Re-imagining private damages actions in Chile

Javier Tapia, over at Regulación y Competencia has written another insightful post about the TDLC’s recent ruling in the Tecumseh case. As those of you keeping score at home already know, Tecumseh involved allegations of price-fixing between Whirlpool SA and Tecumseh Do Brasil Ltda, the major suppliers in the Chilean market for low power compressors used in the manufacture of refrigerators. The competition tribunal–known by its Spanish acronym as the TDLC–found that beginning in 2004, both companies began to participate in a global cartel, as well as a regional cartel that directly affected the Chilean market. The case was notable here in that it was the first instance in which a cartel participant (in this instance, Tecumseh) has taken advantage of the FNE’s recently-implemented leniency program and admitted its involvement in an unlawful conspiracy, and provided the competition authorities with information regarding the scheme, in exchange for a fine reduction. (Previously both Whirlpool and Tecumseh had confessed to other competition authorities–in the U.S., Canada, the European Union and New Zealand–to having colluded.) In this case, because Tecumseh was the first in line to approach the FNE and to provide the required assistance, it was eligible to receive a complete exemption from any fines under the leniency program guidelines.

In addition to fines, Article 30 of the Chilean competition law (Decreto Ley 211) allows for damages actions to be brought by private litigants before ordinary civil tribunals based on “las conductas, hechos y calificación jurídica de los mismos” established in a TDLC sentencia.Reading the Tecumseh decision from the perspective of a U.S. lawyer who has been on both sides of consumer class actions (though never in the same case), there are some findings that seem to go a long way towards establishing harm to Chilean consumers as a direct result of the cartel. However, as Javier’s post points out, for consumer claims in a case like Tecumseh to be viable, several open questions under Chilean law, like the pass-on defense and indirect purchaser standing, need to be resolved. While Article 30 has been rarely used to date, I have heard several attorneys here express the view that private damages actions are likely to increase in frequency, so answers to these questions may come sooner rather than later.

This leads to another question, namely whether additional private damages actions–on an individual or collective basis–would be beneficial for Chilean consumers, the Chilean legal system in general, and competition law enforcement in particular. In the U.S., private treble damages actions date back to the enactment of the Sherman Act in 1890. According to a recent submission by the American Antitrust Institute, nearly 20 times as many private antitrust actions were pending in the federal courts in the late 1970s as actions filed by the U.S. Department of Justice. In 2011, private antitrust cases in federal court outnumbered civil and criminal actions initiated by the U.S. government by more than 25 to 1.

At least two distinct rationales have been advanced in support of vigorous private enforcement of the antitrust laws in the U.S.:

  • First, private antitrust enforcement allows for more effective detection and deterrence of anticompetitive conduct. Government enforcement agencies have limited resources available for the detection of anticompetitive conduct. Moreover, according to this argument, a private business or individual who has incurred losses from a violation of the competition laws may be in a better position, and have better information, to enforce those laws than public agencies, and indeed have the greatest incentive to do so.
  • Second, private damages actions provide compensation to those affected by unlawful conduct, and prevent wealth transfers to firms with market power.

At the same time, the U.S. system has been harshly criticized for its many perceived abuses, such as lawyer-driven class actions that provide lucrative attorney’s fees but obtain scant benefits for overcharged purchasers and that often follow government enforcement actions, thereby adding little by way of detecting antitrust violations. Moreover, private firms may have an incentive to use the antitrust laws strategically, to block competitors or extort settlements from successful competitors, thus harming rather than promoting competition.

Javier posits an interesting proposal for Chile:

[S]i tuviéramos la posibilidad de modificar el DL 211, ¿por qué no pagar compensaciones con lo recaudado de las multas? Esta solución sería, por cierto, probablemente impopular entre quienes se benefician de las acciones ante tribunales civiles, incluyendo no sólo a abogados y economistas, sino también a la “ciudadanía empoderada”. Y sería negativa para quienes tienen la convicción que las acciones privadas ayudan en el “castigo”. Sin embargo, con un diseño adecuado, una reforma en este sentido quizás ayudaría a obtener las indemnizaciones debidas sin darle otro combo a nuestro aún alicaído programa de leniency.

I am definitely interested in hearing more about this idea, particularly how he would propose addressing the resource constraints that seem endemic to almost any government enforcement agency. I see that as a not insignificant issue, but also not one that is insurmountable. Perhaps, for instance, a percentage of any damages recoveries could be returned to the agency to fund enforcement efforts, or some mechanism could be put in place to leverage the resources of private entities who may have been harmed by the anticompetitive conduct and therefore have the most to gain from a successful enforcement action. While such an approach would have other weaknesses as well (don’t they all?); nevertheless, a fascinating “ejercicio de imaginación” that should make for some fun conversation.


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