Judgment in NOS v PT (antitrust damages arising from margin squeeze): burden of proof too burdensome?

Miguel Sousa Ferro

Professor at University of Lisbon Law School and at Universidade Europeia. Counsel at Eduardo Paz Ferreira & Associados

The Lisbon Judicial Court has handed down its ruling that brings to an end – in the 1st instance at least – a battle between the two largest Portuguese telecom operators over a claim for damages allegedly arising from a margin squeeze by the incumbent in the broadband markets. The Court found that the plaintiff failed to sufficiently prove the cost structures required for a finding of margin squeeze.

The judgment of 22 November 2016 ends a 5 year-long judicial dispute whose roots go back to 2002. This case has been, and will continue to be, the source of fundamental lessons and food for thought for all those interested in antitrust private enforcement in Portugal, and possibly in the EU as a whole.

In October 2003, acting on complaints from wholesale clients of Portugal Telecom (PT), the Portuguese Competition Authority (PCA) opened an investigation into an alleged margin squeeze between the wholesale and retail prices of broadband internet practiced by the PT group (case PRC/2003/05). On 28 august 2009, it adopted a decision finding that the PT group had abused its dominant position, and imposed fines totaling EUR 53 million. This decision was annulled by the Lisbon Commercial Court, in October 2011, because the administrative sanction (“contraordenação”) had become time-barred.

Earlier in 2011, two of PT’s wholesale clients had filed follow-on actions. These actions ran separately, before different judges.

One of the cases - Onitelecom v PT (2271/11.8TVLSB) – was thrown out on the grounds that the claim was time-barred. The Lisbon Judicial Court (14 January 2013) and the Lisbon Appeal Court (31 October 2013) both applied the 3 years deadline of tort law to this claim, and found that it began to run on the day the plaintiff had filed the respective complaint before the PCA.

The other case – NOS v PT (1774/11.9TVLSB) – was saved from time-barring thanks to an ingenious procedural device. The court allowed an amendment of the application to make it so that the claim, or at least part thereof, could be seen as a declaration of nullity of contractual clauses and restitution of unduly paid sums, which is subject to a longer deadline. In total, with restitution and lost profits, the plaintiff sued for over EUR 10 million.

Several experts were appointed and their remuneration by the court was a particularly controversial issue, leading to an incident before the Constitutional Court (453/2015).

The judgment now handed down stands out in the universe of Portuguese antitrust private enforcement cases as an extensively researched and reasoned ruling. The Court closely followed the case-law of the ECJ and it provided useful clarifications on general issues such as the concept of undertaking and dominant position. But it was its application of the legal criteria for identifying a margin squeeze that merits closest scrutiny, for the practical difficulties it highlighted.

The issue is not whether the Court’s findings of facts were adequate, which is not for outsiders to say. Rather, those who read the judgment should wonder if the burden of proof on the plaintiff is not, in itself, too burdensome. At the end of the day, in this case, a large, sophisticated company, backed up by some of Portugal’s leading practitioners in competition law, was unable to persuade the Court that it had sufficiently proven the existence of an infringement that had already been identified by the PCA (in a decision annulled on appeal, on procedural grounds).

Several of the elements of cost of supply that needed to be identified only became available to the applicant through document disclosure after filing the action. By then, it was too late to allege the corresponding facts in detail. So either we change our understanding of the level of detail which needs to be alleged initially, and allow some of the blanks to be filled in later. Or, even after the transposition of Directive 2014/104/EU, whenever alleging infringements that have not been previously identified by a competition authority, much more attention will have to be paid by plaintiffs to presenting a complete set of facts and supporting evidence with their initial application. In legal orders with little tradition and practice of pre-trial discovery, this may be quite challenging.

This judgment may still be appealed.

To the best of my knowledge, NOS was represented by MLGTS and PT was represented by VdA.

For more information on this and other cases, see the ongoing research project “Portuguese Case-law in Competition Law”, of the University of Lisbon Law School.