Public consultation on the ASSESSMENT OF THE PLANNED COHERENT EUROPEAN APPROACH TO COLLECTIVE REDRESS PUBLIC CONSULTATION PAPER

Rue d Arlon 50 1000 Brussels www.eucope.org Telephone: Telefax: E-Mail: +32 2 282 04 75 +32 2 282 05 98 office@eucope.org Date: April 29 2011 Public consultation on the ASSESSMENT OF THE PLANNED COHERENT EUROPEAN APPROACH TO COLLECTIVE REDRESS PUBLIC CONSULTATION PAPER Comments of the European Confederation of Pharmaceutical Entrepreneurs (EUCOPE) The European Confederation of Pharmaceutical Entrepreneurs (EUCOPE, www.eucope.org) was founded to promote companies and associations active in research, development, production and distribution of pharmaceutical products and enhance their scientific, technical, economic and legal objectives. Via the German Pharmaceutical Industry Association BPI with its 270 member companies and the UK pharma association EMIG with its 140 member companies EUCOPE represents more than 400 member companies, many of them SMEs. In addition, many innovative companies from Sweden, UK, Bulgaria, Italy, Greece, Germany, the Netherlands and Austria are represented on the board of the association. I. General findings EUCOPE appreciates the opportunity to comment on the above-mentioned consultation of the European Commission on collective redress. EUCOPE agrees with the European Commission that the effective enforcement of the consumer rights is to be regarded as an established principle of European Union law. Effective and timely measures to claim remedies in private litigation are crucial for legal protection in Member States. However, EUCOPE opposes the introduction of consumer collective redress legislation for the following reasons: Before new measures such as collective redress are implemented by EU law the potential shortcomings of the existing situation in Member States should be analyzed in detail. Many Member States provide for an effective system of legal protection in private litigation making instruments such as collective redress superfluous. However, if this analysis reveals shortcomings in Member States which could potentially be remedied EUCOPE Rue d Arlon 50 1000 Brussels www.eucope.org

page 2 by collective redress the potential impact of this instrument on businesses should be weighed against its potential benefits. The legal tradition in EU Member States is deeply founded in the general co-existence of public and private enforcement. This is especially true for regulated industries such as the chemical, food or pharmaceutical industry. In regulated industries consumer rights are effectively safeguarded by legal provisions guaranteeing for quality, safety and efficacy of the products. In the pharmaceutical industry detailed provisions on clinical trials 1, marketing authorizations 2 and pharmacovigilance 3 and Good Manufacturing Practices (GMP) 4 guarantee the safety, quality and efficacy of medicinal products. The monitoring of medicinal products in the market from the date of marketing approval is of particular importance. Pharmaceutical manufacturers must submit all received adverse reactions in electronic form to the respective national competent authority due to pharmacovigilance provisions. These reports are circulated within hours at EU level and globally. Immediately after the appropriate measures have to be taken. Patients are given access to adverse reaction reports. This system is complemented by the Product Liability Directive for all industry sectors 5. In the pharmaceutical industry specific provisions provide for patient information claims against the pharmaceutical company (see for example 84a of the German Drug Law). Mandatory insurance coverage is foreseen as well as the guarantee that the pharmaceutical company can meet its legal obligations concerning the compensation (see for example 94 of the German Drug Law). Strict liability in tort cases complement this specific legal framework (see for example 84 of the German Drug Law). Due to patient information rights these measures are utilized. In addition, the danger of abuse inherent to collective redress could deter - especially small- and medium-sized (SMEs) - innovative pharmaceutical companies from introducing products in certain markets. Thus, innovation could be hindered and impact the global competitiveness of the EU. The Commission assumes that not only consumers but also SMEs would make use of collective redress claims. The contrary is the case: Given the possibility of collective redress being launched against SMEs, SMEs are more concerned about avoiding bankruptcy and the loss of reputation than using this instrument itself. Experiences in the US show that approximately 1/3 of the companies concerned by a collective redress go into bankruptcy. 1 Directive 2001/20/EC. 2 Directive 2001/83/EC respectively Regulation (EC) 726/2004. 3 Directive 2001/83/EG, title IX. 4 Directive 2003/94/EC. 5 Directive 85/374/EEC.

page 3 Moreover, due to the risk of a considerable loss of reputation companies might find themselves forced to agree to costly settlements even when there is no damage. A legal basis for the introduction of collective redress is only given in case of impact on the internal market. The EU is not competent for purely national cases due to the principle of subsidiarity. The survey presented by the Commission includes 326 cases over 10 years, whereas only 10% had cross-boarder implications - i.e. only four cases per year. Legislative action on the EU level is not justified since only few consumers are concerned. For these reasons the following conclusion has to be drawn: before implementing new legal instruments such as collective redress by EU law the existing regulations and mechanisms in Member States should be examined, their strengths and weaknesses should be analyzed. Only if an ineffectiveness of national systems of private litigation is proven and consumers are frequently deterred from claiming damages the instrument of collective redress can be considered. EUCOPE welcomes that the European Commission poses the principal question of whether collective redress should be introduced at all or not. However, in case such legislation would be introduced, EUCOPE would call for the following minimum requirements also in order to maintain the elementary principles of continental European legal systems: No opt-out-system in which initially all potentially affected consumers are included and in which therefore the plaintiff institution is not obliged to identify the victims being represented; the defendant must be able to survey the group of complainants and the amount of damage. A willful act of the consumer to participate in the action must be mandatory (opt-in) due to the right of self-determination and for transparency reasons. The party losing the litigation has to bear the costs of the litigation; the decisive factor for lodging a complaint should be the prospect of success and not the economic strength of the complainant / plaintiff. Damages should only serve as compensation for real losses and not as penalty (no punitive damages); in the US, only a small fraction of the total damages is awarded to the injured party, the larger proportion is spent on attorneys' fees; therefore, contingency fees should also be avoided. Additionally, we would like to point to the fact that the ECJ will grant damages only for losses actually sustained and will only exceptionally award for non-material damage; the ECJ/CFI is willing in principle also to give damages for lost profits but is reluctant to do so 6. 6 Case T-84/98 C v. Council (2000), ECR IA-113, paras 98-103; Case T-307/01, Jean-Paul Francois v. Commission (2004) ECR II-1669, paras 107-111; Case T-48/01 Francois Vainker and Brenda Vainker v. European Parliament (2004) ECR II-197, para. 180; Case T-309/03 Grau v. Commission (2006) ECR II- 1173.

page 4 II. Remarks on specific Consultation Items Q 1 What added value would the introduction of new mechanisms of collective redress (injunctive and/or compensatory) have for the enforcement of EU law? We refer to our general considerations. We strongly disagree with the focus on private enforcement of the consultation paper. Resources and efforts of EU policy-makers should concentrate on maintaining and improving public enforcement in Europe, and not shifting towards a private enforcement system. If there is a need to address problems with public enforcement, these should be addressed separately, but certainly the Commission and Member States should not abdicate from their responsibilities and transfer it to private parties. Q 2 Should private collective redress be independent of, complementary to, or subsidiary to enforcement by public bodies? Is there need for coordination between private collective redress and public enforcement? If yes, how can this coordination be achieved? In your view, are there examples in the Member States or in third countries that you consider particularly instructive for any possible EU initiative? EUCOPE believes that the Commission should concentrate on strengthening public enforcement, ensuring that it operates in a way that is complementary to tort law and facilitates private claimants in obtaining appropriate redress. Public Authorities are the sole entities that represent and defend the public interest. Law enforcement must therefore remain strongly in their hands in order to guarantee fairness and balance to citizens and society in general, and to avoid encouraging litigation spurring primarily from the commercial interest of intermediaries. It would be wrong to exploit the law of damages for the purpose of state governance. Goals that go beyond the damage compensation, e.g. deterrence and prevention are socio-political objectives and should only be enforced by public authorities. A system which creates incentives for individuals to implement public policy objectives has great potential for abuse. Q 3 Should the EU strengthen the role of national public bodies and/or private representative organisations in the enforcement of EU law? If so, how and in which areas should this be done? The strengthening of national public bodies and/or private representative organizations in the enforcement of EU law is not necessary as already set out in questions 1 and 2. Q 4 What in your opinion is required for an action at European level on collective redress (injunctive and/or compensatory) to conform with the principles of EU law, e.g. those of subsidiarity, proportionality and effectiveness? Would your answer vary depending on the area in which action is taken? According to the Commission's study, only 10% of the complaints have cross-border character. Thus, there is no need for such an EU-intervention. If any further action is to be envisaged, it should be carefully assessed in the light of the principle of subsidiarity and on the need to solve a cross-border problem. In this context, looking at the data produced in previous studies, the crossborder dimension is not sufficiently relevant to justify action at EU level. This shows that crossborder collective redress is not the main problem that calls for EU action. We question the grounds

page 5 for EU action on collective redress, since to date there is not enough evidence of the existence of a cross-border element to justify it. Q 5 Would it be sufficient to extend the scope of the existing EU rules on collective injunctive relief to other areas; or would it be appropriate to introduce mechanisms of collective compensatory redress at EU level? We are against the imposition of collective injunctive relief at European level. The various court actions available in Member States and at EU level are sufficient to protect the legitimate interests of consumers and competitors. Q 6 Would possible EU action require a legally binding approach or a non-binding approach (such as a set of good practices guidance)? How do you see the respective benefits or risks of each approach? Would your answer vary depending on the area in which action is taken? Due to the lack of a legal basis and the principle of subsidiarity we reject the introduction of a legislative instrument in all areas (see also comments on question 4). There is a lack of a uniform civil procedure law in the Member States. It is difficult to bring these national civil procedures in line since there are significant differences as a result of different legal traditions. Q 7 Do you agree that any possible EU initiative on collective redress (injunctive and/or compensatory) should comply with a set of common principles established at EU level? What should these principles be? To which principle would you attach special significance? EUCOPE welcomes that the European Commission poses the principal question of whether collective redress should be introduced at all or not. However, in case such legislation would be introduced, EUCOPE would call for the following minimum requirements also in order to maintain the elementary principles of continental European legal systems: No opt-out-system in which initially all potentially affected consumers are included and in which therefore the plaintiff institution is not obliged to identify the victims being represented; the defendant must be able to survey the group of complainants and the amount of damage. A willful act of the consumer to participate in the action must be mandatory (opt-in) due to the right of self-determination and for transparency reasons. The party losing the litigation has to bear the costs of the litigation; the decisive factor for lodging a complaint should be the prospect of success and not the economic strength of the complainant / plaintiff. Damages should only serve as compensation for real losses and not as penalty (no punitive damages); in the US, only a small fraction of the total damages is awarded to the injured party, the larger proportion is spent for attorneys' fees; therefore, contingency fees should also be avoided.

page 6 Q 8 As cited above, a number of Member States have adopted initiatives in the area of collective redress. Could the experience gained so far by the Member States contribute to formulating a European set of principles? Only very few Member States have sufficient experience with instruments of collective redress. Many instruments have been introduced only in recent years. For example, Italy and Poland have recently introduced instruments of collective redress but only by a very limited sectoral approach. The outcome of these legal instruments should first be awaited and the specifics of the industry concerned should be considered. Q 9 Are there specific features of any possible EU initiative that, in your opinion, are necessary to ensure effective access to justice while taking due account of the EU legal tradition and the legal orders of the 27 Member States? We refer to our response to question 7. The legal tradition in EU Member States is deeply founded in the general co-existence of public and private enforcement. This is especially true for regulated industries such as the chemical, food or pharmaceutical industry. In regulated industries consumer rights are effectively safeguarded by public law and provisions guaranteeing for quality, safety and efficacy of the products. Q 10 Are you aware of specific good practices in the area of collective redress in one or more Member States that could serve as inspiration from which the EU/other Member States could learn? Please explain why you consider these practices as particular valuable. Are there on the other hand national practices that have posed problems and how have/could these problems be overcome? The class actions system in the US is to be mentioned as a negative example. In Germany, there are good experiences with the joint statement of facts and joint presentation of proof of several plaintiffs or defendants ( 59 ZPO) or the combination of pending cases ( 147 ZPO). Q 11 In your view, what would be the defining features of an efficient and effective system of collective redress? Are there specific features that need to be present if the collective redress mechanism would be open for SMEs? The danger of abuse inherent to collective redress could deter especially SMEs from introducing products in certain markets. Thus, innovation could be hindered and impact the global competitiveness of the EU. The Commission assumes that not only consumers but also SMEs would make use of collective redress claims. The contrary is the case: Given the possibility of collective redress being launched against SMEs, SMEs is more concerned about avoiding bankruptcy and the loss of reputation than using this instrument itself. Experiences in the US show that approximately 1/3 of the companies concerned by a collective redress go into bankruptcy. Q 12 How can effective redress be obtained, while avoiding lengthy and costly litigation?

page 7 EUCOPE would like to reiterate once more the underestimated potential of alternative dispute resolution mechanisms (ADRs) like mediation and arbitration, the need to improve existing enforcement instruments and information to consumers before creating new judicial mechanisms. Q 13 How, when and by whom should victims of EU law infringements be informed about the possibilities to bring a collective (injunctive and/or compensatory) claim or to join an existing lawsuit? What would be the most efficient means to make sure that a maximum of victims are informed, in particular when victims are domiciled in several Member States? Informing victims of their legal protection is important. However, it is also important to limit the potential for abuse. By large-scale media campaigns, the reputation of a defendant company can be seriously damaged - even before the commencement of proceedings, regardless of the merits of the action and the subsequent outcome of the trial. The damaged image of the company may lead to declines in business and to sharp declines in the stock market. This puts considerable pressure on the company to agree as quickly as possible to a potentially disadvantageous settlement. Hence, the information of the victim must be established in a fair and objective framework. In the case of deliberate misinformation and lurid media campaigns, there must be the possibility of sanctions. For these reasons, government institutions should neither participate in the dissemination of information about the opportunity to file a collective redress nor provide financial support for such campaigns. If at all, existing public platforms and information portals can report in a neutral form of proceedings or possible lawsuits. Q 14 How the efficient representation of victims could be best achieved, in particular in crossborder situations? How could cooperation between different representative entities be facilitated, in particular in cross-border cases? In our view, the Commission has not convincingly shown that there is a deficit of effective law enforcement concerning cross-border cases: According to the study Evaluation of the effectiveness and efficiency of collective redress mechanisms in the EU, only 10% of the complaints are of a cross-border nature. More generally, closer cooperation between representative bodies in different Member States based on existing platforms such as the European Consumer Centres Network (ECC-Net) is worth considering. Q 15 Apart from a judicial mechanism, which other incentives would be necessary to promote recourse to ADR in situations of multiple claims? ADR methods cause lower costs and ensure a faster process. These efficiency considerations are incentives to use ADR procedures instead of collective redress. Furthermore, there is a lower degree of public interest and due to the voluntary nature of the proceedings a greater willingness to reach agreements on both sides. If collective redress should be lodged in the context of ADRs - what we do not support - at least the same criteria as we outlined in question 7 for collective redress mechanisms have to apply to prevent abuse.

page 8 Q 16 Should an attempt to resolve a dispute via collective consensual dispute resolution be a mandatory step in connection with a collective court case for compensation? We do not support the combination of these mechanisms but see ADR as an alternative. We refer to question 15. In cases in which a party wishes to get a verdict (e.g. legal expenses insurance is on the side of the consumer) or where the chances of success are low from the outset, they would only lead to more costs and a longer duration of proceedings. Therefore, the use of ADR mechanisms must be made on a voluntary basis. Q 17 How can the fairness of the outcome of a collective consensual dispute resolution best be guaranteed? Should the courts exercise such fairness control? We do not support collective consensual dispute resolution mechanisms. Alternatively: Only if an independent neutral party carries out the collective consensual dispute resolution the latter would have a fair result. The review should be limited to an absolute abuse control for serious violations of basic legal principles. Q 18 Should it be possible to make the outcome of a collective consensual dispute resolution binding on the participating parties also in cases which are currently not covered by Directive 2008/52/EC on certain aspects of mediation in civil and commercial matters? EUCOPE does not favor the establishment of agreed collective dispute resolution. In principle, however, a legal obligation seems possible if the risk of abuses (see answer to question 7) is excluded. Q 19 Are there any other issues with regard to collective consensual dispute resolution that need to be ensured for effective access to justice? Collective consensual dispute resolutions have (as well as collective legal redress) a significant potential for abuse. If, however, collective ADR mechanisms were to be established, the continental European legal traditions would have to be respected and sufficient safeguards created. It is particularly important that the so-called "opt-out"-model and financial third party interests are excluded in ADR mechanisms, and that the "loser pays"-principle is maintained (see the restriction of abuses such as we outlined in the answer to question 7). Q 20 How could the legitimate interests of all parties adequately be safeguarded in (injunctive and/or compensatory) collective redress actions? Which safeguards existing in Member States or in third countries do you consider as particularly successful in limiting abusive litigation? EUCOPE does not agree with the introduction of collective redress actions. If an introduction is envisaged, the safeguard mechanisms mentioned in answer 7 must be observed cumulatively. Q 21 Should the "loser pays" principle apply to (injunctive and/or compensatory) collective actions in the EU? Are there circumstances which in your view would justify exceptions to this principle15? If so, should those exceptions rigorously be circumscribed by law or should they be left to case-bycase assessment by the courts, possibly within the framework of a general legal provision?

page 9 The loser pays" principle should be maintained without exception. This principle exists in almost all Member States and is useful because it prevents the courts from being swamped with manifestly unfounded claims. Incentives of court actions and thus higher costs also for consumers should not be created via changes in cost provisions. This would inevitably support the creation of a class action industry aiming at the rapid conclusion of settlements. These excesses are known in the US complaint system and should not be imported to Europe. In particular, Germany already has systems that minimize the risk of litigation costs for potential claimants, e.g. the instrument of legal aid in terms of (partly) public funding. Alternatively, there is the possibility to assign a compensation claim - or a variety of claims of many injured parties - to a trustee. He may assert such claims directly in his own name. Q 22 Who should be allowed to bring a collective redress action? Should the right to bring a collective redress action be reserved for certain entities? If so, what are the criteria to be fulfilled by such entities? Please mention if your reply varies depending on the kind of collective redress mechanism and on the kind of victims (e.g. consumers or SMEs). Persons or entities that are not the claimants themselves should not be entitled to claim compensation. Q 23 What role should be given to the judge in collective redress proceedings? Where representative entities are entitled to bring a claim, should these entities be recognized as representative entities by a competent government body or should this issue be left to a case-bycase assessment by the courts? In case the Commission will submit a proposal for the introduction of collective redress, the judge should be granted a central role in the decision to authorize collective redress. In particular, the legitimacy of the plaintiff and the prospects of success should be reviewed in advance. One of the roles of judge is also to ensure that multiple claims lodged by the same defendant regarding the same injury are excluded. This may prove to be problematic for the following reasons: A variety of possible individual, collective or representative action against the defendants, possibly at the same time cross-border dimension and multiple court jurisdiction. The national judges would be completely overwhelmed with the different scenarios (in the worst case: different processes with a variety of plaintiffs at different levels of the supply chain in different countries and at different times). Representative bodies should obtain prior authorization and should be recognized by an appropriate governmental body. State recognition and the registration of the representative body in an official register should be a requirement for the right to bring legal action. Organizations that serve only primarily a charitable purpose, but in reality pursue their own financial interests should be excluded. Representative bodies that have been approved in other Member States should be subject to a 'quality check ' in the respective state. Q 24 Which other safeguards should be incorporated in any possible European initiative on collective redress?

page 10 The safeguard mechanisms mentioned in answer 7 must be observed cumulatively. Q 25 How could funding for collective redress actions (injunctive and/or compensatory) be arranged in an appropriate manner, in particular in view of the need to avoid abusive litigation? Compliance with the "loser pays" principle is of crucial importance. EUCOPE strongly opposes any changes in the existing cost rules - such as a general approval of contingency fees for lawyers. This would allow for a huge potential for abuse, if - in particular in mass procedures - incentives would be set in the way that litigation could be pursued without financial risk for the plaintiff. The decisive factor for lodging a complaint should be the prospect of success. The existing instruments in Germany - e.g. the above-mentioned legal aid - offer sufficient opportunities to minimize the litigation cost risk of the applicant. Litigation financing by private parties is problematic, especially if financial self-interests of third financiers are involved (see also answers to questions 21 and 26). Q 26 Are non-public solutions of financing (such as third party funding or legal costs insurance) conceivable which would ensure the right balance between guaranteeing access to justice and avoiding any abuse of procedure? In our view, financial support from the state (such as the German legal aid) offers the best opportunity to help applicants with their claims and avoids abusive legal processes. The following scenario must be seen critically: On the one hand, the third party financier has a high financial interest in the success of the claim, on the other hand he does not have a correspondingly high own cost risk. The danger here is that collective redress will be increasingly seen as a new business model and that a European class action industry will develop. In this case, the awarded damages are not used to compensate the injured party, but instead are awarded to the organization of the third party financier. The existing system of legal insurance is however, a solid type of action financing. Insurers consider in advance whether the prosecution offers a reasonable prospect of success and whether the insured is at fault. A financial interest of legal expenses insurances, which can lead to unfair legal proceedings is not to be feared. Also the German legal aid finances in general only the most promising cases. Abusive actions have - given the own cost risk - no chance. Q 27 Should representative entities bringing collective redress actions be able to recover the costs of proceedings, including their administrative costs, from the losing party? Alternatively, are there other means to cover the costs of representative entities? The loser pays principle must also apply when representative bodies lodge a complaint. Thereafter, representative bodies can claim their legal costs from the losing party if they are successful.

page 11 Q 28 Are there any further issues regarding funding of collective redress that should be considered to ensure effective access to justice? The points mentioned in the answers to questions 21 and 25-27 should be considered. Q 29 Are there to your knowledge examples of specific cross-border problems in the practical application of the jurisdiction, recognition or enforcement of judgements? What consequences did these problems have and what counter-strategies were ultimately found? There may be long waiting times for enforcement of court proceeding but they are inherent to the respective Member State system and due to staff shortages, structuring of processes and workload. Q 30 Are special rules on jurisdiction, recognition, enforcement of judgments and /or applicable law required with regard to collective redress to ensure effective enforcement of EU law across the EU? EUCOPE totally opposes the introduction of consumer collective redress legislation. Q 31 Do you see a need for any other special rules with regard to collective redress in crossborder situations, for example for collective consensual dispute resolution or for infringements of EU legislation by online providers for goods and services? EUCOPE rejects collective dispute resolution mechanisms, since there are the same risks of abuse as for collective enforcement instruments. If the EU-Commission nevertheless has another opinion, the same minimum standards must be observed as outlined in our answer to question 7. Q 32 Are there any other common to add principles which should be added by the EU? There is no need for further common principles to be added by the EU. In any case, every action of the EU must be based on the continental European legal tradition. Q 33 Should the Commission's work on compensatory collective redress be extended to other areas of EU law besides competition and consumer protection? If so, to which ones? Are there specificities of these areas that would need to be taken into account? No. We reject compensatory collective redress in competition law and in consumer protection law. Also as regards other areas of EU law there is no need to establish collective redress instruments. Q 34 Should any possible EU initiative on collective redress be of general scope, or would it be more appropriate to consider initiatives in specific policy fields? EUCOPE refuses any EU legislative initiative in the field of collective redress. It is of primary importance that a balance is struck between the interests of the various players. The economic costs imposed on society by a judicial system of collective redress and the increase in litigation it entails should be evaluated. The US experience should also be taken into account to avoid going

page 12 down a similar route. Declaring that a European approach to collective redress will avoid certain excesses is not enough. There are too many concerns that have not been answered yet. EUCOPE does not consider the diversity of instruments to be a problem. We do not support a onesize-fits-all approach, but are in favor of flexibility, pragmatism and efficiency. National legal traditions and specificities have to be respected. European Confederation of Pharmaceutical Entrepreneurs (EUCOPE) Dr. Alexander Natz Secretary General