International Chamber of Commerce The world business organization

International Chamber of Commerce 38 cours Albert 1er, 75008 Paris, France Telephone +33 1 49 53 28 28 Fax +33 1 49 53 28 59 Web site www.iccwbo.org E-mail icc@iccwbo.org

C:\Documents and Settings\gaddy\Desktop\Addy edits to April 17 draft ICC - Private Enforcement - 0417.doc

ICC ICC ICC ICC CommentsCommentsCommentsComments on the Commission’s Green on the Commission’s Green on the Commission’s Green on the Commission’s Green

Paper on damages actions for breach of the EC Paper on damages actions for breach of the EC Paper on damages actions for breach of the EC Paper on damages actions for breach of the EC

antitrust rulesantitrust rulesantitrust rulesantitrust rules

Prepared by the Commission on Competition

ICC welcomes the opportunity to comment on the Commission’s Green Paper on damages actions

for breach of the EC antitrust rules (the Green Paper). Further, ICC is happy to see that the

Commission’s ultimate objective with initiating a debate on private enforcement is to “foster a

competition culture, not a litigation culture”. ICC fully agrees with this highly important policy

statement and would like to stress that the issue of private enforcement needs to be addressed with

the outmost care in order to avoid the very litigation culture that concerns the Commission as well

as ICC. This paper will first state ICC’s general comments and concerns in respect of the Green

Paper and will then give ICC’s main comments on the specific questions raised by the Commission.

General General General General comments comments comments comments and and and and concernsconcernsconcernsconcerns

The objectives and underlying assumptions

The Green Paper seems to be based on an assumption that increased private enforcement of

competition law would be beneficial per se. Further, the Green Paper advocates that one objective of

private enforcement is to provide deterrence and to strengthen the enforcement of antitrust law.

That those that have suffered from wrongdoings of others should have means to seek fair and

reasonable compensation if they chose to do so is a fundamental principle in any civilized society,

and should also be the target for private enforcement. However, in ICC’s opinion, the general

enforcement of competition law should remain the task of the Commission and the national

competition authorities and deterrence should never be an objective of private actions. The

application of a quasi-criminal deterrence system should only be entrusted to public authorities

bound by principles of fair and just administration of justice.

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In this respect ICC wishes to make two fundamental observations:

1) The Green Paper correctly notes: “From the outset private enforcement has also played a role in

the enforcement of Articles 81 and 82 of the Treaty. Private enforcement in this context means

application of antitrust law in civil disputes before national courts. Such application can take

different forms. Article 81(2) of the Treaty states that agreements or decisions prohibited by Article

81 are void. The Treaty rules can also be used in actions for injunctive relief. Also, damages awards

can be awarded to those who have suffered a loss caused by an infringement of the antitrust rules."

ICC agrees with this proposition and does not consider that the need for drastic change such as is

contemplated in the Green Paper is necessary or warranted. It is not convinced that the need for

change has been made out.

2) The role of private remedies should not include deterrence. Again as noted in the Green Paper,

private remedies should focus on providing a means for securing compensation for actual harm

suffered. To the extent individual harm cannot be demonstrated, enforcement agencies should

include this as one consideration among the many others taken into account in its formal

enforcement processes.

In addition, the Green Paper makes reference to the Ashurst report when describing the systems in

the Member States as being “totally underdeveloped” and “astonishingly diverse”. That the legal

systems of Europe are based on different traditions and, hence, are diverse is of no surprise, at least

to ICC. What is surprising is the presumption that private remedy systems in member states are

somehow defective because of their diversity. Member states may legitimately instill in local justice

systems variances which reflect local state concerns, and it should not be presumed that any such

differences demonstrate that such regimes are underdeveloped. This is particularly so when there is

no reference to the yardstick by which these systems were measured and found so poor.

ICC is concerned that such assertions signal a belief that the mere fact that there seems to be less

competition litigation in Europe, as compared to e.g. the North Americas, is symptomatic of a

deficiency in the regimes in place in member states.

The creating of litigation incentives

The Green Paper generally discusses various ways of creating incentives to increase litigation. This

approach is of key concern for ICC.

The US class action example could serve as an illustration. This system was designed with the best of

intentions. However, the system’s litigation incentives facilitated an industrial approach and the

system became hijacked by plaintiffs’ lawyers seeing a business opportunity in litigation. The

Pandora’s Box of litigation was opened and the number of speculative lawsuits increased rapidly. The

current US litigation culture is certainly beneficial to parts of the legal community, and maybe to

some extent also to other interest groups, but is of great worry for US business that ranks the costly

and burdensome system as one of the main areas of concern for industry. ICC is particularly

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concerned and puzzled by the stated desire to introduce more incentives for litigation in Europe at a

time when the US is heading in the opposite direction through tort and class action reform, as

demonstrated by the recent Class Action Fairness Act and the Antitrust Modernization Commission's

interest in studying the need for further reform in the area.

An approach where the legislator or policy maker first tries to identify if legal regimes in place allow

for suffering parties to seek compensation and then - to the extent that this is not the case -

proposes reforms to current systems is, of course, unassailable. However, if the objective is simply to

increase litigation this would not, in ICC’s view, be a legitimate objective for legislators or policy

makers. Furthermore, such an objective is highly problematic from a practical perspective. There is,

for instance, no limit to the incentives that could be created e.g. in the form of low thresholds for

initiating claims, relaxed requirements of burden of proof, burdensome and costly discovery

obligations and no financial risks for plaintiffs etc. Without any stipulated benchmarks, it also triggers

the question of when it could be considered that there is enough litigation and when there is too

much. ICC believes that there is a serious risk that such incentives will create the very litigation

culture which the Green Paper says it is trying to avoid. The inventiveness of parts of the legal

community to find ways of making money out of litigation if the incentives are in place should simply

not be underestimated. There is also a serious risk that such a litigious environment may actually

dampen legitimate competitive behavior which the Commission wants to encourage.

The effects of the reforms on other areas of litigation

ICC would welcome an increased harmonization of the rules of civil procedure within Europe. Over

time, such harmonization would likely reduce costs and legal uncertainties for business. However,

while the Green Paper is solely focused on actions for infringement of Competition Law, it addresses

mainly issues that are of a general nature for litigation. ICC does not understand why competition

litigation has been singled out and believes that it is wrong to suggest specific reforms for

competition claims without assessing the broader impact of proposals on individual member state

regimes for litigation and civil procedure in general. Today, private actions often raise competition

law claims in conjunction with other commercial claims. The Commission should address the issue

of the potential impact that the initiatives suggested for competition litigation may have on litigation

as a whole, and the consequent costs on market participants, as well as the additional burdens

imposed on member states associated with the administration of justice generally and the courts in

particular. In addition, an even more diverse European litigation system would be created if special

rules for competition were introduced, thereby adding to the "astonishing diversity" about which the

Commission has expressed concern.

The form of any reform proposal

The Green Paper generally discusses reforms but it is unclear how any reform proposal would be

introduced. Since the possible reforms would need to be undertaken in the 25 member states, there

are issues to be resolved concerning subsidiarity and the division of authority between the

Community and the member states. It is also possible that reform in some member states might not

only mean quite significant and fundamental changes in how they currently and historically view

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litigation (a change that will be compounded when reforms spread to other areas) but would also

raise constitutional issues.

ICC believes there is a serious need for clarification by the Commission on when and how these

fundamental issues will be addressed. Such a clarification would also assist ICC and other interested

parties in continuing a dialogue with all relevant legislators and policy makers.

Comments on the main issuesComments on the main issuesComments on the main issuesComments on the main issues Access to evidence

QA QA QA QA ---- In ICC’s opinion, there is no reason to introduce specific rules on disclosure in private

competition cases. Far-reaching discovery and disclosure rules give rise to numerous privacy and

confidentiality issues. Further, they can easily be abused and facilitate pure fishing expeditions.

Plaintiffs could easily speculate that defendants would rather settle than go through a burdensome

and costly disclosure exercise and launch baseless claims with the sole objective of extracting a

settlement. If the Commission nevertheless intends to propose rules on this issue, they should

ensure that disclosure works to the benefit of both parties at a later stage in the proceedings in

which case ICC would favour option 1 as a basis for limiting abusive process and ensuring that

disclosure of relevant information of all parties to the litigation (e.g. the complainant, the target and

any third parties) is made available. Options 4 and 5 are also appropriate.

QBQBQBQB – In the opinion of ICC, any such rules should be between the parties in the private proceeding.

The Commission should neither be actively involved in the proceeding nor disclose documents or

information to private parties or to the courts. Any rules involving production of competition

authority documents would result in less information being communicated to authorities for fear

that commercially sensitive information would, through the private litigation process, ultimately be

made available to competitors and the market generally. From a privacy point of view, it is one thing

for public authorities to obtain documents through raids for the purpose of their investigation; it is

quite a different thing to find these documents ending up in the hands of other parties with quite

different agendas. Such an outcome will likely dampen competitive rivalry.

QCQCQCQC – In the opinion of ICC, generally applicable burdens of proof should definitely apply to private

competition cases i.e. the fundamental principle that the burden rests on the plaintiff with no

presumptions or reversal of onus of proof either on liability or quantum of damages should be

maintained. However, since it is likely that final decisions given by government competition

authorities on specific cases will have a certain evidentiary value, ICC would urge the Commission to

favour a system under which the authorities would be obliged to close all investigations with a

decision including the decision that no infringements have been found.

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Fault requirement

QD QD QD QD – In the opinion of ICC, private competition cases should not differ from other cases that

normally require fault to be proven. Further, there should be room for excusable errors (i.e. option

13).

Damages

QE QE QE QE – In the opinion of ICC, damages should be compensatory (i.e. option 14). As noted above, there

are strong concerns against the introduction of elements of deterrence into private competition

cases. Deterrence is an area that should be the preserve of competition authorities only as they are

public authorities obliged to act in accordance with principles of fair and just administration and are

not driven by the prospect of financial gain. Public authorities act in the public interest. Private

litigants act for private financial gain. ICC would welcome a study to examine whether the out-

sourcing of such deterrence to private parties allowing them to recover non-compensatory damages

is consistent with the constitutions of the member states. Further, the potentially chilling effects that

a private deterrence system would have on leniency applications should not be underestimated.

QF QF QF QF – In ICC’s opinion, private competition cases should not differ from other cases and this is an

area that needs to be developed by the judgments of the national courts.

The passing-on defence

QG QG QG QG – In the opinion of ICC, the principal objective of private competition cases is to give

compensation to those who have suffered - provided that they can demonstrate fault, causation and

the damage suffered - and not to simply pass money from a perceived infringing company to others

with whom it has come into contact. This, however, should only apply to individual claims and not

to indirect purchaser class action law suits which ICC opposes.

The US experience has shown that indirect purchaser class action suits have failed to provide

beneficial effects. To the contrary, class action lawyers for indirect purchasers end up with the vast

majority of any damages or settlements, and indirect purchasers end up with little or nothing.

Because of the small amount of damages an individual indirect purchaser typically suffers, the costs

of distributing compensation are frequently more than the compensation itself. Thus, indirect

purchaser class action suits, although intended to compensate actual injury, have been ineffective in

doing so, and have been extremely burdensome.

Indirect purchaser class action claims would also undermine the effectiveness of amnesty programs.

The disincentive to seek amnesty is particularly strong with respect to indirect purchasers class

action suits because potential damages are difficult to determine. In addition, indirect purchasers

rarely, if ever, discover a violation; rather, they typically file claims in the wake of an agency action or

direct purchaser lawsuit. Thus, allowing indirect purchaser class action suits does not provide a

countervailing benefit to enforcement.

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Consumer interests

QQQQHHHH – ICC believes that implementing a class-action system has adverse consequences for business

and consumers that outweigh the perceived benefit to society, and does not support such a system.

ICC argumentation on this topic follows from the attached policy document (“Class action litigation”

1 December 2005).

Costs of actions

QQQQIIII – In the opinion of ICC, private competition cases should not differ from other cases.

Furthermore, the principle of the “loser pays” system is fundamental for any proceeding to be just.

The introduction of a system where an unsuccessful plaintiff would not have to compensate the

defendant would encourage baseless litigation. As seen in other jurisdictions, this would open up a

production-line approach to filing claims where plaintiffs lawyers actively solicit clients (who bear no

financial risk) to initiate the litigation process without any serious intention of litigating but with the

objective of coercing a settlement out of the defendants. Without the minimal discipline of costs the

introduction of an unwanted strategic and speculative litigation culture in Europe is guaranteed.

Coordination of public and private enforcement

QJ QJ QJ QJ – ICC’s concerns as to the possible discoverability of documents held by the authorities, including

leniency applications, has been outlined above. Further, in the opinion of ICC, there are serious

concerns with allowing an immunity decision from the competition authorities to have implications

outside the case brought by the competition authority. It is hard to justify taking away the rights of

private parties to sue those that have caused, or contributed to causing, them harm without having a

system were these parties can intervene. Hence, it is wrong in principle to allow immunity decisions

to limit private actions.

Jurisdiction and applicable law

QK QK QK QK – ICC is of the opinion that the determination of the applicable law to antitrust cases should be

as foreseeable as possible. From this perspective, it does not appear desirable to introduce an option

in favour of the applicant. From a general point of view, the question of jurisdiction and that of

applicable law should not be confused. Regulation 44/2001 on jurisdiction and the recognition and

enforcement of judgments in civil and commercial matters, dated 22 December 2000, provides rules

in respect to jurisdiction. It does not appear advisable to introduce in Regulation 44 specific rules

with respect to competition disputes. Regarding applicable law, the Proposal for a European

Parliament and Council Regulation on the law applicable to non-contractual obligations ("Rome II")

of 22 July 2003 seems to be sufficient, and there is no further need for adding specific competition

rules to that document.

Other issues

QL QL QL QL - In the opinion of ICC, private competition cases should not differ from other cases and the

retaining of an expert or the initiating of the appointment of experts by the court should be left to

the parties.

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QM QM QM QM – In the opinion of ICC, it is reasonable for the limitation periods to be prolonged for a relatively

short period, perhaps six months, after there is a final (infringement) decision that can no longer be

appealed.

QN QN QN QN - In the opinion of ICC, private competition cases should not differ from other cases. The

principle of causation is closely linked to the issue of recovery being limited to actual damage

suffered. Without causation there should be no recovery. This is an area that should be developed by

the judgments of the National Courts.

ICC hopes that the European Commission will carefully consider the above comments during its

review of this issue, which is of great importance to the business community.

Document n° 225/628

21 April 2006

* * * * * * * *

ICC is the world business organization, a representative body that speaks with authority on behalf of

enterprises from all sectors in every part of the world.

The fundamental mission of ICC is to promote trade and investment across frontiers and help

business corporations meet the challenges and opportunities of globalization.

Business leaders and experts drawn from the ICC membership establish the business stance on

broad issues of trade and investment policy as well as on vital technical and sectoral subjects. These

include financial services, information technologies, telecommunications, marketing ethics, the

environment, transportation, competition law and intellectual property, among others.

ICC was founded in 1919. Today it groups thousands of member companies and associations from

over 130 countries. National committees work with their members to address the concerns of

business in their countries and convey to their governments the business views formulated by ICC.

International Chamber of Commerce The world business organization

Policy Statement

International Chamber of Commerce 38 cours Albert 1er, 75008 Paris, France Telephone +33 1 49 53 28 28 Fax +33 1 49 53 28 59 Web site www.iccwbo.org E-mail icc@iccwbo.org

Class action litigation

Prepared by the Commission on Commercial Law and Practice

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Class action litigation This policy statement outlines world business views on the issue of class action litigation1.

ICC believes that implementing class action systems has adverse consequences for business and consumers that outweigh the perceived benefit to society. The spread of class action lawsuits risks an increase in speculative lawsuits needlessly costing global business time, resources and exposure to “legal blackmail”. Such litigation results in higher costs for companies and ultimately higher prices for consumers. Regulators have a number of other policy options that could attain the desired benefits without these adverse effects including for example joinder of claims and the use of pilot cases. Since some countries currently consider the adoption of class action systems based on that of the United States, ICC is of the view that both the costs and desired benefits of multi-party disputes should be examined.

1 Class action litigation is a legal procedure used to handle a lawsuit in which a large number of people have been affected by the

same act or acts of a defendant. One plaintiff, representing not only itself, but also everybody else having a common interest in law

or fact (“the Class”), is allowed to initiate litigation against one or more defendants.

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The desired benefits of class actions

Business acknowledges that enabling people that have suffered from wrongdoing to get fair

compensation for their damages is a fundamental principle in any civilized society and that

wrongdoers should be prevented from being able to escape justice when doing small amounts of

harm to many and thereby minimizing the risk that anybody will hold them accountable for their

illegal conduct. Business also recognizes that legislators are seeking to achieve the above-

mentioned goals in the most efficient manner. It is equally fundamental, however, that the

process is just and efficient for both plaintiff(s) and defendant(s), with respect to the allocation

of cost and time.

The potential misuse and abuse of class actions can easily undermine this balance.

Business concerns about class actions

• Class actions bring with it a major risk of “legal blackmail”. Major class actions against a company can lead to negative media coverage that damages the company’s business and reputation. This means that in many cases, companies are under pressure to settle the claim not because of the merit of the claim but to avoid the consequences of bad press.

• Getting class action lawsuits dismissed at an early stage of the litigation before any expensive and time consuming discovery begins can be difficult. In effect this means that even if the defendants ultimately win the case – and even if the case is won without having to go to trial – the defendants will suffer significant costs.

• Far-reaching discovery rules such as those in the US in very early stages of a proceeding means that practically anything "relevant" to the parties' claims is discoverable; this poses unreasonable burdens on the defendants.

• Current systems do not always allow a successful defendant to recoup its costs from the plaintiffs. For example, in the US, as opposed to other common law jurisdictions, each party pays its own costs of litigation.

• The central problem in all class actions, whether in civil law or common law jurisdictions, is the fact that it is impossible to try numerous claims in a single case without sacrificing the right of defense. In order to create "economy of scale" in a class action, courts are always asked to decide questions "common" to all the claims in the class and to narrow, defer or otherwise avoid "individual" questions not common to all the members of the class. The system creates great pressure to over-simplify the individual differences between members of the class in order to make the common issues as broad as possible.

• Class actions can lead to excessive fees to the plaintiffs’ lawyers even if their work results in small awards for each of the individual plaintiffs. This creates an unhealthy incentive structure. Moreover, contingent fee arrangements and legislation allowing a prevailing plaintiff to recover “reasonable” attorneys’ fees from the defendant have led to a “production line” approach from lawyers soliciting clients while bearing no financial risk.

• In some current systems a group of defendants has joint and several liability for the damages awarded. There are no rules in place allowing for contributions among the defendants. This, in combination with far-reaching discovery rules and with the significant amounts often dealt with in a class action, creates strong incentives for defendants to settle instead of litigating and vindicating their position. Defendants are encouraged to settle not due to the merit of the pending case but because of the consequences of an unlikely worst-case scenario.

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• In many countries, the court system is already lacking resources. It is a concern that introducing class action systems would only contribute to worsen this situation and could lead to even longer waiting times at the courts. Class actions require a great deal more work than the average civil case. Judges who are busy and overburdened are likely to find it difficult to handle the extensive factual investigation class action demands and to constantly monitor the conduct of plaintiff and defense counsel for potential harm to absent class members.

• Experience shows that the introduction of class actions tends to increase litigation, which in turn affects investments negatively.

• The situation where an individual is bound by a judgment without having been active at all, having to opt out in order to avoid the judgment, seems to conflict with legal traditions in the vast majority of jurisdictions and should be avoided. Opt-out mechanisms would probably also be a breach of constitutional rights in many countries and might also be in conflict with Article 6 of the European Convention.

Recommendations

Some countries are currently considering introducing systems similar to the US class action

institute. There is no need for the introduction of class actions as existing procedural rules on

joinder of claims and pilot cases can handle mass litigation. The EU Commission is currently

considering the benefits of private actions with respect to competition law infringements. ICC

wishes to point out that no problems have been demonstrated that need to be solved by

introducing class actions. This is particularly the case where, in Europe, there is a tradition of

strong consumer protection through legislation, insurance systems and supervisory authorities

taking into account consumers’ interests. ICC therefore recommends that before any further

actions are taken to introduce class actions in any jurisdiction, a careful need assessment should

be carried out to identify whether there are any problems that need solving and whether these

problems could be dealt with in other ways to avoid the adverse consequences outlined in this

statement.

In jurisdictions that already have class action systems, ICC recommends the following points:

• measures to limit plaintiffs’ ability to file law suits based solely on speculation and vague grounds;

• introduction of a “loser pays” system or other measures to shift some financial risk of loss to the plaintiffs. Contingency fees contribute to a litigation culture in more than one way. Firstly, as set out in this statement, the availability of contingency fees tempts plaintiffs into speculative claims knowing that they could receive substantial compensation from litigation conducted on a risk free basis. In addition, the significant fees recouped by plaintiffs' lawyers (sometimes 50% or more of the damages awarded against the defendant) can in themselves provide the financial resources for yet further speculative class actions in previously non-litigated areas. A shift of the financial risk to a "loser pays" system would indeed act as a welcome deterrent to these purely speculative plaintiffs' claims;

• contingent fee arrangements lead to excessive fees to the plaintiff’s lawyers even in cases where their work only results in small awards for each of the individual plaintiffs. This creates an unhealthy incentive structure with lawyer driven litigations and “ambulance chasing” for example on the Internet and through advertisements. Contingent fee arrangements should not be allowed and limits on attorney fees should be put in place, presumably by a maximum percentage of any recovery

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About ICC

ICC is the world business organization. Grouping together thousands of member companies and

associations from over 130 countries, it is a representative body that speaks with authority on

behalf of enterprises of all sizes and sectors in every part of the world. This ICC policy statement

is prepared by the ICC Commission on Commercial Law and Practice, a specialized ICC working

body that develops some of the world's most successful trade tools, examines and builds

consensus on major international commercial law issues.

Document n° 460/585

1 December 2005