One aspect that is often overlooked, but is of enormous practical importance in competition damages cases, is the way a legal system deals with costs associated with the passage of time, as expressed through interest and inflation. Cartel damages generally are spread over a cartel’s lifespan, which can be long; furthermore, a considerable amount of time often elapses between the incidence of loss and the award of damages.

This paper – which can be found here – seeks to address a gap in the literature by describing how major legal systems deal with interest and inflation in the context of antitrust damage claims, what the consequences are of adopting certain approaches to interest and inflation for recoverable damage amounts, and whether these approaches are economically sound.

The paper is structured as follows:

The first section describes the main economic approaches to address the passage of time on damages awards and for selecting an appropriate interest rate. Four main measures are identified:

  • the risk-free rate – underlying this approach is the idea that the plaintiff has, in practice (though unintentionally), invested in an asset where the pay-out is equivalent to the loss plus “interest,” where the interest rate is the rate of return on the asset. The rationale for using the risk-free rate as the relevant interest rate arguably is that waiting for the damages award entails little or no risk to the plaintiff.
  • the defendant’s borrowing rate – use of the risk-free rate can be criticised on the grounds that the defendant could have gone bankrupt prior to paying the award, and that the claimant is therefore running a risk. Adopting the defendant’s borrowing rate for debt instruments of similar maturity to that of the damages award accounts for such default risk.
  • the plaintiff’s cost of capital or cost of equity – the interest measures described above can be criticised as assuming that a plaintiff made an investment that he would most likely not have made if he had not been deprived of the overcharge. However, the application of this hypothetical fails to fulfil the purpose of compensatory damages, namely to put the defendant in the position he would have been in had the damaging event not occurred. Proponents of using the plaintiff’s cost of capital argue that, had the injury not been incurred, the plaintiff would have invested the overcharge in its own business instead of granting (involuntarily) a credit to the defendant. In view of this (hypothetical) behaviour but for the cartel, the appropriate interest rate is the plaintiff’s cost of capital or cost of equity;
  • finally, a mixture of different types of approaches is conceivable. For instance, one might start by calculating interest at the defendant’s borrowing rate and treat the incremental cost of capital as consequential damages.

The second section pursues a comparative analysis that shows how economic discussions about the appropriate interest rate fail to match legal practice.

Legal approaches prefer simplicity and easy measurability of statutory interest to economic accuracy. Interest on damages is calculated by reference to standardized rates that reflect capital costs in the economy or of the plaintiff, and are sometimes deliberately increased to incentivize quick payment.

The paper identifies how the “cost of time” can be offset with three legal toolbox instruments, which may appear in several forms and can be applied individually or in combination:

  • granting interest – pre-judgment interest can take a number of forms between two extremes. On one end of the spectrum, the legislator may adopt a “legalistic” approach by excluding any judicial discretion (as in US, where no pre-judgment interest is allowed under Federal law, and the post-judgment interest rate is set; and in Germany, where a standard rate of five percentage points above the basic rate of interest applies). On the other extreme, virtually every aspect of pre-judgment interest may be left to the discretion of the judge.

A middle course between the two ends of the spectrum combines statutory interest rates (fixed or flexible) with judicial discretion concerning the point in time from which interest starts to run, as in the UK. To attempt to summarise a rather complicated set of rules:  courts theoretically having discretion to impose of pre-judgment simple interest – except for the CAT, which is subject to a maximum rate. However, it is accepted that the interest rate should reflect the commercial value of money, measured by the credit costs of a plaintiff with the typical characteristics of the plaintiff at hand. As a basic (“presumptive”) rule, the interest rate has commonly been set at 1 percent above a suitable base rate. If this is shown to be too low, which may be the case especially for small companies, about 2 to 3 percentage points are added to the base rate. From the time judgment is entered, the award carries interest at the rate on judgment debts pursuant to Section 17 of the Judgments Act 1838, which has been fixed at 8 percent since 1993. Lastly, common law allows a plaintiff to claim compensation for interest he actually paid as a consequence of his initial losses (interest as damages) – including compound interest.

  • by awarding consequential damages or resorting to other mechanisms with a de facto compensatory effect – Consequential damages are losses that were not caused directly by the damaging act, but by its consequences for the victim. Consequential damages are in principle indemnifiable in most legal systems where competition damages claims arise. For example, in the US victims are occasionally indirectly granted compensation for the passage of time until the judgment has been awarded by including in the damages calculation those economic disadvantages that result from the claimant having been kept out of money – e.g. by granting damages for lost opportunity costs of capital in addition to the claimant’s direct financial losses, inflation or interest on borrowed capital in the damages award. In the UK, two figures could be used to replace pre-judgment interest – namely, an order of (partial) interim payments and exemplary damages. In Germany, a claimant who has lost or had to pay interest at a rate above the statutory rate may claim such losses as damages. Lastly, while in France damages are determined at the time of the judgment, in principle the assessment encompasses all losses sustained until that date, including those caused by the delay between the violation and compensation – including for loss of chance (Note: again, this is technically also possible in England)
  • by accounting for inflation as part of the damages assessment – in practice, this turns out to be of little help for cartel victims. In the jurisdictions surveyed, inflation plays at most a very limited role in the assessment of cartel damages.

The third section simulates, based on a real-world dataset concerning the U.S. lysine cartel, the impact of differences in the ways the passage of time is taken into account. It looks at the damage awards that victims of a cartel with identical economic characteristics would obtain pursuant to English, German, French, and U.S. federal law. The authors develop two scenarios: one where damages are awarded quickly after the cartel, and one where damages are only awarded after a significant amount of time.

The paper concludes that the different approaches to the “cost of time” in the legal systems considered are far from equivalent. Instead, different approaches to the compensation of the passage of time since loss was originally suffered lead to enormous divergences in the damages that cartel victims can obtain for an identical competition law violation. The discrepancies are mainly due to diverging legal interest rates across jurisdictions. Second, the analysis shows that, with long-lasting proceedings, the discrepancy between trebled (initial) damages in the United States and single (initial) damages in the EU Member States is much smaller than commonly perceived. The reason for this surprising result is that EU legal systems effectively provide for more than double damages via pre- and post-judgment interest, while U.S. law pursues an exceptionally restrictive approach in this regard.


I really enjoyed this paper, which contains the most comprehensive review of the mechanisms that can be adopted to ensure that competition damages awards reflect the time-value of money I have seen, together with the European University Institute’s study on ‘EU Law and Interest on Damages for Infringements of Competition Law – A Comparative Report’ (2016).

While its main conclusion is that different approaches to “cost of time” are far from equivalent and may significantly impact final award amounts, there is another conclusion which I think merits more attention than what the authors devote to it: while there are different ways to take into account the time-value of money, they may nonetheless have equivalent effects. This may sound obvious. However, it implies that no individual mechanism for taking into account the time-value of money is per se better than others. A consequence of this it that it is hard to derive any normative conclusions about how best to structure a regime to take into account the time-value of money from a description of the various available regimes.

Furthermore, it is hard to compare different regimes accurately. For example, the authors say that it is specific to Germany that a claimant who has lost or had to pay interest at a rate above the statutory rate will be able to claim such losses as damages. They also describe claimants being able to ask for damages for loss of chance as typical of French law. With respect, both mechanisms are also available at least under English law (and I would be surprised if they were not available in some form or other in the other jurisdictions reviewed), so it is unclear why they may be said to be specific to Germany and France.

The point here is not to poke holes in the authors’ argument: it is merely to point out, if there are different ways to take into account the time-value of money in practice, this has serious implications for any analysis of whether a specific approach to calculating the “cost of time” is better than the others. In particular, it is hard to establish with any certainty whether a regime is better without taking into account all the possible combinations of mechanisms that may be deployed in a specific legal regime, which is an extraordinarily complicated exercise in practice – and a virtually impossible thing to assess empirically. It is thus unsurprising that the authors adopt simplified assumptions in their quantitative analysis. However, this means that, while the quantitative results they arrive may be interesting and relevant, they may also need to be taken with a pinch of salt.

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