Supreme Court rules that litigation funding agreements are ‘damages based agreements

 

Supreme Court rules that litigation funding agreements are ‘damages based agreements’

By a 4 to 1 majority, the Supreme Court has upheld an appeal by truck manufacturer DAF challenging the litigation funding agreements (LFAs) in two separate follow-on collective claims against members of the EU trucks cartel.  The judgment renders those arrangements unenforceable until certain conditions are met.

At the heart of this case is the definition of a damages-based agreement (DBA), derived from one legislative context  - the Compensation Act 2006 (the CA 2006) - and its use in a different legislative context (section 58AA of the Courts and Legal Services Act 1990 (CLSA 1990)).

Section 58AA(1) and (2) CLSA 1990 provide that a DBA will be unenforceable unless certain conditions are satisfied. Shortly after the insertion of section 58AA, the Damages Based Regulations 2013 (the "DBA Regulations 2013") came into force. These set out further requirements which must be satisfied if a DBA is to be enforceable. It is accepted that the LFAs in this appeal would not satisfy these conditions.

The relevant part of the definition of DBA in this appeal, pursuant to section 58AA(3), is whether the LFAs involve the provision of “claims management services".

The Court held that claims management services are capable of covering LFAs when “read according to their natural meaning”.

As a result, the claimants’ funding arrangements fall under the scope of the DBA Regulations 2013 since damages-based funders provide “client management services” and would be paid based on how much the tribunal awarded as damages.

The judgment has been seen as a setback to the burgeoning litigation funding industry.  Existing and future collective competition claims within the scope of the judgment will need to structure their funding arrangements to be compliant.

It may be questioned whether LFAs where the funder’s return is not linked to the damages awarded will be immune from the same strictures.  However the court noted that the 2013 Regulations defined “claims management services” as providing advice “or other services in relation to the making of a claim” and gave this a wide construction.                              

Early reactions to the judgment suggest, however, that the judgment – though unwelcome – will not sound a death knell to the growing body of funded collective competition law claims.  Funding agreements will need to be revised to reflect the ruling but certain of the more prominent funders in the industry have reacted to say the judgment will not stem their appetite to fund a claim with merit. 

While the highest court in the land has ruled on the issue, this may not be the end of the matter. But reversing this position would require legislative change.

R (on the application of PACCAR Inc and others) (Appellants) v Competition Appeal Tribunal and others (Respondents) [2023] UKSC 28

Microsoft to face new European Commission investigation in to bundling of Teams

 

Microsoft to face new European Commission investigation in to bundling of Teams

As the European Commission and other competition and regulatory bodies intensify their interest in the technology sector, Microsoft is facing a new antitrust probe into bundling of its Office products with its Teams services.

Media reports, including in the Financial Times, have suggested that a formal probe could be launched as early as the coming week, if suitable remedies cannot be found.

The Commission’s antitrust concerns follow a complaint first made by Slack in 2020, now part of Salesforce.  German supplier Alfaview has raised similar concerns. The complaints allege that Microsoft has abused its dominant position by bundling of the two services – Office and Microsoft Teams – such that rival suppliers of video conferencing services cannot compete on the merits where users have the bundle of services automatically installed on their devices.

This is not the first time that Microsoft has faced antitrust scrutiny over bundling practices. 

The General Court’s 2007 decision upheld the Commission’s 2004 decision that Microsoft had unlawfully tied its Media Player (“WMP”) with the Windows Operating System (WOS) thereby foreclosing innovation and limiting consumer choice. The case involved technical tying through the technical integration of one product (WMP) into another (WOS).  Four years after the Commission’s 2004 decision, it fined Microsoft EUR899 million for failure to comply with the part of the decision that required Microsoft to licence its interoperability information for a reasonable fee.

A second major competition law probe in relation to Microsoft concerned an allegation of foreclosure contrary to Article 102 on the basis that Microsoft was tying its browser (Internet Explorer) to the WOS. Rather than the case being resolved with an infringement decision under Article 7 of Regulation 1/2003, Microsoft offered commitments under Article 9.  These involved commitments to (1) make available a mechanism in its Windows 7 (and subsequent) operating systems within the EEA enabling Internet Explorer to be turned off and on; and (2) to distribute a software update to EEA users of WindowsXP, Windows Vista and Windows 7 to introduce a Choice Screen to give consumers a choice of competing web browsers.  No fine was imposed to resolve the Commission’s investigation but in 2013 Microsoft was fined EUR561 for violating its commitments.

Microsoft is understood to be in discussions with the Commission to seek to resolve the pending investigation.

Case COMP/C-3/37.792 Microsoft, decision of 24 March 2004

Case T-201/04 Microsoft Corporation v Commission [2007] ECR II-3601

Case COMP/39.530 — Microsoft (Tying), decision of 16 December 2009

US Court allows Microsoft/Activision transaction to proceed while UK appeal is on hold

 

US Court allows Microsoft/Activision transaction to proceed while UK appeal is on hold

A US Court has refused a request by the Federal Trade Commission (FTC) to temporarily restrain Microsoft’s acquisition of Activision.

Meanwhile, the merging parties are understood to be renewing discussions with the UK Competition and Markets Authority (CMA) regarding a possible solution.

The US District Court for the Northern District of California rejected the FTC’s claim that the acquisition by Microsoft of Activision would provide it with the incentive to denigrate the quality of games such as Call of Duty.  In refusing to grant the preliminary injunction, the judge concluded that there would be “no foreclosure of Call of Duty” if the deal is not immediately blocked. The judge found “the merger will enhance, not lessen, competition in the cloud-streaming market.”

The judge has made some modifications to the temporary restraining order to expire on 14 July unless the FTC obtains a stay pending an appeal to the US Court of Appeals for the Ninth Circuit. The deadline to close the transaction is currently 18 July. 

In April 2023 the CMA had prohibited the transaction outright finding that no remedies could be found to avert the substantial lessening of competition that it found.  The UK’s Competition Appeal Tribunal was due to start hearing an appeal against that decision on 28 July.  In a turn of events following the US Court judgment, the CMA has agreed to a stay of the appeal of its prohibition decision. This is intended to allow for discussions to be renewed regarding possible structural fixes.

Case No. 23-cv-02880-JSC:  https://storage.courtlistener.com/recap/gov.uscourts.cand.413969/gov.uscourts.cand.413969.305.0_4.pdf

Seven potential gatekeepers submit notifications under EU Digital Markets Act

 

Seven potential gatekeepers submit notifications under EU Digital Markets Act

The European Commission has received notifications from seven companies who consider that they qualify as "gatekeepers" under Article 3 of Regulation 2022/1925 on contestable and fair markets in the digital sector (Digital Markets Act (DMA)).  

The Commission received notifications from Alphabet, Amazon, Apple, ByteDance, Meta, Microsoft and Samsung.  More notifications are likely to follow.  The Commission could also fine companies up to 1% of their global revenues for not complying with the notification obligation or for providing incorrect or misleading evidence in the designation process. The  Commission can also designate companies that do not meet the quantitative criteria as gatekeepers following a market study.

The DMA became fully applicable on 2 May 2023.  It sets out rules that designated gatekeepers need to comply with, including prohibiting gatekeepers from engaging in certain practices.

Potential gatekeepers that meet the thresholds established in the DMA had until 3 July 2023 to notify their core platform services to the Commission.   

The Commission has 45 working days (until 6 September 2023) to make an assessment as to whether these undertakings meet the thresholds and to designate them as gatekeepers.

Following their designation, gatekeepers will have six months to comply with the requirements in the DMA, at the latest by 6 March 2024.

https://digital-markets-act.ec.europa.eu/potential-gatekeepers-notified-commission-and-provided-relevant-information-2023-07-04_en