The Court of Justice’s judgment in Case C-557/12 Kone AG and Others v ÖBB-Infrastruktur AG is an important landmark in reinforcing the efficacy of EU antitrust law. The Court holds that Member States cannot block claims for compensation by victims of “umbrella pricing”, that is to say setting of higher prices by non-cartel members as a result of a cartel. Here are the facts. Back in 2007 the Commission fined four elevator and escalator manufacturers (Kone, Otis, Schindler and ThyssenKrupp) for participating in a cartel which involved fixing prices in four Member States of the EU.  The Austrian competition authority did likewise in respect of a cartel in Austria. Both cases concerned a breach of Article 101 TFEU.

ÖBB, a subsidiary of the Austrian state railways bought elevators and escalators from a company that was not party to the cartel. It then claimed that it had been over charged and brought a claim against the members of the Austrian cartel for nearly €2 million for the loss and damage it claimed as a result of its suppliers setting a higher price than would have been achievable had the cartel not existed (the “umbrella effect”).

There was a problem though. Austrian law provided that compensation could not be claimed against the cartel members because the loss was caused by the supplier who was not a party to the cartel and thus acted lawfully.

The Austrian Supreme Court then referred the question whether Austrian law which barred such a claim was compatible with EU law.

The Court of Justice held that the Austrian legislation is incompatible with Article 101 TFEU.

The Court began by recalling that Articles 101(1) TFEU and 102 TFEU produce direct effects in relations between individuals and create rights for the individuals concerned, which the national courts must safeguard (Case C‑127/73 BRT and SABAM EU:C:1974:25, paragraph 16; Courage and Crehan EU:C:2001:465, paragraph 23; and Manfredi and Others EU:C:2006:461, paragraph 39).

The full effectiveness of Article 101 TFEU would be put at risk if it were not open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition (Courage and Crehan EU:C:2001:465, paragraph 26; Manfredi and Others EU:C:2006:461, paragraph 60; Case C‑199/11 Otis and Others EU:C:2012:684, paragraph 41; and Case C‑536/11 Donau Chemie and Others EU:C:2013:366, paragraph 21).

Any person is thus entitled to claim compensation for the harm suffered where there is a causal relationship between that harm and an agreement or practice prohibited under Article 101 TFEU (Manfredi and Others EU:C:2006:461 paragraph 61, and Otis and Others EU:C:2012:684, paragraph 43).

A damages  action actually strengthens EU competition law, since it discourages agreements or practices, frequently covert, which are liable to restrict or distort competition, thereby making a significant contribution to the maintenance of effective competition in the EU (Courage and Crehan EU:C:2001:465, paragraph 27; Manfredi and Others EU:C:2006:461, paragraph 91; Pfleiderer EU:C:2011:389, paragraph 29; Otis and Others EU:C:2012:684, paragraph 42; and Donau Chemie and Others EU:C:2013:366, paragraph 23).

As there are currently no EU-wide rules on damages actions, it is for the national laws of the Member States to lay down the detailed rules on the exercise of the right to claim compensation for the harm resulting from an agreement or practice prohibited under Article 101 TFEU, including those on the application of the concept of ‘causal relationship’, provided that the principles of equivalence and effectiveness are observed (Manfredi and OthersEU:C:2006:461, paragraph 64).

Accordingly, the rules applicable to actions for safeguarding rights which individuals derive from the direct effect of EU law must not be less favourable than those governing similar domestic actions (principle of equivalence) and must not make it in practice impossible or excessively difficult to exercise rights conferred by EU law (principle of effectiveness) (Courage and Crehan EU:C:2001:465, paragraph 29; Manfredi and Others EU:C:2006:461, paragraph 62;Pfleiderer EU:C:2011:389, paragraph 24; and Donau Chemie and Others EU:C:2013:366, paragraph 27).

In that regard, and specifically in the context of competition law, those rules must not jeopardise the effective application of Articles 101 TFEU and 102 TFEU (see Case C‑439/08 VEBIC EU:C:2010:739, paragraph 57; Pfleiderer EU:C:2011:389, paragraph 24; and Donau Chemie and Others EU:C:2013:366, paragraph 27).

The Court found that a phenomenon such as umbrella pricing is recognised as one of the possible consequences of a cartel, in certain circumstances: it cannot be ruled out that a competing undertaking, outside the cartel in question, might choose to set the price of its offer at an amount higher than it would have chosen under normal conditions of competition, that is, in the absence of that cartel. In such a situation, even if the determination of an offer price is regarded as a purely autonomous decision, taken by the undertaking not party to a cartel, it must none the less be stated that such a decision has been able to be taken by reference to a market price distorted by that cartel and, as a result, contrary to the competition rules.

The Court also held that the full effectiveness of Article 101 TFEU would be put at risk if the right of any individual to claim compensation for harm suffered were subjected by national law, categorically and regardless of the particular circumstances of the case, to the existence of a direct causal link while excluding that right because the individual concerned had no contractual links with a member of the cartel.

Consequently, the victim of umbrella pricing may obtain compensation for the loss caused by the members of a cartel, even if it did not have contractual links with them, where it is established that the cartel at issue 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, and that those circumstances and specific aspects could not be ignored by the members of that cartel. It is for the referring court to determine whether those conditions are satisfied.

Interestingly, the cartel members claimed that such actions could dissuade undertakings from applying for leniency and assisting competition authorities in their investigations which runs contrary to the principle of effectiveness. The Court gives that argument short shrift and held that the leniency programme cannot deprive individuals of their right to obtain damages in national courts in the event of an infringement of Article 101 TFEU.

For a critical comment see this post over at Chillin’ Competition.