Q&A: Effective use of expert witnesses in competition disputes
August 2019 | SPECIAL REPORT: COMPETITION & ANTITRUST
Financier Worldwide Magazine
August 2019 Issue
FW moderates a discussion on the effective use of expert witnesses in competition disputes between Miguel de la Mano, Thilo Klein, Frédéric Palomino and David Sevy at Compass Lexecon.
FW: Reflecting on the last 12 months or so, how would you describe the frequency and nature of competition disputes? What are some of the common sources of conflict?
Sevy: Competition disputes commonly arise from complaints regarding alleged abusive behaviour by a dominant firm – typically, below-cost pricing, loyalty discounts, bundling or refusal to deal that would exclude rivals – but also regarding coordination between several firms. The relative novelty in European jurisdictions is that damage claims following competition law infringements are more systematically launched before commercial courts. These claims can be triggered by competitors who state that they were harmed by unilateral conduct from a dominant firm. Claims also often arise from customers or suppliers alleging that a cartel’s conduct has caused them harm. There are also merger-related litigations targeting, for instance, ‘gun-jumping’ behaviour, or acquisitions that fell below the merger review thresholds set by competition agencies, yet are deemed anti-competitive. While it is difficult to single out clear trends from the last 12 months or so, because of the length of these proceedings, competition disputes are on the rise. Their unfolding largely relates to the various legal and evidentiary hurdles that need to be cleared before competition agencies and courts can deal with the substantive part of the cases. Document discovery and data access, for example, are common challenges in these types of litigation.
Palomino: There are two types of competition disputes, those before a competition authority – the European Commission (EC) or a national competition authority – and those before a court, in general a commercial court. The recent cases that I have worked on before a competition authority have been mainly related to infringement of Article 101 of the Treaty on the Functioning of the European Union (TFEU), including two that were related to the trading of financial products in over-the-counter markets. The cases I have worked on before commercial courts were follow-on claims.
De la Mano: In the past two years, competition disputes have extended to cover digital markets. Digitalisation has fundamentally altered the way data is generated, stored, processed, exchanged and distributed. In combination with the internet, digitalisation has led to the emergence of new possibilities and business models. However, a few ecosystems and large platforms have become the new gateways through which people use the internet. ‘Big tech’ platforms have entered and transformed virtually all sectors of the economy, including retail distribution, air travel, logistics, media, hotels, healthcare, taxi services and telecommunications. This has led to competitive tensions and resulted in intensified scrutiny by regulators and competition enforcers. In financial markets, cooperation between large financial institutions and FinTech start-ups is creating new opportunities and revitalising the sector. At the same time, the threat of entry by ‘big tech’ demands careful assessment by regulators. Competition disputes are likely to intensify significantly in the next few years.
Klein: The volume of competition policy disputes – understood as litigation between private parties in court – in Europe is at an all-time high for two main reasons. First, the European Damages Directive has made it easier for claimants to bring actions and has also raised the awareness of firms that they are entitled to compensation when they may have been victims of competition law infringements. Second, the EC’s infringement decisions in the trucks case have triggered an unprecedented number of follow-on claims. This is favoured by the circumstances of the trucks market. The demand side is very fragmented: tens of thousands of firms purchased trucks during the infringement period, and even for the smallest customers, the value of purchases has been sufficiently high to make action appear worthwhile. In addition to the jurisdictions that have traditionally been preferred by claimants, such as Germany, the UK and the Netherlands, there has been an exceptionally large number of claims in Spain.
FW: Could you provide some insight into when and how an expert witness may be deployed during a competition dispute?
Palomino: A distinction should be made between a case before a competition authority and a case before a commercial court, since the procedures are very different. Also, the situation differs depending on whether we consider the plaintiff side or the defendant side. On the plaintiff side, in a follow-on claim before a commercial court, an expert is often brought on board early in the case to estimate the damages suffered by the plaintiff. On the defendant side, there are different types of procedures and each may require involving an economic expert at a different stage of the procedure. For example, in a case before a competition authority, an undertaking may receive requests for information (RFI) before receiving a statement of objections. Depending on the type of information requested, having an economic expert on board when replying to the RFI can prove very useful.
De la Mano: Modern competition enforcement is built on economic principles and analysis. Essentially, a competition dispute turns around the competitive effects and economic impact of conduct by one or more dominant firms, agreements or mergers and acquisitions. It follows that economic experts are typically engaged as early in the procedure as possible. Economic experts rely on well-established techniques and methodologies to delineate the boundaries of the market in which the dispute takes place. In cartel or abuse of dominance cases, economists assess whether and to what extent one party’s actions have had negative effects on competitors, suppliers or customers and the economic mechanism through which such harm has been caused. Mergers typically require an assessment and comparison of two competitive scenarios in the future. Economic experts can develop economic models calibrated to the facts of the case to make predictions as to how competition will evolve with and without the merger.
Klein: In most jurisdictions, the burden in antitrust-related litigation is on the claimant to prove that damage occurred, and to estimate the quantum. Claimants therefore often file reports by expert economists very early in the process, for example with the claims notice. This then typically prompts defendants to present their own expert evidence, in order to critically assess the claim. In some jurisdictions, such as the UK, the assessment of quantum is preceded by a disclosure process, where expert economists may be deployed to identify the type of data and information required for an assessment of the quantum. Defendants often instruct economic experts already during the competition law investigations that prompt the follow-on litigation.
Sevy: Expert economists are brought into the administrative proceedings, particularly on unilateral conduct cases in which economics are a key component of how the disputed practices are characterised. The expert can help to articulate the ‘theory of harm’ – or deconstruct it – as well as assess the potential or actual effects of the disputed practices. Even at an early stage, the intervention of expert economists is important to ensure that the ‘theory of harm’ relies on sound economic principles, to handle properly relevant data, and to filter spurious claims and avoid deadlocks. Subsequently, the involvement of expert economists is essential in follow-on disputes, in which the legal assessment essentially builds upon the conclusions of the administrative proceedings whilst the damages quantification is a key issue to handle. The late involvement of an expert undermines the benefits of his support during the administrative proceedings and his acquiring an in-depth knowledge of the facts of the case beyond evidence which will be subsequently available through the court process. In addition, the lessons drawn from assessing actual or potential effects in the administrative proceedings can be very helpful in damages quantification, even if both exercises have different purposes.
FW: What benefits can an expert witness typically bring to a competition dispute?
De la Mano: An economic expert is instrumental to resolve the so-called identification problem that is pervasive in competition disputes. In many economic situations, observed competitive outcomes could be consistent with different explanations of what actions by market participants caused such observed effects. The economic expert can disentangle, or identify, the factors that directly or indirectly caused the observed outcomes, and dismiss those factors that had none or limited influence. For example, one may observe a sharp price increase by all competitors in a given market and speculate that this is due to an illegal cartel. However, the increase in prices may simply be a consequence of an increase in input costs that affects all producers at the same time. The expert economist can ‘identify’, based on observable facts, which ‘hypothesis’ is correct in any given case.
Sevy: Competition cases revolve around economic theories of harm that increasingly depart from a mere observation of the form of practices and move towards characterising their actual or potential effects, based increasingly on a thorough analysis of large datasets. The legal and economic analyses are intertwined, and the legal case largely rests on economic principles. When on the plaintiff’s side, an expert can assist in outlining a proper ‘theory of harm’ and ascertain what evidence will be key. When on the defendant’s side, an expert can help assess the merits of the adverse claim and how it ties with the available evidence. A proper articulation of theory with quantitative evidence, and conversely, is an essential part of competition disputes cases, particularly in sectors with novel business models and large stacks of data, as is the case in the digital economy.
Klein: The estimation of antitrust damages requires an assessment of the counterfactual market outcome, such as the prices and sales volumes that would have been obtained if the competition law violation had not occurred. This requires a deep understanding of how markets work and of empirical methods that allow an expert to forecast the counterfactual outcome from data on actual market behaviour.
Palomino: The benefits brought by an expert vary depending on whether the case is before a competition authority or a court. Most competition authorities have a team of economists that can assist the case handlers in understanding some of the economic aspects of a case. Before a court, the situation is different. First, an expert should have a pedagogical objective. They should explain to the judge how competition works in the market under consideration. Economic forces are at work, and so the consequences of anticompetitive practices are different, for example when there is competition for the market and competition in the market, or competition between firms operating in standard markets and those operating between multi-sided platforms. Second, an expert can bring a quantitative analysis. Using an effects-based approach, an expert witness can measure the effects of the practices under investigation by a competition authority or the damages suffered as a result of anticompetitive practices.
FW: How crucial is it to bring an expert witness on board early in the process? Can this ultimately prove to be a determining factor in the outcome of a dispute?
Klein: It is very important to engage expert economists early on, certainly before any court submissions of substance are made. We have been engaged in situations where parties had already submitted arguments that, on closer analysis, were inconsistent with the economic evidence. Having to change a line of argument halfway through a case can harm a party’s credibility. Moreover, a robust damages assessment requires a lot of data, often covering sales made many years ago. Identifying and extracting data from companies’ systems can take weeks, sometimes months. The expert also needs to develop a detailed understanding of the data, which takes time as it requires iterative communication with the client. Defendants would be ill-advised to delay the engagement of their expert until they have been hit with a claim. Clients are in a difficult position if they start gathering data only once the court begins setting deadlines.
Palomino: In general, the earlier experts are brought on board the better, particularly in cases before competition authorities where the time to respond to a statement of objection is short. Furthermore, involving an economic expert in a case at an early stage avoids the necessity of addressing statements that would not be confirmed by a quantitative analysis. For an estimation of damages, it also helps to have an economic expert on board at an early stage to coordinate the counterfactual scenario that should be considered.
Sevy: In the case of a complaint before a competition agency, the early intervention of an expert tends to strengthen the standing of the claim by ensuring it is based firmly on key facts and structured quantitative evidence. Some investigations are eventually dropped because they lack a sound economic narrative or a proper economic approach to the anticompetitive nature of a conduct. In damages litigation, experts are often called upon to handle the quantum of damages, which in follow-on disputes increasingly revolves around a variety of empirical methods that can be relatively sophisticated. Methodological guidelines issued by the EC and national courts have clarified their use and enhanced ongoing practices with respect to expert economic submissions. It is best practice to allow sufficient time to process data and implement those analyses, including checks about the robustness of their conclusions. Expert work is often used to support the parties’ strategy, for instance when considering whether and under what conditions one party should settle with the other.
De la Mano: It is absolutely crucial to bring in an economic expert as early on in the process as possible. First, the economic expert may be best placed to delineate the boundaries of the market, which is a first and crucial step to scope a competition dispute. For example, a claimant may need to show that it is active in the same market in which the defendant operates. Conversely, for a defendant, the easiest route to dismiss a case is to prove that it operates in a different and unrelated market to that of the claimant. Second, an expert economist, by setting the alternative hypothesis that explains observed outcomes, can help to scope the evidence that will be required to validate or invalidate, for example, a claim for damages. Take, for example, market share. In principle, market share is indicative of market power, but in certain circumstances other factors, such as reputation, experience, ability to innovate, access to essential resources, and so on, may be more determinative. Expert economists deployed early on can focus the investigation on what really matters and help avoid rabbit holes.
FW: In your opinion, what general characteristics should parties seek when looking to identify and retain a suitable expert witness in this space? How important is the impartiality and independence of an expert witness, for example?
Palomino: Impartiality and independence are of extreme importance. The role of an expert is to provide guidance to the judge, in a case before a court, or to a board, in a case before a competition authority, so that they are fully informed when making their decision. The ability to explain economic and financial concepts in a very pedagogical way is a characteristic that parties should consider carefully when choosing an expert.
Sevy: The impartiality and independence of an expert witness is crucial for a variety of reasons. Over the course of the expert’s work, he or she will be confronted by challenges from other parties and will be required to share the data and programmes underlying any empirical analyses. In these circumstances, the credibility of an expert suspected of obvious biases would be severely undermined. Equally, impartiality and independence are undoubtedly essential when testifying as an expert witness. Furthermore, the expert is expected to undertake his analysis in accordance with sound and widely accepted economic principles, insofar as economic theories play a key role in competition investigations. In contrast, in many cases, significant sectoral experience is helpful but not necessarily essential – at least not if the expert is properly exposed to the relevant sector facts in due time. In Europe, competition disputes tend to involve aspects of both administrative and judicial proceedings. Therefore, experience on both grounds – before agencies and in courts – is also helpful to bridge the reasoning behind decisions taken by administrative bodies with the issues and facts that are relevant to the court’s own assessment.
De la Mano: Impartiality and independence are necessary and non-negotiable. In complex economic disputes, the courts, regulators or enforcers have little choice but to ignore or dismiss expert economic testimony if they have reason to doubt the integrity and credibility of the expert. Beyond that, parties should look for experts that score high on the three ‘A’s: access, ability and affability.
Klein: Impartiality and independence are, of course, very important as they determine an expert’s credibility, vis-à-vis the court. In addition, clients should look for technical ability and communication skills: the best analysis may prove ineffective if it is not presented in a way the court can follow.
FW: Once an expert witness has been identified, what steps should parties take to ensure the witness is adequately prepared?
Sevy: One needs to ensure that an expert witness is aware of the facts of the case, since their analysis will need to tie closely with those facts. This requires granting the expert access to information in a manner that allows them to build their own judgment independently, without a pre-screening of available evidence. Understanding the factual industry background and the strategy of the firms involved is very helpful and requires direct exchange with clients. However, it is also advisable to let the expert first work his way through the information and data, to form his own judgment without prejudice. This is also the path that officials or judges may follow when instructing the case. In litigation cases, I find it is preferable to have a well-defined mandate that delineates where my expertise is required and ensures I am called upon to opine on topics that I can legitimately discuss.
Palomino: First, a distinction should be made between oral testimony and written testimony. In some jurisdictions, a judge who has already read a written report may decide that he does not need to hear expert witnesses. Also, some jurisdictions have cross-examination, while others do not. Furthermore, the preparation is different in each case. In cases with cross-examination, a mock cross-examination can assist preparation.
FW: Are there any challenges or pitfalls involved in engaging an expert witness during a competition dispute? How can these be minimised or avoided?
De la Mano: The main risk is for a party to withhold important but contradictory evidence from its own economic expert. Later in the process, all the available facts are likely to emerge. They may be uncovered by the administrative authority or advanced by adverse or third parties. If the evidence contradicts or casts doubt on the expert’s methodology, analysis or testimony, that analysis will likely be dismissed, even if the conclusions are still correct.
Klein: It is important that the expert gains access not only to the data needed for the analysis they are instructed to perform, but also to all other evidence, including non-data evidence, such as company documents and witness statements, being filed. For a robust and credible assessment, they will need to know the full picture. Parties must be prepared to accept results that are less favourable than they had hoped for. It would be counterproductive to try and push arguments that are not supported by the evidence and sound analysis. This undermines the credibility of the expert and, ultimately, of the party’s case.
Sevy: The independence and impartiality of an expert could be perceived as a potential challenge for the advocacy elements of the case, as they are expected to hinge on the expert findings. Those findings may be found to diverge from the premise on which the case was initially built. However, a cogent economic analysis is essential for the case to withstand scrutiny. This is also a compelling argument for involving an expert early in the process, to ensure that the economic analysis and advocacy progress in tandem and maintain consistency. In addition, this can provide freedom to offer agencies or courts helpful material and a compelling interpretation of evidence throughout the process, and avoid being prisoner of a mandatory submission schedule.
FW: What trends and developments do you expect to see fuelling competition disputes in the months ahead? Are expert witnesses set to play a key role in the resolution of these disputes?
Palomino: The development of follow-on claims will continue. More complex disputes may also emerge as the digital economy and activities based on the use of multi-sided platforms develop. Economic forces at work in such activities are less straightforward to explain than in more standard markets, and so may require the involvement of experts. Also, increased data availability will allow more advanced quantitative analysis.
Sevy: There are many factors vindicating an increased flow of competition disputes. Firstly, competition agencies are under public scrutiny because of presumed underenforcement, leading to increased concentration and hikes in prices and profit margins in several sectors, at the expense of public interest. This underenforcement concern affects the digital sector particularly, in which more enforcement is expected and competition concerns will receive a stronger echo. There is a call to adopt longer-term views and innovative theories of harm which, together with increasingly complex business models, will require adaptations to economic analysis. Secondly, ongoing massive follow-on damages cases, such as trucks, will set the stage for many more to come. These cases will set some important precedents regarding documentary evidence, access to data, and standards of proof that raise issues which are currently being debated. This includes collective actions, where the implementation conditions still require clarifications in several European jurisdictions.
Klein: In Europe, the trucks litigation will continue to occupy the courts for a considerable time to come. New claims are being filed every day, and in some countries the action is only just starting. We are also increasingly observing antitrust litigation cases related not to cartel behaviour, but to abuse-of-dominance infringements. The litigation against Google in the area of shopping comparison services is one example. Expert witnesses will certainly play an important role here as the counterfactual analysis in abuse cases tends to be more complex than in cartel cases.
De la Mano: Digitalisation of our economies is having a profound effect on our lives. Unsurprisingly, it is also challenging old, established principles of competition enforcement. For example, the evolution of technology has made it possible for companies to collect, store and use large amounts of data. Data is not only one of the key ingredients of artificial intelligence, but also a crucial input to many online services, production processes and logistics. The competitiveness of firms thus increasingly depends on timely access to relevant data. On the one hand, the broadest dissemination and use of data by the greatest number of firms would seem to be desirable. However, the efficiencies of broad data dissemination must be balanced against several other policy concerns, such as the need to ensure sufficient investment incentives for firms to collect and process data, the need to protect business secrets and privacy where personal data is concerned, and the possible collusive aspects of data sharing.
Over the last 15 years, Miguel de la Mano has been closely involved in dozens of in-depth merger and antitrust investigations, at the fact-finding, analysis and decision-making stages. He has defended the European Commission in several court proceedings and provided economic testimony to EU Courts in high-profile antitrust and merger cases. He has written articles on EU competition policy and financial market regulation, with the aim of shaping and guiding EU enforcement and policymaking. He can be contacted on +32 2 274 22 75 or by email: email@example.com.
Thilo Klein has more than 15 years’ experience as an economic consultant, during which he has advised clients from a wide range of industries, in all fields of competition policy and in a variety of jurisdictions, including the European Union, the UK, Germany, Austria and countries in Eastern Europe and Scandinavia, among others. He has advised on numerous merger cases both before the European Commission and in other jurisdictions and regularly acts as an expert in antitrust-related litigation. He can be contacted on +49 (21) 1882 42236 or by email: firstname.lastname@example.org.
Frédéric Palomino has advised clients on a wide variety of competition policy issues, covering sectors as diverse as energy, agri-food, transport (air, rail and road), telecommunication, financial services, daily newspaper and travel agencies. He has advised clients in merger or antitrust cases at the European Commission level and at the level of the French competition authorities, as well as other jurisdictions. He can be contacted on +33 1 53 05 36 21 or by email: email@example.com.
David Sevy is an executive vice president in the competition policy group of Compass Lexecon Europe and heads its Paris office. With close to 20 years of consulting experience, he has advised clients on a wide variety of competition, litigation and arbitration issues, in close to 150 cases. He has submitted expert work and provided expert testimony before the European Commission, as well as the French, Belgian, UK, Swiss, Romanian, Maltese and Polish competition authorities. He can be contacted on +33 (1) 5305 3620 or by email: firstname.lastname@example.org.
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