Supreme Court Allows the Passing-On Defense in Antitrust Damages Actions (Judgment of 28 June 2011 – KZR 75/10)

By on July 8, 2011

by Philipp Werner

The German Supreme Court, in a landmark ruling handed down on 28 June 2011, has held that members of a cartel are able to defend themselves against a claim for damages by raising the defense that the relevant applicants have passed on the damage caused by higher prices onto a downstream market (the so-called "passing-on defense").  At the same time, the Supreme Court held that indirect purchasers have standing to claim damages following a violation of the antitrust rules.

The judgment is of considerable practical importance. In parallel with efforts at EU level to encourage private antitrust enforcement, actions for damages in Germany against members of a cartel have increased in number and significance.  In the majority of cases, it is the amount of damages which is the subject of proceedings, since the relevant infringement of the rules has already been established pursuant to a legally binding administrative decision in accordance with § 33(4) ARC.

Cartelists, therefore, face in addition to fines also damages claims potentially reaching into the millions.  The level of damages is assessed on the basis of the difference between the cartel price and a given hypothetical market price.  As a result of the passing-on defense, the level of damages claimed can, however, be considerably reduced.  Economic studies show that in theory direct purchasers pass on to a large extent higher (cartelised) prices on to their customers. In practice, however, the passing on of damage can be difficult to prove, since the defendant does not have information at its disposal relating to the prices charged by damages claimants on downstream markets.

The admissibility of the passing-on defense was, on a number of grounds, denied by both the first instance court and the Berlin High Court.  It was, however, accepted by the Düsseldorf Higher Regional Court. Indeed, in the literature, the issue has been extensively debated.  It was, inter alia, open to question whether § 33(3)(2) ARC ("If a good or service is purchased at an excessive price, a damage shall not be excluded on account of the resale of the good or service") excludes the possibility to plea the passing-on defense.  It was also argued that the passing-on defense would undermine the effectiveness of private antitrust enforcement. In contrast, the Supreme Court made it clear that in accordance with the general principles underlying the calculation of damages, the passing on of damage must be taken into account.

Given the lower sums of damages available and the clear difficulties relating to the discharging of the burden of proof, it is questionable whether indirect purchasers will make use of their right to bring a claim. It is therefore expected that the passed on part of the damage resulting from a cartel will in practice remain unclaimed.

For more information, please see our previous blog entry, "German Supreme Court Allows Indirect Purchaser Claims and Passing-On Defense in Cartel Damages Actions."





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