Competition Law360
December 23, 2016
As 2016 comes to a close, we review some of the more interesting court decisions in the indirect purchaser class action arena over the past 12 months and provide practitioners with some key takeaways for 2017 and beyond. While there were no major U.S. Supreme Court decisions that impacted indirect purchaser cases, and only a few circuit court decisions, the rulings below shed light on strategies related to class certification, Article III and antitrust standing, settlement objectors, and other indirect purchaser-related issues that practitioners are certain to face in the future.
Class Certification
Landscape Unchanged by Supreme Court Decision in Tyson Foods: Over the past five years, the Supreme Court has issued several class certification decisions, the effect of which has been hotly contested by commentators and parties in indirect purchaser and other antitrust class actions.[1] This year, the Supreme Court decided Tyson Foods Inc. v. Bouaphakeo,[2] which did not involve antitrust claims, but did involve the use of statistical evidence to establish class-wide liability. Earlier this year, the district court in In re Delta/AirTran Baggage Fee Antitrust Litigation discussed the effect of Tyson Foods on class certification standards in the antitrust context, and “reject[ed] the notion” that Tyson Foods and other decisions “broke new ground or materially altered the landscape of class certification.”[3] Rather, the court “consider[ed] Comcast, Dukes, Amgen [and] Tyson Foods ... for precisely what they are — helpful illuminations, applications and explanations of pre-existing law — [and] ... decline[d] defendants’ invitation to treat them as something they are not.”[4] Indeed, that court reaffirmed the propriety of the use of “aggregated damages calculations” in antitrust class cases, and cited Tyson Foods to support the proposition that “individual damages allocation issues” that may follow an aggregate damage award “are insufficient to defeat class certification.”[5] As such, the antitrust class certification landscape appears to be unchanged by Tyson Foods.
24-State Indirect Purchaser Class Certified Under California Law: There was only one published decision on indirect purchaser class certification in 2016: In re Optical Disk Drive Antitrust Litigation.[6] In Optical Disk Drive, the court certified a class of indirect purchasers of optical disc drives (ODDs) from 23 states and Washington, D.C., under California law. ODDs are devices that allow data to be read and written to optical discs such as compact discs and digital video discs. The plaintiffs alleged that the defendants — one of which pleaded guilty to antitrust violations — engaged in bid-rigging that was part of an industry-wide price-fixing conspiracy that involved agreements, exchanges of price, output and other confidential information.[7] The defendants did not dispute that there were instances of anti-competitive conduct, including bid-rigging during ODD procurements by Dell, HP and Microsoft, but disputed whether the anti-competitive conduct went beyond the occasional rigged bid. The district court had previously denied the indirect purchasers’ motion for class certification on the grounds that the indirect and direct purchasers failed to establish that impact at the direct purchaser stage could be shown on a class-wide basis.[8]
Proof of Impact to Direct Purchasers and the Incremental Showing Needed on Renewed Motions for Class Certification: Optical Disk Drive provided guidance on the incremental showing needed to succeed on a class motion the second time around. In the renewed motion, on the issue of whether impact to all or nearly all class members may be shown on a class-wide basis, the indirect purchasers’ expert presented a “cointegration test”[9] that was “more extensive” than that presented in the initial motion, a new “Granger causality” analysis,[10] and modified his overcharge regression model in several respects that the district court found persuasive. The court noted that while the defendants challenged the expert’s model implementation, “they d[id] not challenge the propriety of employing such models in the first instance.”[11] Additionally, defendants posited the oft-used argument that the expert’s use of “aggregated” data masked individual variations among class members, while plaintiffs insisted that large sample sizes are necessary to ensure statistical reliability of the results. The Optical Disk Drive court found the plaintiffs’ argument more persuasive.[12]
Pass-Through: On the key issue of pass-through — which was not addressed in the first order — the court analyzed several issues frequently raised by defendants, and provided a road map for indirect purchaser plaintiffs to rebut them.
- “Price point” challenges to overcharge pass-through blunted in product markets with declining prices:In Optical Disk Drive, the defendants claimed — as they often do — that retailers’ use of price points, i.e., selling products costing in the hundreds of dollars at prices just under the next $100 mark (e.g., $999 for a computer), would prevent pass-through of a relatively small cost increase (e.g., $4), and that the retailer would keep the price at $999 rather than increase it to $1,003. The court rejected the defendants’ hypothetical, however, noting that the price-fixing alleged in the case sought to “slow the decline in prices that otherwise naturally was occurring,” and that cost declines were not limited to ODD components, but were occurring vis-à-vis all or nearly all computer components.[13] The plaintiffs’ expert also empirically analyzed the price point issue through a “quantile regression” analysis. Based on this analysis, which was designed to test the relationship between cost and price changes for computer price points at $99 increments, the plaintiffs’ expert opined that the pass-through rate was 100 percent or greater at all price points.[14]
- Reduced product quality as a basis for supporting consumers’ overpayment for finished products and components: The plaintiffs’ renewed motion also argued that manufacturers, rather than attempt to adjust product price in the face of cost changes, will adjust the “quality” of particular computer systems, and thereby preserve their desired profit margins for a particular target retail price.[15] The defendants argued that such a focus on product quality necessarily implicates consumers’ subjective desires and requires a consumer-by-consumer inquiry regarding the desirability of product features. The court rejected this argument, noting the “harm” to consumers lies in paying more than the product is worth, and does not turn on the individual user’s desire for a particular feature.[16]
- Below-cost sales do not preclude pass-through: The plaintiffs also successfully dispensed with the defendants’ argument — also frequently made in indirect purchaser cases — that no pass-though can occur where sales, discounts or rebates result in below-cost sales. The court recognized the validity of the simple response that, in the actual world, the overcharge remains embedded in the discounted price — which is higher than it should be, while in the but-for world, the discounted price is even lower.[17]
Finally, the plaintiffs’ renewed motion relied on several well-established qualitative and quantitative methods of addressing pass-through on a classwide basis. The plaintiffs relied on well-settled economic theory that where the relevant markets are highly competitive, pass-through rates will be at or near 100 percent. The plaintiffs also relied on quantitative pass-through studies covering companies responsible for approximately 80 percent of personal computer sales, 45 percent of top distributor sales and including over 273 million Optical Disk Drive products, which showed pass-through rates that, while varying, are “uniformly high and positive.”[18] The above...
