Emergence of class actions and litigation funding
A recent phenomenon in the Netherlands is the initiation of class actions against 'big tech'. This trend can be attributed to new Dutch legislation on class actions. The Privacy Collective has started a class action on behalf of victims in the Netherlands against Oracle and Salesforce, two data brokers. The claim is funded by a so-called 'third-party litigation funder': Innsworth Litigation Funding, owned and financed by hedge fund Elliot. Where lawyers in the Netherlands are not entitled to work on the basis of ‘No cure no pay’, this does not apply to such third-party litigation funders. In the case against Oracle and Salesforce, Innsworth is entitled to 30% of the damages awarded if the outcome is positive. In addition, the Foundation Mass Damage and Consumer (hereafter: the Foundation) has initiated a class action against the Chinese technology company TikTok. This class action is also backed by an external litigation funder, IVO Capital.
Damages as Return on Investment
Since the entry into force of the Collective Damages in Class Actions Act (Dutch acronym: ‘WAMCA’), the commencement of such class actions has become more attractive for litigation funders. Since 1 January 2020, a judge may award damages in a class action based on this Act. Previously, judges could only serve a declaratory judgment. The potential damages are large in the aforementioned class actions: in the class action against Oracle and Salesforce, a total of EUR 10 billion is claimed and in the class action against TikTok, the total claim amounts to EUR 6.1 billion. In the class action against Oracle and Salesforce, the litigation costs are (provisionally) estimated at EUR 10 million. In other words, if the result of the class action is positive, the litigation funders will make huge profits. But what is the actual chance of success?
TikTok class action
In the almost 200-page summons against TikTok, the company’s business model is thoroughly explained. The credo that TikTok uses towards advertisers, "make TikToks, not ads", roughly describes for the company's advertising method. TikTok’s way of advertising should ensure that the (often young) users of TikTok do not realise that they are looking at advertisements. That (allegedly) unlawful way of advertising violates fundamental rights as included in articles 7 (respect for private and family life) and 8 (protection of personal data) of the EU-charter of Fundamental Rights. Furthermore, it violates several rights included in the Convention on the Rights of Children, such as articles 16 (children’s right to privacy) and 32 (right of the child to be protected from economic exploitation). A substantial part of claims consists of non-material damage; damage that is not a financial loss. Material damage is also claimed by the plaintiff in the form of the economic value of the personal data that has been processes unlawfully. Very interesting, but not further substantiated. For that, the Foundation believes, an expert is needed. That is why this blog is limited to claims regarding non-material damage.
Chance of success
The pressing question is whether the class actions have any chance of success. The greatest risk for the plaintiff in these cases lies in determining the damage. In what way should the damage from the unlawful sharing/processing of personal data be estimated? Although it is obvious that a company like TikTok generates huge profits, it is very difficult to specify whether, how much and by which users damage has been suffered. That all damage suffered must be compensated is clearly stipulated in the GDPR. Pursuant to Article 82 GDPR, all material and non-material damage must be compensated. However, the intangible nature of the damage (if any) makes it difficult to substantiate non-material damage. Non-material damages are claimed through article 6:106 subsection b of the Dutch Civil Code (DCC). On the grounds of this article, 'other damage than financial loss' can be compensated. Subsection b includes the category ‘impairment of the person in another way'. A person can, under circumstances, be ‘impaired in another way’ if a fundamental right is violated.
Substantiation of damage
A major problem in demonstrating damages in the event of a violation of a fundamental right is (the burden of) proof. It is a near impossible task to substantiate such damage since such damage is characterized by the absence of concrete evidence. However, in certain cases, the court assumes that the violation of a standard is so serious that 'the adverse consequences are obvious'. If this is the case, the injured party (the TikTok user) does not have to provide concrete substantiation of the damage. The consideration of a court that the adverse consequences are or are not obvious is therefore decisive in demonstrating the damage in the event of unlawful processing of personal data. An important question, therefore, is when the breach of standard is so serious that the adverse consequences are obvious.
Obvious adverse consequences
Case law indicates whether the adverse consequences are or are not obvious, but it provides no further on how to substantiate the requirement. However, some boundaries can be discerned. For example, the District Court of Gelderland ruled that secretly filming a woman and her daughter in the bathroom was such a violation of norms that the adverse consequences were obvious. Therefore, there is an ‘impairment’ of the person. In that case, further substantiation of the damage was not necessary and an amount of EUR 1,500 in non-material damages was awarded. On the other hand, the Supreme Court ruled that a feeling of psychological discomfort or the mere violation of a fundamental right does not automatically lead to an impairment of the person.
Consequences of class action judgements
The judgments in the class actions will be of great significance for the Dutch class action environment. Does the Court assume that the breaches of standards are so serious that the adverse consequences are obvious? Then the door will be wide open for class actions against 'big tech' and unlawful processing of personal data. This will likely lead to a large increase in the number of Dutch class actions, particularly combined with the entry into force of the WAMCA.
Article provided by INPLP member: Bob Cordemeyer and Marc Morriën (Cordemeyer & Slager, The Netherlands)
Dr. Tobias Höllwarth (Managing Director INPLP)