Exiting The Fun House Of Mirrors Clayworth V. Pfizer By Emilio Varanini


Published on

A published article in the California State Bar\'s Journal - Competition - on pass-on

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Exiting The Fun House Of Mirrors Clayworth V. Pfizer By Emilio Varanini

  1. 1. charging of supra-competitive prices on its product to others, including original equipmentEXITING THE FUN HOUSE OF MIRRORS: manufacturers, resellers, retailers, or end-users. 6 The extent to which pass-on occursCLAYWORTHv. PFIZER AND THE HANDLING OF PASS- in various cmnpetitive envirorunents and in various industries is often studied: it is well-ON IN POST-TRIAL ALLOCATION PROCEEDINGS IN understood that some pass-on of overcharges or other cost increases is the normal rule. 7FEDERAL AND STATE COURT On the other hand, lzow pass-on is to be addressed by the federal or state court systemEmilio E. Varanini* is not so simple to answer. There appear no reported cases of an antitrust trial involving Antitrust law has come to a general con~ensus that damages should be awarded forillegal acts such as price-fi>.iug or the illegal maintenance of a monopoly. The award of 6. Sec, e.g., Jlliuois Brick Hllliuois, 431 U.S. 720, 758-59, 764 (1977) (Brennan,]., dissenting); 21 Cong. Rcc.damages for such illegal acts is so valued that damage awards obtained at trial are trebled in 1767 (1890) (statement by Senator George during debates on Shennan Act) ("middleman ... buys onlyorder to ensure detetTence of such antitmst violations. 1 And the calculation of damages is for profit on a subsequent sale fs]o whatever he pays he receives when he se1ls, together with a profitsubject to relaxed standards both as a matter of case law2 and, in some cases. as a matter of on the same, from the person necessarily damnified or injured."); Coordination Proceedings Special Titlestatute.3 Indeed, the European Union has come to recognize the need for victims of such (Rule 1550(b)) Microsrift 1-V Cases, No.j.C.C.P. 4106, 2000WL 35568182 (Cal. Super. Ct. San Francisco, Aug. 29, 2000) (hereinafter .Microsqft 1- V Cases) (general economic theory and practice supports theactions to be able to recover damages as constituting im important component of a healthy contentio.n that at least some of the overcharge from illegal aces of monopoly maintenance will becompetition policy.4 Yet no issue has posed more of a potential batTier to the ability of passed on by distributors to end-consumers); Herbert Hovenkamp, Tite Indirect Purcltascr Rule and Cost-injured plaintiffi to obtain damages than the issue of pass-on. 5 Plus Sales,!03 HARcL.REV 1717,1726 & n.45 (1990) (in the long run in a competitive market with constant returns to scale, there must be 100% pass-on of overcharges; if there are economies of scale, On one hand, what is pass-on is simple to answer: pass-on is nothing more than the then there must be_ 100%+ pass-on of overcharges); Elmer J. Schaefer, Passing-Ou T1teory• in Autitrustextent to which a company may pass-on an extra charge - such as an increase in taxes, an 1i·cble Damage Ad ions: An Economic and Legal Analysis, 16 Wm. & Mary L. Rev. 883, 895-900 (1975) (concluding, based on economic analysis in various markets of pass-on of taxes of components of endincrease in wholesale prices due to price-fixing by productJnanufacturers, or a monopolists products and of the end products themselves, thar pass-an was a function of the elasticities of the suppJy and demand curves of a market, that the p3ss-on of taxes would occur under a variety of scenarios, and that pass-on was especially likely on components which were essential to the final product but a Deputy Attorney General, Antitrust Section, California Office of the Attorney General, San Francisco, relatively low percentage of that products price). California; Vice-Chair, Conununication and Digital Technologies Committee, American Bar 7 Sec, e.g., Illinois Brick, 431 U.S. at 764 (Brennan,]., dissenting) ("{D]irect purchasers ... pass on the Association, Antitrust Section; International Liaison Officer and Chair, Health Care Working Group, bulk of their increased costs to consumers farther along the chain of distribution"); Comes H Microsoft National Association of Attorneys General, Antitrust Task Force. Emilio Varanini is Chair of the Corp., 646 N.W.2d 440,450 (Iowa2002); Microsrift I·V Cases, 2000WL 35568182 (general economic multistate litigating group in the price-fixing case: Cafl{omia t~ l1!fiuc011 Teclmologies, No. C 06-4333 theory and practice supports the contention that at least some of the overcharge. from illegal acts of PJH. He served as Senior Editor, and co-author of three chapters, of the Stare Bar treatise on antitrust monopoly maintenance Will be passed on by distributors to end-consumers); JIA Phillip E. Arceda, and unfair competition law. Antitrust and Unfair Competition Section, The State Bar of California, Herbert Hovcnkamp, Roger D. Blair & Christine P. Durranch,ANTITRUST LAW, ~346k at 189 (3d CALIFORNIA STATEANTITRJJST AND UNFAIR COMPETITION LAW (Mat<hew Bender & ed. 2007) ("The obvious diffic;:ulty with denying damages to consumers buying from an intermediary Co., 2009). The views expressed herein are those of the author only and should not be attributed to is that they are injured, often more th~m the intermediacy, who may also be injured but for whom the the California Attorney Generals Office, to the National Association of Attorneys General, or to the entire overcharge is a windfall.") (hereinafter Areeda); Cynthia U. Kassis, Titr Indirect PurchaserS Right to American Bar Association. Sue Uuder Section 4 cif the Clayton Act:Auolher Congressional Response to llliuois Brick, 32 Am. L. Rev. 1087 n.2 (1983) (citing economists and commentators for the proposition that pass-on normally occurs); See, e.g., Ca1. Bus. & Pro(. Code Section 16750(a); Uueedus 1~ Callfomia Shoppers, luc., 86 Cal.App. 3d 932, Robert G. Harris & Lawrence A. Sullivan, Passing On the l1ouopoly Overcharge: A Comprehensive Polit:y 942 (1978). Analysis, 128 U. Pa. L. Rev. 269, 275-76 (1979) (hereinafter Harris & Sullivan); Schaefer, s11pra note See, e.g..] Tmetl Payne Co. v. Cilrysler Motors Corp., 451 U.S. 557,565-66 (1981); Bigelow v. RKO Radio 6, at 895-900; see al.so Emily Clark, Mat Hughes & David Wirth, Study on the Conditious of Claims for Pictnres, 327 U.S. 251, 264 (1946); S11bnrban Motor Homes, 101 Cal. App. 3d 532, 545 (1980); accord, In rc Damages ill Case of llifringemwt of EC Competitiou Rules: Aualysis of Ecot~omic Models for tl1e Calculation Wllolesole Elec.Antitmst Cases I & /I,147 Cal.App. 4th 1293, 1309 (2007);see also, e.g., Diesel Elec. Sales & of Damages (Aug. 31, 2004) at 32 (hereinafter EU Study) available at http://ec.europa.eu/comm/ Serv., Juc.r~ .Marco Mariue Sau Diego, Inc., 16 Cal.App. 4th 202,218-20 (1993) (explaining and applying competition/antitrust/actions/damages/index.html (noting that where the downstream market is relaxed antitrust damages rule in context of claim for violation of Cal. Bus. & Prof. Code Section 17045 competitive, pass-on should be 100%; where the downstream market is a monopoly, monopolists will pass-on some of their costs; and where the downstream market is characterized by imperfect competicion, (forbidding secret rebates)). pass-on will be somewhere in between a monopoly market and a perfectly competitive market). The See, e.g., Cal. Bus. & Prof. Code Section 16760(d) ("In any action under dlis chapter, where there has EU St11dy was commissioned by the European Union as part ofits examination of whether there should been a determination that a defendant agreed to fix prices, damages may be proved and assessed in the be a private right of action for indirect purchasers. aggregate by statistical or santpling methods, by the pro rata allocation of illegal overcharges or of excess profits, or by any other reasonable system of estimating aggregate damages as the court in i~ discretion may permit without the necessity of separately proving the individual claim of, or amount of damage to, persons on whose behalf the suit was brought:). Commission White Paper on Damages Actions for Breach of the EC Antitrust Rules, COM{2008) 165 final (Feb. 4, 2008) (hereinafter Commission White Paper on Damages). See, e.g., Ju re Grapllics Proccssiug Unit Antitrust Litig. (hereinafter CPU lll), 253 F.R.D. 478, 503-04 (N.D. Cal. 2008); Califomia v. bifineon Tcclmologies, No. C 06-4333 PJH, 2008 WL 4155665, at *12 (N.D. Cal. Sept. 5, 2008). 29 28
  2. 2. pass-on. Depending on the group of plaintiffs involved, pass-on has been portrayed as being (even if pass-on itself is a simple concept) in order to make determinations that go neither of no conseguence, 8 as affecting standing; 9 as beat~ng on the existence of proximate canse, 10 to the culpability of defendants nor to the damages that they inflicted in the aggregate. It or as a safeguard to ensnre that antitrust defendants do not pay duplicative damages. 11 avoids creating conflicts of interest between different groups of plaintifls that distract from the "main event"-the t1~al to determine defendants liability and to deternline aggregate At what stage of the judicial process is it to be addressed: is it best raised as part a motion damages-and that raise difficulties in the class certification context, which thwart the to dismiss, 12 class certification, 13 sunm1aty judgment, 14 trial, or post-trial allocation? 15 In original objectives of federal and state class certification law. Finally, it avoids the need for that sense, pass-on has become like mirrors in a fun house in which it has become a policy-based exclusions of cases with ·pass-an issues under the guise of prudential antitrust challenging endeavor for courts and parties alike to try to discern which ·"reflection" of standing rules, proximate cause principles, or the need to prove the "fact of injury." pass-on is closest to being the true one. Consequently, Clayworth provides a final exit for federal and state courts alike from the fun But in 2011 we may have an answer as to which reflection of pass-on is the true one. house of miiTors created by the differing views of pass-an. The recent California Supreme Court decision of Clayl/lorth v. Pflzd 6 suggests that pass- First, this article will discuss the Clayworth opinion itself Second, it will discuss on is nothing more that1 an eguitable allocation "issue, i.e. dmnages inflicted by antitrust how the observations of the Clayworth opinion properly suggest that pass-on is nothing defendants through overcharges must be partitioned among different groups of phiintiffs to more than an issue of partitioning damages and that, by analogy to such state and federal avoid the payment of excessive damages. procedures as interpleader, the partitioning of damages should be handled in post-trial By analogy to such state and federal procedural vehicles as interpleader, such allocation proceedings by courts. Third, it will discuss how handling pass-on as a partitioning issues can be handled post-trial when different groups of plaintiffs have, in fact, been joined guestion to be determined in post-trial proceedings serves the deterrent goals of state and together in a single state or federal proceeding. If different groups of plaintiffi remain federal antitrust law, avoids jury confusion, and helps to bring class certification back to in separate forums, mechanisms may exist, such as oiliet or interpleader, by which these its original objective, namely as a litigation-simplification device. Fourth, it will discuss allocation issues could be handled. how handling pass-an as an apportioning guestion avoids the need to trigger prudential antitrust standing, proximate cause, and i1:Uury-in-fact rules properly applicable to other This article posits that handling pass-on as a post-trial allocation issue best fits precedent circumstances. Fifth, the article will venture from the Clayworth opinion to the Class that views damage partition issues as ones of eguity for the judge rather d1an ones ·oflaw for Action Fairness Act of 2005 (hereinafter CAFA) in discussing how Clayworths statement the jury. Because handling pass-on as a post-trial allocation issue prevents.defendants from calling for the joinder of different groups of plaintiili goes hand-in-hand with Clayworths using pass-on as a de facto affim1ative defense to class certification or to a deternlination of suggested view of pass-on as a post-trial allocation process to provide a means by which liability at1d damages at trial, it best serves the deterrent goals of state and federal antitrust antitrust proceedings now can be conducted more expeditiously in state and .federal court. law. Handling pass-on as a post-trial allocation issue also avoids jury confusion in having As part of this discussion, the article will touch on the extent to which opt-out plaintiili to wresde with complex economic analyses of pass-on involving the specific facts of a case and especially state attomeys general may avoid such consolidation, the impact of such avoidance on the benefits of consolidation, and whether-insofar as state attorneys general are concerned-there are additional, countervailing benefits to such avoidance. Ha11over Slloe, Iuc. v. Uuited Slloe .Machiuery Corp., 392 U.S. 481 (1968) (the viability ofpass-an as a defense to an antitrust action for damages by dil-ect purchasers). I. The Clayworth v. Pfizer Opinion Cf In re DRAM Antitmsr Litig., 516 F. Supp. 2d 1072, 1090-93 (N.D. Cal. 2007) (finding that pass-on issues are appropriately raised in the prudential antitrust standing context ~nd distinguishing between In Clayworth, the California Supreme Court addressed the guestion of whether pass-on of overcharges involving the price for a component of a final product and pass-on of overcharges manufacturers could avoid liability under the Cartwright Act by arguing that plaintiff involving the fina1 product itself). resellers-here retail pharmacies that purchased pharmaceutical products manufactured 10 See, e.g., In re lute/ Corp. Microprocessor Litig., 496 F. Supp. 2d 404,409-10 (D. Del. 2007) (applying federal or distributed by defendants and resold those products to consumers-passed on any antitrust standing test as a "guide" and rejecting at pleading stage defendants argument that plaintiffi overchargesY The Court answered that guestion in the negative based on federal damage claim involved too speculative a chain of events and so was roo remote). 11 See, e.g., Illinois Brick, 431 U.S. at 730-31; C/aywort/1 v. Pfizer, inc., 49 Cal. 4th 758,787 (2010). 12 See, e.g., In~< DRA.VJAntitniSt Litig., 536 F. Supp.2d 1129 (N.D. Cal.2008). 17 49 Cal. 4d1 at 763-66. More specifically, in Clayworth, plaintiffS were retail pharmacies located in·~. ; 13 See, e.g.,llyillcon, 2008 WL 4155665, at *39. California. Most defendants were manufacturers that marketed and/or distributed similar brand-name pharmaceutical products throughout the United States. The pharmacies filed suit under the Cartwright 14 See, e.g., Claywortl! v. Pfizer, Iuc., 83 Cal. Rptr. 3d 45, 50 (Cal.App. 1st Dist. 2008),judgmclll reversed by, 49 Act, Cal. Bus. & Pro[ Code Section 16720 and the Unfair Competition Law, Cal. Bus. & Prof. Code Cal. 4th at 758. Section 17200. The pharmacies alleged that the manufacturers conspired to fix the price of their name._ 15 Cf, e.g., Illinois Brick, 431 U.S. at 761-64 (Brennan, J., disseming) (mentioning interpleader and brand pharmaceutical products in the United States, including California. IJ. at 764. The pharmacies consolidation as two possibilities to avoid double-recovery and ensure an apportionment of damages); moved for summary adjudication of the pass-en defense, arguing that the defense was unavailable under In rc Cipro Cases I & 11,121 Cai.App. 4th 402,415-17 (2004) (mentioning administrative procedures for .(1) the Cartwright Act in light of 1-Ianpvc~ Shoe, 392 U.S. at 481, (2) the subsequent legislative history allocating damages as being within the discretion of the trial court). of the Cartwright Act, and (3) public policy. The manufacturers cross-moved for summary judt,•ment, contending that a pass-en defense was available to them and defeated both the Cartwright Act and UCL 16 49 Cal. 4th 758 (2010). claims. Id. at 764-65. 30 31
  3. 3. . . . . ,..,., ,."•" . " """"1 precedent, the state legislative reaction to federal statutoty amendment on parens patriae rule raises the prospect of duplicative recovery. In instances where multiple levels I authority, legislative history regarding the state legislative enactment of the Illinois Brick of purchasers have sued, or where a risk remains they may sue, trial courts and repealer, and public policy regarding the objectives of the Cartwright Act. 18 parties have at their disposal and may employ joinder, interpleader, consolidation, and like procedural devices to bring all claimants before the court. In ·such cases, In reaching this holding, the California Supreme Court placed particular significance if damages must be allocated among the various levels of i1~ured purchasers, the on the federal and state prohibitions against duplicative damages. As the Clayw011h Court bar on consideration of pass-on evidence must necessarily be lifted; defendants observed, Congress amended the Hart-Scott-Rodino Act to allow for state attorneys may assert a pass-on" defense as needed to avoid duplication in the recovery of general to file parens patriae lawsuits on behalf of injured consumers for violations of the damages. 24 · Sherman Act; in so doing, Congress also added a prohibition on duplicative damages. 19 The congressional history as to this prohibition on duplicative damages w:is plain in the With t!J.is final pronouncement, did the Court undo everything that it held in the rest mind of the Clayworth Court: (1) Congress wanted to overdeter antitrust violators rather of the opinion-essentially resurrecting the pass-an defense from the grave into wiJ.ich it than underdeter them; (2) Congress wanted to make sure that antitrust violators had to fully had just been placed? It is axiomatic that dicta in opinions should not be interpreted so disgorge their ill-gotten gains; and .(3) Congress expressly contemplated that both direct as to nullify the rest of the opinion. 25 Application of this axiom alone would suggest tl1at and indirect purchasers might sue and, rather than barring one group, Congress believed the Court had sometlJ.ing else in mind than the resunection of the pass-on defense, given a prohibition on duplicative damages would suffice to remove any issue about a double the extensive nature of its holding that the pass-on defense should not be available to award of the same damages 20 antitrust defendants because it would subvert the purpose of the Cartwright Act. 26 What that something else nJ.ight be-and how insightful this passage actually is in suggesting an The Clayworth Court further observed that this congressional history was important appropriate treatment for pass-on-can be gleaned by its reference to the tools of joinder, because the state legislature enacted the same parens patriae provision with the san1e interpleader, and consolidation to bring multiple levels of purchasers before tl1e court 27 prohibition on duplicative damages: it not only presumed the state legislature was aware of the congressional histmy smTotmding the earlier federal statutoty amendment but also II. Pass,.On as a Partition of Damages and the Treatment of Damage found that the state legislature was, in fact, aware of t!J.is congressional history at the time Partitioning as an Equitable Post-Trial Proceeding it enacted the parens patriae provision. 21 These tools are designed to sil11plify proceedings by ensuring that, even though there Ultimately, the Clayworth Court held that the federal rule of Hanover Shoe--tl1at a may be multiple groups of direct and indirect purchaser plaintiffs, there is one trial on defensive pass-on theory may not be used to defeat an antitmst damages clail1122-"should apply even as indirect purchasers are allowed to sue" under Californias state antitrust law: We therefore conclude, under the Cartwright Act as under federal law, that a 24 Id. (citations omitted). pass-on defense generally may not be asserted. Instead, in an antitrust price-fixing 25 CJ. Sallta Clara Couuty Local Tramp. Autlz. 1~ Guardino, 11 Cal. 4th 220, 235-36 (1995) (noting that case, the presumptive measure of damages is the an1ount of the overcharge paid generally statutes should be not interpreted so as to make provisions mere ·surplusage but deviating from rule because given public purpose of initiative, drafters would not have left open loophole that would by the plaintif£23 swallow up the rule); Sheppard v. Edllard Mackay Enterprises, Inc., 148 Cal.App. 4th 1092, 1101 (2007) (refusing to adopt preemption argument because it direcdy conflicted with United States Supreme The Court declared, however, an important caveat on its newly announced rule that Court decision); People 1>. Smitlt, 206 Cal.App. 3d 340,344 & n.S (1988) (refusing to adopt interpretation a pass-an defense generally is not available under the Cartwright Act: of California Supreme Court holdings because interpretation would have effect of making prior California Supreme Court. case a nullity). While a pass-an defense is generally precluded, a few instances remain in which 26 Clayu,ortlt, 49 Cal. 4tb at 777-79,782-86. it will still be available. First, Hanover Shoe recognized an exception for cost- 27 Id. at 787 (citations omitted). plus contracts and, given the Legislatures endorsement of Hanover Slwe, that exception would apply to the Cartwright Act as well. Second, in light of the flliuois Brick repealer statute, cases may arise where application of the Hanoler Shoe-~. . 18 Id. at 775. 19 Id. at 776. 20 Id. at 776-77. 21 /d. at 777-79. 22 ld. at 770 (citing Hau01er Shoe, 392 U.S. at 481). 23 Id. at 787 (citations omitted).
  4. 4. liability and one trial on damages. 28 ·In this context, pass-on means that one specific group involving a division of money previously awarded by d1e jury, it should be asserted in a of plaintiffi cannot get 100% of damages for overcharges because other groups of plaintiffi post-ttial equitable proceeding involving the allocation of damages. The natural force of up or down the distribution channel who have been or should be joined to the case may this logic is reinforced by the reference of the Clayworth opinion to interpleader actions: an also have been hurt and, accordingly, may be entided to a percentage of cl1e total damage interpleader proceeding is govemed by equitable ptinciples, as its purpose is .to protect a award for overcharges. 29 And defendants, having been found liable and having been stakeholder from multiple liability and the expense of multiple litigation, not to compensate required to pay a damages award, want nothing more than to wash their hands of how the the stakeholder. 32 As an equitable issue, pass-on does not need to be ttied in front of a jury damages award against them should be divided willie avoiding further proceedings in the but rather can be handled by the court after the jury hands down its verdict." matter. The different groups of purchaser plaintiffs-who have been joined together and presumably were required to collaborate in the presentation of a single case on liability and Moreover, the allocation of damages among multiple groups of plaintiffs by a jury damages-want a simple split of the damages award among their respective groups so they following an assertion of pass-on in order to avoid duplicative damages would, of necessity, can end ilie proceedings. 30 require special jury verdict fonns. In that context, the need for special jmy verdicts on duplicative damages may lead to jury confusion-and hence to erroneous verdicts on Given this view of pass-on as being the allocation of an overcharges damages award · liability or other issues squarely within the provenance of the jury-a point that further· among the differing groups of plaintiffi up and down the distribution chain, pass-on is reinforces the conclusion that the issue of duplicative damages arising from pass-on should most naturally an equitable issue, not a legal one, because it involves nothing more than be handled in post-trial proceedings 34 the partition of money. 31 It logically follows that, since pass-on is an equitable issue It is tme that seemingly analogous issues, such as comparative fault in negligence cases or equitable indemnity, go to the jury. 35 However, those defenses affect the scope 28 Sec Hf!!Jimw-La Roelle, luc. v. Sperliug, 493 U.S. 165, 170-71 (1989) (Regarding ADEA provisions that of liability found, or of damages assessed, against defendants. As such, these defenses are allow employees to bring actions ou behalf of thc111selves and others similarly situated, Couit observed that "(t]he judicial system benefits by efficient resolution in one proceeding of conunon issues of Jaw and fact arising from the same alleged discriminatory activity," and "[i]t follOws that, once an ADEA action is fLied, the court has a managerial responsibility to oversee the joinder of additional parties to 32 Sec, e.g., Te:ms v. Florida, 306 U.S. 398,406-08 (1939);Aelua Uft Ins. Co. v. Bayona, 223 E3d 1030, 1034 ensure that the task is accomplished in an efficient and proper waY:);)asminc Ne11vorks, Iuc. v. Superior (9th Cir. 2000); Shop<ff & Cm,al/o LLP v. Hyou, 167 Cal.App. 4th 1489, 1512-1515 (2008); see gweral/y Court, 180 Cal. App. 4th 980, 995-96 (2009) Qoinder can be used to deal with the risk of multiple .or Zechariah Chafee, Fcdcmlluterplcader Siucc the Act of 1936, 49YALE L.J. 377,414 (1940) ("The whole inconsistent liability; if potential claimants do not come fotward or wish to maintain their own action, purpose of interpleader is ro settle the whole controversy among three or more parties. The stakeholder then joinder, consolidation, or coordination may be compeJled; even if a defendant fails to act, the court is discharged from liability at. the end of the first stage, and the dispute between the claimanl~ is has the power and "perh~ps the duty" to require the joinder of a necessary party); id. at 996 ("If the settled at the end of the second stage.~1). Cla}UIOrtlz is not the only opinion to have had this insight defendant concedes its duty to pay a sum of money, but fears conflicting demands by rival claimants, he though it is the most prominent. Sec, e.g., Illinois Brick, 431 U.S. at 761-64 (Brennan,]., dissenting) · may invoke the procedure of interpleader, which if sustained will permit him to pay the disputed sums (mentioning interpleader and consolidation as two possibilities to avoid double-recovery and ensure an into court and wash his hands of the controversy."); id. (Far from viewing rival claims as obstacles to apportionment of damages); Cipro Cases I & II, 121 Cal.App. 4th at 415-17 (mentioning administrative the plaintiffs action, our law reflects a strong preference for bringing aU genuinely interested parties procedures for allocating damages as being within the discretion of the tria] court); sec also Bill Digest, into a single proceeding and adjudicating all of the affected rights and liabilities at once."); Cal. R. Ct. AB 3222, California Assembly Committee on the Judiciary, at 1-2 (May 11, 1978) (in discussion on 3.500 (setting out rules applitable to request consolidation of two or more non "complex" cases ftled in Californias proposed Illitlois Brick repealer, Conunittee report set out joinder as one possible procedure different superior courts); id. 3.501-3.550 (same for consolidation of complex" actions filed in different to avoid double recovery); Areeda, supra note 7, 1!346k3 at 194 (noting consolidation as an option superior courts; complex cases typically include antitrust cases); 7 ChadesA.Wright,Arthur R. MiUer & though also remarking without discussing on the many "procedural complications"); Roger D. Blair & Mary K. Kane, FEDERAL PRACTICE AND PROCEDURE Section 1601 (3d ed. 2001) (discussing Jeffrey L. Harrison, Rcexamiuiug the Role of Jlliuois Brick in Modem Antitmst Standing Aunlysis, 68 CEO. history of federal rules on joinder and noting that the idea was long present that parties "whose presence Wash.L. Rev. 1;31 n.245 (1999) {noting that if Illinois Brick were to be overruled, statutory interpleader :, was desirable and who should be joined if possible - those known as necessary- wao:; well-established could be used to address the issue of there being a great number ofindirect"purchasers).The author of in federal practice" and "developed from equity and equitable doctdnes" though it was "utilized on the tllis memorandum is aware that under federal law there is a distinction between statutory interpleader law side of the federal courts long before the uniftcation oflaw and equity in 1938"); id., Section 1702 and rule interpleader. E.g., Wright, Miller & Kane, supra note 28, Section 1702 (diScussing history (describing interpleader as "a remedial joinder device that serves as a useful adjunct to the provision for difFerences between rules based interpleader and statutory interpleader). Insofar as this distinction may the permissive joinder of parties."). be germane to this article, the amhor intends to refer to statutory interpleader, not rule interpleader, except where othefVise indicated. 29 Sec, e.g., Claywortll, 49 Cal. 4th at 779,787. 33 Sec Cllmiffers, :[Cmnstcrs & Hclpers1 Local No. 391 v.Terr},494 U.S. 558,564-65 (1990). 30 Cf)asmiue, 180 Cal. App. 4th at 996 (discussing ways to bring all claimants before the court, or to.,,: protect potential claimants chat cannot be joined, including interpleader and cross-actiom against absent claimants, in order to eliminate potentially duplicative or inconsistent obligations). 34 Sec Si11gh v. Southland Stolle, US.A., Inc., 186 Cal.App. 4th 338,475 (2010) {in cases where special verdict required, better procedute to avoid duplicative damages is not to instruct jury to make determination 31 Cj Marti11 v. Couuty of Los Augel", 5"1 Cal. App. 4th 688, 695-96 (1996) (equitable actions usually seek as to duplicative damages because of the risk of jury confusion on verdict forms as to liability and some form of specific relief other than money damages); id. at 696 Qisting partition of real property as damages, but for: court to avoid awarding duplicative damages in judgment or in motion for new trial among the traditional actions that sound in equity rather than in law). By way of analogy, in federal proceedings); sec also CaL Civ. Pro. Section 662.5(b) (court can condition grant of new trial in situation court, the allocation of punitive damages among multiple groups of plaintiffi seeking to partition a involving claim of excessive damages on Condition that plaintiff accept reduction jn damages). sing]e award is conducted by the court, not the jury. Sec gcucmll} lu re Exxon [17/dc:z, 229 F.3d 790, 794- 95 (9th Cir. 2000) {noting that court entered plan of allocation of punitive damages among multiple 35 See, e.g., Ewiug 1!, CIOIJcrlcqf Bowl, 20 Cal. 3d 389, 399; .Martin; 51 c~~App. 4th at 697-98. group of plaintiffi (Some of whom settled, some of whom had not) that was reviewable on appeal under abuse of discretion standard). 34 35
  5. 5. classically ones that sound in law and are appropriately reserved to the jury. 36 But, the other groups of plaintiffs would largely be duplicative, 30 or (2) an offset if the earlier action "defense" of pass-on affects neither the scope ofliabiliry found nor the amount of damages had proceeded to settlement in lieu of trial or had proceeded to trial but resulted in a verdict assessed against defendants and so is not appropriately grouped with these other defenses as for damages that is plainly non-duplicative. •o ones that sound in law 37 However, "were antitrust defendants to file such an interpleader-type of proceeding, Tllis leaves one residual question: what happens if the different groups of plaintif!S whether such a_ proceedmg would be successful depends on how a number of questions are cannot be joined or consolidated into one proceeding but rather remain in different resolved: the Size of the damages award in the first action versus remaining unliquidated proceedings or even different state and federal formm? The answer may be simple: damages clanm (If backed by some evidence presumably) of plaintiffs in other actions;• I the assuming that one group of plaintiff< receives an early judgment on liability and/ or extent of the courts jurisdiction in which the first action had been filed;42 and the openness an award of damages, antitrust defendants could request vis-a-vis any other groups of of the proceeding to the intervention of necessary third parties." The participation of the plaintif!S proceeding later-in-time either (1) an interpleader type offollow-on proceedingl8 encompassing all other groups of plaintiff< that have filed sinlilar claiim, if the earlier action had proceeded to trial with a verdict on liability and damages and if the verdict on damages 39 Sec State Farm Pirc & Cas. Co. 1. Iflshirc, 386 U.S. 523, 532-37 (1967); sec also Nortl1 Amcricau Jvlktg. Corp. were large enough in the aggregate that a second (or subsequent) trial on damages involving ~~ K._ Cronlmcl & As~ociatcs, luc., 221 ER.D. 296, 298-99 (D. Conn. 2002) (court noted that it wa5 a reqmrement for an mterpleader action that there be a single, identifiable fund for the claimants and questioned wl~ether plaintiffhad satisfied that requirement just because he set aside some holding funds to P~Y off clam~; court also found that plaintiff did nor f.1ce multiple adverse claims for chis fund as 36 Sec Ervi11g, 20 Cal. at 399 ("chief affirmative defenses" to tort claims of negligence are questions for requued for an mtcrpleader action). the jury); Marti11, 51 Ca1.App. 4th at 697-98 (action for equitable indemnity affects amount of money 40 St:c ClayworJIJ,49 Cal. 4th at 777 (referring to federal law having codified a provision requiring an offset damages paid by defendants and so is an action at law reserved for the jury rather than at equity and as ro damages awards on state attorneys general parens patriae claims if there has been a previous award such reserved for the judge); if.Jazzabi v.Allstate lm. Co., 278 F.3d 979,985 (9th Cir. 2002) ("affirmative for the sa~1e injur}); Newby l. Vromau, 11 Cal. App. 4th 283, 289 (1992) (discussing state and federal defenses often present ultimate issues because, as in this instance, they frequently determine whether the law once JUry finds damages, and damages are trebled, any amounts previously obtained in settlement defendam will be liable. Accordingly, requiring civil juries to·come to unanimous agreement regarding are subtr~cted tiom the total). !fa settlement or trial involving a specific group of plaintiflS were large aftirmative defenses ... is consistent with the· Seventh Amendment to the Constitution and Federal Rule enough m the aggregate that 1t would completely (or almost completely offiet) any later award of of Civil Procedure 48."). ~amages to other groups of plaintiffS, those other plaintiffs may be able to object to the size ofihe award 37 Cj .Martin, 51 Cal.App. 4th ar 695-96 (equitable actions usually seek some form of specific relief other m the settlement proceedings if they believe, based on a pass-an analysis, that it is excessive relative than money damages); id. (looking at "gist" of relief sought ro determine if a defense is one in Jaw, such to the damages that they themselves believed they suffered. Assuming such an objection to be well- Char a jury trial is required, or in equity such that a court trial is required). Surprisingly, there do not taken, the court can appoint a special matter to sort through tl1e pass-an issues and issue a report and appear to be any reported stare or federal cases in which a pass-en defense was asserted at trial in an recommendation. antitrust case. However, Martin teaches us that circumstances can exist in which historical circumstances 41 Compaf/State Farm, 386 U.S. at 532 (interpleader is proper even if not all claimants have reduced their provide no guide as to whether a defense sounds in equity or in Jaw. Id. (noting that the historical clain~s t~ a_ ju_d~ment) with id. at 534-37 (interpleader by insurance company could not be used to method of making the determination if a defense was one in equity or in law is of no assistance if rhe acquuc JUnsdictton ove~ related state lawsuits against insured and other tortfeasor to the extent that defense was not in existence when the California Constitution was first adopted in 1850).And. Cluudfcrs those lawsuits went beyond the insurance policy that only one of the defendants had and which was teaches us we can look to historical analogies, here interpleader, to· determine whether an action·or the sole b~sis for the inte_rpleader action; interpleader actions are not an "all-purpose biD of peace"). defense sounds in equity or in law. 494 U.S. at 565-570. Statutory_ mterpleader actmns do, however, require that the defendant deposit the verdict amount for 38 The use of the term "interpleader type of proceeding" in this article is no accident.· First, one can damages m court or post an appropriate bond. See, e.g., Wright, Miller, & Kane, supra note 28, Sections eiivision the use of less formal processes aside from statutory interpleader by which damages allocation 1702-03 (2001) (contrasting statutory and rules interpleader actions on this point). · may take place through the joinder of other parties such as mediation. Further, the federal courts retain 42 State Farm, 386 U.S. at 53~ (in_terp~eader ~~es not require complete diversity, but only minimal diversity, substantial common law power to fashion rules pertaining specifically to antitrust suits under federal such that as long as there IS diversity of cmzenship between two claimants, it does not matter whether law so long as they do not enlarge the scope ofreliefbeyond that set out by Congress. Compare Illinois other rival claimants are also co-citizens). Brick, 431 U.S. 720 (using common law power to rule based on policy considerations Jhat only direct 43 Se: ~cuel~lly_So_ut~z Caroliua ~~North Carolina, 130 S. Ct. 854,861-67 (2010) (an action based 011 Courts purchasers can recover overcharges) with Texru Iudllstries,luc. v. Radclijf 1tlatcrials,lllc., 451 U.S. 630,643- 47 (1981) (refusing ro allow for a right to contribution among antitrust defendants because Congress ong_mal JUrtsdi.cbon between states on equitable apportionment of water rights, intervention of third was very specific as to the scope of relief that the courts could grant under the federal antitrust laws) . parties, whose mteresto; were sufficiently separate from the states themselves, was allowed).... : 36 37
  6. 6. state attomeys general would be advisable if they voluntarily consent. 44 As discussed i•!Jia, Furthermore, it simplifies the issues that a court must address in the certification of absent their voluntarily consent, antitrust defendants would need to show in a post-trial a class of indirect antitrust purchasers. Generally speaking, class certification is greatly motion that any further award of damages to the state attorneys general is duplicative. favored, 7 particularly in antitrust price-fixing actions, 48 as a means by which potential victinlS can obtain effective redress for their injuries. Ill. The Advantages of Handling Pass-On in A Post-Trial Allocation Proceeding By handling pass-on in post-trial allocation proceedings, courts can prevent class certification and trial proceedings fi·om being hijacked by peripheral issues involving the Leaving aside whether the pass-on defense must be heard by a jury rather .than allocation of damages. For example, the courts have had to wrestle with the certification by a court, trial courts continue to have great flexibility in how they want to handle damages-related issues such as pass-on. 45 In considering the exercise of such discretion, it is noteworthy that a decision by trial courts to handle pass-on as part of a post-trial allocation 47 For California law, set; e.g., Discover Bauk 1~ SuperitJr Court, 36 Cal. 4th 148, 156-57, 161 n.3 (2005); Linder proceeding on damages similar to interpleader proceedings carries with it a number of ~<Thrifty 0;! Co.,23 Cal. 4th 429,434 (2000); Callfomia" Lc•i-S~nmss & Co.,41 Cal. 3d 460,471 (1986) advantages. ("the consumer class action is an essential tool for the protection of consumers against exploitative business practices."); AJicros~ft 1- V Cases, 2000 WL 35568182 (doubts about class cercificatiou should be Most prominently, it best fits the objectives of federal and state antitrust law. Both resolved in fiJVor of class certification). For federal law, set Amclwm Prods., Inc. 11. l..fliudsor, 521 U.S. 591,614-18 (1997); sec also Camcgic ~~Household federal and state antitrust laws favor overdeterrence-especially where per se or hard- llllem., Inc., 376 E3d 656, 661 (7th Cir. 2004) ("lA] class action has to be unwieldy indeed before it core violations such as price-fixing are concerned-by ensuring the full disgorgement can be pronounced an inferior alternative-no matter how massive the fraud or other wrongdoing that of ill-gotten gains by antitrust defendants 46 Allowing antitrust defendants to assert will go unpunished if class treatment is denied-to no liti~,11tion at all."). Federal case Jav.• has referred pass-on before trial in order to "block" at least some groups of indirect purchasers fi·mn to class certification as playing an imporrant role in the private enforcement of antitrust Jaws. See, e.g., Hawaii 1~ Standard Oil Co. of Cal., 405 U.S. 261,262 (1972);see alsoAmchem, 521 U.S. at 625 {identifying proceeding to trial defeats the core purpose of federal and state antitrust laws of ensuring antitrust as the type of case in which the key predominance requirement should be met for certiftcation full disgorgement of ill-gotten gains-especially when hardcore or per se violations of the of a class). Federal cases have noted that doubts about class certification should be resolved in favor of antitrust laws are present. class certification in the antitrust context. See, e.g., Iu re flitamimAutitmst Litig., 209 F.R.D. 251,258 (D.C. Cir. 2002); In re Playmobil Alllitmsl Litig., 35 E Supp. 2d 231, 238 (E.D.N.Y. 1998). Admittedly,. however, federal court." have bet,TUn to stress the need for a "rigorous analysis" in applying federal class certification rules even in the antitrust context. See, e.g., 11!/inccn Tcclmologies, 2008 WL 4155665, at *5; 44 Sec Republic of Pllilippiues ~~ Pimeutel, 553 U.S. 851,865-73 (2008) (comi~ and dignity interests required see also, e.g., Dukes 1~ JVal-11art Storcs,luc., 603 F.3d 571, 581-590 (9th Cir. 201 0) (discussing this standard joining of Republic of Philippi("!.eS in interpleader action filed to determine whether asset." could be and viewing it as being applied by all of the circuits) granting certiorari in part,l31 S. Ct. 795 (2010); ]11 seized to satisfy judgment of class; if Republic continued to refuse to join, asserting sovereign immunity, re Hydrogc11 Peroxide Autitmst Litig., 552 F.3d 305,321-22 (3d Cir. 2008) (discussing this standard in the interpleader action could not go forward as the Republic had a colorable claim to the assecs); i1orongo ami trust context and noting that it means, i1~1er alia, that courts cannot either ignore doubts about c,lass Baud of.Missioulndiaus !1. Cal. State Bd. ofEqualizatioll, 858 E2d 1376, 1381;-82 (9th Cir.1988) (because certification or presume that a class should be certified in the antitrust context). state is not a citizen for purposes of diversity, it is not a citizen for purposes of the interpleader statute); 48 In ruling on motions for certification of a class of indirect antitrust purchasers, an inference or see also, e.g., Dyack R N. Mariaua Islands; 317 E3d 1030, 1037 (9th Cir. 2003) (citing Moor 11. County of Alameda, 411 U.S. 693,717 (1973) ("[t]here is no question that a State is not a citizen for purposes of presumption of injury is allowed under California law where thefe is a price-fixing conspiracy and diversity jurisdiction."); Califomia v. Steelcasc Inc., 792 E Supp. 84, 86 (C.D. Cal. 1992) ("lFJor diversity plaintiffi have purchased the price-fixed good or service. See, e.g., Iu rc New 11otor l?elticles Cauadiau purposes, a state is not a citizen of itself. Therefore, it cannot sue or be sued in a diversity action.1, ExportAutitmst Litig., 235 ER.D.,127, 135 (D. Me. 2006); Cijm> Cases I & 11, 121 Cal.App. 4th ar 412-14; overruled 011 otlter grounds by Ca!ifomia ex rel. Lockyer v. Dyneg}~ lnc., 375 F. 3d 831,849 (9th Cir. 2004). B. WI. Custom Kitc/<en v. Oweus-lllinois, Iuc., 191 Cai.App. 3d 1341,1350-51 (1987). Federal law does not appear to have a siu1-ilar presumption, (see Hydrogen Pero."l:ide, 552 F.3d at 321-22, 325-26) though 45 See, e.g., Rosack 1~ Volvo ofAm. Corp., 131 Cal.App. 3d 741, 761 (1982) (suggesting a number of means .the California presumption ma} be applicable even in a motion for certification under federal law of a by which complex liability and damages issues may. be tried in large class actions under state antitrust class of state indirect purchasers with California claims. Sec Shady Grove Orthopedic Assoc., P.A. v.Allstatc law, including bifurcating liability and damages trials and the use of subclasses); see also Cipro Cases 1 & II, lm. Co., 130 S. Ct. 1431, 1448 (2010) (Stevens,]., concurring) (state class certification rules that are 121 Cal. App. 4th at 415-17 (mentioning bifurcated trials, subclasses, and administrative procedures for inextricably intertwined with a States definition of substantive rights and remedies must be applied by allocating damages as all being within the discretion of the trial court). federal courts sitting in diversity). 46 See Claywortlt, 49 Cal. 4th at 763-66, 777-79. Canadian law, discussed infra, is similar. Sec Pro-Sys Cousultmlls Ltd. 1. J,!fincou Teclmolo~f!ies, 2009 CarswellBC 3035, at mJ73-74 (B.C.App. Ct. 2009). Because the Claywortl1 Court believed that it was important to require defendants to give up aU of their ill-gotten.~ .. gains, it sanctioned not onl} the recovery of overcharges but also the recovery of damages other than overcharges (so-called tertiary damages) such as lost profits and sales. Claywortl!, 49 Cal. 4th at 785. 38 39
  7. 7. of classes of indirect purchasers when issues such as pass-an may render it questionable This effort by direct purchasers to distinguish themselves from indirect purchasers-thoughas to whether common issues predominate over individual ones as to damages for the qmte understandable-multiplies the determinations of liability and damages involving theclass-notwithstanding the general principles discussed above that favor class certification. 49 s:une. set .of facts agamst the same set of defendants. The multiplication of trials detenniningIn fact, the certification of a class of indirect purchasers that includes differing groups of hability and damages lengthens the resolution of antitrust cases, increases costs on litigantsplaintiffs, such as resellers and end-users, can carry within it a disabling conflict of interest and on courts, raises the specter of inconsistent rulings as neither issue nor claim preclusion 52if pass-an is uol handled as a post-trial allocation issue, as these groups could have divergent would appear to ~pply, and. significantly increases the risk that duplicative damages mayinterests due to potentially divergent views on pass-an. In response, one could assert in the be. awarded 1f anotrust plamoffs push towards trial in lieu of settling. Set against this, thecontext of settlement proceedings that the creation of subclasses for thgse differing groups ab1lity of federal courts to consolidate federal cases for pre-trial purposes in multi-districtof indirect purchasers in a class certification context will retnove that conflict of interest. if litigation proceedings, 53 and to work out voluntary mechanisms for pre-trial coordination the subclasses have separate legal representationY Yet, in the trial context, subclassing does of fe~eral cases with state cases, insofar as discovery may be concerned, 54 does potentially not completely remove the disabling effects of a conflict of interest: rather than focus on ameliorate at least some of these problems, insofar as it allows differing groups of plaintiffSworking together proving liabiliry and aggregate damages, counsel for the various subclasses to address certain issues in a common fashion. Nonetheless, these measures do not do away must now take into account the possibility of being on opposite sides regarding issues such · Wlth the systematic problems discussed supra as trials of differing groups of plaintiffs mustas bifurcation (or trifurcation) of trial proceedings to enable damages or allocation issues still be handled separately. ss to be heard separately, the allocation of time for the presentation of evidence (and laterfor argwnent) on pass-an, and even the instmctions to give the jury. The apparent lack . Finally, given that the determination of pass-an does not involve a question for the juryof any reported cases involving actual trials of the pass-an issue further clouds the question m the first mstance, leavmg pass-an to a post-trial allocation proceeding avoids unnecessary·for indirect purchasers regarding how the trial would be structured to address these issues. In fact, because it is currently believed that pass-an must be addressed at trial in front 52 Se~, .e.g.,. Taylor. v. Stm;gell, 553 U.S. 880 (2008) (nonparties to earlier ruling cannot be precluded fromof the jury rather than in a post-trial allocation proceeding in front of the court, antitmst reht1gatmg ~la1ms res.olved by that earlier ruling unless they agreed to be bound to that ruling or unless the ~onpartles we.re m s.ome sort of agency, control, representative, or other legaJ relationship with theplainti.lli and defendants alike have to·plan for multiple trials-leading to inefficiency in the partles to the earlier ruling); Srm MicrOS)1Stems luc. v. Hyuix Semiconductor Inc., 622 F. Supp. 2d 890, 896-court system and potential prejudice to the parties. In particular, because direct purchasers 902 (N.D. Cal. 2009) (court upheld liability of parent corporation in opt-out action, whereas it haddo not wish to undermine the protection afforded by Hanover Shoe against the .assertion by fo~nd .no li.abili~ in original direct purchaser class action, because opt-outs raised agency theory notantitrust defendants of a pass-an defense vis-a-vis federal antitrust claims, they will make every ra1sed m pnor direct purchaser class action).effort to litigate and settle their cases separately from those brought by indirect purchasers. 51 53 See 28 U:S.C: Se~tion 140:(a). ("When civ~ actions involving one or more conunon questions of fact are pendmg m different d1stnc~, such acnons may be transferred to any district for coordinated or ~o.nso~dated pre~iaJ proc~edings. ·Such transfers shall be made by the judicial panel on multidistrict lmganon authonzed by th1s section upon its determination that transfers for such proceedings will be 49 Compare, e.g., Cipro Cases I & II, 121 Cai.App. 4th at 413 (in applying pt-csurnption of comm.on impact for the convenience of parties and witnesses and will promote the just and efficient conduct of such actions."). arising from price-ftxing, court observed that the price-fixing: occurred as to a final product, not as to a component of that product where the impact of the price fixing might be obscured}; CPU II/,253 ER.D. 54 For examples of cases with such ~nformal federal-state coordination, see In re DRAM Amitmst Litig., at 499-505 (court found that indirect purchasers could not rely on damages methodology of direct MDL. No. 1486 (~.D.. Cal.) (Hamilton,].) (state indirect purchaser cases stayed and state class counsel purchasers as direct purchasers could settle out separately; moreover, in assessing proposed methodology coordmated pretnal discovery with federal class counsel); Ju re Compact Disc Miuimum Advertised Price of indirect purchasers for purposes of class certification, court found manageability concerns would (MAP) Litigatiou, MDL No. 1361 (D. Me.) (Hornby,].) (California superior court and district co~rt defeat class certification because the expert would need to do adjustments as to the pass-on rate for conferred ~d agreed that state court action would be stayed so that pretrial discovery could be specif1c distribution channels which would raise an unacceptable risk eicher of being overly reliant on conducted ln federal court). The auchor of this article served as counsel. for California in the Compact averages or of being unmanageably individualized, and because some of those distribution charll1e1s, Disc .MAP case. were so specialized that pass-an even might need to be calculated on a reseller-by-reseller basis) and In 55 rc iJfetlzoninc l111titmst Litig., 204 F.R.D. 161, 164 (N.D. Cal. 2001) (court rejected class of intermediate See 28 U.S.~. Section 1407(a) ("Each action so transferred shall be remanded by the. panel at or before the conclusiOn of such pretrial proceedings to tl1e district from which it was transferred unless it shall purchasers under Wisconsin law because plaintitfs failed, illlcr alia, to meet their burden of showi11g tl1at hav.e been previously _terminated ...."); Lexecon, l11c. v. A1ilbcrg H~iss Bcrshad Hyues & Lcrach, 523 U.S. "there is a reasonable mechod for determining on a class-wide basis whether and to what extenc that 26 (1998) (cas~ transferred pursuant to MDL rules must be transferred back for trial; transferee court overcharge was passed on to each of the Wisconsin indirect purchasers at all levels of the distribution chain) witl1 JHicrosi.?ft I-V Cases, 2000 WL 35568182 (court found that individualized inquiry of harm, cannot self-asstgn case for trial eve.n pursuant to circuit rules); see also, e.g., In re DRAM Antitmst Litig., or proof that each and every class member paid overcharges due to illegal exclusionary conduct of . ~L No. 14~6 ~~.D. .Cal.) (Hamiltc~n!J.) (although direct and indirect purchasers conducted unified d1scovery on habtlity, dtrcct purchase£s were on separate track from indirect purchasers for trial and then defendant, not required to certify class of indirect purchasers of computers containing defendants settled separately). software given that general economic theory supports the idea that at least some of the overcharges were passed on to consumers and that pass-an could be reasonably calculated rising several methods). 50 See Fed.R. Civ. P. 23(c)(5); Oritz" Fil>rcboard Corp., 527 U.S. 815,856 (1999); Alllc/JCIII, 521 U.S. at 626-29. 51 See, e.g., lu re DRAM Autitrust Litig., MDL No. 1486, 2007 WL 2416513 (N.D. Cal. Aug. 16, 2007) (Hamilton,].); Ju rc 11T-LCD (Flat Paucl) Autitmst Litig., 267 ER.D. 583 (N.D. Cal. 2010). The author of this article is the Chair of the multistate litigation group in the l•ifiucou case, which was consolidated with the DRAlvl case for pre-trial purposes and has assisted counsel for California in the TFT LCD case.
  8. 8. jury confusion. SimplifYing assumptions may be used to determine the scope of pass-on priced its products below-costs. 59 However, whether and how such a presumption could to indirect or downstream purchasers, 56 and advances in technology may make It easier to be or should be applied to markets with multiple distribution levels, or markets of a good access the data necessary to calculate pass-on. 57 Nonetheless, pass-on involves not only the containing a price-fixed component, is an open question. 60 need to ~sp what can be complex economic models of an industry but also to assess the a "fi . y Furthermore, the question of who carries the burden of proof on a pass-on defense degree of pass-on of overcharges in very fact-spec! c circun1Stances. is complex where the trial involves multiple groups of indirect purchaser plaintiffi. Is it In fact, in contrast to assessing aggregate damages, there are serious limits to the ability enough for antitrust defendants to raise the defense with some colorable evidence that one of the parties and the courts to craft presumptions and allocate the burden of proof prop~rly or more group of indirect purchaser plaintiffi may have passed on the overcharges suffered in order to aid the jury in determining which set of plamuffs should be awarded which to another group of such plaintif!S? 61 Must they also meet some initial burden of Jlersuasion percentage of overcharges arising from the illegal actions of antitrust defendants. It IS true (if not also proof) that a relevant subgroup of indirect purchaser plaintiffs in the case (e.g., that in the context of the Unfair Practices Act, state antitrust law presumes pass-on accounts .resellers) may be entitled to nothing because of 100% pass-on of costs farther down the for ioo% of a companys cost plus a 6% markup in determining whether a company has chain? 62 What happens if, once the defense is asserted, indirect purchaser plaintiffS differ among themselves as to whether pass-on is 100%, 90%, or 40%, based on good-faith disagreements as to the import of pricing data? Harris & Sullivan supra note 7, at 277-98 (employing such simplifying assumptions to show how pass- 56 an operates ·in different markets); sec also, e.g., Pw-Sys, 2009 Carswe~c_ 3035, at ~64 ("lc. was conun~n While the European Commission, for example, has suggested that there be a ground that statistical regression analysis is in theory capable of prov1dmg reasonable esomates of gam rebuttable presumption that pass-on was 100% if plaintiffS are end-users, 63 such a rebuttable or aggregate harm and the extent of pass-through in price-flXing cases."), lear:e [or appea~ refused b} 2010 CarswellBC 1361 (Can. Sup. Ct. 2010);jonathan T. Tomlin & Dale ~ ..Gmh~ Feder~lum n~~d tl1e presumption does not seem to fit the economic evidence that there is almost always some Indirect Pwrlwser Mess, 11 GEO. MASON L. REV: 157, 168 & n.56 (2002) (cltmg Pmelop•e KoujJanou (though not almost always 100%) pass-on, nor does it suggest what a jury should do if Goldberg & Michael M. Kncuer, Goods Prices and Excf,_ange Rates: Wltat Have Hi Leamed?, 35 J. ECON. reseller plaintiffs who have been joined· into a case .wish to rebut such a presumption. · LITERATUltE 1243 {1997) (noting that econometnc methods could be used to calcul~te pass on Moreover, there is no consensus as to the nature of the presumption that would apply and that such methods were used to calculate the "exchange rate pass through" in intemat10nal ~de cases); Schaefer, supm note 6, at 896-97 (analyzing pass-an of taxes as proxy fo~ pass-an under vanous assumptions equating taxes with variable and with fiXed costs, and then find1~g that pass:on occurs under either scenario); Blane A. Smith, The Califomia Legislature Steers tile ~lllllniSt Cart Rrg~1t ?JJ tile 59 Cal. Bus. & Prof. Code Section 17206. Illiuois Brick Road,11 Pac. L.J. 121, 129-37 (1979) (hereinafter Smith) (agreemg th_at the tax ~nctdence 60 See, e.g.,]ohn Cirace,Apportioning Damages Between Direct and Indirect Purcllasers in ConsolidatedAntitniSl analysis ·of Schaefer is a good proxy for pass-an, th~t _it. has predi_cated ~as~-011 when a~Justed for Suits: ARC America Unravels tlw Illinois Brick Rule, 35 Vill. L. Rev. 283, 318-330 (1990) (suggesting market conditions, that the asslunption of profit-maximtzmg f1rms m tax mc1dence analys1s reflec~ a presumption in favor of pass-an to indirect purchasers on public or commercial construction contracts, "fundamental principle of the capitalist system," that tax inci~ence a1~alysis "is as accurate. and probative and in cases involving price-ftxing on an end product, but not price-ftxed component cases, because as other tests which receive judicial recognition," and that tlliS analysts sets up a presumptiOn of pass-an). whether· direct or .indirect purchasers would be better positioned to recover depends on a myriad of Claywortli, 83 Cal. Rptr. 3d at 60-61 (citing Fed.Jud. Ctr., Manualfo~ Comple.x Litig. Section 2.717, at factors) (hereinafter Cirace);if., e.g., Cipro Cases I & II, 121 Cal.App.4th at 413 (in applying presumption 57 of common impact arising from price-fixing, court observed that the price-fixing occurred as to a 80 (1978)); see also Smith, supra note 56, at 134-35 ("computerized evtdence could be ~tfe~ed to pro~e pass-an behavior directly in the form of summaries of the .?usiness records of each ennty m the cham final product, not as to a component of that product where the impact of the price flXing might be· obsCured); Areeda, .supra note 7 ,1j346k at 193 (noting the tracing issues become more complex as layers of distribution from initial ov(!rcharge to remote purchaser. ). of distributors arc added on, if. as they assume is conm1on, different distributors at the same layer have See, e.g., Kausas v. UtiliCorp United, Inc., 497 U.S. 199, 211 (1990) (noting, at least with respect to different markups, and depending upon the importance of the price-fixed good to the intermediarys 58/ regu]ated utilities, that pass-an could be delayed in the short-term); _EU Study, supra note 7, at 33-34 selling price). (using different economic models for different markets although nonng that so~e a~ount o_f p~s-on occurs in almost all ofthem);Tomlin & Giali,supra note 56, at 16~ & n.56 (notmg Without cttano_n or 61 See, e.g., Taylor, 553 U.S. at 906 (burden of defendant to plead and prove affirmative defenses). discussion that the use of econometric methods used in international trade cases can be "excessively 62 See id. complex" a.nd "necessitate the use of data tha.t is often not available"); Areeda, supra note 7 ,_,346k at 193 (noting the tracing issues become more complex as layers ~f distributors are added on, t_f, as they 63 Commission White Paper on Damages, supra note 4, at 8; see also Smith, supra note 56, at 129-37 assume is conunon, different distributors at the same layer have dtfferent markups, and dependm~ upon (suggesting that tax incidence analysis should lead to presumption of pass-an). the importance of the price-fixed good to the intermediarys selling price); Robert Cooter, Passmg C?" tlte Wlouopol} Overclmrge:A Furtl1er Comment 011 EconomicTireory, 129 U. PA. L.Rev.1523, 1531 (1_981) (tn production factor markets subject to monopoly overcharges, pass-an of costs to consumers Will occur... : in the short term and in the long term; allocating ~vercharges over the long-run depends on the deg~e of factor substitution but can be done as consumers shoulder more of the burden in the lo~g-run w~le allocating overcharges in the short run can be more difficult becau~e the lo~ of profits for u~tcnnedmte resellers in the short-run complicates the allocation process); Harns & Sulhvan, supra note 7, ::tt 277-98 (same as EU Study). 43 42