Private enforcement of competition rules The Netherlands

21 November 2005

Pauline Kuipers, Liselotte van Wijngaarden, Natascha Linssen

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.

The Netherlands

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 in another country outside the country where X is located. However, upon X’s request, the vitamin suppliers refuse to sell the vitamins to X against 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.

For the purpose of discussing the enforcement possibilities of X in The Netherlands, we have assumed that X as well as at least one of the cartel members is located in The Netherlands.

Purpose of an action by X

In this case, Hospital X can bring an action in the civil courts for infringement of article 81 EC and its Dutch equivalent, Article 6 of the Competition Act, by the pharma­ceutical companies for agreeing minimum prices for their products. During the court proceedings, X can demand that the cartel agreement be declared void and at the same time claim damages for losses suffered as a consequence of the infringement. If X’s primary goal is to end the infringement, it is also possible to initiate summary proceedings.

Legal basis for the claim

First of all, X will have to state that the infringement of the competition rules constitutes a breach of a duty imposed by law and is therefore an unlawful act under Article 162 of Book 6 of the Dutch Civil Code (CC). A breach of competition law automatically implies there must be a fault. Since this case involves a cartel with several offenders and thus involves joint unlawful conduct, all members of the group shall be held jointly and severally liable if they can be held accountable for such conduct.

Secondly X can claim that the pharmaceutical companies have been unjustly enriched by charging X higher (and excessive) prices than purchasers in other countries. This basis (Article 6:212 CC) is limited to cases of undue payment for, in this case, repayment of an overcharge attributable to the setting of minimum prices.

Standing and jurisdiction

Being a customer of the cartel members and therefore affected by their infringement, it may be assumed that X has sufficient interest to bring an action before the courts, i.e. locus standi.

Dutch courts have jurisdiction if a defendant is domiciled in The Netherlands. If at least one of the pharmaceutical companies is located in The Netherlands, the Dutch court also has jurisdiction with respect to the other companies (defendants), provided that the claims are so closely connected that it is expedient to handle these cases jointly (Article 6 EEX Treaty).

Furthermore, the Dutch court has jurisdiction because of the fact that the unlawful act against hospital X took place in The Netherlands (Article 6, sub d, Code of Civil Procedure (CCP)).

However, X may also choose to initiate proceedings in a country where one of the other defendants is located. If one of the defendants is located in the UK, it may be in X’s interest to (first) start discovery proceedings in the UK to gather evidence of the infringement.

Collective action

If there are more hospitals in The Netherlands affected by the cartel, X may decide to join forces with them. For instance, a trade organisation for hospitals might institute a collective claim in the civil courts requesting a declaration that the pharmaceutical companies have infringed Article 81 EC, which the hospitals can subsequently use individually in further actions for damages. A significant limitation is that trade organisations may not claim damages. To avoid this limitation, the affected hospitals can commence a joint action either by instructing the same lawyer or by assigning the individual claims to a particular (legal) entity. The result is a bundle of claims brought to court by one authorised legal person.

Recognition of National Competition Authority/Commission decisions

The value placed on statements or decisions by other national authorities as evidence is at the court’s discretion. A decision of the NCA does not in itself constitute irrefutable proof, although it will rarely be ignored by Dutch courts.

Burden of proof

According to Article 150 CCP, the claimant, hospital X, has to prove its case. X must prove (a) that the defendants have infringed the competition rules and (b) that as a result of that infringement, X has suffered losses. To claim damages, X must be able to prove:

1. Attributability: the damage caused must be attributable to the pharmaceutical companies;

2. Relativity: the standard breached must serve to protect against damage such as that suffered by X;

3. Damage: X must establish the existence of the losses it has incurred; and

4. Causation: causal link between the unlawful act and the losses incurred.

Evidence

X must substantiate its claim with sufficient evidence that Article 81 EC has been breached. Evidence may be submitted in any form (documentary evidence, witness statements, expert opinions etc.). The judge is free to consider any evidence brought forward.

An obstacle to private enforcement is the non-existence of discovery procedures under Dutch law. A claimant cannot rely on a disclosure obligation on the other party to obtain the evidence needed to prove his case, but must establish its own case. There are only limited possibilities to obtain evidence from the other party, e.g. if the judge orders the defendants to make their books available for inspection or to inspect their records.

Evidence from pre-trial discovery in another country, however, will be recognised by Dutch courts, unless this would result in an ‘unfair trial’ in the sense of Article 6 of the European Convention on Human Rights.

Witness hearing

Parties may be called as witnesses, both in any pre-trial hearing and in the main proceedings, but their testimonies are not proof of the claimant’s claims unless their testimony supplements otherwise incomplete evidence.

Expert evidence

According to Article 194 CCP expert evidence is admissible. Parties may request the judge to hear experts or may submit expert reports as evidence. Parties may request to bring forward their own experts. A judge may also call for expert evidence on its own initiative. Anyone can be called as an expert.

Causation

X has to prove that without the infringement of Article 81 EC, the damage would not have been suffered. Further, X has to prove that the damage is attributable to the pharmaceutical companies infringing Article 81 EC. Both these elements may be very difficult to prove, especially in this case where X is a third party who institutes proceedings against members of a cartel agreement. To determine whether the damage is attributable to the cartel, the judge has to weigh up all the relevant aspects of the case.

The court may decide to mitigate the burden of proof if this is reasonable. The main circumstance under which this occurs is where a risk of damage has been created by a tort and has subsequently resulted in actual damage. In that case, causation between the damage incurred and the tort may be assumed.

Calculation of damages

Damages are assessed ‘in a manner most appropriate to its nature’. In principle this is on the basis of the losses suffered by X. However, it is possible that at the specific request of X that the judge will assess damages based on the profit made by the defendants.

In principle damages consist of ‘full compensation’ for ‘actual damage’. This means that the amount of damages awarded should as far as possible put X in the same (financial) position it would have been in had the infringement not occurred.

There is no maximum limit to the damages that can be awarded. However, the judge is free to limit the amount of damages. Fines levied by a Competition Authority are not taken into account. However, the court may decide to reduce damages if a full award of damages would lead to ‘clearly unacceptable results in the given circumstances’ (Article 6:109 CC).

Interest is awarded from the date the infringement occurred. The level of statutory interest for unlawful acts or torts is determined by Royal Decree and regularly adjusted to allow for market circumstances.

Passing-on defence

The passing-on defence is not explicitly provided for by law, nor is the issue of the indirect purchaser. However, such a defence may be taken into account by the judge in assessing the reasonable level of damages. In this case, X probably determined its (retail) prices on the basis of the prices charged by the pharmaceutical companies. The defendants could argue that X has passed on these prices to customers and therefore there is no or little damage suffered by X. However, they will bear the burden of proving this argument.

It is also relevant whether X has benefited itself from the infringement. Any such benefit must, to the extent reasonable, be taken into account in assessing the level of damages (Article 6: 102 and 6:100 CC).

Timing

The time limit for initiating proceedings is five years from the day following that on which the claimant becomes aware of both the damage and the identity of the person responsible for it and, in any event, before the expiry of twenty years after the event which caused the damage. Proceedings for damages usually take from one and a half to two years to reach judgment in the first instance. In complex cases, proceedings that go to the highest court (after first instance, there is a possibility for appeal and then further appeal) can take more than a decade.

Costs

Court fees must be paid up front by both X and the pharmaceutical companies. The party against whom the court ruled is ordered to pay the legal costs. Costs awards are based on fixed cost components and usually only cover a fraction of the actual costs incurred by the winning party. The cost of litigation might be a factor that dissuades X from initiating an action for breach of the competition rules.

Advice to X

Considering the obstacles to private enforcement, X may prefer a settlement to litigation. However, initiating a procedure is often necessary to get the defendants to negotiate. Provided that X can produce any evidence of the alleged infringement, we would advise X to initiate proceedings against the members of the cartel (together with other hospitals in a joint action) and request:

1. A declaration that the pharmaceutical companies have infringed Article 81 EC; and

2. Compensation for losses caused by the infringement.

If X cannot satisfy the burden of proof with respect to the infringement, other options may be considered. For instance, if one of more of the defendants is established in a common law country, it may be worthwhile to start pre-trial discovery proceedings to gather the necessary evidence before initiating proceedings for damages in The Netherlands.

Case 2: vertical agreement

A and B are parties 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.

For the purpose of discussing B's enforcement possibilities in The Netherlands, we have assumed that B is A’s distributor in The Netherlands.

Purpose of an action by B

B could have two different reasons to take action: either (i) B has not suffered any losses 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 losses as a result of the restrictive conditions of the agreement and wants to recover these losses from A.

Legal basis for the action

B could file a complaint with NMa (the Dutch competition authority), however, in view of the priority policy of NMa, NMa would probably not process the complaint. In this case B is able to enforce the competition rules through civil proceedings, due to the restrictive contractual clauses in breach of the provisions of the Competition Act.

B can bring an action before the civil courts:

1. B can invoke nullity of the provisions in the agreement that are in breach of Article 81 EC/ Article 6 CA, so that B is no longer bound by the agreement; and

2. B can claim damages on the basis of A's wrongful (unlawful) act because A has breached a duty imposed by law by breaching Article 81 EC/ Article 6 CA.

Standing and jurisdiction

B can bring an action before the civil section of one of the Civil Courts in The Netherlands. B will be assumed to have sufficient interest to bring the claim, even though B is a party to the contested agreement, so standing can be granted.

Because of the long duration of civil proceedings, it might be better for B to bring summary proceedings and ask for interim relief in the form of an injunction. The judge can declare the provisions in breach of the competition rules and therefore consider them null and void. However, judges are rather reticent about awarding damages due to the lack of pressing interest, and claims for damages are as a rule dismissed.

Burden of proof

According to Article 150 CCP, the claimant, B, has to prove its case. First of all, B must prove that: (a) A has infringed Articles 81 EC and 6 CA; and (b) as a result of that infringement, B has suffered losses.

In order to succeed in obtaining damages, B must establish the following factors:

1. An unlawful act: breach of competition law;

2. Attributability: attributable to A;

3. Relativity: the standard breached must serve to protect against damage such as that suffered by B; and

4. Damage: B must establish the existence of damage.

B has to prove that the damage suffered would not have occurred without the infringement of Article 81 EC and 6 CA constitutes. Furthermore, B has to prove that the losses are attributable to A's infringement of these Articles. Both these elements may be difficult to prove. To determine whether damage is attributable to the infringement, the judge has to weigh all the relevant aspects of the case.

Evidence

In this case the evidence of the infringement is in the possession of B, because B is party to the infringing agreement.

Vertical agreements with an exclusive purchase obligation are considered to be agreements that may restrict competition, which is also the case for this distribution agreement. If the agreement restricts competition, then it is legally null and void, unless the Block Exemption Regulation for Vertical Agreements (BER) applies. The general rule that applies in relation to block exemptions for vertical agreements is that the prohibition contained in section 6 of the Competition Act (or Article 81 of the EC Treaty) does not apply if the supplier has a market share of less than 30%, unless the agreement contains restrictions which are absolutely prohibited (Article 4 of the BER) or other non-exempted restrictions (Article 5 of the BER).

In this case, the distribution agreement does not fall under the block exemption because A’s market share is more than 30% and the agreement contains a restriction on B’s ability to determine its sale price (this is a hard-core restriction).

Furthermore, there is an exclusive purchase obligation with a duration which exceeds five years. The exemption would also not apply to this obligation. Given the exclusive purchase obligation, the minimum purchase obligations, fixed resale prices and the long duration of the distribution agreement, the agreement will most likely restrict competition and will be considered legally null and void by the judge.

With respect to the calculation of damages, the passing on defence, timing and costs, the same principles as set out under Case 1 apply to this Case 2.

Advice to B

Given the fact that in this case a party to a distribution agreement wants to contest the terms of the agreement, this case is appropriate for private enforcement. If B does not want to recover damages but only wants the agreement annulled B could either consider the agreement void and wait for A to take legal action or initiate summary proceedings to obtain a declaration that the agreement is null and void. If B wants to recover damages, we would advise B to initiate proceedings against A and request:

1. A declaration that A has infringed Article 6 and Article 81 EC, and

2. Compensation for the damages caused by the infringement.


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.

For the purpose of discussing X's enforcement possibilities in The Netherlands, we have assumed that both X and Y are located in The Netherlands.

Purpose of an action by X

Since it is likely that the abusive behaviour will have been terminated following the Competition Authority’s investigation, X is likely to want to claim compensation for the losses suffered as a result of Y’s abusive behaviour.

Legal basis for the action

As discussed in Case 1, the most obvious legal basis for an action is a wrongful act, i.e. the infringement of the competition rules constitutes a breach of a duty imposed by law and is therefore an unlawful act under Article 162 of Book 6 of the Dutch Civil Code (CC). Another possible ground for a claim is Y's unjust enrichment.

Standing and jurisdiction

Being a customer of the cartel members and therefore affected by their infringement, it may be assumed that X has sufficient interest to bring an action before the court, i.e. locus standi.

Dutch courts have jurisdiction if a defendant is domiciled in The Netherlands. Furthermore, the Dutch court also has jurisdiction because of the fact that the unlawful act took place in The Netherlands (Article 6, sub d, Code of Civil Procedure (CCP)).

Collective action

If there are any more alternative providers of fixed telephone services in The Netherlands which are affected by Y’s abusive behaviour, X may decide to join forces with them. In this case, it would not help to involve a branch organisation to institute a collective claim. As set out above in Case 1, a branch organisation may not make a claim for damages. To avoid this problem, the affected hospitals could initiate joint actions either by instructing the same lawyer or by assigning the individual claims to a particular (legal) entity. The result is a bundle of claims being brought to court by one authorised legal person.

Recognition of National Competition Authority decision

The value placed on statements or decisions by the Dutch competition authority (NMa) as evidence is at the court’s discretion. A decision by the NMa does not in itself constitute irrefutable proof, although it will rarely be ignored by Dutch courts.

Burden of proof

According to Article 150 CCP, the claimant, X, has the burden of proving its case. X must prove that: (a) the defendants have infringed the competition rules; and (b) as a result of that infringement, X has suffered losses.

In this case, there is a good chance that the court will accept the NMa’s decision as proof of infringement. That means that X will still have to prove:

1. Attributability: the damage caused must be attributable to Y;

2. Relativity: the standard breached must serve to protect against the damage suffered by X;

3. Damage: X must establish the existence of its damage; and

4. Causation: causal link between the unlawful act and the damages occurred.

Evidence

Since X is unlikely to have much trouble proving infringement of Article 82 EC and/or its Dutch equivalent, Article 24 CA, X can focus on proving the losses suffered. Evidence may be submitted in any form (documentary evidence, witness statements, expert opinions etc.) and the judge is free to consider any evidence brought forward.

Expert evidence

According to Article 194 CCP expert evidence is admissible. In this case, X may want to present expert statements made by an accountant or a market investigation bureau to prove its losses. A judge may also call for expert evidence on its own initiative. Anyone can be called as an expert.

Causation

X has to prove that the losses suffered would not have occurred without the infringement of Article 82 EC. Furthermore, X has to prove that Y is responsible for the losses suffered by X. Both these elements may be very difficult to prove. To determine whether the losses are attributable to Y, the judge has to weigh all the relevant aspects of the case.

The court may decide to mitigate the burden of proof if this is reasonable. The main circumstance under which this occurs is where a risk of damage has been created by tort and has subsequently resulted in actual damage. In that case, causality between the damage incurred and the tort may be assumed.

Calculation of damages

Damages are assessed ‘in a manner most appropriate to its nature’. In principle this is on the basis of losses suffered by X. However, it is possible that at the specific request of X that the judge will assess damages based on the profit made by the defendants. In principle damages consist of ‘full compensation’ for ‘actual damage’. This means that the amount of damages awarded should as far as possible put X in the same (financial) position it would have been in had the infringement not occurred.

There is no maximum limit to the damages that can be awarded. However, the judge is free to limit the amount of damages. Fines levied by the NMa are not taken into account. However, the court may decide to reduce damages if a full award of damages would lead to ‘clearly unacceptable results in the given circumstances’ (Article 6:109 CC).

With respect to the calculation of damages, the passing on defence, timing and costs, the same information as set out above in relation to Case 1 also applies to this Case 3.

Advice to X

Although proving the infringement will probably not present an obstacle in this case, X may still encounter some difficulties in obtaining compensation for the losses caused by the infringement. However, these mainly relate to producing evidence of the losses suffered by X and it will often be clear beforehand whether X can establish the necessary evidence. Also, initiating proceedings may prompt Y to negotiate a settlement and pay damages without going through a lengthy court procedure.

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






Authors

Kuipers-Pauline

Pauline Kuipers

Managing Partner
Netherlands

Call me on: +31 (0)70 353 8800