Economic Analysis in Damages Actions—Insights from Recent Proceedings in the UK

Abstract

Mobility Scooters highlights that collective actions must raise common issues, thus placing a focus on the variation in damages across claimants. The MasterCard consumer action highlights the challenge in taking a ‘top-down’ approach (estimating aggregate damages and only subsequently considering how to distribute that amount across individuals) and also the role of individual issues in collective actions. Retailers’ claims in MasterCard make clear the need for courts to pay careful attention to economic analysis, notably in the context of complex settings such as two-sided markets and in deriving counterfactual scenarios. The Consumer Rights Act 2015 (CRA) introduced a new collective action regime to the competition law landscape in the UK, including the ability to bring opt-out actions.1 The defining feature of a collective action is that the Competition Appeal Tribunal (CAT) can consider a collection of individual claims together rather than considering all aspects of every individual claim separately. The UK’s collective action regime aims to facilitate redress for claims that might not otherwise be brought, while avoiding aspects of the US class-action regime. The fact that it can accommodate both opt-in and opt-out claims means it represents a potentially dramatic change in the competition law landscape. Opt-out claims introduce new opportunities for redress for potential claimants and may markedly change the risks and exposure of defendants in cases taken in the UK. Moreover, other member states are likely to draw lessons from the experience and, while the European Commission recommended that member states have collective redress systems by 2015, its recommendation was that they should, as a general rule, be based on the ‘opt-in’ principle.2 The development of the UK’s new regime has therefore potentially very significant ramifications for the approach across Europe. Two cases have so far reached the stage where the CAT has been asked to certify whether the matter can proceed to trial on a collective basis, Mobility Scooters3 and the MasterCard4 consumer case. This article first reviews the core legal test described by the CAT for class certification and then considers the key economic issues at the heart of these cases. The cases relate to two very different types of infringement. Mobility Scooters was a claim following an OFT5 infringement decision that manufacturer Pride had entered into vertical arrangements with eight of its UK-wide online retailers which had as their object the prevention, restriction or distortion of competition in the market for mobility scooters by6 ‘prohibiting the advertising of below RRP prices online in respect of certain Pride mobility scooters between February 2010 and February 2012.’ In the MasterCard consumer case, the claim relates to a finding by the European Commission that the defendant acted unlawfully and in breach of Article 101 TFEU in establishing and implementing certain fees known as Multilateral Interchange Fees (MIFs), which retailers were required to pay on credit and debit card transactions. In addition to the consumer claim, the CAT considered whether an individual retailer suffered damages in Sainsbury’s v. MasterCard, and in the judgement by Justice Popplewell, the High Court addressed at least 12 other claims brought by retailers.7 The consumer claim argues that the MIF was passed on by businesses to all 46.2 million individuals who purchased goods and/or services from UK businesses that accepted MasterCard. To issue a Collective Proceedings Order (CPO),8 the CAT must be satisfied that there is some basis in fact9 which establishes that three individual certification requirements are met, namely:10 The claims must be brought on behalf of an identifiable class of persons The claims must raise ‘common issues’ The claims must be ‘suitable’ to be brought in collective proceedings The CAT describes the first requirement thus: (i) it must be possible to say for any particular person, using an objective definition of the class, whether that person falls within the class; and (ii) that the class should be defined as narrowly as possible without arbitrarily excluding some people entitled to claim.11 Common issues are defined as the same, similar or related issues of fact or law.12 In other words, claims can be efficiently collected together when the issues the court must decide are common to each of the claims. Although the claims must raise common issues, that does not require that all the significant issues in the claims should be common issues13 and the final resolution of the claims will often require the assessment of individual issues.14 It is notable that this aspect of the UK threshold for certification is potentially less restrictive to certification than the US class-action system where common issues must also predominate.15 The CAT Rules describe that assessing whether claims are ‘suitable’ to be brought in collective proceedings can depend on a wide range of factors.16 One aspect is whether the claims are suitable for an aggregate award of damages,17 including whether such an award can be distributed between members of definable subclasses.18 Using language familiar to US class certification discussions,19 the CAT has described that its approach to certification ‘should be rigorous.’20 In practice, the question is how much rigorous analysis can really be undertaken at the CPO stage when ‘[t]he approach under the UK regime of collective proceedings is intended to be very different [from the US], with either no or only very limited disclosure and shorter hearings held within months of the claim form being served.’21 There will clearly be tensions between the desire for a rigorous analysis at the CPO stage and the desire to limit pre-CPO disclosure. More generally, the UK courts have accepted that the quantification of an overcharge always involves estimation,22 and that difficulties in quantifying compensation are to be dealt with ‘by the exercise of a sound imagination and the practice of the broad axe.’23 That said, as Mr Alan Bates vividly described during the Mobility Scooters case, ‘a broad axe is very different from a sort of crazed axeman swinging out all over the place because you do not have the…proper parameters for the exercise.’24 Moreover, Justice Popplewell (while replacing a broad axe with a broad brush) drew an explicit link between the quality of evidence and the appropriate size of a damages award:25 ‘[W]here the court is compelled to use a broad brush in the absence of precision in the evidence of the harm suffered by a claimant, it should err on the side of under-compensation so as (a) to reflect the uncertainty in the actual loss suffered and (b) to give the defendant the benefit of any doubts in the calculation.’ In Mobility Scooters the consumer claim followed an OFT decision that certain vertical agreements infringed Chapter 1 of the Competition Act (1998) since they involved a prohibition on ‘below RRP advertising of online prices’ (BROPA). Claimants argued26 they were harmed by the infringing agreements because price competition was less intense since retailers did not advertise the lower prices they might have absent the infringement, and that retailers either advertised higher prices or they advertised no prices and directed online purchasers towards telephone sales channels—advising them to ‘call for better prices.’ The claimants proposed estimating the overcharge by calculating a weighted average price during the infringement period (February 2010–February 2012) and comparing it to a calculated weighted average price from the post-infringement period (March 2012–December 2014). Claimants argued that prices in physical stores fell on average after the infringement period by 16.2 per cent and attributed that fall to the removal of the infringement. They further asserted that the differential between the two distribution channels (physical stores and online) was the same during and after the infringements so that the overcharge to online customers could also be estimated (see Fig. 1). The competitive benchmark in Mobility Scooters.Note: Author's estimates based on information available in the Mobility Scooters judgement. However, the CAT judgement in Mobility Scooters makes clear that evidence of declining prices alone is insufficient. Instead, the claimant must establish that there is a basis for demonstrating that an observed fall in prices is attributable to the end of the infringements and not to other factors, that is, provide evidence of causality.27 The CAT considered whether any overcharge in Mobility Scooters was a common issue among purchasers. The defendant argued that (i) the loss suffered by each customer would depend on that individual’s purchasing and search behaviour and so the damage caused would not be common; and (ii) that any methodology which allowed damages to be estimated on a common basis would require knowledge of whether a given individual did search the market and/or would have searched the market in the counterfactual. The claimant accepted there was marked price variation across individuals since prices were individually negotiated, but argued that overcharge was nonetheless a common issue. The claimant asserted the extra amount customers paid as a result of the infringing agreements was sufficiently similar to mean overcharge was a common issue, whether or not a given individual paid, say, £1,000 or £750 for the scooter.28 The most significant element of the quantification argumentation during the CPO application in Mobility Scooters related to quantity not price. The relevant quantity depended on whether any overcharge resulting from the conduct was market-wide, or whether it was limited to at most the customers of the eight retailers with whom infringing agreements were signed.29 The claimants submitted that the BROPA prohibition made it harder for consumers to shop around for the best price, and that the infringing agreements meant the competitive pressure on other retailers was absent while the eight retailers (with collective market share of around 15 per cent of sales) were not insignificant.30 the sales an overcharge was thus a issue for This issue also a role in the CPO application since the CAT was required to the relevant claimant in the CPO and subsequently would be required to award any aggregate damages for each The to of customers by (i) sales online per cent of sales) physical stores per cent of and (ii) whether or not customers purchased a that was by an infringing The CAT did these alone could an aggregate damages award since it and is within them sufficiently The CAT was that a different of damage may be to who purchased from the eight retailers and sales from other The application for a CPO was thus with the that a CPO application could be made by the claimants. the claimants their application for a The CAT its judgement for the CPO application in the MasterCard consumer claim in considering the consumer claim for it is to first consider the related claims by retailers MasterCard. This first considers the economic issues in these cases to the particular for economic analysis in the MasterCard consumer damages were for the breach of Chapter 1 of and/or Article 101 TFEU by of the at which the UK Multilateral Interchange or was for MasterCard The CAT and Sainsbury’s million in damages The in below how in card the MIF is per cent and the is per the an for the will and the and the in a card card MasterCard the UK the CAT that to the of than to the of and that would a higher UK MIF have no to in in the can from any such and to the In the would no have a UK MIF and Interchange Fees would have to be between and UK MIF means would have a than in the However, in other the analysis of is In the analysis that (i) have they do not have to issue MasterCard to their have the to between MasterCard, and and (ii) have their must all rather than the sales for no This in should the resulting counterfactual price. It is that the CAT a benchmark from a of in to the on the other that a an would in price in to its only when the other side of the the had all of the In there is marked between the of the analysis of and its to an as the benchmark for counterfactual competitive prices absent the of 12 further claims MasterCard were brought Justice Popplewell in the High Justice Popplewell that the that the counterfactual was not Instead, the there were two potentially relevant the MIF (i) being to or (ii) being to the MIF less than actual MIF and to the court is under Article Justice Popplewell considered whether MIF should be held at its actual in the counterfactual. That might not be the case, for it were on the basis of the infringement decision MasterCard that actual were also that the claimants would need to establish that and were In MIF was then its actual should form of the counterfactual since for the counterfactual is the and the court conduct as and it is to be Justice Popplewell thus that there would be a differential between and MasterCard in the counterfactual. Moreover, counterfactual MIF were while MIF at its actual would have both the ability and to their of from towards and so card would competition from would the It was then a to with MasterCard that its MIF was since it was to the of the MasterCard as a The question of whether prices should be in the counterfactual is a general to consider that the prices by may be it will not always make to price counterfactual and when finding that price would lower in the counterfactual than it was in the The challenge is to how prices would have in a new counterfactual this case, a new in a two-sided market The economic of card prices is best considered within the of two-sided In two-sided the there are on the the is to the other Justice of the economic on two-sided markets is both and In two-sided competitive prices reflect the between they do not reflect the or from side of the competition between can to or no for and fees for This feature was by Justice Popplewell, who described with the benchmark in based approach is not in any of the as any sound and 2015 describe it as by any and as with the whether the judgement the analysis of the of two-sided markets into a the judgement argues that to so competition between card systems to higher that must to and would thus need to The challenge in a competition under Article 101 is to decide the of MIF in of the under and also Justice Popplewell a benchmark price and to it using the best available The analysis that both and of MIF were higher than actual MIF and Justice Popplewell that there was therefore no In the CAT described that the is in not a at the need to that a claimant is sufficiently and not by a the key question relates to the of the actual of the damages suffered by the In the actual of the damages in the CAT consider that the legal definition of a from that of the in two an might to and the is only with identifiable in prices by a to its customers the in price must be with the and The CAT to the tensions between the legal and economic of In the that (i) the or can relate only to identifiable price by a to its and (ii) the price should be each to in for the the definition of with that approach since is defined to which a given change in a given change in is defined The shop was considered by the CAT to whether there were between legal and economic The CAT that a shop at price them to at price and that there was a which the price of say, per of on the higher price to the in the form of the shop to its its The CAT the question of whether the are considered by an since they would not to its definition of In respect of this whether an it or this conduct to the harm suffered from the shop In the shop actions to damage to the damages suffered from the the damage to the actions damage the customers quality of being and there is an potential claimant the conduct the of the CAT a on such in and it would no be to establish in practice, the to to be potentially of such an the of in fact the actual of damage In the CAT the of in to on the its approach to as by a of under-compensation to it considers at least as as the of In the CAT only to on the of the defendant has that there class of claimant, of the in the to whom the overcharge has been passed the defendant that the is on the the of such a class, consider that a of the overcharge by it should not be or on this that under a of definition of which allowed for or this approach would need to be but only to the that the defendant would need to that there other of claimant, and of the in the to whom damage was the the would on the defendant to to the court that the to but not means the damage award should be The CAT and evidence on whether would have in to an overcharge on It that MasterCard had to its of in to the the range of by and the of by Sainsbury’s in it would be to say of the price of any given was attributable to the UK in its the CAT also that there was in respect of In following the claimant should be allowed to actual including a loss of the claim is and The CAT the UK MIF was a common to Sainsbury’s and its consider that a amount of the UK MIF would have been not in a which would have to a of the CAT that Sainsbury’s per cent of the overcharge and so it suffered damage from lower in the and than it would have had absent the infringement. In it on damages based on the of Sainsbury’s that Sainsbury’s did not raise any during the claim and that it was appropriate to award on per cent of Sainsbury’s damages the that were not passed The approach in these two aspects to but the in by defendant and The by Justice Popplewell and the CAT in Sainsbury’s provide context for the decision on whether the requirements for class certification were in the MasterCard consumer In the CAT had to decide whether all of the 46.2 million individual claims ‘common issues’ and were ‘suitable’ to be brought in collective the of the consumer claim, the a methodology which to at a of the aggregate damages award calculated The then proposed a for the aggregate damages across individuals in the aspect of the proposed methodology is in The submitted that the aggregate damages could be calculated by a methodology which involved (i) the of (ii) the and or In of the the proposed using to the of made by consumers using MasterCard credit and debit to businesses in the UK each during the claims the and the across each of of and debit and and the CAT it would be to for each of and the in to Popplewell, in the MasterCard consumer claim the overcharge was to be the between the MasterCard UK MIF and the counterfactual that would have been had there been no infringement, either no MIF at all or a lower of MIF which for under Article The of the relevant counterfactual the CAT be a significant issue in the the application were to In each the economic followed the approach accepted and by the CAT in Sainsbury’s by calculating a weighted average MIF and counterfactual in to the overcharge for each of the of the claim and for each of the of in the There was no that passed on the MIF to in the form of a the question was how much of the was passed on to individual customers The argued that as a matter it was appropriate to a but not over weighted average across the UK That said, the accepted under that will be by such as of and and of regime. The further accepted within broad there was a wide of businesses which may have different of so that for may not be the same as for and that some of the may also across the UK. a weighted average for the of the UK would clearly be the it should be possible on the basis of (a) information from the retailer claims actions (b) disclosure from and available The CAT it (a) the difficulties of from evidence on cases claims made by (b) the and that would disclosure from and the difficulties of and a weighted average were calculated based on the limited amount of available In the CAT that the proposed across the UK over a period of would be a complex exercise to a wide range of It also that a would have had to be made to whether such a is by are the test from the CAT was on the basis of the in of it that there were available for the proposed methodology to be on a sufficiently sound basis, so it was not satisfied that the claims were suitable for an aggregate award of 1 describes aspects of the application which the CAT described would be relevant for an individual claim and, in whether each issue is common across individual claimants. The CAT that the did raise common issues, but that it also issues which were individual in Common and individual issues in the MasterCard consumer claim between different of goods and services between different of in the of sales made by that paid for by card to since the lower the actual overcharge which it has to over the prices of its goods or services between different of goods and services between different of in the of sales made by that paid for by card to since the lower the actual overcharge which it has to over the prices of its goods or services Common and individual issues in the MasterCard consumer claim between different of goods and services between different of in the of sales made by that paid for by card to since the lower the actual overcharge which it has to over the prices of its goods or services between different of goods and services between different of in the of sales made by that paid for by card to since the lower the actual overcharge which it has to over the prices of its goods or services The methodology is not from the of individual claimants but rather is to be ‘top-down’ to the issues by to to of a for all claims. The CAT that this of approach can be but only there is a and means of to the of individual aggregate damage award would need to be distributed across The proposed calculating the aggregate loss on an basis for each of the in the claims period and it on an per basis among all the class members for that of who were in the UK and over the of in that However, when the were asked this by the they that the proposed no to the individual They for that individual would depend on much a given individual on as as across a range of other and so The CAT considered how a loss would be estimated in an individual action for It that since no individual can be to or the of would be on the basis of an assessment of and then a broad of how that was between and and between of It on to say in the is that there is no of a very of the loss suffered by each individual claimant from the aggregate loss calculated to the proposed The CAT that the of the individual issues of the from whom they and the of which they made it to how the to individuals could be on any The application for a CPO was the UK courts have considered the first two collective Mobility Scooters and the MasterCard consumer claim, as as significant related actions for The courts have been asked to consider such as overcharge and in agreements in Mobility Scooters and a two-sided market in MasterCard. In at the CPO application these collective actions have a focus on the and of the variation in damage across claimants. the CAT has the CPO in both of these first two opt-out it does not mean that other cases will not the CAT will need to to consider how a it should place on the claimant a CPO when such must be made on the basis of limited disclosure.