The Broad Axe Falls — Granville v. LG

One of the very few UK cartel damages judgments was recently handed down in Granville Technology Group Limited and Others v. LG Display Co. Ltd. and Others [2024] EWHC 13 (Comm) (Granville v. LG). The judgment demonstrates the UK courts’ evolving approach to deciding follow-on damages claims, particularly with regard to the consideration of overcharge and downstream pass-on:

1. Overcharge: The English courts continue to use the “broad axe” principle when assessing overcharge. This approach allows the court to adopt an element of estimation and assumption in calculating damages in order to avoid an unreasonable insistence on precision to defeat a justified claim for compensation. This is a pragmatic approach to damages given the inherent evidential limitations often seen in follow-on damages claims.

A similar approach by the Competition Appeal Tribunal (the CAT) was recently upheld by the Court of Appeal in Royal Mail/BT.¹ In its February 27, 2024 judgment, the Court of Appeal dismissed all of the unsuccessful defendant’s grounds of appeal, noting that “criticism of this approach [namely wielding the broad axe on issues of overcharge] was unjustified” as the “CAT did not simply split the difference” but “made positive and reasoned findings as to the appropriate quantification of the overcharge” by applying the broad-axe principle in “precisely the sort of situation where wielding the broad axe is appropriate.”²

2. Demonstrating Pass-on: A lack of documentary evidence is not fatal to demonstrating that there has been pass-on of the price increases. Rather, the broad-axe principle enables parties to rely on a mixture of economic theory and factual evidence.

3. Broad Axe: In the calculation of pass-on, an estimation of the rate of pass-on will be made where necessary, taking into account all the available evidence.

4. Applicable Law: The court will look to substance and not to form when considering which country’s law should apply to a particular claim. It will assess the significance of factors connecting the case to England and Wales at a practical level.

Background

Granville v. LG is a follow-on damages claim arising from a cartel in the worldwide market for thin film transistor-liquid crystal display (LCD) panels. LCD panels are used across a range of electronic devices including computer monitors, laptop screens, and LCD televisions. On December 8, 2010, the European Commission issued a decision finding that a cartel had existed in the LCD market from October 5, 2001 to February 1, 2006.

Granville was a group of English companies which manufactured and/or sold devices with LCD panels. Granville bought LCD panels indirectly in pre-made parts or products from manufacturers which incorporated LCD panels in their designs. Granville sought damages to compensate them for (1) the overcharge suffered in purchasing products containing these LCD panels and (2) loss of profits to the extent it was held that Granville passed this overcharge on to their customers to account for sales lost due to the alleged overcharge.

Overcharge

In assessing overcharge, the court preferred LG’s regression analysis to Granville’s extrapolation approach³ finding that this was more reliable as it was able to take key variables into account, such as production costs, rather than simply assuming costs remained static during the relevant period.

Nonetheless, the court only accepted the results of LG’s regression analysis to a limited extent, finding different overcharge rates of between 4% and 14% depending on the product market — higher than those advanced by LG. The reason given for this was to avoid under-compensating Granville by failing to take into account the degree of uncertainty in LG’s economic analysis.

Evidencing Pass-on

The key question here was the extent to which Granville passed any overcharge on to their customers downstream. In Granville v. LG, this assessment was highly complex given the lack of documentary evidence and data to explain how Granville reacted and dealt with rises in input costs.

In the absence of such evidence, the court held that a party’s evidential burden in demonstrating downstream pass-on can be discharged via reference to “expert evidence based on economic reasoning, coupled with evidence of internal policies and approaches” (emphasis added). The court accepted that a degree of estimation will often be necessary when assessing the question of pass-on. On the balance of probabilities, the court assessed the level of downstream pass-on as 65%, taking into account the economic analyses presented and applying the broad-axe principle. However, the court held that increased prices would have reduced Granville’s sales volumes and concluded that the combined effect of downstream pass-on and lost sales resulted in a 30% decrease in damages.

Applicable Law

LG also argued that elements of Granville’s claim were subject to foreign laws. Some of Granville’s immediate upstream suppliers were located outside of England and Wales, and in some cases not even within the European Economic Area.

This line of argument was dismissed by the court on the basis that “the significance of the factors … which connect the tort to the EU, and, therefore, England and Wales, so outweighed the factors connecting the tort to the states where LCD screens were first put on the market … so as to make it substantially more appropriate for the applicable law to be the law of England and Wales.” Such factors included that Granville (1) conducted its business in England and Wales, (2) purchased the relevant products in or imported them into England and Wales, and (3) suffered any losses in England and Wales.

Conclusion

Final judgments on the merits of follow-on competition damages claims in the UK are rare, and this judgment provides useful guidance on the approach that the court will take to the application of the broad-axe principle in considering levels of overcharge, pass-on, and lost profits. The court applies a principled approach to the estimation of damages in circumstances where available evidence is limited in order to ensure that injured claimants are appropriately compensated.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.