Cartelists facing damage claims by their customers regularly defend themselves with the objection of the so-called passing-on defense. According to such objection, a purchaser of the cartel cannot claim damages in so far as it has passed on the cartel surcharge to its customers. This follows from a general principle of tort law according to which the injured party should not be entitled to claim more damages than what is necessary in order to compensate it for the actual damages it has suffered. In other words: the injured party should not be overcompensated. In turn, indirect customers at the downstream market level, who bear the actual damage, should be entitled to a claim for compensation against the cartelists. This principle (passing-on defense admissible, in turn indirect buyers can assert their own claim for compensation) is now regulated by the 9th amendment of the GWB in § 33c GWB. The German legislator thus transposes the EU damage action directive into the German law. But is this really new? After all, in its ORWI decision of 2011 the German Federal Supreme Court (BGH) had already generally endorsed the passing-on defense, as well as the entitlement of indirect purchasers to bring their own damages claims against the cartel. So business as usual in Germany? This blog post tries to give an answer to this question.

The passing-on defense in previous German law (according to the ORWI-judgment)

Business as usual? This can be doubted with good reason. As so often, the devil is in the details here.

Let us briefly look at the current legal position in Germany.

In 2011, the BGH had principally accepted the passing-defense in re. ORWI. The court, however, set high hurdles for it.

The BGH was clearly eager to secure that the effectiveness of cartel damage actions should not be weakened and that cartelists should not get off the hook too easily. Indeed, from a policy perspective the passing-on defense is far from being uncontroversial. Cartelists can completely escape their civil liability if the objection is successful and the indirect purchasers do not assert own claims for compensation. This is not such a rare scenario in reality. It can typically occur in cases of dispersed damages, e.g. when the indirect customers are consumers, each of whom has suffered only an insignificant damage in the form of a price markup.  In such cases, the indirect customers do not normally assert their claims. Collective actions could set an incentive to do so. However, German law provides only for very limited possibilities for collective redress.

For this reason, the BGH has raised the bar high for the passing-on defense.

• Firstly, a defendant cartelist must explain why, based on the pertinent market conditions, a passing-on of the cartel surcharge to the indirect customers can be reasonably assumed.
• Secondly, there are additional prerequisites that are usually very difficult for the defendants to prove. A cartelist must demonstrate and prove that its customer has not suffered any other form of disadvantage in connection with the cartel, such as a decline in sales as a result of higher prices due to the cartel surcharge.  In addition, a cartelist must demonstrate and prove that the fact that its customers could increase their prices is not simply the result of their own entrepreneurial achievements, e.g. added value due to further processing of the goods or negotiating skills.
• These requirements have proven to be very difficult to meet, especially since the BGH granted defendant cartelists relief from the burden of prove only under exceptional circumstances.

New German law: what remains of the ORWI-judgment?

The key question is therefore: Are the ORWI-principles water under the bridge with the introduction of § 32c GWB? Or do they continue to apply, and if yes, to what extent?

It is the answer to this question which will be quite decisive for whether or not cartel damage actions are fostered or even made more difficult as a result of the 9th amendment to the GWB. Not surprisingly, the struggle for the “right” interpretation of § 32c GWB is already in full swing.

Demonstrating lack of other disadvantages

At first glance, the wording of § 33c para. 1 sentence 1 GWB appears to suggest that the strict ORWI-rules have not been introduced into the new German law. According to such wording, a customer cannot claim damages as far as he has passed on a cartel-related price surcharge to his customers. Clearly, it is the defendant cartelist who bears the burden of proof for the passing-on, in accordance with general rules. It appears, however, that the defendant cartelist does not have to demonstrate and prove that its customer has not suffered any other disadvantage (e.g. declines in sales) and that price increases vis-à-vis its (indirect) customers are not simply the result of its own entrepreneurial achievements. Therefore, many commentators say that under the new law it will be less burdensome for cartelists to bring forward the passing-on defense.

By contrast, the camp of rather plaintiff-friendly lawyers counters this argument by referring to the legislators’ official reasons for the new law which explicitly refer to the ORWI-decision and call the new regulation a mere “clarification”.

Information gathering

The same holds true for information gathering, i.e. the questions of under which circumstances the defendant cartelist may request the applicant to disclose information enabling him to substantiate the passing-on defense.

The 9th amendment of the GWB generally grants the defendant a material substantive claim to require the applicant or a third person to provide evidence and information (§ 33g para. 2 sentence 1, para 9, § § 89b ff. GWB). This goes far beyond the ORWI-rules pursuant to which a defendant cartelist only in exceptional cases could hope for a bit of relief of the burden of proof.

However, according to the new law the information claim is excluded insofar as it is “disproportionate” taking into account the legitimate interests of the parties involved (§ 33g para 3 GWB). Some voices see the strict ORWI-requirements as part of the necessary consideration and claim that in essence, the new rules do not differ much from the regime under the ORWI-judgment.

Others doubt whether this is a reasonable and valid interpretation of the new law. These voices refer to the fact that section 33c GWB transposes provisions of the EU damage action directive which do not appear to set such high hurdles for the passing-on defense. Whilst it is true that this directive generally only sets minimum standards and does not per se exclude stricter national regulation, it is argued that Articles 12-15 of the directive, which contain the corresponding provisions for the passing-on defense, are aimed at full harmonization and therefore leave no leeway to the member states for a stricter implementation.

It will be for the courts to clarify these questions. Until then, however, there are certainly a few years to go.

Standing of indirect customers

And what about damage actions of indirectly injured parties?

In re. ORWI the BGH had generally recognized that indirect customers can bring their own damage claims. However, they needed to demonstrate and prove that the immediate customers had passed-on the cartel surcharge to them.

By contrast, the new law strengthens indirect customers and grants them a rebuttable presumption that a passing-on has occurred (§ 33c para. 2 and 3 ARC).  This presumption, however, applies only to the “if” of the passing-on. The extent to which cartel surcharges have been passed-on, ie the “how”, must be demonstrated and proven by the indirect customer, while the courts may estimate the amount (§ 287 ZPO).
What is largely unresolved under the new law is the problem of complaints at various stages. How can it be prevented in such cases that a cartelist has to pay damages twice, i.e. to the direct and to the indirect customers, or can escape civil liability completely? This possibility exists if the courts in each case come to different conclusions with regard to the question of passing-on. The legislator did not address this problem and left the solution to the courts.  In its ORWI-judgment, the BGH had pointed to the possibility of third party notice (Streitverkündung). To limit the cost risk of the plaintiff, the 9th amendment of the GWB caps the sum of the litigation matters of several sub-interventions to the disputed value of the main item (§ 89a para 3 GWB). It would have been more appropriate in such cases, though, to concentrate all legal proceedings at one court.

Outlook

Part 5 of our blog series on the German Competition Act reform “(No) need to argue – What is certain, what is presumed and what can be estimated in cartel damage litigation after the 9th amendment of the GWB” will be published this soon.