On October 31, 2013, the Supreme Court of Canada released long-awaited decisions in three high profile antitrust class action cases involving alleged price-fixing conspiracies: Pro-Sys Consultants Ltd. v. Microsoft Corporation;1Sun-Rype Products Ltd. v. Archer Daniel Midland Company;2 and Infineon Technologies AG v. Option consommateurs3 (collectively, the “Antitrust Trilogy”). All three appeals were from certification motions. At stake, the fate of indirect purchaser antitrust class actions in Canada.
Specifically, the Court in all three appeals considered the threshold question of whether indirect purchasers can, as a matter of law, recover losses that were “passed on” to them by someone else. Expressly rejecting the U.S. Supreme Court’s decision in Illinois Brick, the Canada’s highest court concluded unanimously that indirect purchasers do have antitrust standing. The Supreme Court also considered the applicable standard of proof on a certification motion, and on a motion for authorization as it is called in Quebec.
In Sun-Rype, the plaintiffs commenced a class action in British Columbia to recover alleged overcharges related to high-fructose corn syrup (HFCS), a food additive found in many snacks and beverages. In Pro-Sys, the plaintiffs commenced a class action claim in British Columbia against Microsoft for allegedly overcharging for its PC operating systems and PC applications software. The Sun-Rype class included both direct and indirect purchasers, while the Pro-Sys class was made up entirely of indirect purchasers. Both cases were certified at first instance but the certification decisions reversed by a majority of the British Columbia Court of Appeal, which concluded that indirect purchasers could not, as a matter of law, recover losses resulting from alleged overcharges.
In Infineon, the plaintiff applied for authorization to institute a class action in Quebec to recover alleged losses from overcharges for Dynamic Random Access Memory (DRAM) chips that are found in various electronic devices. The motion judge declined to authorize the proposed class action on the ground that the Quebec courts lacked jurisdiction. The Quebec Court of Appeal reversed and authorized the class action, also affirming that indirect purchasers have standing to bring claims to recover losses from alleged overcharges.
Illinois Brick Rejected
Most of the Supreme Court’s analysis of the “indirect purchaser” issue is found in the Pro-Sys decision. Repeatedly referring to and quoting with approval from the dissenting opinion of Justice Brennan in Illinois Brick and criticism of the U.S. federal bar on indirect purchaser antitrust claims, the Court concluded that indirect purchasers have a right of action. In so doing, it addressed (and rejected) the various arguments raised by the defendants and relied on by the majority of the BC Court of Appeal, including: (1) denying indirect purchaser claims is a necessary corollary to the rejection of the “passing on” defence because otherwise defendants will be exposed to the risk of double or multiple recovery; and (2) indirect purchaser actions are not viable because of the complexity associated with proof of damages for overcharges allegedly passed on to indirect purchasers.
The Court began by clarifying the scope of its decision in a case called (a case that did not involve a price fixing conspiracy), in which it rejected “passing on” as a defence. The Court confirmed that its rejection of the “passing on” defence was not limited to the narrow circumstances of that particular case but instead was generally applicable to restitutionary law.
The Court then rejected the notion that the unavailability of “passing on” as a defence necessarily meant that “passing on” could not be used offensively by indirect purchasers to ground their claims. The respondents/defendants in all three cases argued that in the absence of a passing on defence, defendants would be vulnerable to multiple overlapping claims from direct and indirect purchasers, each seeking to recover 100% of the alleged overcharge. The Court acknowledged that the potential for double or multiple recovery could not be lightly dismissed. However, the Court suggested that in cases like Sun-Rype where the class is made up of both direct and indirect purchasers, an aggregate damages award that reflects the entirety of the overcharge will preclude double recovery. Further, in the Court’s view, in cases where there are parallel proceedings with direct and indirect claims pending, trial courts will be able to manage the various suits to ensure that defendants are not subjected to multiple recovery.
The Court also rejected the argument that indirect purchaser claims should be barred as a matter of law because of the complexity associated with proving damages for overcharges that may be passed down through numerous levels of a distribution chain. The Court observed that plaintiffs willingly take on the burden of proving their damages at trial, which may require “expert testimony and complex economic evidence,” and whether plaintiffs are ultimately able to discharge their burden of proof at trial will have to be determined on a case-by-case basis.
U.S. “Rigorous Analysis” Standard Also Rejected
The Supreme Court also addressed, for the first time in more than a decade, the standard of proof on a certification motion. It also addressed the standard in Quebec on a motion for authorization.
In particular, the Court considered the standard of proof to be applied to plaintiffs’ proposed methodologies for establishing at the certification stage that harm can be proved on a common basis in indirect purchaser class actions. The Court confirmed that the standard to be applied outside of the province of Quebec is “some basis in fact.”
In discussing that standard, the Court rejected the “rigorous analysis” standard mandated by the U.S. Supreme Court for certification under Rule 23,5 but arguably gave potentially conflicting signals as to the appropriate level of scrutiny required to be applied by Canadian courts. On the one hand, the Court emphasized the importance of the courts’ gatekeeper function at the certification stage, expressly “reaffirming the importance of certification as a meaningful screening device”.6 In Pro-Sys, the Court was clear that more than “symbolic scrutiny” is required.7 Rather, the certification motion judge must find that “[t]here [are] sufficient facts to satisfy [her] that the conditions for certification have been met to a degree that should allow the matter to proceed on a class basis without foundering at the merits stage”.8 Applied to expert evidence put forward by plaintiffs to satisfy the court that a methodology exists by which loss can be proved on class-wide basis, this standard requires that the proposed methodology “must offer a realistic prospect of establishing loss on a class-wide basis so that, if the overcharge is eventually established at the trial of the common issues, there is a means by which to demonstrate that it is common to the class (i.e., that passing on has occurred).9 Further, “[t]he methodology cannot be purely theoretical or hypothetical but must be grounded in the facts of the particular case in question” and “[t]here must be some evidence of the availability of the data to which the methodology is to be applied”.10 On the other hand, the Court said that a certification motion judge is not required to resolve conflicting facts or weigh evidence on a balance of probabilities because at the certification stage courts are “ill-equipped” to handle that level of evidentiary analysis.11
In Infineon, the Court found that the standard of proof for authorization of a class action pursuant to art. 1003 of Quebec Civil Code of Procedure (CCP) is that of establishing an “arguable case”, which is “less demanding than the [“some basis in fact” standard] that applies in other parts of Canada”.12 The Court explained that, applying that standard at the authorization stage, the motion judge plays the role of filter, dismissing frivolous motions and authorizing only those proposed class actions that meet the low legal threshold requirements of art. 1003 CCP.13
The long-term impact of the Supreme Court’s Antitrust Trilogy remains to be seen. Class actions on behalf of indirect purchasers were already common in Canada; indeed, indirect purchasers frequently comprise the whole or a significant part of proposed antitrust class actions in this country. In this regard, the trilogy merely confirms the status quo ante. The more important and interesting question is how lower courts will interpret and apply the Court’s comments regarding the standard of proof at certification (and authorization) in subsequent cases. Interpreted (incorrectly in the authors’ view) as authorizing a “wait and see”/”take it on faith” (i.e., leave it to the trial judge) approach to certification, the trilogy could invite significant unfairness to defendants (who will be denied the opportunity to meaningfully contest certification) and mischief (particularly in those Canadian provinces with no-costs class action regimes) by incenting frivolous class action litigation and, to use the phrase coined by Judge Posner, “blackmail settlements”, raising the twin specters of over-deterrence and over-compensation. The coming jurisprudence on this issue should be closely watched.
This article appears in the May 2014 edition of the American Bar Association, Section of Antitrust Law's International Antitrust Bulletin.