Every antitrust lawyer should be familiar with the U.S. Supreme Court’s decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), which overturned a 3rd U.S. Circuit Court of Appeals decision affirming an order certifying an antitrust class action under Federal Rule of Civil Procedure 23(b)(3). The Supreme Court held that the plaintiffs’ expert’s damages model was unable to measure class-wide damages attributable to the plaintiffs’ theory of antitrust impact. Because of this fundamental flaw in the damages model, individual damage calculations would overwhelm questions common to the class, and the class therefore could not be certified under Rule 23(b)(3).
In the six months since Comcast issued, decisions applying it have fallen into three general categories: (1) opinions distinguishing Comcast, finding an acceptable common formula at the class certification stage and Rule 23(b)(3)’s predominance test satisfied; (2) opinions certifying a class as to liability only under Rule 23(c)(4) (“When appropriate, an action may be brought or maintained as a class action with respect to particular issues.”); and (3) opinions applying Comcast and rejecting class certification on the ground that impact cannot be determined on a class-wide basis or no common formula exists for determining damages on a class-wide basis. See, e.g., Jacob v. Duane Reade, Inc., No. 11 Civ. 160 (JPO), 2013 U.S. Dist. LEXIS 111989 (S.D.N.Y. Aug. 8, 2013) (discussing decisions since Comcast).
Although courts have applied Comcast inconsistently, the decisions thus far suggest that Comcast may have a greater effect on class certification in antitrust cases than in other areas, because of the complexity of isolating the impact of various categories of alleged anticompetitive conduct, and the difficulty of disaggregating the conduct for class-wide damages models. Accordingly, defendants in antitrust cases should continue to see Comcast as offering an opportunity for an early test of plaintiffs’ damages models regarding class-wide damages.
This article first summarizes the Comcast decision. It then provides a high-level overview of decisions since Comcast, focusing on appellate decisions and a sampling of district court antitrust cases. Finally, we offer some thoughts on what these cases tell us about Comcast’s likely effects on antitrust class actions. In brief, recent decisions provide defense counsel with ammunition to use Comcast to challenge class certification under Rule 23(b)(3) by attacking plaintiffs’ (and their experts’) theories regarding class-wide impact and damages. READ MORE
On Sept. 23, 2013, the 10th U.S. Circuit Court of Appeals affirmed a judgment as a matter of law (following a jury trial) dismissing Novell’s monopolization claim against Microsoft. (See Novell, Inc. v. Microsoft Corp., 2013 U.S. App. LEXIS 19463 (10th Cir. Sept. 23, 2013)). Novell had alleged that Microsoft’s decision in the 1990s not to provide Novell with certain “beta” software and “application programming interfaces” allowed Microsoft’s Office software to leapfrog Novell’s WordPerfect software in the marketplace and constituted an unlawful refusal to deal with a competitor. In rejecting that claim, the 10th Circuit held, among other things, that Microsoft’s decision to maximize its “immediate and overall profits” could not constitute a refusal to deal in violation of Sherman Act Section 2 under Verizon Communications v. Law Offices of Curtis V. Trinko, 540 U.S. 398 (2004).
Microsoft’s decision allowed it to win significant profits in the sale of its Office applications. The 10th Circuit rejected the argument that a refusal-to-deal claim could be maintained if there was evidence of a design to forgo short-term profits in one line of business (operating systems) without consideration of short-term gains in another (applications). “Parsing profits from different product lines would defeat [the point of the Trinko inquiry into forgoing profitability], holding firms liable for making moves that enhance their overall efficiency, if at the expense of a particular business line. It would risk as well returning us to a day when larger firms had to forgo immediate overall gains in order to subsidize a less efficient rival that happens to do business only in one particular product line. And it would present a serious administration challenge to say the least.” The court’s decision is available here.
On Aug. 9, 2013, the D.C. Circuit Court of Appeals in a unanimous decision overturned the district court’s order granting certification of a class of direct purchasers in In re Rail Freight Fuel Surcharge Antitrust Litigation, 2013 WL 4038561(D.C. Cir. 2013). Plaintiffs, shippers who purchased railroad freight shipping services, alleged that the defendants conspired for many years to fix prices in setting rate-based fuel surcharges. They sought and obtained certification of a class action under Fed. R. Civ. P. 23(a) and 23(b)(3), which is granted if the court finds that “the questions of law or fact common to class members predominate over any questions affecting only individual class members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.”
The D.C. Circuit reversed the district court’s order based on the U.S. Supreme Court’s recent decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). In Comcast, the Supreme Court overturned an order certifying a class action. The plaintiffs in Comcast had proposed four theories of antitrust impact, all but one of which was rejected by the district court. The sole basis for certifying the class under Rule 23(b)(3) was a damages model based on all four theories of impact. The Court held that basing class certification on a damages model divorced from the theory of liability was insufficient under Rule 23(b)(3).
The D.C. Circuit embraced the analysis in Comcast, explaining that “[it] is now indisputably the role of the district court to scrutinize the evidence before granting certification, even when doing so ‘requires inquiry into the merits of the claim.’” In conducting that analysis, the D.C. Circuit found plaintiffs’ regression model inadequate to support certification under Rule 23(b)(3), because it suggested that shippers who were indisputably unaffected by the alleged price-fixing conspiracy, due to long-term contracts, were harmed by it. Since the model was unreliable it could not be used to demonstrate class-wide injury. The court’s decision is available here.
For a discussion of antitrust class action decisions since Comcast, please click here to access the Top Story in this issue of Orrick’s Antitrust and Competition Newsletter.
On Aug. 2, 2013, the 7th U.S. Circuit Court of Appeals in a unanimous decision held that when a plaintiff sues a corporate defendant in an antitrust case, it must elect to proceed under Section 12 of the Clayton Act (15 U.S.C. § 22) or under 28 U.S.C. § 1391 for purposes of venue and personal jurisdiction, and it cannot mix and match the two sections. (See KM Enterprises, Inc. v. Global Traffic Tech., Inc., et al., 725 F.3d 718 (7th Cir. 2013)). The decision places limits on a plaintiff’s choice of forum for suing a corporate defendant in the 7th Circuit.
The general federal venue statute, 28 U.S.C. § 1391(b), provides for venue in judicial districts as laid out in the statute. However, Section 12 of the Clayton Act provides special personal jurisdiction and venue rules in cases brought under the antitrust laws. The 3rd and 9th Circuits have held that a plaintiff may combine Section 12’s personal jurisdiction rule with the venue rule of 28 U.S.C. § 1391, which has the effect of expanding the districts in which a corporate defendant may be sued in an antitrust case. The D.C. and 2nd Circuits have taken the view that Section 12’s personal jurisdiction and venue rules must be read together, which limits the districts in which a corporate defendant may be sued to those in which it is an inhabitant, is found, or where it transacts business. The issue, as the 7th Circuit put it, is “if a plaintiff chooses to take advantage of Section 12’s nationwide service-of-process provision (and thus in effect rely on nationwide personal jurisdiction), must she then establish venue under Section 12 as well, or may she mix and match, relying on the Clayton Act for personal jurisdiction and Section 1391 for venue?”
The 7th Circuit sided with the D.C. and 2nd Circuits, holding that “Section 12 must be read as a package deal. To avail oneself of the privilege of nationwide service of process, a plaintiff must satisfy the venue provisions of Section 12’s first clause. If she wishes to establish venue exclusively through Section 1391, she must establish personal jurisdiction some other way.” The 7th Circuit’s decision is available here.
On Aug. 28, 2013, the 5th U.S. Circuit Court of Appeals issued an order overturning a district court judgment against Pilgrim’s Pride, a large producer of processed chicken, for unilaterally reducing its output of chickens in order to reduce an oversupply of chicken that resulted in financial losses. (See In the Matter of Pilgrim’s Pride Corporation, No. 11-10774, Chapter 11, 5th Cir. 2013).
Pilgrim’s Pride enters into Poultry Grower Agreements with local chicken growers. Under those agreements, Pilgrim’s Pride provides the growers with chicks, feed and other supplies, and the growers provide the facilities and labor needed to raise the chickens. Pilgrim’s Pride, facing financial losses, determined it was producing a surplus of chickens at great cost to itself so it allegedly reduced its production of chickens with the goal of having chicken prices stabilize at higher equilibrium prices. A group of the affected chicken growers sued Pilgrim’s Pride under the Packers and Stockyards Act of 1921 (PSA), 7 U.S.C. §§ 181 et seq., which prohibits the manipulation or control of prices for poultry.
The court explained that the relevant statute, section 192(e) of the PSA, is directed at conduct that is anticompetitive, and accordingly the appropriate test for evaluating Pilgrim’s Pride’s conduct was the “rule of reason”: “In light of all of the relevant facts, an action is unlawful only if it is likely to suppress or destroy competition.” The court found that because Pilgrim’s Pride had engaged in wholly unilateral conduct to reduce its own output in order to raise prices, it was not harmful to competition. “If a firm inadvertently over-produces a good and drives prices down, it does not break the law by cutting production so that prices may recover.” A copy of the decision is available here.
On Sept. 3, 2013, a federal jury returned a verdict in Best Buy’s suit against Toshiba Corp. and HannStar Corp., based on an alleged conspiracy to fix prices of TFT-LCD panels. Toshiba had not pled guilty in the investigation the Department of Justice conducted into the conspiracy, and the jury found that Toshiba did not participate in it. In contrast, HannStar pled guilty in the DOJ’s investigation, and jury found that it was guilty of price fixing. After deliberating for less than a day, the jury awarded Best Buy $7.5 million in damages for its direct purchases, and awarded no damages for its indirect purchases. This amount will be trebled, but HannStar may be entitled to offsets for settlements Best Buy has obtained from other defendants.
Best Buy’s experts had estimated that Toshiba and HannStar were jointly and severally liable to Best Buy for up to $770 million in damages for their participation in the conspiracy that affected products containing price-fixed panels that Best Buy purchased. Under the Foreign Trade Antitrust Improvements Act, a plaintiff may only recover for anticompetitive foreign conduct if (1) it involves import trade or commerce, or (2) it has a direct, substantial, and reasonably foreseeable effect on U.S. commerce. The jury held that the conspiracy did involve imported products but beyond that did not have a direct, substantial, and reasonably foreseeable effect on trade or commerce in the United States. Nonetheless, the jury still awarded Best Buy damages of $7.5 million.
HannStar had previously admitted its participation in the conspiracy, agreeing to pay a $30 million criminal fine pursuant to a plea agreement with the Department of Justice in 2010. Toshiba was not indicted by the DOJ, but last year was found guilty of price fixing in a suit brought by a class of direct purchasers. This trial brought to a close Track 1 of the LCD price-fixing cases remaining in the Northern District of California. Track 2 is ongoing with trials likely to take place in 2014.
On Sept. 25, 2013, the Federal Trade Commission and the Department of Justice issued an updated joint model waiver of confidentiality for individuals and companies to use in merger and non-merger matters involving concurrent review by the DOJ or FTC and non-U.S. competition authorities. By entering into a waiver, an individual or a company agrees to waive statutory confidentiality protections and allows more complete communication, cooperation and coordination among competition agencies investigating the matter. The model waiver form is available here, and the FTC’s and DOJ’s Frequently Asked Questions document is available here.
On Sept. 27, 2013, the Federal Trade Commission announced that it will conduct a study concerning Patent Assertion Entities (PAEs) and other entities asserting patents in the wireless communication sector, including manufacturers and other non-practicing entities (NPEs) engaged in licensing. For purposes of the study, the FTC defines PAEs “are firms with a business model based primarily on purchasing patents and then attempting to generate revenue by asserting the intellectual property against persons who are already practicing the patented technology.” The notice distinguishes these entities from “NPEs that primarily seek to develop and transfer technology, such as universities, research entities and design firms.”
The study will consist primarily of an information request to be sent to approximately 25 PAEs, as well as approximately 15 other entities asserting patents in the wireless communications sector. The topics include how PAEs organize their corporate legal structure; the types of patents PAEs hold and how they organize their holdings; how PAEs acquire patents and how they compensate prior owners; how PAEs engage in assertion activity; what assertion activity costs PAEs; and what PAEs earn through assertion activity.
The FTC will solicit public comments on the proposal concerning the following issues: whether the proposed collection of information is necessary for the proper performance of the functions of the FTC, including whether the information will have practical utility; the accuracy of the FTC’s estimate of the burden of the proposed collection of information; ways to enhance the quality, utility, and clarity of the information to be collected; and ways to minimize the burden of collecting information.
The FTC’s press release with links to the proposal is available here.
The UK Competition Commission (CC) has ordered Ryanair to cut its holding in rival Irish carrier Aer Lingus from 29.8 percent to 5 percent. Following an in-depth investigation, the CC found that Ryanair’s minority shareholding had led or may be expected to lead to a substantial lessening of competition between the airlines on routes between Great Britain and Ireland. The CC held that Aer Lingus’s commercial policy and strategy was likely to be affected by Ryanair’s minority shareholding, in particular because it was likely to impede or prevent Aer Lingus from being acquired by, or combining with, another airline. In addition, Ryanair potentially could block special resolutions, which likely would restrict Aer Lingus’s ability to issue shares, raise capital and limit its ability to manage effectively its portfolio of Heathrow slots. Finally, the CC felt that Ryanair’s current stake also increased the likelihood of the airline mounting further bids for Aer Lingus, causing disruption to Aer Lingus’s ability to implement its commercial strategy.
Despite proposing a series of remedies in an attempt to address the CC’s concerns, Ryanair failed to convince the UK authority that any remedies would cater for all eventualities in such a volatile industry. The CC concluded, therefore, that the only effective and proportionate remedy to address its concerns was the reduction of Ryanair’s stake to 5 percent, facilitated by the appointment of a Divestiture Trustee. Although welcomed by Aer Lingus, Ryanair has confirmed that it will appeal the CC’s findings.
The CC’s decision is the latest in a series of rulings by UK and European authorities against Ryanair. The airline has launched three failed bids for Aer Lingus in the past eight years, two of which have been blocked by the European Commission. As previously reported, the most recent of these occurred in February 2013 when the Commission found that allowing the takeover would create a monopoly on over 46 highly competitive air routes between the UK and Ireland and would increase fares for passengers. Ryanair’s appeal of this decision is ongoing.
On Sept. 2, 2013, the European Commission approved the acquisition of Shell Deutschland Oil GmbH’s Harburg refinery assets by Swedish company Nynas AB, finding that, in the absence of the proposed transaction, the Harburg refinery would be closed.
The Commission opened an in-depth investigation into the transaction in March 2013, based on concerns that the transaction would result in the merged entity becoming the only producer of naphthenic oils for use in some end applications, such as industrial rubber, fertilisers and defoamers, and for other segments, including transformer oils. The Commission’s concern was that the few remaining competitors importing into the European Economic Area may not have been able to exercise a significant competitive constraint.
During the in-depth investigation, however, Shell demonstrated that it would not continue to operate the Harburg refinery, and the Commission found that, other than Nynas, there were no alternative buyers for the refinery assets. The Commission concluded that the reduction in the number of competitors would occur anyway and would not be caused by the acquisition itself. The closure of the refinery would have reduced production capacity in the EEA below EEA demand, which would have to be met by imports, resulting in higher prices for consumers. The Commission also found that the acquisition by Nynas would have positive effects on competition, as Nynas would achieve significant reductions in variable costs for its additional supplies, which would be likely to be passed on to consumers.
On July 24, 2013, the European Commission announced the adoption of broad new legislative proposals to replace the 2007 Payment Services Directive (Directive 2007/64/EC) (the PSD), which include a new Payment Services Directive (PSD2) and proposals to regulate interchange fees for card-based payment transactions.
PSD2 introduces a number of important elements and improvements to the EU payment market. Security of low-cost Internet payment services will be increased by bringing new “payment initiation services”—services that operate between the merchant and the consumer’s bank—within the scope of the regime. Also, banks and all other payment service providers are required to tighten security for online transactions. The proposals envisage increased consumer protection against fraud and strengthen consumer rights when sending funds outside Europe or when paying in non-EU currencies. The proposed regime is intended to promote the entry of new operators and develop innovative mobile and internet payment systems in Europe.
The Commission has also proposed a draft Regulation (available here) to introduce maximum levels of interchange fees for transactions based on consumer debit and credit cards and ban surcharges on these types of cards. The proposals envisage that for an initial period of 22 months, caps would be imposed on international transactions before ultimately also being applied to domestic transactions. The Commission aims, in introducing these caps, to reduce costs for retailers and consumers and to create an EU-wide payments market.
The Commission’s proposed PSD2, scheduled for final approval by spring 2014, may be found here.
In a judgment of Sept. 6, 2013, the European Union General Court upheld the legality of unannounced inspections carried out by the Commission at Deutsche Bahn in 2011, confirming that the use of the Commission’s powers does not infringe the fundamental rights of the target and can be carried out without prior judicial authorisation.
Between March and July 2011, the Commission carried out unannounced inspections (or “dawn raids”) for suspected abuse by Deutsche Bahn of its dominant position in the market for rail-linked services, infrastructure and locomotive electricity. Deutsche Bahn appealed the Commission’s decision to carry out the inspections, alleging that that the Commission should have sought a court order before commencing the raids, and that the two later inspections were only carried out as a result of information found in the first and so amounted to mere “fishing expeditions.”
The General Court rejected Deutsche Bahn’s arguments entirely, stating that, according to the case law of the European Court of Human Rights, the absence of prior judicial authorisation does not invalidate an inspection where there are proper protective guarantees. The General Court also rejected the argument that that the inspections were “fishing expeditions,” stating that the Commission can thoroughly search offices and files even if there is no immediate suggestion that relevant information may be found there.
Deutsche Bahn has announced that it is considering whether to appeal the ruling. The judgment of the General Court can be found here.
On Aug. 14, 2013, a regional court in Düsseldorf ordered the German cartel office to re-examine the €3.2 billion purchase of the cable firm Kabel BW by John Malone’s Liberty Global.
This decision comes during a phase of ongoing consolidation in the German telecommunications markets, where Vodafone is set to complete its €7.7 billion takeover of the country’s largest cable operator Kabel Deutschland, while mobile network operators E-Plus and O2 are set to consolidate in an €8.5 billion merger. It is also a reminder that Germany’s merger control rules are among the strictest in the European Union.
Both Liberty Global, through its German subsidiary Unitymedia, and Kabel BW supply TV, Internet and telephony services via broadband TV cables to households in Germany. The German cable TV network was established in the 1980s and 90s by the then-state-owned monopoly provider Deutsche Telekom (and its predecessor Deutsche Bundespost). At the end of the 1990s, Deutsche Telekom was privatized and required to spin off its entire cable TV business. It did so by creating several regional cable firms, including Kabel BW, which operates in Germany’s southwest (Baden-Württemberg), and ish and Iesy, which operated in the West (North Rhine-Westphalia and Hesse) and which later merged to become Unitymedia. There have been a number of attempts to re-consolidate the German cable market ever since, but only a few have succeeded. (The latest failure was Kabel Deutschland’s proposed takeover of the smaller rival Tele Columbus, which was blocked by the cartel office earlier this year.) READ MORE
On Aug. 7, 2013, the National Development and Reform Commission (NDRC) issued fines totaling around $110 million to six producers of baby formula (namely Danone, Mead Johnson, Fonterra, Abbott, FrieslandCampina and Biostime) for price-fixing and anti-competitive behavior.
As a percentage of Chinese revenues, the harshest fine was imposed on Biostime (the only Chinese company involved), for an amount of RMB 162.9 million (approximately 6 percent of Biostime’s revenues in the previous year). Mead Johnson was handed a fine equal to 4 percent of its annual sales revenues in China, while the other three companies’ fines were set at about 3 percent of revenues.
Collectively, these constitute the largest fine ever imposed by the NDRC and reflect the varying levels, among the respective participants, of cooperation with the authorities and corrective action taken in response to the investigation. Three other companies (Nestle, Beingmate and Meiji) were granted full immunity for cooperating with NDRC, providing information to the investigators and proactively implementing measures to rectify any breaches.
On Sept. 13, 2013, the head of the South Korean antitrust regulator (the Korea Fair Trade Commission) announced a strengthening of the penalties for unfair business activities. This announcement comes following accusations of excessive leniency being granted by the KFTC when imposing a reduced penalty of $8,300 on a brewery found to have engaged in abusive behavior.
The KFTC stated that the original fine imposed on Baesangmyun Brewery, which had forced wholesalers to purchase more products than they required in order to reduce its unsold inventory, was reduced because the company had reported recent consecutive annual losses and had shown a high degree of cooperation with authorities during the course of the investigation.
The KFTC explained that the current rules on penalties will be revised by the end of the year, with enforcement to start in 2014.