Schlecker judgment by Germany's Federal Court of Justice

On 4 January 2023, the Federal Court of Justice (hereinafter also “the Court”) published the eagerly awaited judgment in the Schlecker case, which was issued on 29 November 2022 (judgment of 29 November 2022, file no. KZR 42/20, full text in German here). Although the press release following the pronouncement of the judgment was interpreted by some as a claimant-friendly U-turn by the Court in the case of information-sharing cartels, the ruling (which is to be published in the official collection) is in fact in line with the previous case law of the Court’s cartel division on cartel damages, which requires comprehensive examination of the parties’ submissions by the trial judge.

Background

The now-insolvent drugstore chain Schlecker e.K.i.L. (Schlecker) filed a claim for damages of approx. €212 million against several manufacturers of drugstore products with Frankfurt Regional Court (Landgericht) and Frankfurt Higher Regional Court (Oberlandesgericht). Between 2004 and 2006, the manufacturers had shared information on current and future wholesale price increases, including discount campaigns, in breach of antitrust law (the case became known as the drugstore cartel). Following a leniency application, the Federal Cartel Office (FCO) imposed fines on the cartel participants between 2008 and 2013. Schlecker had purchased various products from these manufacturers during the cartel period, with prices for such products being agreed in annual meetings. Schlecker then claimed damage of its own due to increased product prices. The action was unsuccessful in both lower courts, particularly because the courts could not establish that Schlecker had suffered any cartel-related damage.

Decision by the Federal Court of Justice

The Federal Court of Justice quashed the appeal judgment and referred the case back to Frankfurt Higher Regional Court for a new ruling.

While the Court affirmed the defendant’s cartel infringement within the meaning of Article 81 of the EC Treaty (now Article 101 TFEU) as well as section 1 of the German Act against Restrictions of Competition based on the FCO’s penalty notice and the fact that Schlecker was affected by the cartel as a customer buying the cartelised drugstore products, the issue of establishing the cartel-related damage is the focus.

No presumption of damage and no binding establishment of damage based on the penalty notice

The Federal Court of Justice first rejected the argument raised in the appeal on points of law that due to the binding effect of the FCO’s penalty notice under section 33(4) of the German Act against Restrictions of Competition (2005), it had to be presumed that Schlecker suffered cartel damages. The Court said that especially when establishing that an intended restriction of competition was achieved, it did not have to make any assessments whatsoever of the specific effects on competition. The determination of a disadvantage for the customers in question was not decisive in this respect and therefore was not part of the binding effect of section 33(4) of the German Act against Restrictions of Competition (2005). Rather, issues of the causality and the amount of the damages were, in principle, solely determined by the competent court’s free assessment of the evidence presented. The findings required for this had to be determined by the trial judge, who was also entitled to resort to an estimate of the damage, according to section 287(1) of the German Code of Civil Procedure. The Court added that the trial court’s resulting assessment of the facts could only be reviewed to a limited extent by the Court on appeal, since after all the Court only reviews whether the legal principles of assessing damages have been misjudged, whether essential assessment factors have been disregarded or whether incorrect standards have been used for the estimate (see Federal Court of Justice, judgment of 28 January 2020 – BGHZ 224, 281 marginal no. 35 et seq. – Rail cartel 2). The trial judge has a free hand, especially when handling requests for evidence, according to the Court. In the case of circumstantial evidence, before taking evidence the trial judge is allowed to, and has to, examine whether the evidence presented convinces him or her of the truth of the main fact to be proven.

Empirical principle of a cartel-related price increase is a relevant indication, even in cases where information is merely shared

The Federal Court of Justice considered these principles to have been breached in the present case by the court of first appeal (Frankfurt Higher Regional Court), which did not establish sufficient indicative circumstances based on its assessment of the information-sharing cartel identified. In line with its previous case law (see Federal Court of Justice, judgment of 28 January 2020, BGHZ 224, 281 – Schienenkartell II, link to our news), the Court first held that even outside the temporary scope of section 33a(1) of the German Act against Restrictions of Competition, in the case of territorial and price agreements in breach of cartel law, a factual presumption in favour of the customers based on a high degree of probability in the sense of an empirical principle suggested that there was a cartel-related price increase. The Court now applied this empirical principle to the present case’s mere sharing of secret information on current and future pricing policy. Here, too, the empirical principle suggests that the competitors involved jointly achieved a higher price level than they would have without sharing information. The reason for this was the presumption that the companies involved in the sharing would take the information into account when determining their own market conduct – this is part of economic experience and corresponds to reasonable economic judgement, the Court said.

No reversal of the burden of proof, even under European law

The Court’s cartel division again clarified that this empirical principle did not result in prima facie evidence or a reversal of the burden of proof. Rather, this empirical principle could only establish circumstantial evidence of the alleged fact. The necessity of a reversal of the burden of proof – prior to the entry into force of the Cartel Damages Directive, which introduced a legal presumption of damage – did not follow from the principle of effectiveness under EU law, either. That principle only states that evidence of cartel-related damage may also be provided by circumstantial evidence. Moreover, that principle was sufficiently taken into account by the option of estimating damage within the meaning of section 287(1) of the German Code of Civil Procedure.

Importance of empirical principle to be determined by overall assessment

However, even in the case of sharing information, the empirical principle should not be regarded as having only a slight indicative effect (at least from an abstract perspective). However, the Federal Court of Justice only rejects a schematic view. Within the framework of its overall assessment, the trial court had to examine whether there were indications in the concrete case (such as the frequency and duration of the sharing of information) which confirmed or invalidated the empirical principle in the individual case. The Court then went into detail on the circumstantial evidence that was included in the overall assessment in the individual case. The Court’s ruling states that the trial judge is required to clearly examine, with regard to the individual economic argument and the respective deviation, whether it is circumstantial evidence that supports or refutes the occurrence of damage and the application of the empirical principle and then to differentiate with regard to the question of the burden of presentation and proof. In doing so, the cartel division examines the parties’ allegations in the context of the effects of the infringement assumed by it, which it determines rather generally based on the assessment of the unity of the offence under administrative offence law.

Rejection of regression analysis not sufficient

According to previous case law, a regression analysis submitted by a party stating there is a difference (or none) between the prices on the cartelised market and a cartel-free comparative market already constitutes evidence to be taken into account to show that cartel damages occurred or to refute such damages. The Federal Court of Justice now states that the trial judge may not, in principle, refuse to obtain a court-appointed expert’s report to determine damages on the grounds that the regression analysis contains methodological errors. This is because the claimant’s assertion that cartel-related damage had occurred was not, in view of the established empirical principle, chosen at random without tangible indications and therefore not a misuse of law in the civil procedural sense.

Consequences in practice

The Federal Court of Justice’s ruling comes as no real surprise in view of its recent case law on cartel damages. Once again, the cartel division clarifies the process of obtaining results and finds legal errors in individual cases here.

What is new is that the Federal Court of Justice now extends the empirical principle for the occurrence of a cartel-related price increase, which has already been developed for price and territorial agreements in breach of cartel law, to the sharing of information in breach of cartel law and assumes that, based on general experience, such information is in fact used by companies. In this respect, the hurdles for cartel victims are lowered. Furthermore, even if the regression analyses submitted are faulty, as often happens in practice, the trial judge must consider obtaining a court-appointed expert’s opinion if the factual presentation otherwise provides sufficient indications of damage.

On the other hand, this should not mean that from now on trial judges must always affirm that cartel-related damages did in fact occur in claims for damages following the sharing of information in breach of antitrust law. This is because the Federal Court of Justice strongly emphasises that neither prima facie evidence nor a reversal of the burden of proof supports the existence of damage. As a result, the trial judge must take into account all circumstantial evidence presented by both sides in estimating damages pursuant to section 287 of the German Code of Civil Procedure and always consider who has the burden of proof and presentation for each fact alleged. Thus, even according to the Federal Court of Justice’s present judgment, it is the claimant alone who bears the burden of proving that the sharing of information led to an increase in prices. The cartel participants, on the other hand, must show and, in case of doubt, probably also prove, that the information obtained was not relevant in determining their market conduct. This is not new, as the explanation of why prices were set competitively despite the breach is already an essential element of an effective defence.

It remains essential for both the claimant and the defendant side to highlight and validate market and price-setting mechanisms that offer clear evidence for or against the occurrence of damage. Econometric studies can validate these arguments and are an important, but not the only, element of the parties’ submissions.

Ultimately, the Federal Court of Justice shows once again that the trial courts must, as part of their judicial decision-making, assess all of the parties’ submissions as well as the way the individual cartel operates, if necessary with the assistance of a court-appointed expert.

Noerr is a pioneer in the area of antitrust damages. In an interdisciplinary team, Noerr combines extensive experience and know-how in antitrust damages projects and proven industry expertise. We have successfully defended claims in the aftermath of decisions by antitrust authorities for many years. In addition, our team handles comprehensive projects for the structured examination and enforcement of antitrust damages claims for globally operating groups of companies and represents these clients in and out of court.