For more than 20 years, Canada has had a regime permitting actions for (single) damages to be recovered by persons injured by criminal conduct under Canada's Competition Act. Over that period of time Canada has also been developing class action legislation, which now exists in virtually all Canadian provinces as well as in the Federal Court. As a result, and particularly over the last half a dozen years or so, class actions with respect to cartels and alleged cartels have become commonplace in Canada – sometimes launched after a guilty plea or conviction, but frequently launched as soon as knowledge of a cartel investigation becomes public. No such class actions have yet resulted in a final decision on the merits against the defendants, but many have been settled, many for tens and some for hundreds of millions of dollars.[1]

A peculiar feature of Canadian class actions has been the approach to indirect purchasers of the allegedly cartelized product. In the United States under federal antitrust law, direct purchasers have a cause of action against price fixing conspirators, whether or not they were able to pass on the "overcharge" to someone who bought the product from them, but indirect purchasers have no right to sue. Under various state antitrust laws, however, indirect purchasers do have claims in many U.S. states. In Canada this issue was explored some years ago before the Ontario Court of Appeal in the case of Chadha v. Bayer,[2] but the court did not have to decide the question to resolve the case. Consequently, the question as to whether indirect purchasers may pursue antitrust claims in Canada for conspiratorial conduct is an open question.

The way the indirect purchaser issue has been dealt with in Canada, as a practical matter, is that cases have been brought on behalf of both direct and indirect purchasers in a single action. Global settlements have been achieved against the defendants, and then plaintiffs' counsel, together with their economic experts, have proposed, for the approval of the court, a distribution scheme as between the various classes of purchasers. However, these have all been in the context of settled cases.

A very recent case from the British Columbia Supreme Court – one of the three leading class action jurisdictions in Canada (the other two being Ontario and Quebec) – involving Dynamic Random Access Memory ("DRAM"), has highlighted and called into question this practice, as well as noting the importance, at least in Canadian antitrust law, of the need to show injury as an element of the cause of action.

The case of Pro-Sys Consultants Ltd. v. Infineon Technologies AG, et. al [3] involved claims by both direct and indirect purchasers of DRAM in the province of British Columbia, against defendants who represented somewhere between 76–82% of worldwide production of DRAM during the period of the alleged conspiracy. The allegation was that the conspiratorial agreements were designed to limit the rate of price decline for DRAM, since the price of DRAM was declining significantly over the period. Most of the defendants, or affiliates of those defendants, as well as certain individuals employed by them, had already pleaded guilty and been fined in the United States for price fixing in relation to DRAM. One individual had been acquitted after a jury trial. A number of the defendants had settled class actions brought by direct purchasers of DRAM in the United States. In Canada at the time of the decision, no charges had been brought against any of the defendants or any other persons in relation to DRAM.

Pro-Sys Consultants Ltd., on behalf of the class of direct and indirect purchasers of DRAM in British Columbia, brought an action against the defendants in British Columbia. Pro-Sys itself had purchased a computer in British Columbia containing a DRAM chip, so it was an indirect purchaser.

The evidence before the court was that the total sales of DRAM, on a worldwide basis, during the alleged period of conspiracy was approximately $80 billion. By contrast, the total direct sales of DRAM into British Columbia by all of the conspirators (only two of the alleged conspirators made direct sales into British Columbia) totaled $3.4 million. The evidence was that DRAM is used primarily in personal computers (over 80%), but also used in lots of other products, including servers, mainframes, automobiles, GPS devices, cell phones, cameras and video games.

The plaintiff argued that the common issues to be determined were the issue of liability, questions as to the existence, scope and effect of the conspiracy to fix the prices of DRAM. The defendants argued that the issue relating to the existence of the conspiracy was common, but there was no methodology of establishing harm on a class-wide basis. In particular, they argued that there was no credible methodology to establish that there was a pass through of any increased prices to the subsequent indirect purchasers, let alone a methodology capable of estimating the amount of such an effect.

The court noted (paragraph 139) that, in a pass through case, the court must be persuaded that there is sufficient evidence of the existence of a viable and workable methodology capable of relating harm to class members. It stated that "given the inherent complexities, the scrutiny cannot be superficial. The evidence must establish that the proposed methodology has been developed with some rigor and will be sufficiently robust to accomplish the stated task"; and (paragraph 142) "The plaintiff's suggestion of working things out 'in the laboratory of the trial court' would be inconsistent with judicial economy or fairness in a case such as this."

The court explored in some detail what it viewed as the weaknesses in the proposed estimate of pass through. Ultimately, it concluded (paragraph 166) "It is apparent that the methods proposed by the plaintiff do not avoid the need for a vast number of individual inquiries regarding the participants and conditions in the market place for DRAM. As a result, I find that the plaintiff has not sufficiently demonstrated that a workable class-wide methodology is available to establish harm."

The plaintiff had argued that class action legislation specifically permits the courts to aggregate damages rather than calculate them directly. The court noted that while the aggregation provisions of the class action legislation may be permissible to determine damages once liability has been shown, those provisions cannot be used to determine liability, and if damage to the plaintiff class is an aspect of liability – as it is in Competition Act conspiracy cases – then the aggregation provisions are not sufficient to get around the need to show injury to class members.

The court found that the only common issues which could be certified were the existence of the conspiracy to fix prices and possibly breaches of the Competition Act, but not liability on a class-wide basis. It then turned to consider whether determining those few issues on a class-wide basis would be a preferable procedure under the class action legislation. The court concluded that the absence of class-wide means to prove liability would lead to an unmanageable process such that class notification for the purposes of determining breaches of the Competition Act would not move the litigation forward in a meaningful way and that the individual issues would overwhelm the remaining common issues.

The court also noted that, vis-a-vis the goal of behaviour modification in class action legislation, the existing criminal sanctions of the Competition Act are relevant and, indeed, noted as well that the criminal and civil sanctions in the United States are also relevant vis-a-vis behaviour modification. That is, since there is criminal liability available, it can do the work of "behaviour modification."

The court also, tellingly, in our view, noted (paragraph 193) the value of any recovery for any particular product purchased would appear to be small. The plaintiff's reference to a cy-pres distribution of any recovery served, the court noted, as an indicator that the goal of access to justice for a class member may not weigh so heavily in the assessment. This, it seems to us, is a possible signal that the idea of awarding millions, or tens of millions of dollars in damages, virtually none of which will find its way to anyone who was injured, is not always appealing to Canadian courts.

The Pro-Sys case does not conclude that indirect purchaser cases under the Competition Act are not possible, nor that they are not possible as class actions. While it suggests some skepticism in this regard it leaves the question open. As well, the decision of the B.C. Supreme Court will almost certainly be reviewed by the Court of Appeal, and perhaps even, given the importance of the issue, the Supreme Court of Canada. Nevertheless, the Pro-Sys decision does suggest that, at least for indirect purchasers of allegedly cartelized products, the class action route to riches may not be an altogether easy road. It will no doubt take some time for the courts to clarify these issues, but for now plaintiffs and their counsel are likely to proceed with some degree of caution.