The European Court of Justice (ECJ) recently ruled that a jurisdiction clause does not need to refer expressly to disputes arising from a breach of competition law where damages are claimed based on Art. 102 TFEU (i.e., for abuse of a dominant position). This contrasts with the ECJ’s position in follow-on cartel damages claims (under Art. 101 TFEU), where a jurisdiction clause must specifically refer to disputes concerning an infringement of competition law.
In a landmark ruling, the EU’s top court, the European Court of Justice (ECJ) in Kone and Others C-557/12 of 5 June 2014, has held that, where a cartel causes competing companies to increase their prices, the members of the cartel may be held liable for losses incurred by victims of those price increases.
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The European Court of Justice decided on 21 November 2013 that EU national courts must assume that a measure qualifies as State aid, if the European Commission has opened an in-depth investigation into that measure.
This judgment is relevant to all cases in which the disputed measure was already granted, or is planned to be granted, and the European Commission has opened an in-depth investigation but not yet made a final decision on whether or not the measures qualify as State aid.
The European Court of Justice (ECJ) decided on 21 November 2013 in Deutsche Lufthansa AG v Flughafen Frankfurt-Hahn GmbH (C-284/12) on the obligations placed on national courts in EU Member States that have been asked by a third party to order the recovery of State aid that was granted to a beneficiary without approval by the European Commission.
The ECJ stated that, even though the assessment carried out by the European Commission in its decision to open an in-depth investigation is preliminary in nature, the decision to open an investigation has legal effect and is therefore binding for national courts in that they must find that the measure qualifies as State aid. If the aid was granted without approval by the European Commission, the national court will have to order its recovery.
EU Member States cannot implement measures that qualify as State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union (TFEU) until those measures have been approved by the European Commission (“the standstill obligation”, established in Article 107(3)(3) TFEU). The European Commission has exclusive competence to approve State aid.
National courts may, however, find an infringement of the standstill obligation and order the recovery of State aid that was granted without European Commission approval. Although national courts may not authorise State aid, they are permitted to decide whether or not a measure qualifies as State aid.
State aid investigations by the European Commission begin with a first phase, in which the European Commission requests information from the relevant EU Member State and gives the State the opportunity to give its views on the qualification of the relevant measures as State aid and grounds for their authorisation.
In complex cases, the European Commission generally opens an in-depth investigation. When making its decision to initiate an in-depth investigation, the European Commission has to provide an initial assessment of the measure and explain why it has come to the preliminary conclusion that the measure qualifies as State aid.
In the case at hand, the competitor of an alleged aid beneficiary approached a German court seeking recovery of alleged aid given to the beneficiary and suspension of its implementation. According to the appellant, the measure qualified as State aid, was granted without approval by the European Commission and was therefore in violation of the standstill obligation. The European Commission opened an in-depth State aid investigation into the relevant measures in 2006, but the final decision is still outstanding.
Question Referred by The National Court
The German court essentially asked the ECJ whether a national court is bound by the European Commission’s preliminary conclusion that a measure qualifies as unlawful State aid (by taking the decision to initiate an in-depth investigation), when the national court is considering a legal action concerning the reimbursement of payments made and an order to refrain from making future payments.
The ECJ’s Response
Before answering this question, the ECJ recalled that, where the European Commission has not yet initiated the formal investigation procedure, it is incumbent upon the national courts to assess whether or not the measure qualifies as State aid. The national court has to be able to decide if there has been an infringement of the standstill obligation.
The ECJ further assessed which measures need to be taken by the national court in a situation where the European Commission has already initiated an in-depth investigation procedure.
The ECJ found that the national court has an obligation under Article 108(3)(3) TFEU to ensure that State aid is only granted after the European Commission has given its approval. Following the European Commission’s decision to open an in-depth investigation, the national court has to assume that the measure under investigation qualifies as State aid. The national court is therefore required “to adopt all the necessary measures with a view to drawing the appropriate conclusions” of an infringement of the standstill obligation. The national court may be required to order the recovery of illegal State aid and the suspension of its implementation. Alternatively, the national court may decide on provisional measures.
With this judgment, the ECJ has put an end to the debate over whether or not national courts are bound to find that a measure qualifies as State aid when the European Commission has decided to open an in-depth investigation. In the future, national courts will find it difficult to determine that measures do not qualify as State aid if the European Commission has opened an in-depth investigation. This is despite the explicitly preliminary nature of the assessment that is even emphasised in European Commission press releases announcing the opening of in-depth investigations.
Situations in which a national court denies the existence of State aid in these circumstances, such as the German Federal Administrative Court’s decision in 2010 with respect to measures in favour of an association for the disposal of dead animal bodies, would therefore not be compatible with European law.
While the conclusion drawn by the ECJ was, from our point of view, not strictly necessary, aid beneficiaries will have to prepare themselves for the possible consequences of this judgment. In practice, aid beneficiaries may have to systematically reimburse the benefits received if—following a decision by the European Commission to open an in-depth investigation—competitors approach a national court. Being bound by the European Commission’s preliminary assessment in its decision to open an in-depth investigation, the national court will have to find an infringement of the standstill obligation and order the immediate recovery of the advantage. This might lead to very unsatisfactory consequences, particularly as the recovery of State aid may constitute a fatal threat to the (alleged) aid beneficiary, even if the European Commission later concludes in its final decision that the measures does not, after all, constitute State aid or that it can be authorised.
Katharina Dietz, a paralegal at McDermott Will & Emery’s Brussels office, also contributed to the article.
In the wake of the seminal European Court of Justice (ECJ) ruling in case C-360/09 – Pfleiderer AG v Bundeskartellamt, Amtsgericht Bonn (Bonn local court), in a decision rendered on 18 January 2012 (case 51 Gs 53/09), has refused to give a damages claimant access to leniency submissions held by the German Federal Cartel Office (FCO). Although strongly welcomed by the FCO, the decision is a blow to potential damages claimants in Germany, especially as it is not open to appeal.
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In Elf Aquitaine SA v Commission, the European Court of Justice ruled on 29 September 2011 that Elf Aquitaine was not jointly and severally liable as a parent company for the involvement of its wholly owned subsidiary in the cartel for monochloroaecetic acid. Taken with a number of recent judgments, this suggests that European courts are getting tougher with the Commission on parental liability.
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A recent Decision of the European Court of Justice shows once more that it is still next to impossible for a parent company to rebut the presumption of liability for its subsidiary’s conduct. Nevertheless, companies with subsidiaries operating in the EU would be well-served to consider reinforcing their compliance programmes throughout their groups. Reinforcing compliance is more likely to reduce competition law risks for parent companies than, for example, a strategy of distancing itself from its subsidiaries.
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