USA - The Strategic View - Competition Litigation 2016

Jonathan Jacobson and Thu Hoang provide an insight into the trends and procedures of private antitrust damages actions in the USA, and discuss the settlement of such actions and the expected effects of recent reforms.

Contributing firm

1       Are there any particular sectors in your jurisdiction which tend to be a focus for competition damages actions? Why do you think this is the case? 

Three sectors in the U.S. have been the frequent subject of damages actions in recent years: technology; healthcare; and pharmaceuticals.  In particular, the technology market has seen several cartel investigations and follow-on class actions, such as those involving capacitors, liquid-crystal-display (“LCD”) panels, and semiconductors.  The healthcare and pharmaceuticals industries, on the other hand, involve a large number of competitor litigations.  In the healthcare sector, the cases usually involve allegations of misconduct of a vertical nature, such as exclusive dealing, most favoured nation clauses, bundling, and loyalty discounts.  By contrast, litigation in the pharmaceutical sector typically concerns conduct specific to the regulatory environment permeating the industry, such as reverse payment settlements, risk evaluation and mitigation strategies (“REMS”) abuse, and product hopping.

Generally, the robust litigation environment as well as the particular types of litigation in these sectors are often products of their market structures.  The technology markets, for example, often involve high entry barriers, network effects, and intellectual property rights.  Many of the markets are highly concentrated as well, and entry often requires an entirely new or different paradigm.  Further, in some markets, such as the capacitor or semiconductor segments, the homogeneity of some product lines can be a facilitating condition for collusion.  This market structure has generated cartel investigations and governmental enforcement actions, sometimes in multiple jurisdictions at the same time, which in turn lead to follow-on private litigations and especially class actions in the U.S.

Litigation in the healthcare sector typically involves vertical arrangements by firms with an arguably dominant position, such as arrangements between healthcare providers and insurance companies.  This structure helps explain, at least in part, both the incentive of competitors to litigate, as well as the type of allegation brought against the dominant firm.  That is, the healthcare market’s characteristics can be conducive to relatively narrow geographic market definitions, which make dominance easier for plaintiffs to show.  For example, the relevant market in an important case regarding modern bundling law, Cascade Health Solutions v. PeaceHealth, spanned only a county in a single state.  The multiple vertical arrangements which the dominant firm uses, coupled with this arguable dominance, are materials on which plaintiffs can build theories of exclusionary harm.  Regardless of these theories’ merits, the readiness of the claims still renders the market ripe for litigation.

Similarly, the pharmaceutical industry’s regulatory framework, especially the Hatch-Waxman Act, can be susceptible to gamesmanship and consequently litigation by antitrust enforcers, competitors and purchasers.  This framework also helps explain the uniqueness of the types of conduct challenged in the industry.  For example, the patent litigation environment created by the Hatch-Waxman framework gave rise to reverse payment settlements in such patent cases, whereby the plaintiff offers to pay the generic defendant in exchange for the defendant’s agreement to delay entry of the generic drug into the relevant market.  This type of settlement has been the target of allegations of collusion in the past few years.  Additionally, the market has the potential to be divided into multiple, highly specialised submarkets where dominance can be found with relatively more ease than in other sectors, which is conducive to exclusionary conduct claims.

2       Who do damages claims tend to be brought by in your jurisdiction? (e.g. direct purchasers, indirect purchasers, end consumers?) If claims are not currently being brought by indirect purchasers and/or end consumers, why do you think this is?

Damages claims tend to be brought by direct purchasers, indirect purchasers, and competitors.  Consumer cases are predominantly brought only if the plaintiffs fall into the direct or indirect purchaser categories.  Otherwise, standing would be much more difficult to prove and the consumers may not have sufficient interest or resources to pursue the challenge.

3       What approach are the courts taking to claims that originate from investigations or infringements arising out of the jurisdiction?

Antitrust litigation can be brought by anyone with the requisite standing, including the ability to show antitrust injury, in accordance with jurisprudence on the issue.

4       Do claimants favour your jurisdiction when they have a choice as to where to lodge a claim? Why?

Yes, absolutely.  The antitrust law framework in the U.S. encourages and facilitates private enforcement by providing for treble damages, the award of litigation expenses and reasonable attorney’s fees, and the relative ease of class certification.  Section 4 of the Clayton Act makes the award of treble damages, expenses and reasonable attorney’s fees automatic for prevailing plaintiffs.  By contrast, prevailing defendants may recover attorney’s fees only if the plaintiff is sanctioned under Federal Rule of Civil Procedure (“FRCP”) 11 on a bad faith or frivolousness standard.  Accordingly, there is an imbalance in risks in terms of legal expenses faced by plaintiffs and defendants, which contributes to the attractiveness of damages actions under the Clayton Act.

Class actions for damages are brought under FRCP 23, which requires that: (i) the members of the proposed class be so numerous that joinder of all members is impracticable (“numerosity”); (ii) there are common questions of law or fact (“commonality”); (iii) the claims or defences of the representative members are typical of those of the class (“typicality”); and (iv) the representative members will adequately protect the interests of the class (“adequate representation”).  These preliminary requirements are comparatively easier to satisfy in an antitrust class action.  For example, a price fixing conspiracy can affect the prices paid by thousands or even millions of people, thus satisfying the numerosity requirement.  Similarly, the harm suffered by the victims often arises out of the same price fixing course of conduct.  Given that many courts have not required complete uniformity of claims or injury, the commonality and typicality requirements present lower bars for class plaintiffs.  Finally, the adequate representation requirement involves assessment of whether the class representatives have conflicts of interest with other class members, which, again, can present less of a proof hurdle in many circumstances.

Once the preliminary requirements are satisfied, antitrust class actions are usually brought under the “predominance” prong of FRCP 23(b)(3).  Under this rule, in addition to the prerequisites common to all types of class actions, plaintiffs must show that “questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy”.  Historically, the courts had adopted a pro-plaintiff approach to this requirement and rendered it mostly a formality in antitrust cases.  The Supreme Court has retreated from this position in recent developments, but it is worth noting that the standards applied by the different courts are not uniform, with a number of them remaining faithful to the more lenient approach while others impose more demanding proof from class plaintiffs that common issues predominate.  In particular, an important question to certification is whether the fact of injury is capable of being measured on a class-wide basis.  In practice, lower courts have frequently circumscribed this analysis by refraining from discussing the issue due to overlaps with the merits or by treating this inquiry as a mere formality.  In 2013, the Supreme Court in Comcast Corp. v. Behrend tightened up the inquiry required of the lower courts by reiterating that a “rigorous analysis” must be conducted to determine whether antitrust damages are capable of being measured across the class, and that this analysis must be done at the certification stage even when inquiry into the merits is necessary.  It also held that damages issues could “overwhelm” common questions and destroy predominance.  Nonetheless, depending on the particular forum within the U.S., especially the more “plaintiff-friendly” Circuits, many lower courts still adhere to the more lenient approach to class certification with respect to damages issues.  As a result, class action remains an attractive feature of private antitrust litigation in the U.S for plaintiffs.

Other principles of law such as joint and several liability, as well as the absence of contribution, also add to the benefits of bringing cases in the U.S.  The doctrine of joint and several liability permits plaintiffs to recover the full amount of damages from any liable defendant, while the absence of contribution precludes a defendant’s ability to compel other defendants to share in the damages payment.  These factors, in conjunction with the threats of treble damages and class certification, can substantially influence not only plaintiffs’ incentive to sue, but also defendants’ litigation strategies as well as their incentive to settle cases.  That is, even slight exposure to liability may become a significant risk when treble damages, joint and several liability, and the lack of contribution rights are taken into account, thus increasing the pressure on defendants to settle.  This incentive to settle, in turn, may contribute to the plaintiffs’ incentive to bring cases in the U.S.

5       In practice, are the courts generous to claimants when awarding disclosure, including pre-action disclosure?

U.S. law does not allow for pre-action disclosure except under extraordinary circumstances, although informal communication between the potential parties is possible.  By contrast, discovery post-complaint is very liberal under FRCP 26, which provides for discovery of “any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case”.  Tools of discovery permitted under the Rules include initial disclosures, depositions, interrogatories, requests for admission, requests for production, as well as third party discovery through the issuance of subpoenas.  The proportionality requirement in FRCP 26 was explicitly added and took effect in 2015.  Whether this addition will rein in current discovery practices remains to be seen, especially because the proportionality requirement itself is not new.  That is, although discovery under FRCP 26 has always been subject to the undue burden limitation, in practice, antitrust discovery remains notoriously expansive and expensive.  Further, given that the addition became effective only in December 2015, robust discovery is expected to continue to be the norm in antitrust litigation at least in the foreseeable future.

6       How do the dynamics of a settlement really work in your jurisdiction? Is there a mechanism by which a "global settlement" can be approved/enforced?

Some factors affecting a settlement have already been discussed in the answer to question 4.  Other factors affecting settlement discussions or decisions tend to focus on the strength of the claims and the potential recovery at stake.  For example, a final adverse decision as a result of a governmental investigation or a guilty plea can be used as prima facie evidence of violation of the law in follow-on lawsuits, which contributes to the defendants’ incentive to settle the private damages actions as early and inexpensively as possible.  Another example is class action plaintiffs’ ability to opt-out of the class settlement when the proposed settlement amount is perceived to be less than the value of recovery in individual litigation or settlement.  For instance, approximately 8,000 plaintiffs in the Payment Card Interchange Fee litigation opted out of the proposed $7.25 billion settlement, with multiple individual complaints filed against the defendants thereafter.  Wal-Mart, one of the original named plaintiffs that opted out of the settlement, rejected the arrangement due to its lack of protection against future fee increases and sought $5 billion in its subsequent individual lawsuit.  Later, in 2015, Wal-Mart and Visa agreed to a settlement, the terms of which were undisclosed.  This opt-out lawsuit and settlement helps demonstrate how the perceived inadequacy of a settlement proposal can drive plaintiffs’ decision to settle or not.

The parties can reach global settlements and reinforce the agreement by stipulating a forum selection clause.  As a general matter, however, there is no mechanism for worldwide enforcement.  Hence, to the extent that a dispute arises, the settlement must be policed by national courts, with some more inclined to enforce the settlement arrangement than others.

Within the U.S., settlement on a nationwide basis is available and enforceable by the courts.  “Global settlement” or “global peace” is generally understood in the context of class actions, where defendants are often willing to settle only if the entire class is bound across the nation, with the limited exception of plaintiffs who opt out to pursue their own claims. It is worth noting that settlement class certification is subject to a less stringent standard of predominance than litigation class certification, such that even where there are differences in state law affecting the class, the courts remain willing to certify the class for settlement purposes.  In particular, despite the division in state laws regarding indirect purchasers’ antitrust standing, several courts have certified classes of indirect purchasers for the purpose of settlement, holding that commonality and predominance are not defeated by state law differences.

The next steps in completing class settlement are providing notice of settlement and obtaining court approval.  Unlike individual settlements, which courts routinely approve without review, FRCP 23 requires the class settlement proposal to be approved by the court through a hearing in which it finds the settlement “fair, reasonable and adequate”.  This approval is subject to appeal by members of the class objecting to the settlement, such as in the Payment Card Interchange Fee litigation.  However, once a class action is settled, class members are bound unless they have opted out.  Hence, defendants may use this mechanism to achieve “global settlement” on a nationwide basis.

7       How long do damages actions take? What is the likely range of costs required to defend a claim?

Antitrust cases are generally long and expensive.  Damages actions can take anywhere from two to twenty years from filing to final judgment, with most cases resolving within three to five years.  Costs of defence can range from hundreds of thousands to tens of millions of dollars.

8       What funding options are available for (i) claimants and, (ii) defendants, in your jurisdiction?

Plaintiffs can fund the litigation out-of-pocket on a contingency fee basis.  Third-party litigation funding, where a third party invests in the case by financing it in return for a percentage of the damages recovered, is also an available option for large claims.

Defendants fund their defence out-of-pocket as insurance is rarely available.  As discussed in the answer to question 4, contribution from other defendants is not available.  Indemnification by another defendant or third party is mostly disallowed, unless the liable defendant is “an innocent actor whose liability stems from some legal relationship with the truly culpable party”.

9     Do you anticipate any significant increase in damages actions in your jurisdiction over the next year or two? If so, where and why do you anticipate these increases coming?

No, we do not.

10    In your opinion, what are the key changes (if any) required in your jurisdiction to improve the effectiveness of private enforcement of competition law?  

Reference is made to the Antitrust Modernization Committee’s Report and Recommendations (2007) ( as well as author Jonathan Jacobson’s Separate Statement in connection with that report (pp. 412-427).

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The Strategic View - Competition Litigation

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