Overview
Governments (so as to save money) and Chicago School economists (as a point of principle) would generally prefer the enforcement of competition policy to be done by affected companies and individuals rather than taxpayer-funded competition authorities. They therefore encourage those that are damaged by cartels and dominant companies to sue those who have damaged them. These claims are by definition private actions and they are often taken by a large number of wronged customers working collectively together. They are also often 'follow on actions' because they follow on behind decisions made by, and fines imposed by, competition authorities.
Two difficulties [(a) quantifying the damage, and then (b) dividing the damage fairly amongst many claimants] unfortunately mean that successful actions were initially fairly rare though the field now seems to be developing quite well - at least from claimants' perspective! Nevertheless, it is still to some extent the case that, as Andrei Shleifer points out, private enforcement means that the strong, and not the just, win the day.
Detail
It would obviously be good if a cartel's over-charged customers could easily and successfully claim compensation from their suppliers, for this would counteract the economic harm that had been done by the cartel. Indeed, many in government hoped that such 'follow on' private actions might over time allow the competition authorities to devote less resource to cartel busting. There was a feeling that larger companies should be left to pursue their cartelised suppliers through the courts, thus cutting the cost to the taxpayer and perhaps also acting as a much greater deterrent to future cartels.
Much the same logic applies to the damage done by those who abuse their dominant position in their market.
Unfortunately, however, it has proved very difficult to get damages claims through the courts for at least two reasons:
- it can in practice be very hard to quantify the loss caused by a cartel.
- buyers are often small and dispersed; and
- larger, immediate buyers can sometimes pass on the costs to downstream buyers so it is hard to identify who has lost what.
The first case case to reach the UK courts based on a breach of European competition law was BritNed v. ABB. The infringement itself (the cartel) had ended in 2009 but the final UK decision (in the Court of Appeal) was not taken until 2019. BritNed, having claimed €180 million in damages was awarded only €7.5 million.
The Government had in the meantime introduced changes intended to make it easier for businesses and others to bring 'collective proceedings' (often called class actions). The necessary legislation came into force in October 2015, introducing:
- an extended remit for the Competition Appeal Tribunal (CAT), making it the major and powerful venue for competition actions in the UK, and
- a new power for the CAT to approve 'opt-out' class actions, as a result of which all claimants would eventually benefit (if the action is successful) even if they knew nothing about the legal action.
There were initially, even so, not many collective proceedings as
- the litigation still need to be funded,
- the lead body (such as a consumer body) would need to pay the defendants' costs if the action is unsuccessful, and
- the fundamental problems mentioned above still get in the way - as has indeed happened in the MasterCard and other cases. (See further below)
But What If ...?
One solution to the many problems impeding access to justice in this area, which would need legislation, might be for the CMA to be tasked with calculating and then overseeing the distribution of compensation once they have successfully tackled the original abuse.
Interestingly, Aspen Pharmacare offered to pay the NHS £8m to help settle a 2017 investigation in which the company was alleged to have entered into anticompetitive agreements and abused its dominance in relation to the supply of fludrocortisone acetate tablets.
There have also been examples of utility regulators requiring companies to reduce customers' future bills as compensation for past regulatory misdeeds. Rough and ready justice maybe, but much better than complex lengthy litigation in which the main beneficiaries seem to be lawyers.
An Unintended Consequence
It has been reported that the fear of follow on damages is causing companies to be reluctant to 'blow the whistle' on cartels and claim leniency when it comes to fines.
The Mastercard Litigation
The first significant collective action was launched in September 2016, on behalf of its many millions of card-holders, when MasterCard was sued for £14 billion.
The European Commission had previously found the company guilty of abusing its dominant position by imposing excessive charges on the use of its credit and debit cards. And several retailers had successfully claimed follow on compensation.
The cardholders claim (fronted by Walter Merricks) claim failed in front of the CAT who found that there was "no plausible way of reaching even a very rough-and-ready approximation of the loss suffered by each individual claimant". This was because MasterCard's excessive charges were seldom passed on directly the customer who used the card. Instead, the cost was to some extent absorbed by the retailer, and to some extent passed on to all customers, in higher prices, whether or not they used the card at all. It was therefore impossible for the court to apportion compensation. But the CAT's decision was overturned by both the Court of Appeal and the Supreme Court. The case is now being re-heard by the CAT.
Other Recent Developments
The Supreme Court ruling seems to have encouraged a number of lawsuits, underwritten by cash-rich litigation funders in return for a slice of any compensation. Sony PlayStation, for instance, is being sued for up to £5bn over allegations that it abused its dominant position and overcharged nearly 9 million gamers.
Royal Mail and BT won significant damages in 2023 in a case following on from the European Commission proving that Daf and other van suppliers had entered into a long-standing cartel - from 1997 to 2011. Royal Mail were awarded over £17 million and BT around £3 million - both plus interest, which was much larger still as the infringement had lasted for so long.