Reform Section 33 Dortmund May 2004

11 September 2006

Christian Schwedler

Legislative Activities

In 2005, the German Act against Restraints of Competition (“ARC”) was comprehensively reformed, in particular, the requisites for claims for injunctions or damages by private persons in the case of infringement of competition law.

The German reform has followed the European trend of decentralisation in alignment with a reduction of public enforcement activities. As a result, the ARC amendment is intended to foster private claims.

The aim of facilitating private claims was a reaction to the landmark decision of the European Court of Justice in the case Courage v Crehan of 20 September 2001. In this decision the European Court of Justice required the Member States to provide for a legal basis that allows private claims to effectively contribute to the enforcement of European competition law. To do so, Section 33 ARC, which constitutes the basis of private claims, was largely revised.

The current version of Section 33 Para. 1 and 3 ARC now establishes claims for injunctions or damages by private persons in the case of an infringement of German competition law and explicitly in the case of an infringement of Art. 81 or 82 of the EC Treaty.

Further, Section 33 Para. 1 and 3 ARC now grants standing to “affected persons”, which are defined as “competitors or other market participants impaired by the infringement”. The former version of Section 33 ARC only granted standing, if the infringed law served to protect the claimant. This prerequisite always constituted a serious limitation to private claims. Although the current standing rule is not yet specified by jurisdiction and therefore still unclear to a certain extent, it will potentially enlarge the scope of people with a standing to sue.

With respect to the calculation of damages, Section 33 Para. 3 ARC explicitly states that “in case of excessive prices, damages shall not be excluded on account of the resale of the respective goods or services”. It further states, that “the assessment of the size of the damages may take into account, in particular, the proportion of the profit which the undertaking has derived from the infringement”. This wording is meant to solve the well known passing-on discussion. Although it is not a definite rule for the calculation, it gives some hints on how this problem may be handled in the future and still allows for the judge to consider the specific facts of each case.

Finally, another important addition affects the probative force of competition authorities’ decisions. According to Section 33 Para. 4 ARC, “where damages are claimed, the court shall be bound by a finding that an infringement has occurred, to the extent that such a finding was made in a final decision by the cartel authority, the Commission of the European Community, or the competition authority - or court acting as such - in another Member State of the European Community”.

The Judgment of the District Court of Dortmund

A judgment by the District Court of Dortmund of 1 April 2004 sheds some light on how these sections will be interpreted in the future in respect of the calculation of damages and the standing rule. The judgment was rendered under the former legal status before the reform of the ARC, but in accordance with the current substantive law. In addition, it explicitly disagreed with previous practice, which opened up the way for a stronger participation of private claims in the enforcement of competition law in Germany.

The court was compelled to decide on a private claim for damages because of the famous Vitamin-Cartel, which had sold vitamins at excessive prices. With respect to the question of standing, the court found that standing is to be granted to persons, who are immediately and objectively affected by the infringement. This interpretation could well be a reasonable definition of the new expanded standing rule, established by the reform of 2005.

With respect to the calculation of damages, the court found that in case of excessive pricing, the difference between the price demanded and a hypothetical competitive price must be the basis for the calculation. The burden of proof that the surcharge on the price has been passed on to the next purchaser in the value creation chain is borne by the defendant. Previous decisions required a comprehensive presentation of the development of the financial situation of the claimant in reaction to the competition law infringement. As the surcharge on the purchase price of a good or service will usually be passed on by a company to its own customers, the damage assessed by applying this calculation method will usually consist of lost profits. These damages were not only very difficult to establish in a process, but usually are much smaller than those assessed on the basis of the surcharge. Thus, the calculation method applied by the District Court of Dortmund and approved by the reform in 2005, shifts the main burden in calculating the damage from the claimant to the defendant. The basis for the calculation is the illegal surcharge; a more detailed assessment of the damage accounts for the defendant.

There have been some basic changes in Germany regarding private claims based on infringements of competition law. It is not yet clear how the new regulation will be interpreted, however, the judgment of the District Court of Dortmund already provides some indications. One thing is clear, the ruling of the District Court of Dortmund and the new legislation have significantly facilitated private claims based on competition law infringements.