The Assignment Model in EU Competition Law and Why Roundwood is (partly) on the wrong track
The term “Assignment Model”, is a mechanism for bundling damages claims. It is not a legal instrument, but it is possible in some Member States such as Germany as a workaround. The Landgericht Dortmund decided to refer the Roundwood Case
to the ECJ in order to get a preliminary ruling on EU law’s stance regarding the Assignment Model within the area of competition. So far, Advocate General Maciej Szpunar delivered his Opinion (see the blog post by Nils Imgarten), the ECJ judgment is pending.Though both the Landgericht Dortmund and consequently Szpunar are mostly interested in whether EU law requires the Assignment Model, the opposite might also be true: EU law could preclude the Assignment Model – in particular, the Representative Actions Directive
hints in this direction. Moreover, although the Damages Directive and Article 47 of the Charter play a certain role, until now, the case mainly focuses on the principle of (full) effectiveness, forgetting the principle of equivalence.
The Assignment Model
First, some information about the Assignment Model which is not always about collectivisation, but which exists in two major versions:
Some legal service providers focus on claims depicting clear criteria that can easily be captured in a database (such as the cancellation or delay of flights regarding the Air Passengers Rights Regulation
- ) and offer an individualised but largely automated enforcement (g. ECJ – Eventmedia ).[2024]Other undertakings address claims which are linked to an essentially identical event (such as a cartel), bundle and collectively enforce the resulting claims (e.g. ECJ – CDC
- ).[2015]Someone interested in participating assigns their claims to a legal entity on a
fiduciary basis. The legal entity will (jointly) enforce the claims thus serving as an enforcement vehicle.The Assignment Model is
based on a contingency fee in combination with an exemption from costs. External litigation funding can be used to finance the case. The Assignment Model is risk-free for the claimant in terms of extra costs. However, the injured party will never receive all the damages incurred but just a percentage. Practical need for collective law enforcement?
The existence of the Assignment Model seems to confirm that – besides (insufficient) statuary instruments – there is practical need for collective private law enforcement.
But Why?
There is a variety of reasons why a party injured might not sue. Collective private law enforcement may be able to help. The first reason which comes to mind is the burden of proof: for a private individual without any investigative powers (such as the competition authorities have), it will be quite hard to prove an infringement.Another reason is
rational apathy
: If an infringement results in minor to moderate damages, the expected costs from the proceedings may be greater than the estimated benefits.And a third reason is the structural imbalance
between plaintiff and defendant typically resulting in mass proceedings: As the rational effort one should put into a legal dispute depends on how much is at stake, with many parties having suffered a loss from one major infringement, for the defendant, there is the risk of a precedent being set each time. The defendant is also at risk of setting a precedent for future lawsuits, as the rational effort to be put into a legal dispute depends on how much is at stake. For the plaintiff, however, it is only a matter of their damages and therefore, in the case of several injured parties, a smaller amount than for defendant. For the plaintiff, on the other hand, it is only a matter of their damages and thus, in the case of several injured parties, necessarily a smaller amount than for the defendant.Collectivisation does not result in investigative powers and therefore will not help with the burden of proof as such. If the burden of proof is not to prove internal events within an enterprise, but rather the costs of e.g. These costs can be split between external economic experts. When combining several claims, average costs per claim typically fall, and the rational apathy threshold will also drop. Moreover, there is an incentive to invest more for the plaintiffs if they sue as a collective thereby evening out the structural imbalance.
Preclusion of the Assignment Model?
Although it helps in overcoming barriers, EU law might still preclude the Assignment Model. The Representative Actions Directive
is not applicable to competition law. However, the discussion that took place during its emergence shows that some of its provisions relate to fundamental principles of EU Law and are therefore relevant to the Assignment Model:
The associated debate and Recital 10(2) RAD demonstrate a general reluctance towards third-party financing
- which is an important aspect to the Assignment Model:The accompanying Debate and Recital 10(2) RAD reveal The accompanying discussion and Recital 10(2) RAD show a general reluctance regarding third-party funding which is an important aspect of the Assignment Model. The explanations accompanying Proposal for RAD were a source of concern. Third-party funding may, therefore, be in conflict with the Charter’s right to effective remedies. Despite the fact that the Directive acknowledges these dangers the RAD does nothing to prevent them. Article 10 of the
- Directive only requires that conflicts of interests be avoided. EU law cannot exclude the Assignment Model because it is used, since even the RAD does include third-party funding. During the legislative process, there was a huge focus on entities that were allowed to file for mass proceedings (see e.g. 20). This resulted in the article 3 RAD only allowing entities with a strictly not-for-profit character. The Recital 11(1) clarifies that the Directive “should not replace existing national procedural measures for the protection collective or individual consumer interest.” Recital 11(4) concludes by demanding that “the qualified entities should be able choose which procedural measure to use”. To my mind, however, the argumentum contrario stating that the former domestic mechanisms can only continue if they are based on qualified entities is too far. Recital 11(1) doesn’t depict this restriction, so Recital 11(4) should be interpreted as referring only to a subset. Thus, in my understanding, while profit-making was criticized hugely and excluded within the RAD, already existing national instruments may co-exist.What is more: There is support from another area of the law. In
M.I.C.M., the ECJ had to consider a different version of Assignment Model regarding intellectual property law and the interpretation of the Enforcement Directive [2021]. The ECJ held that the suggested preclusion “runs counter to the general objective of Directive 2004/48, which is to ensure a high level of protection of intellectual property in the internal market […]” and thus rejected it.[…]
The principle of full effectiveness?
With M.I.C.M. In its leading decision on private law enforcement, Courage
, the ECJ elaborates: In its leading decision on private law enforcement, Courage [2002], the ECJ elaborates:
“The full effectiveness of [Article 101 TFEU] and, in particular, the practical effect of the prohibition laid down in [Article 101(1) TFEU] would be put at risk if it were not open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition.”
Though EU law (at that time) did not explicitly ask Member States to introduce damage claims, the principle of full effectiveness still required Member States to do so. Regarding their design, the judgment continues:
“However, in the absence of Community rules governing the matter, it is for the domestic legal system of each Member State (…) to lay down the detailed procedural rules […], provided that such rules are not less favourable than those governing similar domestic actions (principle of equivalence) and that they do not render practically impossible or excessively difficult the exercise of rights conferred by [Union] law (principle of effectiveness) […]. “
Therefore, Member States could (in general) install the required damage claims in such a way that it suited their legal system but had to consider both the principle of equivalence and the principle of effectiveness.
Important side note: From my point of view, the principle of effectiveness and the principle of full effectiveness are – though they share a similar name – not the same. The principle of full efficacy applies to the introduction of a new instrument. The principle of effectiveness is concerned with its design. This dichotomy was already pointed out by the Advocates General Kokott Wahl and Szpunar. However, they did not use the former term but simply described the phenomenon. para. 85 et seqq. of the Opinion).
What is to conclude with regard to collectivisation mechanisms? The controversy surrounding the Assignment Model does not concern the transferability of a right in general but rather the validity of a fiduciary assignment during court proceedings. To me, these are simply modalities. In His Opinion(para. Szpunar also concludes that this is a domestic issue. Thus, the principle of full effectiveness does not apply and cannot require Member States to provide for the profit-based Assignment Model.
The principle of effectiveness?
This leads to the principle of effectiveness. This leads to the
principle of effectiveness. These are high standards. In particular, in my understanding, the principle of effectiveness does not demand that economically speaking, bringing each and every claim to court is the sensible option – practically impossible or excessively difficult is far more.
Nonetheless, because no real statutory collectivisation mechanism for businesses exists, in the eyes of the Landgericht Dortmund
(para. 68 et seqq. ), the principle of effectiveness is indeed infringed.However, I personally doubt whether the principle of effectiveness is really the right approach: First of all, collectivisation mechanisms do not overcome practical impossibilities, in particular, they do not overcome problems such as a lack of investigative powers. Granted, they typically mitigate the average costs and even out structural imbalances – but is this really enough to meet the considerable demands of the principle of effectiveness?Second, one must not forget that there already is a European legislative act about competition law claims: the Damages Directive. I don’t mean to imply that the Damages Directive is perfect (because it isn’t). During the legislative process there was already a discussion about collectivisation. The executive summary of the White Paper is available. The Damages Directive was enacted without it, however, as no agreement could be reached. The Recital 13(2) states explicitly: “This Directive does not require Member States introduce collective redress mechanism”. Yet, to me, it seems contradictory to install the Damages Directive which according to its Article 1 “sets out certain rules necessary to […] ensure that anyone who has suffered harm caused by an infringement of competition law
can effectively exercise
the right to claim full compensation” and thereafter allege that a legal system which dutifully implemented that Directive makes the very same claims practically impossible or at least excessively difficult.
Lastly, to my mind, it is not even necessary to recur to the principle of effectiveness. At least with regard to Germany, there is a more compelling reason: the principle of equivalence.
The principle of equivalence?The
principle of equivalence demands that actions determined by EU law are not less favourable than similar ones governed by domestic law. The principle of equivalence requires that actions governed by EU law are not less favourable than similar ones governed by domestic law. 56 et seqq.) There is a debate going on about whether the Assignment Model is in conflict with the German Legal Services Act. The German Federal Court of Justice has already confirmed some versions of the Assignment Model. The court, while highlighting the facts in each judgment, held that each version was admissible and conformed to the German Legal Services Act , even though it emphasised them within the judgment. Since Airdeal the Federal Court of Justice has not only referred to the individualised version, but also to a collective Assignment Model.
In comparison, several lower courts have dismissed the Assignment Model under competition law. As a rationale, you will find a common argument: Competition law is too complex and difficult (see Landgericht Dortmund para. 63). The German Legal Services Act confirms this. And in Financialright, one of its leading judgments, the Federal Court of Justice even states that complex (and time-consuming) legal proceedings are no valid objection. Yet, if the relevant German Act does not differentiate according to complexity, the complexity of EU competition law cannot be a valid reason why its application differs to the already existing judgments.
Therefore, from my point of view, it is actually the principle of equivalence which is of paramount significance to Roundwood demanding for an extension of the Assignment Model to EU competition law. The case is wrong because it only focuses on effectiveness.
