Brooklyn-born plaintiffs’ attorney Michael Hausfeld is a betting man. He’s banking that the legal environment overseas is ripe for private antitrust litigation. That’s why in March, his firm–Cohen, Milstein, Hausfeld & Toll–opened an office in London, making it the first U.S. plaintiffs’ firm to set up shop in Europe.

“There’s been an increase in the number of antitrust actions being brought in Europe and an increased number of companies being fined for antitrust activity,” he says.

Hausfeld knew that location was the key to whether the firm’s investment would hit the jackpot or go bust. That’s why, after surveying the legal landscape, he chose London as his firm’s European home base.

“[The U.K.] is the most advanced with regard to competition law and general procedure, and it permits group actions and representative actions,” he says.

Compared to most of its EU neighbors, the U.K.’s system for antitrust recovery is light years ahead. That’s because most EU member states have no system in place for private plaintiffs to collect damages in antitrust cases.

Yet over the past five years, through a combination of court decisions and legislative initiatives, the U.K. has begun creating a viable framework for antitrust recovery. If Hausfeld’s right–and most experts agree he is–then the U.K. may very well become the epicenter of private antitrust litigation in Europe.

“You’ll start seeing these private actions trickle in the latter half of this year,” says Alan Wiseman, partner at Howrey. “I see it as a three-year progression. It’s going to take time to further develop the system.”

Cartel Crackdown

Much of the U.K.’s evolving private litigation environment stems from the EU’s increased enforcement of competition laws. Over the past decade, the European Commission has stepped up its scrutiny of cartels, dishing out record-breaking fines to the most serious price-fixers.

“It was around 1999 when you started really seeing the EU concentrate on anticompetitive behavior,” Wiseman says. “You started seeing these huge, multi-million dollar fines coming out of the EU.”

Yet it didn’t take long for the EU to start questioning its system’s effectiveness. In 2001 the EC came down hard on one of the largest cartel operations in Europe’s history–the vitamin cartel. For a decade members of the cartel fixed vitamin prices throughout Europe, operating completely under the EC’s radar. Although the EC eventually caught on to the scheme and levied a whopping $1 billion fine against the cartel’s members, it realized it needed the help of those who were being victimized to truly halt cartel activity.

“In the past few years, there has been a gradual recognition that national administrative competition authorities can’t monitor all the activity going on in the marketplace,” says Lesley Farrell, partner at a London-based law firm SJ Berwin.

While most member states stalled on creating a private action framework, the U.K. quickly sprang into action. In 2002 the government created a special court called the Competition Appeal Tribunal (CAT) to hear claims involving antitrust issues. Third parties can bring an action before the CAT to request compensation for damages only after government authorities have already established the cartel’s liability. In November 2006 the CAT awarded its first interim damages, totaling nearly $4 million, to Healthcare at Home, a U.K. provider of in-home healthcare. Healthcare at Home filed its claim against Genzyme Ltd., a drug manufacturer, for inflating the price of one of its medications.

“Establishing a specialist court certainly is a sign that you’ve got a culture of endorsement for private antitrust litigation,” Farrell says.

Changing Landscape

But there are other signs, too. A groundbreaking 2003 court decision allowed injured parties from other member states to take advantage of the U.K.’s system. In that case–Provimi Ltd v. Aventis Roche et. al–British and German claimants sued members of the vitamin cartel in a British court in an attempt to recover damages from European members of the cartel. The defendants attempted to get the case thrown out, arguing that U.K. courts did not have jurisdiction because some of the plaintiffs resided outside the U.K. and purchased the cartel’s vitamins outside of the country. The British court thought otherwise, ruling that as long as it has jurisdiction over one of the claimants in an action, it will allow related claims by non-English companies to be brought in the same action.

“The court’s preliminary judgment established the ability for cartel victims to sue in U.K. courts for damages throughout Europe, not just those incurred in the U.K.,” says Keith Jones, partner at Baker & McKenzie in London. “This may eventually have a vacuum effect on antitrust litigation in the EU, with the U.K. sucking up cases and becoming the

prime jurisdiction.”

Another reason the U.K. may become an antitrust litigation hotspot is that it is much more lenient toward pre-trial discovery than any other EU member. This makes it easier for injured parties to establish claims and assess their damages.

“We don’t allow depositions, but we do have documentary discovery, which is quite extensive,” Farrell says. “So defendants have to disclose everything that plaintiffs will rely upon, whether it helps or harms the case.”

Also, U.K. antitrust regulators are debating whether to allow courts to more easily waive the loser-pays rule. Under U.K. law, losing parties must pay the opposing party’s trial-related costs, a stipulation that often deters private action.

“A loser-pays rule serves as a barrier in certain cases, especially when you don’t have a companion government action,” Wiseman says. “The U.K. has to figure out a way to give judges discretion to waive the rule. I think that will happen.”

Continental Drift

But the U.K. may not be a trailblazer for long. The EC is increasingly pushing member states to follow in the U.K.’s footsteps.

“About two years ago the EC started making speeches about the need for some mechanism for private litigation for these cartel victims,” Wiseman says. “They’ve gone through a series of papers, and they plan on issuing another paper around the end of this year.”

This paper will outline the inherent roadblocks to private litigation within member states’ legal systems and offer possible solutions to overcoming those roadblocks.

“What is clear to me is that a better competition culture and more deterrence–making companies that break the rules pay compensation for the real costs of the damage caused to competition–is good news for all those businesses who play fair,” said Neelie Kroes, European Commissioner for Competition, in an October 2006 speech.

In addition, Hausfeld’s firm and other innovative litigation businesses (see “Contingency Conundrum”) are signs that the environment is in the midst of transformation.

“You’re going to see something approaching an active private enforement community, one where there are large individual companies, groups of companies and maybe even classes of both companies and consumers seeking recoveries,” Hausfeld says.