For more than two decades Canada has had a regime permitting actions for 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 provincial courts as well as in the Federal Court. As a result, and particularly over the last half 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 has become public. No such class actions have yet resulted in a final decision on the merits against the defendants, but many have been settled, often for tens and sometimes for hundreds of millions of dollars.

Indirect Purchasers 

A peculiar feature of Canadian class actions has been the approach to indirect purchasers of the allegedly cartelized product. In the United States, under its 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, but the court did not have to decide the question to resolve the case. Consequently, the issue 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. All of these, however, have been in the context of settled cases.

A very recent case from the British Columbia Supreme Court, however, involving Dynamic Random Access Memory ("DRAM") has called this practice into question and emphasized the importance, at least in Canadian antitrust law, of the need to show injury as an element of the cause of action.

Need to Show Injury 

The case of Pro-Sys Consultants Ltd. v. Infineon Technologies AG, et. al, involved claims by both direct and indirect purchasers of DRAMin the province of British Columbia against defendants who representedbetween 76% to 82% of worldwide production of DRAMduring the period of the alleged conspiracy. The allegation was thatthe conspiratorial agreements were designed to limit the rate ofprice decline for DRAM as it was declining significantly over theperiod. Most of the defendants or affiliates of those defendants, aswell as certain individuals employed by them, had already pleadedguilty and been fined in the United States for price fixing in relationto DRAM. In Canada, at the time of the decision, no chargeshad been brought against any of the defendants or any other personsin relation to DRAM.

Mixed Class of Direct and Indirect Purchasers

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 was being used primarily in personal computers (over 80%), but also being used in many other products, including servers, mainframes, automobiles, GPS devices, cell phones, cameras and video games. The claim in Pro-Sys alleged various causes of action including those under Section 36 of the Competition Act (the civil damages provision of the Act), claims for tortuous conspiracy, tortuous interference with economic interest, unjust enrichment, waiver of tort, constructive trust, as well as punitive damages. The trial judge, Mr. Justice Masuhara, noted that this was the first case of a class action seeking to certify a mix of direct and indirect purchasers. Presumably, he meant the first contested case, as a number of such cases had been certified in conjunction with settlements.

Mixed Class – Common Issues

Coming to the heart of the issue, the plaintiff argued that the common issues to be determined were the issue of liability and 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 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" and that "the evidence must establish that the proposed methodology has been developed with some rigour and [was] sufficiently robust to accomplish the stated task," and further, that 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 went on to explore in some detail what it viewed as the weaknesses in the proposed estimate of pass through. Ultimately, it concluded: "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 court found, therefore, 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, so 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.

Establishing Harm

In its penultimate paragraph the court noted: "This application reflects the continuing difficulty that has been encountered by the courts over many years; namely, the failure to propose a viable class-wide method of establishing harm and thus liability when the proposed class includes indirect purchasers. This combined with the vast array of products and channels, serve to dilute the semblance of a manageable and workable process."

Some Final Remarks

The Pro-Sys case does not conclude that indirect purchaser cases under the Competition Act are not possible or that they are not possible as class actions. While it suggests some skepticism in that regard, it leaves the question open. At the trial level, the Pro-Sys case also suggests 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.