of the United States Department of Justice, FTC is another competition law enforcer and its power is restricted compared to the Antitrust Division. These two public enforcers are not entitled to bring civil actions for fines and there is no specific fine which can reach up to 10 percent of the annual turnover of the violator entities in the USA as well as in the EU.
The second pillar of competition law is private competition enforcement, where the private parties who seek compensation at the court as a result of anti-competitive behaviour, is not given exclusive powers like competition authorities. In other words, private and public competition enforcement of competition law has got diversified benefits and consequences because of their concerns. For instance, private litigants clearly only have got the concern to compensate their losses or damages to compare with public enforcers where the concerns are wider than the aim of private competition enforcement. Besides the substantive and procedural rules of public and private competition enforcement are completely differentiating as well. Because of these, private and public competition enforcement are not mutually exclusive options. On the other hand, even though they have certain differences, private and public competition enforcements are serving to the main aim of competition rules and they have significant importance in the field of the effectiveness of the competition law enforcement. Because both of them are the threat for the violators. For instance, the infringer who acts against the main aim of competition law will face the sanctions of public and/or private competition enforcement because of the violation. Because of serving to the main aim of competition rules, coordination problem needs to solved for the best protection. There are two good examples which illustrate the importance of coordination between public and private competition law.
Follow-on action is the first example of the relationship between public and private competition enforcement systems. Bringing follow-on actions for damages will be easy compared to stand alone action for damages after the investigation of competition authorities. Because the violation already has been constituted by the competition authorities with establishing of causation, injury and other evidence. Besides the court might find beneficial information regarding the violation in the file for the private litigation. After these stages, the court will have an opportunity to focus on damage assessment and calculation of damage solely. As explained detailed below, follow-on actions are beneficial where there is no specialised court for competition law cases. However, independence in follow-on actions is significant because to bind private competition enforcement with only previous determination by public enforcement may cause lose the capacity of private competition enforcement. Thus, the court as a private competition enforcement should not conditioned upon with the previous decision of public competition enforcement, there should be a room for the court to decide independently for retaining the effectiveness of private competition enforcement.
The other example of the relationship between public and private competition enforcement is the issues of disclosure of documents in leniency programme or settlement procedures ; the sound coordination is surely necessary for this matter. Because the possible disclosure of documents may jeopardise public competition enforcement. When the competition authorities fined the infringers according to evidence, the disclosure of this evidence and all the related documents regarding violation can be used by the private litigants. Thus violators may choose not to apply for leniency programme, because of the possible compensation decision of the court and this compensation can be quite severe as in the USA. Therefore, the essential question is that the party who applied for leniency programme or settlement procedures and provide important documents to reveal the cartel and has exempted from the punishment of competition authorities, will be obligated to compensate the injury of a private litigant end of the private proceeding? When deciding this, the effectiveness of public enforcement’s leniency programme and settlement procedures should not be jeopardised in support of private competition enforcement. Consistent with this, the proposal for a directive has stated that ‘the European Parliament repeatedly emphasised that public enforcement in the competition field is essential, and called on the Commission to ensure that private enforcement does not compromise the effectiveness of either the leniency programmes or settlement procedures’. Because leniency programme and settlement procedures are very effective methods to reveal secret cartels. For instance, nearly 60 % of cartel infringements is determined under favour of leniency in the EU and this statistic illustrates why public competition enforcement should not be jeopardised.
As a result, if the coordination can be provided; this coordination of public and private competition enforcement will enhance the competition law enforcement in comparison with focusing on solely public or private competition enforcement system. Because they are two different pillars for the one aim of competition law enforcement. Consistent with this, public and private competition enforcement have been accepted as a mutually complementary in the EU, it reflects in the proposal for damages directive as ‘the overall enforcement of the EU competition rules is best guaranteed through complementary public and private competition enforcement’ and in the Guidance to national courts: Quantification of harm caused by infringements of the EU antitrust rules as ‘essentially, mutually reinforcing’. Along the same line with the EU, the USA competition law system is ‘a mix of private and public remedies’ for many years. On the other hand, when accepting public and private competition enforcement systems as a mutually complementary, also to designate the frontiers and objectives of public and private competition enforcement rigorously has an essential importance. Therefore, the effectiveness and efficiency of these enforcement mechanisms might be provided. Because competition law will be deficient when it has got a ‘poor mix of enforcement weapons’. Besides, this poor mix of enforcement weapons cannot be solved by focusing on solely public or private competition enforcement for the best protection for the market and consumers because of the reasons discussed in this chapter. The critical question to solve this poor mix of enforcement weapons issue and designate their frontiers is; what are the objectives of public and private competition mechanisms? This question is important because when the distinction between the objectives of public and private competition enforcement is designated, private competition enforcement will be more effective because one of the most fundamental differences between public and private competition enforcement is their distinct objectives which are being sought to achieve.
OBJECTIVES OF PRIVATE COMPETITION ENFORCEMENT
The optimal competition enforcement system in the competition law refers where public competition enforcement is the pioneer tool to deter and punish anti-competitive behaviour, while private competition enforcement is the main instrument to compensate injured victims. Thus, there are two objectives which are deterrence and corrective justice in competition enforcement system. Deterrence provides a threat of detection and sanctions in order to avoid possible anti-competitive behaviours, on the other hand, corrective justice includes punishment and compensation. More specifically for private competition enforcement, it based on deterrence, compensation or both in certain jurisdictions. However, the important question is whether compensation or deterrence will take the lead in private competition enforcement. To answer this question has a significant importance because sound meaningful to discuss the more specialised overcomes of private competition enforcement when its aims designated. Thus, the success of the Directive in the EU is directly relative to the objectives of private competition enforcement. Answering that question will also shape the approach of private competition enforcement in countries as seeing below. In addition, once decided what is the main aim of private competition enforcement, substantive and procedural rules will reflect with it. For instance, each the USA and the EU have assigned different meaning to private enforcement competition law, and as explained below it shapes the approach to private competition enforcement.
Deterrence and punishment generally are being ensured by public competition enforcement whilst compensation is being ensured by private competition enforcement. In addition, deterrence might be seen as a beneficial side-effect of private competition enforcement. The contribution of additional deterrence is undeniable because more deterrence on companies will keep away them to violate competition rules in other words ‘prevention is always better than cure’. However, the role of private competition enforcement should not replace the role of public competition enforcement. In other words, deterrence should not be the main aim of private competition enforcement, so, deterrence has to be remained in the favour of public competition enforcement. Because public competition enforcement is more functional than the private competition enforcement to investigate and apply sanctions, besides, these sanctions can be monetary as well as non-monetary like imprisonment and disqualification of directors. The characteristic of these sanctions of competition authorities is likely to deter the infringing companies more effectively; because of the exclusive powers, the competition authorities are more powerful than private competition enforcement. Besides public competition enforcement is effective to provide deterrence with its powers such as a power to establish leniency programs. Nevertheless, competition authorities might not be more powerful in every jurisdiction. As mentioned above the gap in the public competition enforcement in the USA also influenced the approach of the USA about the objectives of private competition enforcement. Consequently, it refers one of the main differences between the USA and the
EU in the subject of the objectives of private competition enforcement, the USA has chosen deterrence while the EU has preferred compensation as the main objective.
USA Position on Objectives of Private Competition Enforcement
Compensation and deterrence serve to protect the market and consumers in the USA. Nevertheless, there was an uncertainty in the USA about the main purpose of including a right of private action in the Sherman Act whether allowing bring a private action aimed to achieve compensation and deterrence function. In other words, whether compensation or deterrence is the main aim of private competition enforcement is not clear from the wording of the Sherman Act. This uncertainty of wording Sherman Act has been removed by enacted the Clayton Act and the Clayton Act has been accepted as an essential equipoise to fill the gap which is in the USA competition enforcement. It means that private competition enforcement has been seen as a tool which provides deterrence as well as compensation. Consistent with this, the Supreme Court also has stated that ‘the purposes of the antitrust laws are best served by insuring that the private action will be an ever-present threat to deter anyone contemplating business behaviour in violation of the antitrust laws.’
The intent of whether compensation or deterrence is the main aim of private competition law; can be understood from the function of treble damages. In addition, the issue of treble damages serves mainly deterrence or compensation has been discussed by the USA courts in several cases. The purpose of the treble damages in the USA is compensation has to exceed actual losses and lost profits and it must embrace both punitive or exemplary damages, in other words, the USA competition enforcement system rejects to award compensation which covers only actual losses and lost profits. Moreover, this is why treble damage is significantly stern, otherwise, it will not have the deterrence function. The historical reason behind treble damages is that no adequate allowance was designated for public competition enforcement when the Sherman Act entered into force, and treble damages has been seen an efficient alternative. Another point, public competition enforcement in the USA is limited and its centre of attention is hard-core infringements such as price fixing, bid rigging, and market allocation. The reason for focusing on hard-core infringement is because of per se rule. Because it is uncomplicated to decide whether the anti-competitive behaviour affects the market and consumers or not without detailed investigation and therefore the cost of enforcement administration cost will be low.
As mentioned before, because of the competition law enforcement gap in the USA, the main aim of the availability of treble damage is to get the advantage of the function of deterrence of treble damage. However, to straighten the public competition enforcement with treble damage is not a rational choice, because treble damage might be overcompensation. If there is a gap in the USA competition enforcement system, especially in the objective of deterrence, this problem might be resolved by enhancing public competition enforcement via improvement of leniency policy not by private competition enforcement. Having said that, modern private competition enforcements systems, which are both public and private, do not serve compensation and deterrence simultaneously at desired and good level. In other words, a good competition law enforcement systems should maintain either compensation and deterrence; however, the critical aspect is to maintain these functions in the most ‘effectively and efficiently’ way for both systems. The effective and efficient system can be found where the violator will be punished or deterred by public competition enforcement and ordered to compensate that the economic consequences of his infringement by private competition enforcement. Thus, the most effectively and efficiently way for both systems is to provide either compensation and deterrence separately and accepting deterrence as a side effect like in the EU.
EU Position on Objectives of Private Competition Enforcement
The EU has designated its system as the aim of private competition enforcement is compensation; besides that deterrence is only the collateral aim which means not the main. In other words, deterrence is accepted ‘as a welcome effect’. Accepting deterrence function as a welcome or side effect is absolutely logical because competition authorities are not able to detect and punish every occurred competition law infringements and in these cases, the help of private competition enforcement will be necessary. Besides, the European Court of Justice observed that the role of private competition enforcement as a deterrence tool, holding that ‘the existence of such a right strengthens the working of the Community competition rules and discourages agreements or practices (…) which are liable to restrict or distort competition. From that point of view, actions for damages before the national courts can make a significant contribution to the maintenance of effective competition in the Community’. The approach of deterrence of the European Court of Justice totally differs from the approach of the USA Supreme Court as expressed above. Also, viewing deterrence function as a side-effect is admissible in the EU because there is no competition enforcement gap in the EU as in the USA because the European Commission and NCAs cope with all types of competition rules violations as distinct from limited USA public competition enforcement system. Having said that the EU has already an effective deterrence system through the European Commission and NCAs; however, the ineffective part is compensation function. As mentioned before the Directive has been published by the European Commission and the Directive has been seen to renovate this ineffective compensation part. Coherent with this, the Directive has expressed that ‘victims are entitled to full compensation for the harm suffered, which covers compensation for actual loss and for loss of profit, plus payment of interest from the time the harm occurred until compensation is paid’. This clearly shows that the EU has chosen compensation function as the main aim of private competition enforcement. However, during the improvement of private competition enforcement, Green Paper had proposed the double damages, especially for the damages have been occurred because of horizontal cartel. Allowing to obtain double damages was likely to be punitive damages as treble damages in the USA and the main aim of private competition enforcement is not pursuing punitive damage. As a result, the EU has discovered that there will be a conflict by allowing double damages in the main aim of private competition enforcement and the double damage abandoned by White Paper and the Directive also has no provisions for the double damages. Thus, the EU did not make the same mistake as the USA has done. It is absolutely well-grounded because there is no need to establish punitive damages via private competition enforcement in the EU due to the availability and effectivity its public competition enforcement. Besides, given the rights the courts to impose punitive damages will be opposite to the basic principle of ne bis in idem. Consistent with this, in the case of Devenish etc. v Vitamin cartellists the English High Court expressed that the principle ne bis in idem is an essential principle of European Community law and it eliminates the exemplary award or punitive damages in an action for damages following decision which has imposed fine of the European Commission.
Allowing passing-on defence and standing of indirect purchasers are another point of designating the competition enforcement system’s aim. In the EU, the Directive furnishes substantial pool of possible private claimants by allowing the passing on defence and standing of indirect purchasers in comparison with the USA competition law. It is another proof that the EU has chosen compensation as the main aim of private competition enforcement because any injured victims may have an opportunity obtain compensation. Rejection passing on defence and standing of indirect purchasers is consistent with the deterrence approach; however it is inconsistent with the compensation approach. Because indirect purchasers have no right to bringing a private action; therefore, compensation approach will fail. If the compensation approach is adopted, all the victim must bring a private action because of the damages or losses. On the other hand, the possibility of bring a private action by direct purchasers will be the threat for the potential infringers and in this matter private competition enforcement is still continue to provide deterrence function. For instance, the USA is not allowing passing on defence and standing of indirect purchasers has chosen deterrence function as the main aim of private competition enforcement dissimilar from the EU. Another difference between the USA and the EU about the substantive and procedural rules of private competition enforcement.
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