Fact-checking the German Chamber of Commerce and Industry’s (DIHK) position statement on ‘Collective Enforcement of Rights: Limiting Strategic Lawsuits and Regulating Litigation Funding’

Antitrust (collective) actions are expensive, which means that third-party funding is necessary for consumers and qualified entities seeking compensation for harm caused by infringements of competition law. National implementations of the Representative Actions Directive have brought competition law under their scope. Germany has done so indirectly by extending the representative actions mechanism to civil claims brought by consumers more generally, while France has done so expressly by referring to Articles 101 and 102 TFEU.

In this context, early last month, the German Chamber of Commerce and Industry (Deutsche Industrie- und Handelskammer, DIHK) published a statement pointing to what it sees as risks and dangers involved in collective actions and the respective third-party funding transactions used to finance them. Well, given the risks and dangers that this topic therefore comprises, a fact-check of the most serious assertions put forward in such a statement is a worthy endeavor. After all, according to the DIHK’s statute, it must perform its public tasks in accordance with principles including public interest orientation, objectivity, expertise, completeness, participation, internal pluralism, and neutrality.

Let’s start with the first paragraph of the statement, especially the antepenultimate and last sentences:

“The interests and risks faced by individual businesses and the economy as a whole are seldom heard, even though these tools pose significant dangers and potential for misuse. A key driver is the option to have claims externally funded by litigation financiers. Transparency requirements are lacking, as are guidelines about the source of funds or investors' influence possibilities. This greatly challenges party equality in litigation ("equality of arms"). Litigation financiers and funded litigants currently operate in a nearly unregulated space.”

The assertion that “transparency requirements are lacking, as are guidelines about the source of funds or investors' influence possibilities” is not true. Article 10 Representative Actions Directive establishes transparency safeguards on funding of representative actions. National courts in the EU are empowered to order disclosure of all litigation funding arrangements pertaining to representative actions and, if such arrangements are found to be non-compliant with the applicable rules, the court can deny standing to the organization bringing the case (Article 10(4) Representative Actions Directive). Furthermore, to even become a qualified entity authorized to bring cross-border actions, an organization must comply with transparency requirements with regard to its funding arrangements (Article 4(3)(e) and (f) Representative Actions Directive). Accordingly, the Directive provides robust safeguards against opaque funding in representative actions.

Likewise, the assertion that “litigation financiers and funded litigants currently operate in a nearly unregulated space” also needs to be considerably nuanced. With regard to litigation financiers, while it is true that strong regulation of litigation funding is not the standard approach in the EU, the Commission study on mapping third-party litigation funding in the EU, conducted under the auspices of the European Commission, found that “in the vast majority of EU Member States, TPLF legislation exists but is mostly limited to consumer collective redress”. So, though light-touch regulation still indeed prevails, convincing evidence of the added value of a stricter regime would need to be provided as a basis for legislative changes. The Commission study does not provide conclusive evidence that comprehensive or stringent regulation would produce net benefits, and the DIHK’s statement does not make a single reference to such a study, which inevitably leads us to question the empirical basis of the assertions contained in the statement.

Finally, with regard to funded litigants, it is not true that they operate in a “nearly unregulated space”. Article 4 Representative Actions Directive imposes strict standing requirements on organizations for them to become qualified entities, and the respective application needs to pass the scrutiny of the designation process of the competent national authorities. Accordingly, both claims of near-total regulatory absence are overstated and insufficiently supported by the available legal and empirical evidence.

Now, moving on to the third paragraph of the statement:

“With the so-called directive on Representative Actions or Collective Redress, the European legislator has established a framework to introduce a new collective action instrument across the EU. Currently, there is widespread consensus that both the directive at the European level and its German implementation in the form of the Verbraucherrechtedurchsetzungsgesetz (VDUG) require significant improvements”.

We were unable to find any evidence on “consensus” that the Representative Actions Directive requires “significant improvements”. While individual instances of criticism exist, only a sufficiently aligned body of independent studies could legitimize an assertion around “widespread consensus”. To our knowledge, such a body of independent studies does not currently exist.

The fourth paragraph of the statement argues as follows:

“This primarily concerns the low thresholds (for example, missing minimum registration duration in the list of qualified consumer associations and an excessively low consumer quorum). Furthermore, the scope of the collective redress action should not be extended to additional EU legal acts. Instead, the current catalogue needs to be reviewed to determine to what extent its scope should be limited to clear legal positions, as legal uncertainty must not be at the expense of obligated companies, undermining Europe's competitiveness in the global market. Companies reject collective actions for the enforcement of the GDPR or related non-material damage claims as prone to misuse”.

The assertion that the Representative Actions Directive lacks a minimum registration period in the list of qualified consumer associations is misleading. It is true that such a minimum registration duration does not exist but, to become a qualified entity in the first place, an organization must “demonstrate 12 months of actual public activity in the protection of consumer interests prior to its request for designation” (Article 4(3)(a) Representative Actions Directive). The paragraph above was drafted in a way that would prompt the reader to believe that inexperienced organizations are allowed to become qualified entities, which is clearly not the case as per Article 4(3)(a) Representative Actions Directive. Moreover, some Member States have added further layers of safeguards on this specific point. For example, Italy goes beyond the Directive’s minimum for domestic representative actions, requiring three years of continuous activity. Portugal retains the 12-month threshold for designation, but applicants must submit activity reports covering the previous two years.

The fifth paragraph of the statement argues that:

“From the perspective of the majority of the business community, the option of employing a legal funder must be categorically ruled out for collective lawsuits. This is because in such scenarios, even if the collective lawsuit is successful, those affected are not awarded full compensation. A significant proportion of their damages (20 to 50%) would be transferred to the legal funder. The high return expectations of legal funders are not part of the damages to be compensated within collective lawsuits and must not be at the expense of those affected”.

The competence to define remuneration limits for litigation funders lies with Member States. In Germany itself, such a limit is set at 10%. So, though dependent on national law, such remuneration can be limited to what a given Member State considers proportionate. The statement tries to make it look like a “20 to 50%” remuneration basis is a standard phenomenon by default, which is misleading. Actually, a lot of very differentiated remuneration models exist for litigation funding, sometimes below 10% of the claimed value.

The sixth paragraph of the statement argues as follows:

“Moreover, third-party financing that involves profit interests bears a high potential for abuse, which cannot be counteracted solely by transparency regulations. In particular, the combination of collective lawsuits and legal funding paves the way for strategic actions designed to force companies into negotiations despite lawful behaviour, compel changes in business conduct or financially harm them due to the necessity of defending against such claims. In Germany, companies—especially those in innovative sectors—are increasingly held liable for lawful actions (e.g., through the 11th GWB Amendment), placing disproportionate burdens on entrepreneurial activity. Similarly, the risks of civil liability under the EU Supply Chain Directive are concerning.”

By contrast, the safeguards contained in the Representative Actions Directive and its national transpositions – such as requirements concerning the designation of qualified entities, restrictions on and oversight of litigation funding, and opt-in requirements for redress – create significant obstacles to collective actions and litigation funding, particularly in Germany. Recent judgments of the German federal courts, including the Sammelklage-Inkasso judgment in the truck-cartel litigation, have likewise created considerable difficulties for claimants seeking to rely on litigation funding. Germany is widely regarded as a relatively unattractive forum for collective redress, especially for collective competition or DMA redress. Consequently, the concern underlying the statement’s reference to the Eleventh Amendment to the GWB is unfounded. Moreover, given that the civil-liability provisions of the EU Supply Chain Directive are being weakened by the Omnibus I simplification package, this can hardly constitute a major concern either.

The eighth paragraph of the statement argues as follows:

“EU regulations on litigation financing should aim to ensure that equality of opportunity in litigation emerges in the area of collective actions. This requires at least the transparency of agreements with litigation financiers for all parties to the litigation, and third parties must not gain any influence over the litigation. A judicial approval of third-party financing upon, including a substantive review regarding immorality, would be desirable.”

Article 10 Representative Actions Directive already empowers national courts to order the disclosure of litigation funding agreements and prohibits providers of third-party litigation funding from influencing the direction of representative actions.

Overall, the statement seems to reflect more a policy desire of the DIHK than any kind of attempt to seriously participate in the public debate around collective actions and litigation funding. Though businesses have good reasons to put forward their concerns on the matter, some of which are indeed legitimate, that must be done in good faith. Misleading the public about the content or existence of legal provisions or pretending that a claim has more evidential support than it actually has is not the way. As mentioned above, the DIHK’s statute states public interest orientation, objectivity, expertise, completeness, participation, internal pluralism, and neutrality as values that DIHK should pursue in its public tasks. We are far from convinced that this statement abides by such principles.