Will German courts defer to the "broad axe" approach in antitrust damages litigation?

What is it about?

The term “broad axe” has its roots in English law and describes a principle for the assessment of damages in civil proceedings. This approach allows for an estimate rather than a precise calculation of damages when the latter is impossible or impractical to achieve. To this end, it takes into account the circumstances and the nature of the harmful act.[1] In its first judgement on follow-on claims from the truck cartel the UK Competition Appeal Tribunal's (CAT) applied the “broad axe” approach.[2] In 2020, the UK Supreme Court ruled that the approach can also be applied to the calculation of passing on.[3]

Background

Regularly, the parties in a civil damages litigation submit expert opinions of competition economists for determining the cartel overcharge. These expert opinions are time-consuming and costly to produce and even expert opinions are limited to provide an approximation and not an exact determination of the hypothetical price to be used as the as if value for the calculation. In some instances, courts have criticized such opinions of being arbitrary as they tend to differ significantly depending on the litigation party by which they have been presented, i.e. they have clearly favoured the respective party.[4] These weaknesses may have contributed to the difficulties of enforcing damages claims in court

Recent developments in Germany

In 2019, the presiding judge of the highly relevant cartel chamber at the Higher Regional Court in Dusseldorf argued in a legal article that it should be possible for judges to estimate the cartel overcharge independently based on the nature, content and scope of the cartel and its implementation.[5] Subsequently, the Regional Court of Dortmund put these considerations into practice in cartel judgements in 2020 and 2021.[6] Moreover, in a 2021 judgement, the Higher Regional Court of Celle also estimated the cartel overcharge in a chipboard cartel taking into account the prices before and after the cartel was implemented.[7] Recently, another Higher Regional Court found that the expert opinions submitted by the parties in a drugstore cartel case were methodologically flawed and presented its own estimate instead.[8]

In these cases, the courts based their own estimates on various elements including the nature of the cartel agreement, its market coverage, duration, price sensitivity of customers, degree of organization, and cartel discipline. The courts referred to studies (e.g., the so-called “Oxera study” commissioned by the European Commission in 2009) and case law from other EU member states to determine average values or value ranges of cartel overcharges in the past. Now, in the stated decisions, the courts applied the above-mentioned criteria to the individual cartels. The Higher Regional Court of Schleswig, for example, assumed a general average cartel overcharge of 18% and then, applying the above-mentioned criteria to the case at its hand, came out at a value of 0.5%.[9]

Critics of the broad axe approach have raised concerns about the risk of overcompensation and violation of the prohibition of enrichment under tort law.[10] One Munich Regional Court, for instance, recently insisted on expert opinions for reliable estimates, arguing against arbitrary damage assessments in the absence of concrete evidence.[11]

However, the most recent highlight in this development are statements of the Federal Supreme Court in one of its various “trucks cartel” decisions.[12] It confirmed the lower court’s view that an economic regression analysis, which does not find a “significant” price effect of the cartel, does not exclude the possibility that damages in any amount can still have occurred. The court had not to decide on the exact amount of damages, but just on the lower court’s general finding that the cartel was able to cause any damages. The Supreme Court assumed a general empirical rule (Erfahrungssatz) that a cartel, which lasted over fourteen years, must have made commercial sense for its members. And it found that this rule is not rebutted by an economic analysis of “insignificance” (which, at least, did not confirm the “null hypothesis”, i.e. that the cartel had definitely no price effect). Hence, the judge’s power to “normatively estimate” damages caused by a cartel has priority over the “calculated likelihood” of such damages.

What does it mean in practice?

In our view and in light of its recent statements it is likely that the Federal Supreme Court will also be generally favorable of strengthening the judges’ role in the proceedings and, thus, back the approach in principle. However, certain guardrails will be helpful to mitigate the above-mentioned risks and, ideally, to harmonize the principles of such estimations. If confirmed and further applied, this “broad axe” will prioritize the normative judges’ view over economic expert opinions in the proceedings. Moreover, depending on the empirical rules applied the approach might accelerate proceedings, rather to the benefit of the claimants than of the defendants.