KNOETZL’s Antitrust Team Discusses Rise in Lawsuits with Austrian Magazine, Trend

Kartell Competition Antitrust
Dispute resolution experts Katrin Hanschitz, Thomas Voppichler, Bettina Knoetzl, Florian Haugeneder and Patrizia Netal talk to Trend’s Thomas Martinek

In a recent interview with Trend’s Thomas Martinek KNOETZL’s dispute resolution experts, Katrin Hanschitz (Partner), Thomas Voppichler (Counsel), Bettina Knoetzl (Partner), Florian Haugeneder (Partner) and Patrizia Netal (Partner) discussed the surge of lawsuits in Austria related to antitrust (competition law) violations.

Bettina Knoetzl highlights that this surge is due to sustained efforts of the European Union against business practices considered to be unfair competition, such as price fixing. The recently implemented EU Damages Directive  is expressly designed to foster private enforcement of damage claims by easing access to justice. It allows, for example, a disclosure procedure granting access to otherwise confidential information, shifts the burden of proof to some extent to the accused entity and extends the statute of limitations in favor of a claimant. Bettina Knoetzl cautions that the joint liability of all members of a cartel can beget serious legal and business consequences, including potential financial ruin, even if a party’s involvement in cartel-related activity was minimal.

Katrin Hanschitz further noted that, while class action lawsuits as are common in the American legal system are not available in Austria, third party litigation funders are establishing themselves in the market and may well succeed in motivating more claimants to pursue their damage claims against offending cartel members. This trend should not be taken lightly considering that each cartel member is, in principle, liable for the full measure of damage caused by the cartel, i.e. not only the damages to their immediate business partners, but to all the suppliers and customers of all cartel members and, potentially, of all market participants affected. This means that liability can far exceed the profits or revenue obtained in cartel-related transactions, with a cartel member’s individual revenue of a few hundred thousand euros potentially leading to damage claims of many millions of euros, plus interest of 9.2% (currently).

As soon as a company first encounters any potential antitrust behavior or learns about its involvement in pending or potential proceedings, Thomas Voppichler recommends that it immediately sets up an action plan outlining a specifically tailored strategy. An internal investigation, an analysis of the seized documents as well as cooperation with authorities should be considered, particularly in cases where a search warrant has been granted and executed. This is the time to call a legal expert, as the company faces fines of up to 10% of its revenue. Accused cartel participants cannot learn quickly enough that there is no substitute for experienced, on-point, independent, professional guidance to help soften the very hard-edged consequences that can arise from an antitrust case being pursued against them.

Arbitration Proceedings and Antitrust Infringements

Florian Haugeneder points out that an infringement of competition law may also be relevant during arbitration proceedings when respondents use such infringements as a shield to render a contract null and void. However, competition law may also serve as a sword, for example, in cases concerning long-term natural gas contracts. Long-term supply contracts of up to twenty years with ‘take or pay’ obligations are often challenged as market power abuse during arbitration proceedings. By utilizing arbitration in seeking damages for competition law violations, companies have the advantage of selecting experienced arbitrators with specific business and competition law expertise, as court judges often lack this know-how and heavily rely on expert witnesses.

Patrizia Netal added that, with regard to private enforcement, arbitration can offer particular advantages in safeguarding the confidentiality of sensitive business information. The arbitral process is generally more flexible. Rules on document production, for instance, can be tailored according to the parties’ agreement. Moreover, arbitrations are often more time efficient compared to court litigation. The 2014 EU Directive on Antitrust Damages Actions explicitly endorses arbitration proceedings for private enforcement claims. Since arbitration is based on mutual consent of the parties the existence of an agreement to arbitrate is crucial; preferably by an explicit provision regarding cases of antitrust claims.

The Principal Witness – What is at Stake?

Partner Katrin Hanschitz and Counsel Thomas Voppichler also explored the pros and cons of co-operating with antitrust authorities utilizing leniency programs.

If anti-competitive behavior has been uncovered, the management has to make a crucial decision: whether to defend itself vigorously against the accusations or, instead, co-operate with the antitrust authorities. If successful, the leniency applicant can ideally — predicated upon its cooperation with the authorities — manage to avoid a fine and, also, a potential criminal conviction. The fact that the applicant was a member of the cartel will, however, be made public.

The risk: If a cartel member discloses facts and evidence in the course of its application for immunity/leniency, these facts and evidence can, to some extent, be used against it in subsequent civil liability proceedings. While the principal witnesses enjoy some privileges, these do not necessarily provide complete protection in all cases. For example, a successful leniency applicant may benefit from a liability reduction: he may be liable only to his own business partners rather than the business partners of all the cartel members. Additionally, the application for leniency may be exempt from disclosure in follow-on civil liability proceedings. However, these privileges only have a restricted scope and are not, for example, (fully) applicable to vertical cartels or to leniency applicants who are not the first to disclose a secret cartel. In summary: informed caution is paramount.

From a compliance perspective, however, there is no doubt that taking steps to disclose violations of competition law that have been uncovered is the advisable choice.

Read the full article in German.

Elevator Cartels

Please also see Katrin Hanschitz’ article on The Elevator Cartel and ECJ II: Casting a Wider Net of Private Enforcement exploring the recoverability of state-aid against anti-trust infringers.