Umbrella Effect within the Framework of Private Competition Enforcement

January 2017 Eda Uludere
% 0

Introduction

Undertakings in various levels of the chain of distribution, as well as with end-consumers, may incur damages from anti-competitive conduct by other undertakings. The concept of private enforcement of competition laws is aimed at recovery of such damages, along with losses of profit and accrued interest as regulated under Art. 57, et seq, of the Act on the Protection Competition numbered 4054 (“Competition Act”). The corresponding piece of legislation in the European Union’s acquis communautaire is Directive 2014/104/EU on Certain Rules Governing Actions for Damages under National Law for Infringements of the Competition Law Provisions of the Member States and of the European Union (“Directive”)[1].

The damages caused by a certain, anti-competitive conduct that results in artificial price increases are often discussed within the vertical chain or from the viewpoint of the competitors; whereas, the concept of umbrella effect concerns the damages beyond these categories. In other words, it entails the liability of members of a cartel for the price increases they have caused in the general market – more specifically, the purchasers of their competitors. Although neither the Competition Act, nor the Directive, include any explicit provisions with regard to the so-called “umbrella effect,” it was discussed by the European Court of Justice (“ECJ”) in its Kone decision, and in several decisions of the US courts, which we will elaborate on further, below.

Concept

The damages resulting from a competition law infringement are often, and more traditionally, incurred by competitors, suppliers, and purchasers of the infringing undertakings. The widespread harm caused by the anti-competitive conduct also affects another category: the purchasers of the competitors of the infringers. This last group of purchasers is called “umbrella purchasers.” In other words, when its competitors form a cartel to illegally set higher prices, the undertakings that originally do not participate in such cartel tend to maximize their profits by responding with increased prices (also known as “umbrella pricing”), which eventually cause harm to their purchasers.

It has been pointed out that when an undertaking is faced with increased prices[2] as a result of anti-competitive conduct in the market, it is expected to employ one of two strategies. Such undertaking may either leave its price below the cartel price, or it may adapt to such price by increasing its own price. The second and more preferred strategy is more frequently observed when the cartel’s market share is larger, the product homogeneity is higher, and the supply elasticity of the non-infringing undertaking is lower[3]. However, even though it conforms to the higher “umbrella” price, such undertaking may or may not be aware of a cartel that is present in the relevant market[4]. In this instance, the non-infringing undertaking simply benefits from the umbrella that has been opened by the cartelists; however, it does not participate in the anti-competitive conduct, itself. It needs to be emphasized that the competitors of the cartel members do not violate competition laws by adapting their prices unless their conduct amounts to tacit collusion. In order for the adaptation to market conditions to be considered a tacit collusion, an exchange of price information must exist that will enable the price-increasing undertakings to coordinate their behavior beyond legal market conduct[5].

By way of umbrella pricing, the competition law infringements gain impact beyond the direct or indirect purchasers of the cartel members; they also cause harm to the purchasers of other players in the market. Hence, as far as the incurred damage is concerned, the purchasers of the non-infringing undertakings are not in a different position than that of cartel members. This is also the case for the purchasers of substitute products, since any price increase in the cartelized goods or services results in increased demand for their substitutes[6].

Within the framework of private competition law enforcement, the umbrella effect becomes relevant when the purchasers of the non-cartelized undertakings who were overcharged because of umbrella pricing claim their damages from the members of the cartel. There are certain conditions for the umbrella effect to be a basis for a claim for damages. Firstly, the umbrella effect only occurs when the anti-competitive behavior entails an increase in prices in the market; therefore, mere exclusionary conduct does not give way to umbrella effect, as it would not result in increased prices in the market to which other competitors may adapt. Secondly, the second-stage price must be a result of the cartel prices applied by cartel members, in other words, no other factor must be present, but for the umbrella effect that would result in the price increases. Lastly, the claim of damages must be directed towards the cartel members. It must be emphasized that the claimants of this suit are the purchasers of the competitors of the cartelists, and not the competitors themselves[7].

Application in the EU and the US

The applicability of the umbrella effect has been widely discussed by the EU and US doctrines, and opposing views are adopted by the case law in each jurisprudence. The ECJ seem to accept the claim for damages resulting from umbrella pricing; whereas, the US courts do not favor them. The position taken by the EU courts is specifically important as the Directive, in contrast with its explicit regulations on the passing-on defense and indirect purchaser rule –other highly debated issues of private competition enforcement- does not regulate the issue of the umbrella effect.

The first thorough elaboration on the umbrella effect by the EU courts happened when the matter was referred to the ECJ as a preliminary question in Case C-557/12, Kone and others v ÖBB-Infrastruktur AG. In 2007, several undertakings were imposed monetary fines by the European Commission and the Austrian Kartellgericht for forming a cartel in the installation and maintenance of the elevators and escalators market. Later on, ÖBB Infrastruktur Aktiengesellschaft, a subsidiary of the Austrian Federal Railways, brought a follow-on action against the cartel members seeking compensation for its elevator purchases.

However, the claimant also claimed damages for its purchases outside the cartel, and a preliminary question was referred to the ECJ, solely, for this part of the whole claim. According to the respondents, there was no adequate causal link between the damage and the anti-competitive conduct, and such claim fell outside of the protective scope of the norm. Upon such referral, the Advocate General Kokott stated in her opinion delivered on January 30, 2014 that in fact, there was an adequate causal link present in the case at hand, so that the damages claimed were foreseeable by the cartel members, and that it runs counter to the practical effectiveness of competition laws if the national laws categorically deny seeking compensation for damages resulting from umbrella pricing[8].

The judgment[9] followed AG Kokott’s reasoning, by recalling the principles governing the right of any person to claim damages for the harm caused by a contract, or conduct liable to restrict or distort competition. The ECJ also discusses its decisions Courage[10] and Manfredi[11], wherein it confirmed that the EU competition laws produce a direct effect in the relations between individuals and creates rights “which the national courts must safeguard.[12] In sum, the ECJ ruled that even though pricing behavior would seem purely autonomous, based on economical rationality, a causal link between the cartel and umbrella pricing cannot be excluded[13]. In other words, the ECJ confirmed AG Kokott’s view that the umbrella effect was not to be categorically denied.

On the other hand, the US courts employed a completely different solution with regard to the umbrella effect. In general, the US implementation of private competition enforcement requires the claim to be directly linked to the competition violation, as well as being clearly observable. Thus, the claims resulting from umbrella effect have not yet been upheld by the federal courts. To be more precise, in its decision, Mid-West Paper Products Co v Continental Group[14], the US Court of Appeals ruled that benefits arising from an umbrella transaction caused by a cartel do not flow to the cartel members, but to the non-infringing competitors of the cartel members. The Court viewed that when thought along with the possibility of treble damages, the broadening of the scope of the claimants would lead to ruinous liability by stressing that multiple treble compensations would be a form of “overkill recovery.”[15] Similar to the Mid-West Paper Products decision, the In re Coordinated Pretrial Proceedings in Petroleum Products Antitrust Litigation[16] decision, the Court stated that the umbrella effect would lead to complexities in quantification and distribution of damages, and result in an increased risk of duplicative recoveries. In the light of the foregoing, it can conclusively be said that the recovery of damages resulting from umbrella pricing is not permitted under US law.

Application under Turkish Law

 The Competition Act does not include an explicit provision with regard to umbrella pricing, and the Court of Cassation is yet to form a jurisprudence that would shed light on the applicability of such concept under Turkish law. However, it must be borne in mind that the causal link is one of the conditions for tort liability to arise, which shall be proven by the claimant. Therefore, the adequate chain of causality as proven by the purchasers of non-cartelized competitors needs to put forward that the price increase in the market is a consequence of anti-competitive behavior. Looking at the EU counterpart as an example for future implementation of the umbrella effect, it may be concluded that such recoveries may be allowed given that the causal link and the damage is proven through conclusive evidence. Further, the existence of claiming treble damages as observed in the US sets the Turkish competition law apart from that of the EU, which should be taken into consideration in order to determine the protective scope of the competition rules.

Conclusion

The umbrella effect has been the center of scholarly debates due to it raising serious concerns with regard to the condition of causal link for tort liability and the notion of foreseeability it entails. Lately, the damages claims on umbrella effect grounds are seemingly favored in the EU, although they have long been rejected in the US. As Turkish private competition enforcement is a hybrid system which was drafted based on the EU law example, despite allowing treble damages, the question of umbrella damages remains a matter to be resolved either by a legislative initiative or jurisprudential interpretation.

[1] Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union.

[2] It must be added that the umbrella effect would similarly be the case of instances of decreased output, instead of increased prices.

[3] Franck, Jens-Uve. Umbrella Pricing and Cartel Damages under EU Competition Law, European Competition Journal, Vol. 11 No 1, p. 136.

[4] Maier-Rigaud, Frank. Umbrella Effects and the Ubiquity of Damage Resulting From Competition Law Violations, Journal of Competition Law & Practice, 2014, Vol. 5 No. 4, p. 249.

[5] Franck, p. 138.

[6] Şahin, Eda. Şemsiye Etkisi Nedeniyle Zarar Görenlerin Tazminat Taleplerinin Avrupa Birliği Rekabet Hukuku Bakımından Değerlendirilmesi: Kone Kararının Yansımaları, Rekabet Dergisi 2014, 15(2), p. 92.

[7] Şahin, p. 93.

[8] Opinion of Advocate General Kokott, para. 83.

[9] Case C-557/12, Kone AG and others dated June 5th, 2014.

[10] Case C-453/999 Courage Ltd v Bernard Crehan and Bernard Crehan v Courage Ltd and others.

[11] Case C-295/04 to C-298/04 Vincenzo Manfredi and others.

[12] Schreiber/Savov, Kone v. Commission, Umbrella Damages Claims, Journal of European Competition Law & Practice, 2014, Vol. 5 No. 8, p. 549.

[13] Schreiber/Savov, p. 550.

[14] The US Court of Appeals, Third Circuit, March 29th, 1979, Mid-West Paper Products Co v Continental Group.

[15] Franck, p. 142.

[16] 691 F2d 1335 (9th Cir. 1982).

All rights of this article are reserved. This article may not be used, reproduced, copied, published, distributed, or otherwise disseminated without quotation or Erdem & Erdem Law Firm's written consent. Any content created without citing the resource or Erdem & Erdem Law Firm’s written consent is regularly tracked, and legal action will be taken in case of violation.

Other Contents

A Recent CAS Decision in the Scope of European Union Competition Law: FIFA vs. Agents
Newsletter Articles
A Recent CAS Decision in the Scope of European Union Competition Law: FIFA vs. Agents

At the meeting of the Fédération Internationale de Football Association (“FIFA”) held on 16 December 2022, the FIFA Council approved the FIFA Football Agents Regulations (“FFAR”). In the FFAR, various amendments have been made, such as the introduction of a maximum service fee limit that football agents are...

Competition Law 30.09.2023
CJEU Judgment in Super Bock: New Insight on Resale Price Maintenance
Newsletter Articles
CJEU Judgment in Super Bock: New Insight on Resale Price Maintenance

Resale Price Maintenance (RPM) is still considered a hardcore restriction under the recently revised Vertical Block Exemption Regulation (VBER), which means that it cannot benefit from a statutory exemption under Article 101(1) TFEU, unlike certain other types of vertical agreements. However, it has been debated...

Competition Law 31.07.2023
The Relationship Between Economic Entity and Family Ties in Light of Competition Board Decisions
Newsletter Articles
The Relationship Between Economic Entity and Family Ties in Light of Competition Board Decisions

In competition law, it is important to accurately determine the concept of undertaking, especially in terms of mergers and acquisitions. Therefore, the concept of economic entity aims to reveal the economic units covered by the undertakings. The relationship between the concept of economic entity and family ties comes...

Competition Law 31.07.2023
A New Breath of Fresh Air for Competition Investigations from the Constitutional Court
Newsletter Articles
A New Breath of Fresh Air for Competition Investigations from the Constitutional Court

In these days when the Competition Board (“Board”) frequently imposes administrative fines for preventing on-site inspections and both the Competition Authority (“Authority”) and undertakings take legal and technical measures regarding on-site inspections, a striking development has occurred. In its decision...

Competition Law 30.06.2023
Competition Law Practices in the Online Advertising Market
Newsletter Articles
Competition Law Practices in the Online Advertising Market

Online advertising has become an important source for businesses for promoting products and services and meeting consumers, as a result of the rapid development of information technologies and increase in the use of internet. Delivering targeted messages to consumers at the right time through the digital...

Competition Law 30.06.2023
Selective Distribution Systems
Newsletter Articles
Selective Distribution Systems

Selective distribution systems refer to a type of distribution system in which suppliers commit to selling the contracted goods or services directly or indirectly to distributors selected based on specified criteria, while the distributors commit not to sell the said goods or services to unauthorized...

Competition Law 31.05.2023
Final Sector Inquiry Report of the Competition Authority Regarding Fast-Moving Consumer Goods Retailing
Newsletter Articles
Final Sector Inquiry Report of the Competition Authority Regarding Fast-Moving Consumer Goods Retailing

Fast-moving consumer goods is undoubtedly one of the sectors that the Competition Authority has been working most intensively since the COVID 19 pandemic. Among the most important developments of this period was the Sector Inquiry initiated on Fast Moving Consumer Goods (“FMCG”) Retailing...

Competition Law 30.04.2023
Constitutional Court's Evaluation of the Competition Board's Authority to Conduct On-Site Investigations
Newsletter Articles
Constitutional Court's Evaluation of the Competition Board's Authority to Conduct On-Site Investigations

In the decision of the Constitutional Court ("Constitutional Court" or "Court") dated 09.11.2022, numbered 2020/67 E. 2022/139 K. (the "Decision"), the annulment of certain articles of the Law Amending the Law on the Protection of Competition No. 4054 ("Law No. 7246") was requested...

Competition Law 30.04.2023
Gun Jumping in Turkish Competition Law
Newsletter Articles
Gun Jumping in Turkish Competition Law

In Turkish competition law, certain types of mergers and acquisitions are subject to Turkish Competition Board’s (“Board”) approval in order to gain legal validity. Pursuant to Article 7 of the Law No. 4054 on the Protection of Competition (“Law No. 4054”), the Board is competent to define mergers and acquisitions...

Competition Law 31.03.2023
The Problem of Returning the Data Obtained as a Result of Unlawful Notification in Light of the Competition Board Decision
Newsletter Articles
The Problem of Returning the Data Obtained as a Result of Unlawful Notification in Light of the Competition Board Decision

Recently, the Competition Board (the Board) had imposed administrative fines on banks and financial institutions for failing to respond to the request for information within the scope of a preliminary investigation.[i] The request for information that lays the groundwork for the administrative fine imposed by...

Competition Law 28.02.2023
The European Commission Accepts Amazon’s Commitments
Newsletter Articles
The European Commission Accepts Amazon’s Commitments

Amazon, a world-famous company, is an e-commerce company that operates the world’s largest online shopping platform. In the backstage, Amazon is a data-driven company whose retail decisions are mostly driven by automated systems, fueled by the relevant market data. That being said, Amazon has a dual...

Competition Law 31.01.2023
Deletion of WhatsApp Correspondence During On-Site Inspections
Newsletter Articles
Deletion of WhatsApp Correspondence During On-Site Inspections

The right to make on-site inspections is one of the Competition Board’s (“Board”) most important tools for revealing whether Law No. 4054 on the Protection of Competition (“Law No. 4054”) has been violated. The effective use of this authority is quite important in terms of obtaining fruitful results from...

Competition Law 31.10.2022
Amendment on the Regulation of Electronic Commerce: “The Fire of Mount Doom”
Newsletter Articles
Amendment on the Regulation of Electronic Commerce: “The Fire of Mount Doom”

“Harese” is an interesting Arabic word. There is a thorn that camels love very much in the desert. The camel eats the thorn with great greed. So much so that, its mouth bleeds as it eats, but it doesn't stop eating. The taste of the thorn is mixed with the salty taste of its own blood. This mixed taste drives the camel...

Competition Law 30.09.2022
Turkish Competition Board Fines Digiturk
Newsletter Articles
Turkish Competition Board Fines Digiturk

Turkey’s leading pay television service provider, Krea İçerik Hizmetleri ve Prodüksiyon A.Ş. (“Digiturk”), is frequently the subject of complaints made to the Competition Authority (“Authority”). In fact, the Competition Board (“Board”) issues a new decision about Digiturk almost every year. In these decisions...

Competition Law 30.09.2022
The French Competition Authority’s Decision on Meta’s Commitments
Newsletter Articles
The French Competition Authority’s Decision on Meta’s Commitments

The French Competition Authority (Autorité de la Concurrence), within the scope of the competition law proceeding initiated upon the complaint of Criteo SA (“Criteo”), accepted the commitments proposed by Meta Platforms Inc., Meta Platforms Ireland Ltd., and Facebook France...

Competition Law 31.07.2022
A Different Approach to Monetary Fines for Hindering On-Site Inspection: The Decision of the Ankara II. Administrative Court
Newsletter Articles
A Different Approach to Monetary Fines for Hindering On-Site Inspection: The Decision of the Ankara II. Administrative Court

While the scope of Competition Board’s (“Board”) power to conduct on-site inspections has increased with the introduction of Guidelines on Examination of Digital Data during On-site Inspections (“Guidelines”), nowadays the amount of monetary fines imposed on undertakings continue to...

Competition Law 31.07.2022
Hub and Spoke Cartel in Comparative Law
Newsletter Articles
Hub and Spoke Cartel in Comparative Law

The hub and spoke cartel, which is a relatively new type of violation in terms of Turkish competition law, is defined as the indirect exchange of information between two independent undertakings which are horizontal competitors on the supplier or retailer level, through another undertaking...

Competition Law April 2022
The First Settlement Case in Turkish Competition Law
Newsletter Articles
The First Settlement Case in Turkish Competition Law

The settlement mechanism has only recently been introduced to Turkish competition law practice. It entered into force with the amendment made to the Law on the Protection of Competition (“Law”) numbered 4054 on 16.06.2020, and has been in effect for less than two years. In this relatively...

Competition Law April 2022
The E-Marketplace Platforms Sector Inquiry Final Report and What It Brings
Newsletter Articles
The E-Marketplace Platforms Sector Inquiry Final Report and What It Brings

Due to their increasing share in the economy and rapid growth rate, e-marketplace platforms have come under the increasing scrutiny of the Turkish Competition Authority (“Authority”) as well as many competition authorities around the world...

Competition Law April 2022
Amendments Introduced to the Communique Concerning the Mergers and Acquisitions Requiring Competition Board’s Approval
Newsletter Articles
Amendments Introduced to the Communique Concerning the Mergers and Acquisitions Requiring Competition Board’s Approval

Pursuant to the Amendment Communiqué Concerning the Mergers and Acquisitions Requiring the Competition Board’s Approval (“Amending Communiqué”) published in the Official Gazette dated March 4th, 2022 and numbered 31768, certain amendments have been introduced...

Competition Law March 2022
A New Glance at Online Sales: The Competition Board’s BSH Decision
Newsletter Articles
A New Glance at Online Sales: The Competition Board’s BSH Decision

The Competition Board (“Board”) has recently published a reasoned decision in which it evaluated BSH Ev Aletleri Sanayi ve Ticaret A.Ş.’s (“BSH”) request for negative clearance or exemption with regard to its practice of prohibiting authorized dealers from making sales through online marketplaces...

Competition Law March 2022
E-Marketplace Platforms Industry Review Preliminary Report Part 2: “Shahmaran’s Story”
Newsletter Articles
E-Marketplace Platforms Industry Review Preliminary Report Part 2: “Shahmaran’s Story”

Shahmaran, a Mesopotamian myth, is believed to take place in Tarsus. According to the myth, the shah of snakes is the immortal and omniscient "Shahmaran." Shahmaran is described as a beautiful woman living in her cave with her snakes...

Competition Law February 2022
Online Sales Within The Framework Of Competition Law
Newsletter Articles
The Effects of the Recent Decision by the Turkish Competition Board on Market Chains and Their Suppliers
Newsletter Articles
The Effects of the Recent Decision by the Turkish Competition Board on Market Chains and Their Suppliers

During the COVID-19 pandemic, competitive concerns about the pricing behavior of chain markets, manufacturers, and wholesalers engaged in the retail trade of food and cleaning supplies led to an investigation by...

Competition Law January 2022
On-Site Inspections in Light of the Recent Decisions of the Competition Authority
Newsletter Articles
On-Site Inspections in Light of the Recent Decisions of the Competition Authority

When the past decisions and the recent decisions of the Competition Board (“Board”) are examined, a significant increase can be observed in the number of decisions where the Board found hindrance or obstruction of on-site inspections. This situation shows that...

Competition Law December 2021
The European Commission Fines Banks for Participating in a Forex Cartel
Newsletter Articles
The European Commission Fines Banks for Participating in a Forex Cartel

The European Commission began investigating the collusive behavior of Credit Suisse, UBS, Barclays, RBS, and HSBC in the Foreign Exchange (forex) spot trading market in 2019. With the recent press release dated 02.12.2021, the Commission announced that the case is now closed...

Competition Law December 2021
Hub and Spoke Cartels
Newsletter Articles
Hub and Spoke Cartels
Competition Law November 2021
E-Marketplace Platforms Industry Review Preliminary Report Part 1: “Captain, an object is approaching”
Newsletter Articles
E-Marketplace Platforms Industry Review Preliminary Report Part 1: “Captain, an object is approaching”

Digitalization, in particular, necessitates the rewriting of competition law rules. Competition law is at the center all questions regarding e-commerce and digital platforms. The aforementioned platforms, which have become prominent due to innovations in...

Competition Law November 2021
Coca Cola’s Commitments in the Recent Competition Investigation
Newsletter Articles
Settlement Regulation Enters into Force
Newsletter Articles
Settlement Regulation Enters into Force
Competition Law July 2021
Competition Law Concerns Regarding Human Resources Practices
Newsletter Articles
The New Cartel Decision of the Competition Board
Newsletter Articles
The New Cartel Decision of the Competition Board
Competition Law September 2020
Amendments in the Law on the Protection of Competition
Newsletter Articles
Setting Legal Grounds for On-site Inspections
Newsletter Articles
Evaluation of COVID 19 Outbreak in Terms of Turkish Competition Law
Newsletter Articles
The File of Sahibinden.com; A Phoenix Story
Newsletter Articles
The File of Sahibinden.com; A Phoenix Story
Competition Law February 2020
Final and Interim Decisions of the Turkish Competition Board
Newsletter Articles
Second Stage in Facebook File
Newsletter Articles
Second Stage in Facebook File
Competition Law September 2019
European Commission’s Foreign Exchange Spot Trading Cartel Decisions
Newsletter Articles
Expected Second Half of Competition Authority’s 12 Banks Decision
Newsletter Articles
Turkish Competition Board’s Sahibinden.com Decision
Newsletter Articles
Recent Developments in Abuse of Dominance Concerning Online Platforms
Newsletter Articles
New Horizons in Competition Law; Diesel Emissions Scandal
Newsletter Articles
Recent Developments in the Right of Access to Files
Newsletter Articles
Cards are being redistributed in the Turkish Beer Market
Newsletter Articles
The Recent Motor Vehicles Insurance Decision of the Competition Board
Newsletter Articles
Selective Distribution Systems under the Light of Coty Decision
Newsletter Articles
Competition Authority’s Sector Inquiry Report on Television Broadcasting
Newsletter Articles
Excessive Pricing
Newsletter Articles
Excessive Pricing
Competition Law June 2017
Amazon Decision and E-Book Commitments
Newsletter Articles
Amazon Decision and E-Book Commitments
Competition Law June 2017
Tüpraş Decision and the Rebate Systems
Newsletter Articles
Tüpraş Decision and the Rebate Systems
Competition Law September 2016
Important Reason in Terms Of Share Transfer Restrictions
Newsletter Articles
Booking.com Decision
Newsletter Articles
Booking.com Decision
Competition Law January 2017
Price / Margin Squeeze
Newsletter Articles
Price / Margin Squeeze
Competition Law November 2016
Recent Problems in Electricity Distribution Sector: ELDER Decision
Newsletter Articles
Intellectual Property Rights As Capital in Kind
Newsletter Articles
Right To Request Information Of The Shareholders in Joint Stock Companies
Newsletter Articles
Affected Market
Newsletter Articles
Affected Market
Competition Law August 2015

For creative legal solutions, please contact us.