Private enforcement of competition rules Sweden

21 November 2005

Henrik Nilsson

As noted by Neelie Kroes, the Competition Commissioner, private enforcement of the competition rules has direct benefits for the functioning of the market as it has a strong deterrent effect and it promotes a culture of competition. It also provides direct justice for those who have suffered losses due to breaches of the competition rules. The Commission is keen to develop private enforcement in Europe and is due to issue a Green Paper on this topic by the end of the year, considering such issues as the passing-on defence, calculation of damages, indirect purchasers and collective actions. This is clearly a very important issue for the future development of EC competition law.

In this report, we discuss the possibilities, advantages and obstacles to the private enforcement of competition rules, i.e. (civil) actions between private parties with respect to alleged infringements of the competition rules and/or claims for damages following such infringements, for the following European countries: UK, Sweden, The Netherlands, Belgium, France, Germany and Italy.

Instead of merely listing the pros and cons of private enforcement actions in various countries, we have chosen a more practical approach. We discuss the various aspects of civil actions in the countries mentioned above by discussing the possible strategies in three different types of competition law disputes:

1. cartel agreements – cartel agreements can be damaging to third parties, e.g. competitors that are excluded or foreclosed from a market or purchasers who are overcharged for the products/services of the cartel members;

Case 1: cartel agreement

Hospital X purchases vitamin supplies on a regular basis. When attending a conference organised by a European branch organisation for hospitals, the head of X’s purchasing department learns that the same vitamins are sold at much lower prices by the same suppliers outside the country where X is located. However, upon X’s request, the vitamin suppliers refuse to sell the vitamins to X for the lower price at which they sell the same vitamins in other European countries. X has the impression that this is caused by an agreement whereby the larger pharma­ceutical companies jointly set minimum prices for their products in certain territories.

2. horizontal or vertical agreements – these can cause damage to the other party. We have chosen a vertical agreement for our example, but the strategies and considerations are not much different in the event of parties seeking enforcement of the competition rules with respect to a horizontal agreement, to which they are party.

Case 2: vertical agreement

A and B are parties to a distribution agreement. A is the producer and has a market share of 40% of the market for sales of sports gear and equipment in the EEA. B has been appointed as A’s sole distributor of its sport shoes in the national territory concerned. B has a market share of 30% on the national retail market for sport shoes.

According to their distribution agreement, which has a duration of 10 years, (i) A imposes on B an exclusive purchase obligation; (ii) B is compelled to purchase a fixed minimum quantity of products from A; and (iii) B must sell the products at prices specified in a price list applicable to A’s distributors. B wishes to challenge the distribution agreement and subsequently ask for damages.

3. abuse of dominant position – a purchaser or competitor can be the victim of abusive behaviour by a dominant undertaking and suffer damage as a result of excessive pricing, exclusionary practices, refusal to deal or grant access etc.

Case 3: abuse of dominant position

X is an alternative provider of fixed telephone services which entered the national market for fixed telephone services a few years ago. Originally X, like other new entrants to this market, was able to win a substantial amount of customers for its services. Recently, however, X has seen a substantial number of its customers switch to the incumbent operator Y, which holds a dominant position on the national market for fixed telephone services. Based on rumours in the market and implicit indications from its lost customers, X suspects that Y lures back customers by offering loyalty rebates and package deals for fixed telephone services and leased lines, on which market Y is also dominant.

X files a complaint with the national competition authority, who concludes – after a thorough investigation of Y’s business practices – that Y has abused its dominant position against X and other new market entrants. X wants to obtain compensation for the damage, which it suffered as a result of Y’s abusive behaviour.

We hope this case-by-case overview will help you to decide whether or not to engage in private enforcement actions and which jurisdiction you may choose, if you have a choice between various jurisdictions in view of the cross-border effect of the infringement concerned.

Sweden

Case 1: Cartel Agreement

Hospital X purchases vitamin supplies on a regular basis. When attending a conference organised by a European branch organisation for hospitals, the head of X’s purchasing department learns that the same vitamins are sold at much lower prices by the same suppliers than in the country outside the country where X is located. However, upon X’s request, the vitamin suppliers refuse to sell the vitamins to X for the lower price at which they sell the same vitamins in other European countries. X has the impression that this is caused by an agreement whereby the larger pharma­ceutical companies jointly set minimum prices for their products in certain territories.

The section covering the Swedish jurisdiction takes into account the amendments made to the Swedish Competition Act which came into force on 1 August 2005.

In Sweden, nearly all hospitals are a part of the regional public authorities responsible for providing health care. Furthermore, individual consumers purchase the great majority of all vitamin supplies. For the sake of argument, it will be presumed in this section that vitamins are prescribed by doctors, and that as such prescriptions may be subsidised by the regional authority and X is such an authority.

Purpose of an action by X

The purpose of X's action is to claim damages pursuant to Section 33 of the Swedish Competition Act (Konkurrenslagen (1993:20)) for the losses suffered by X.

The aim of damages for competition law infringements is to restore the injured party’s financial position to what it would have been if the infringement had not occurred. Damages cover financial loss, in particular loss of income and loss of or damage to property. It can also cover other detrimental effects on a business, such as loss of goodwill etc.

Legal basis for the action

The legal basis for the claim is that the defendant(s) intentionally or negligently infringed Section 6 of the Swedish Competition Act or Article 81 of the EC Treaty, which has resulted in losses sustained by X. Section 33 of the Swedish Competition Act states that any party who, intentionally or negligently, infringes any of the prohibitions contained in Article 6 or Article 19, or in Article 81 or 82 of the EC Treaty, shall compensate the losses caused thereby to another undertaking or party to an agreement.

It is also possible to bring a claim for damages based on the general principles of tort law. However, it can be argued that based on the principle of lex specialis (special law prevails over general law), claims for compensation due to infringements of competition law should always be dealt with under the Swedish Competition Act.

There is no case law on claims for damages for infringement of competition law in Sweden. Any damages claims resulting from alleged breaches of competition law that have been filed have to date always been withdrawn or settled.

Standing and jurisdiction

As the amendments to the Swedish Competition Act came into force on 1 August 2005, the issue of standing has been brought into line with that of the basic Swedish Law on torts. Anyone who can show that they have suffered damage as a result of another party’s infringement of competition law will have sufficient standing. There are no limitations as to nationality or domicile.

As for the question of jurisdiction, the Brussels Regulation 44/2001 applies in Sweden. According to the Regulation, the general rule is that jurisdiction is determined by the defendant’s domicile, however, alternative forums can also be used, such as: concerning contacts, the place of performance of the contract; concerning tort, the place where the harmful event occurred; or the location of a branch, agency or other establishment of the defendant. If the defendant is domiciled outside of the EU, the Regulation does not apply and a Swedish court would have to apply Swedish private international law to determine the jurisdiction.

Regarding the question of the correct forum, the court for the area where the defendant resides or has its seat is competent to hear claims for damages. In addition, Stockholm City Court also has such competence under the Swedish Competition Act.

Collective action

In addition to normal claims for damages, class actions are also available according to the Swedish Class Action Act. A class action is where someone litigates for the members of a group (class) with legal effect for each of these members, although they are not parties to the trial and do not have to actively participate. The provisions of the Class Action Act permit Organisational Class Actions where an organisation may bring an action despite having no claim of its own. Such actions may be brought by consumers or labour organisations, but must as a general rule concern disputes between consumers and providers of goods or services.

Burden of proof

The burden of proof is on the claimant in respect of the following facts:

1. The defendant has infringed the prohibitions in Section 6 or 19 of the Swedish Competition Act or Article 81 or 82 of the EC Treaty;

2. The infringement was intentional or negligent;

3. The claimant has suffered losses as a result of the infringement; and

4. There is a causal link between the infringement and the losses.

The intent or negligence is to be determined in relation to the actual or potential anti-competitive effects of the infringement.

When a legal person has committed the infringement, it must be shown that a person in a leading role within the company, e.g. with managerial responsibilities, has acted with intent or negligence.

The standard of proof is that the relevant fact must be “proven” or “shown”.

Recognition of National Competition Authority/Commission decisions

Virtually all kinds of evidence are admissible as evidence and it is for the court, at its own discretion, to evaluate the evidence submitted by the parties. However, a decision by the Swedish Competition Authority or the European Commission concluding that there has been an infringement of competition law will be given considerable weight by a court – even though the court always has to make its own assessment of what has been proven.

Evidence

As stated above, there are few if any limitations on what can be submitted as evidence before a Swedish Court. An exception is written statements, which cannot be used as evidence if the witnesses can possibly be heard, based on the principle of the best evidence.

In claims for damages it is often difficult to prove the extent of loss. If such proof cannot be adduced, or if the cost of producing such evidence is disproportionate to the loss and the claim is minor, the court can estimate the extent of the loss pursuant to Chapter 35, section 5 of the Swedish Code of Judicial Procedure.

It can also be difficult to prove that there has been an infringement, but this burden of proof will be greatly reduced if there is an investigation and a decision by the Swedish Competition Authority. In order to show intent or negligence by one or more of the infringing company’s representatives, the court can order the company to produce documents assumed to be as important as evidence.

Witness hearing/expert evidence

Witness hearings and hearings of or statements from expert witnesses are admissible as evidence.

Causation

Direct causation must be proven and, according to the general principles of Swedish tort law, the causality has to be “adequate”.

Calculation of damages

Damages only cover the actual losses suffered by the claimant. There is no one specific method of calculating damages when there is an infringement of competition law, but in tort cases, courts often use the differential method, i.e. a comparison between the claimant’s actual financial situation and their hypothetical financial situation if the infringing action had not occurred. Also note the possibility mentioned above for a court to estimate the extent of the losses.


There is no maximum limit to the damages that can be awarded.

If two or more parties are responsible for the same loss they are, according to general principles of tort law, jointly and severally liable.

Passing-on defence

To the extent that a defendant can demonstrate a passing-on effect, X’s damages will be proportionally decreased. In the case at hand, the subsidising authority X will not be able to pass on its costs to the prescription recipients.

Timing

The right to claim damages under the Swedish Competition Act lapses if a claim is not brought within ten years from the date on which the damage was caused. For damages caused before 1 August 2005, there is a limitation period of five years.

Costs

There are no costs payable to the court, apart from an administrative fee of SEK 450. As for the parties’ costs, the general rule is that the unsuccessful party pays the winning party’s litigation costs.

Advice to X

Considering the difficulties in gathering evidence to prove an infringement of competition law, it would be advisable for X to attempt to gather enough indications of an illegal price fixing agreement to interest a competition authority – national or supra-national – in launching an investigation. If such an investigation leads to charges being brought by the authority, X may avail itself of the evidence made public by the authority’s action to pursue a private enforcement action.

Case 2: Vertical Agreement

A and B are parties to a distribution agreement. A is the producer and has a market share of 40% of the market for sales of sports gear and equipment in the EEA. B has been appointed as A’s sole distributor of its sport shoes in the national territory concerned. B has a market share of 30% on the national retail market for sport shoes.

According to their distribution agreement, which has a duration of 10 years, (i) A imposes on B an exclusive purchase obligation; (ii) B is compelled to purchase a fixed minimum quantity of products from A; and (iii) B must sell the products at prices specified in a price list applicable to A’s distributors. B wishes to challenge the distribution agreement and subsequently ask for damages.

Purpose of an action by B

B could have two different reasons to take action: either (i) B has not suffered damages but wants to get out of the agreement, in order to be free to enter into an agreement with another supplier; or (ii) B has suffered damages as a result of the restrictive conditions of the agreement and wants to recover these damages from A.

Legal basis for the action

B could file a complaint with the Swedish Competition Authority. It is uncertain whether the Authority would prioritise taking action in this case, though the Authority with its consumer-oriented approach has in the past often interceded in matters of suppliers binding their distributors to a fixed re-sale price.

As conditions in an agreement which infringe competition law can be set aside as invalid, without necessarily invalidating the entire agreement in question, B could choose to disregard such conditions as are illegal. B could then await the reaction of A, who may wish not to call attention to its illegal agreement through ceasing to supply or taking action to enforce the agreement terms.

If B however wishes to pro-actively take legal action, B may seek a court decision declaring such particulars of the agreement which B can show to be in breach of competition law, to be set aside as invalid and inapplicable.

B can also, in a separate action, file a claim for damages pursuant to Article 33 of the Swedish Competition Act.

The legal ground for the claim is that A intentionally or negligently infringed Article 6 of the Swedish Competition Act or Article 81 of the EC Treaty, which has resulted in losses for B. B may in addition refer to Article 19 of the Act and Article 82 of the EC Treaty.

Other factors

Other legal factors are the same in Case 2 as in Case 1 above.

Advice to B

B will probably be best to ignore such parts of the distribution agreement as are in obvious breach of competition law, preferably with A’s consent. The Swedish Competition Authority is much more likely to intercede in the event of a refusal to supply by A, without any objective justification, than to take punitive action against A on its own. As for seeking damages, it is vital that B be able to demonstrate a credible calculation of the extent of its losses. Given the requirement to show that the damages were actually caused by A’s illegal restrictions in the agreement, and the prospect of paying A’s legal costs on top of his own should B’s action be unsuccessful, it would often be inadvisable to take action seeking damages in this kind of situation.

Case 3: Abuse of dominant position

X is an alternative provider of fixed telephone services which entered the national market for fixed telephone services a few years ago. Originally X, like other new entrants to this market, was able to win a substantial amount of customers for its services. Recently, however, X has seen a substantial number of its customers switch to the incumbent operator Y, which holds a dominant position on the national market for fixed telephone services. Based on rumours in the market and implicit indications from its lost customers, X suspects that Y lures back customers by offering loyalty rebates and package deals for fixed telephone services and leased lines, on which market Y is also dominant.

X files a complaint with the national competition authority, who concludes – after a thorough investigation of Y’s business practices – that Y has abused its dominant position against X and other new market entrants. X wants to obtain compensation for the damage, which it suffered as a result of Y’s abusive behaviour.

As stated above, the market for fixed telephony is national, which means that X and Y are domiciled or at least have branches or similar establishments in the same country.

Purpose of an action by X

Y has offered loyalty rebates and bundled products to its customers in order to lure them away from X. The national competition authority has concluded that Y has abused its dominant position and will most likely have ordered Y to stop the infringement unless it has already done so itself. The purpose of X's action is therefore to claim damages for the losses suffered by X.

Legal basis for the action

The basis for the claim is that Y intentionally or negligently infringed Article 19 of the Swedish Competition Act or Article 82 of the EC Treaty, which has resulted in losses suffered by X.

Standing and jurisdiction

If Y has its domicile in Sweden, a Swedish court will have jurisdiction to hear the claim. Swedish law determines what is meant by domicile. In accordance with Chapter 10 Section 1 of the Swedish Code of Judicial Procedure, for undertakings this means having its registered office in Sweden. If Y is domiciled in a country other than Sweden, a Swedish court might still have jurisdiction, either according to one of the alternative forums in the Brussels Regulation or according to Swedish private international law.

Recognition of National Competition Authority/Commission decisions

As stated above, it is within the court’s discretion to evaluate the weight of a decision by the national competition authority but in a situation like the present, where the national competition authority has concluded that Y has abused its dominance, considerable weight is likely to be given to the Competition Authority’s decision.

Burden of proof/evidence

As the Competition Authority has concluded that Y has abused its dominance, X can refer to the conclusions of the Competition Authority and, in addition, draw on the facts on which the Authority based its decision to prove the infringement.As a result, more resources can be spent on proving the extent of the losses it has suffered.

Witness hearing/expert evidence

See the answer for Case 1 above.

Causation

X has to prove that the losses that it has suffered are a direct consequence of Y’s behaviour and that the losses were foreseeable by Y, i.e. that the causal link is “adequate”. This might be difficult to prove. However, generally, loyalty rebates and bundling of products or services can be said to have a foreclosing effect on competitors of the dominant firm.

Calculation of damages

See the answer in Case 1 above.

Timing

As the abusive behaviour has happened recently, there should be no risk of the right to claim damages lapsing, especially as the national competition authority has already delivered its decision in the matter.

Advice to X

X’s case is significantly helped by the Competition Authority's decision. The main difficulty will be in presenting a convincing calculation of losses suffered. If too high an amount is claimed, and the court eventually grants a lower amount of damages than claimed, X may be ordered to bear a part of Y’s legal costs in proportion to the amount by which the damages claimed was reduced. Given this uncertainty on top of the general hazards in predicting the outcome of a court’s decision, X would be advised to seek an acceptable settlement from Y.

Summary

To summarise our experiences with private enforcement in the various European countries, we have drawn up the two matrices below, in which the obstacles and advantages to private enforcement have been indicated.

Matrix I: Obstacles to private enforcement

The matrix below indicates which factors may present obstacles (on a scale of 1 to 5) to private enforcement in the main EU Member States.

1=no problem, 2=minor problem, 3=neutral, 4=possible problem, 5=major problem

UKSwedenNetherlandsBelgiumFranceGermanyItaly
standing

1

1

1

1

1

1

1

obtaining evidence

1

4

5

5

5

5

3

collective action

4

4

4

4

4

5

4

limitations on forms of evidence

1

1

1

2

1

1

3

witness hearing

1

1

3

4

4

3

3

expert evidence

1

1

2

1

2

1

3

recognition of NCA / Commission decisions

1

2

1

1

1

1

3

burden of proof

4

4

4

4

4

4

3

causation

3

3

4

4

4

4

3

calculation of damages

2

4

4

4

4

4

4

passing-on

3

3

3

4

3

1

4

indirect injury

3

5

4

5

5

4

4

timing

5

5

3

5

4

3

4

costs

5

3

3

5

2

3

3


Matrix II: Advantages for private enforcement
The second matrix indicates which factors may facilitate private enforcement in the various EU Member States and thus may constitute a reason to choose a certain Member State for launching a private enforcement action.

UKSwedenNetherlandsBelgiumFranceGermanyItaly

standing

X

X

X

X

X

X

X

obtaining evidence

X

X

collective action

limitations on forms of evidence

X

X

X

X

X

witness hearing

X

X

expert evidence

X

X

X

X

X

X

recognition of NCA / Commission decisions

X

X

X

X

X

X

burden of proof

causation

calculation of damages

X

passing-on

X

indirect injury

timing

X

costs

X

X

X

X

X