On May 19, 2020, the Federal Court of Justice (“FCJ”) overturned a judgment of the Munich Court of Appeal in one of the numerous cartel follow-on damages actions brought against members of the so-called Rail Cartel (“Schienenkartell”), this time by the Munich Transportation Authority.[1]  The FCJ once more confirmed its decisional practice in the case of quota and customer protection cartels, according to which there can be no prima facie evidence that damages were incurred and/or whether individual purchase orders were affected by the cartel.[2]  The decision had to be reversed, for the Munich Court of Appeal had based its decision on such prima facie evidence.  Of particular interest is the FCJ’s reasoning on two other issues:

  1. Umbrella Damages

The FCJ reaffirmed that damages resulting from the so-called “umbrella effect”[3] can also constitute causal damage.  The FCJ found—in line with the Court of Justice of the European Union’s (“CJEU”) judgment in Kone[4]—that the autonomous price setting of a cartel outsider does not per se exclude the causal relationship between the cartel infringement and the damage incurred because the umbrella effect is a possible and foreseeable consequence of the specific cartel infringement.  However, in relation to possible cartel-induced price increases, the FCJ held that there can be no prima facie evidence of the existence (and quantum) of an umbrella effect.  In light of the competitive interaction of the market participants, the occurrence of such an effect always depends on a large number of economic factors and interdependencies, so that the typical sequence of events necessary for the assumption of prima facie evidence is lacking.

  1. Passing-On Defense

According to the FCJ, subsidies from a public-sector body generally need to be taken into account when assessing the merits of the passing-on defense, if the subsidies are causally linked to the event causing the damage.  In the present case, the Munich Transport Authority had received grants from the Free State of Bavaria which were dependent—also in terms of their amount—on individual procurement transactions by the recipient and were granted for specific purposes.  Claims for compensation for the damage passed on can and should therefore generally be asserted by the subsidy grantor—and not by the subsidy recipient.

The situation should be different, however, if the third party to whom the claimant is alleged to have passed on his loss (i) has assigned any claims against the defendant to the claimant, (ii) has notified the defendant of such assignment, and (iii) it is not possible that the damage could have been further passed on to the third party’s downstream customers.  According to the FCJ, in such a case, there is no need to set off any advantage received from the third party against the damage suffered by the claimant, since all claims are concentrated in the hands of the claimant and there is no risk of the defendant being exposed to double recourse.  It will be interesting to see whether this case law will also apply in other cases outside of subsidy cases where the different claims for damages within a “chain of damages” are bundled by assignment in one hand.

[1]               Schienenkartell IV (KRB 8/18), FCJ judgment of May 19, 2020, only available in German here.

[2]               For more details see our articles in our German Competition Law Newsletter February – April 2020, p. 3, available here; and in our German Competition Law Newsletter March – April 2019, p. 3, available  here.

[3]               I.e., damages allegedly suffered due to the surcharge applied by non-cartelists who, independently and rationally, adapted to a price increase resulting from a cartel by increasing their own prices.

[4]               Kone AG and Others (Case C-557/17), ECJ judgment of June 5, 2014, available here.