Introduction
In December 2015 the Prague Municipal Court dismissed the private damages action brought by private railway passenger carrier LEO Express against publicly owned national incumbent Ceské dráhy (Czech Railways) due to a lack of evidence. LEO Express claimed that the incumbent operator implemented predatory prices in order to squeeze out competitors on the most heavily trafficked railway route in the Czech Republic (ie, the route between Prague and Ostrava). LEO Express sought damages in the amount of Kr419 million (approximately €15.5 million). This judgment may call into question the future of private competition law enforcement in the Czech Republic.
Facts
In September 2011 Czech Railways lost its monopoly over the route between Prague and Ostrava (the country's third-largest city) when Czech travel company and intercity bus operator Student Agency launched its RegioJet train service on this route. In November 2012 LEO Express entered the market as the third operator, and fierce competition emerged for passengers travelling between the Czech Republic's largest cities.
In its damages action, LEO Express argued that Czech Railways significantly reduced its ticket prices after the new competitors entered the market in order to match the prices of the privately held companies or push them out of the market. In addition, according to LEO Express, Czech Railways financed its losses on the Prague-Ostrava route from other subsidised routes (ie, it cross-subsidised its losses on the Prague-Ostrava route from its other state-subsidised routes).
In light of these facts, LEO Express cited the European Court of Justice's judgment in the case of Dutch chemical company Akzo Chemie,(1) according to which the court stated that a dominant company's only goal in pricing below average variable costs is to eliminate competitors, thereby enabling it to later raise its prices by taking advantage of its monopolistic position, since each sale generates a loss. According to LEO Express, the 64% reduction in the incumbent's prices was hard to explain by any other objective reason, such as Czech Railways' increased efficiency.
Therefore, LEO Express claimed that under Section 10 of the Czech Act on the Protection of Economic Competition and Article 102 of the Treaty on the Functioning of the European Union, Czech Railways was in a dominant position with a market share of over 40%. As such, Leo Express claimed that Czech Railways' pricing policy should be considered prohibited predatory pricing with the aim of eliminating competition on the railway route between Prague and Ostrava. Based on LEO Express's expert opinion, Czech Railways' anti-competitive behaviour caused LEO Express damages in the amount of Kr419 million (approximately €15.5 million).
Czech Railways claimed that it was not involved in any anti-competitive behaviour.
Decision
In its judgment, the Prague Municipal Court found against LEO Express. LEO Express has announced that it believes that the judgment was questionable and will therefore appeal. According to LEO Express, the judge failed to order an expert opinion to examine the economic management of Czech Railways. Instead, the court dismissed the action on the grounds of a lack of evidence.
LEO Express further commented that the Prague Municipal Court did not recognise the method used in LEO Express's expert opinion in relation to calculating Czech Railways' operational costs, based on which LEO Express reasoned the abuse of the incumbent's dominant position. In addition, the expert opinion submitted by Czech Railways was not based on Czech Railways' own data; instead, it addressed only the conclusions made in LEO Express's expert opinion. According to LEO Express, Czech Railways guarded its data so carefully that not even its own expert was granted access.
Other charges
The Czech Office for the Protection of Competition has now been dealing with charges against Czech Railways for three years. LEO Express and RegioJet have submitted claims to the office regarding the alleged abuse of Czech Railways' dominant position through predatory pricing. All of the competitors (ie, Czech Railways, LEO Express and RegioJet) have provided the office with several expert opinions. However, their conclusions differ, which may be why the office has not yet issued a decision.
The judgment in question may be crucial for Czech Railways, as it faces a similar damages action brought by RegioJet, which claims that it has also faced the same anti-competitive behaviour as LEO Express but for a longer period of time. As such, RegioJet has sued Czech Railways for damages totalling Kr717 million (approximately €26.5 million).
Comment
Although the judgment is not publicly available, the available information already raises the question of whether it might shed a negative light on the future of the private enforcement of competition law in the Czech Republic (for further details please see "Damages claims for infringing competition rules: higher chance of success?"). Only a few private damages actions have been brought before the court, most of which were unsuccessful because of a lack of evidence and disclosure issues. The case at hand also failed because of a lack of evidence and the unwillingness of the court to order an expert opinion that would require access to Czech Railways' books. A possible reason for these disclosure issues and the courts' hesitation in this regard might be a lack of expertise in the area of competition law on the part of the general courts. The results of LEO Express's appeal will thus be awaited with great interest.
For further information on this topic please contact Jitka Linhartová or Claudia Bock at Schoenherr by telephone (+420 225 996 500) or email ([email protected] or [email protected]). The Schoenherr website can be accessed at www.schoenherr.eu.
Endnotes
(1) See Case 62/86 AKZO Chemie BV v Commission [1991] ECR I-3359, paragraph 71. However, there may be rare cases where firms may price below average variable cost or average acquisition cost in order to minimise losses in the short run (ie, re-start up costs, strong learning effects or the sale of old stock, such as perishable inventory or phased out or obsolete products).
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
