"Court Rules That Cartel Members Are Liable for 'Umbrella Claims'"

by Skadden, Arps, Slate, Meagher & Flom LLP
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In a judgment that may expand civil damage liability for cartel participants significantly (Case C-557/12, Kone AG and Others, judgment of June 5, 2014), the European Court of Justice (the ECJ) has ruled that a cartel’s members are liable for “umbrella damages,” which are caused by price increases implemented by parties that did not participate in the cartel but were able to free-ride on its price effects.

The ECJ ruling responds to a reference from the Austrian Supreme Court, which asked the EU’s top court to determine whether the Austrian railway operator ÖBB Infrastruktur AG could claim damages from EU elevator manufacturers that had participated in a cartel condemned by the Austrian Competition Authority because it had been charged inflated prices by elevator manufacturers not part of the cartel. The Austrian Supreme Court held that Australian law does not permit claims for umbrella damages, but referred the matter the ECJ to determine the compatibility of the Austrian legal position with EU law.

In its ruling, the ECJ concluded that member states cannot “categorically and regardless of the particular circumstances” exclude civil liability for losses from umbrella pricing. The facts that cartel outsiders freely determine their own prices and may not have knowledge of the cartel do not shield cartel members from liability for damages as a result of overcharges made possible by the cartel. According to the ECJ, the victim of umbrella pricing may obtain compensation where it is established that the cartel was “in the circumstances of the case and, in particular, the specific aspects of the relevant market, liable to have the effect of umbrella pricing being applied by third parties acting independently.”

Kone AG and Others significantly enhances the exposure of cartel participants, which may now face civil damage claims for sales by firms not party to the cartel. The availability of such claims is independent of the proposed Directive on Actions for Damages, which is awaiting final legislative approval, and significantly broadens the exposure of cartel members to civil damages by creating an additional category of potential plaintiffs.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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