Brattle principals Andrew Abere and Pinar Bagci authored an article on cartel damages in the EU that was published in the April-June 2015 issue of Corporate Disputes.
In the article, Drs. Abere and Bagci explain that many cartels arise in intermediate goods industries that feed into a chain of buyers before reaching the final consumer. As a result, direct buyers of the “cartelised” product pay the overcharge, or the difference between the higher price charged by cartel members and the lower price that would prevail in the absence of the cartel. The overcharge process continues through to the ultimate customers, resulting in an unknown proportion of the overcharge getting passed along in each link of the supply chain.
The new EU Antitrust Damages Directive allows infringers to “defend themselves against a damage claim by invoking a ‘passing-through defense,’” meaning that an overcharge levied on a direct buyer was passed through to an indirect buyer, at least in part, so the direct purchaser did not absorb the full overcharge. This defense provides infringers with an opportunity to limit claims if they are able to demonstrate that cartel overcharges were passed along a chain of buyers.
The Directive will require that defendants prove that cartel overcharges were (partially) passed through by the claimants to their own customers. This will make it easier for those indirectly affected by cartels to pursue damages claims, as claimants will be able to recover losses even if there was no direct transaction with cartel members (though it will be difficult to quantify the extent of their loss).
The article also reviews an approach developed by economists to estimate the distribution of cartel damages through the chain of direct and indirect buyers that treats cartel overcharges as a form of tax, meaning the incidence of the cartel overcharge falls on the group that ultimately pays the overcharge. With effective competition, economic models predict that the burden of the cartel overcharge may come from the final consumers while the damage suffered by the direct and indirect purchases may be limited. In a market without effective competition, the downstream firms may be able to pass through only a portion of the overcharge to their customers.
The impact of pass-through may be significant since the Directive will make it easier for claimants, particularly indirect buyers, to bring cartel damages as long as they are able to clearly demonstrate the level of pass-through and its distribution among direct and indirect buyers.
The article, “Just Passing Through? Cartel Damages Under The New EU Directive,” can be read in its entirety below.