Reconsidering Indirect-Purchaser Class Actions

Florida Law Review Volume 67 | Issue 2 Article 8 January 2016 Reconsidering Indirect-Purchaser Class Actions Stephen Carr Follow this and additional works at: http://scholarship.law.ufl.edu/flr Part of the Civil Procedure Commons Recommended Citation Stephen Carr, Reconsidering Indirect-Purchaser Class Actions, 67 Fla. L. Rev. 913 (2016). Available at: http://scholarship.law.ufl.edu/flr/vol67/iss2/8 This Note is brought to you for free and open access by UF Law Scholarship Repository. It has been accepted for inclusion in Florida Law Review by an authorized administrator of UF Law Scholarship Repository. For more information, please contact . Carr: Reconsidering Indirect-Purchaser Class Actions RECONSIDERING INDIRECT-PURCHASER CLASS ACTIONS Stephen Carr* Abstract Few issues have proven more vexing to private antitrust enforcement than those related to indirect-purchaser class actions. The current dual system of enforcement—federal and state—exacerbates the difficulty of litigating indirect-purchaser claims by layering procedural complexity on top of substantive complexity and by explicitly allowing (perhaps even incentivizing) duplicative recovery. Almost all commentators are in substantial agreement that reform is necessary, but Congress appears unlikely to take action on the issue in the near future. This Note proposes a procedural solution that would consolidate litigation in a single federal court based on the limited-fund class action model of Federal Rule of Civil Procedure 23(b)(1)(B). Under the limited-fund model, the purpose of consolidated litigation is to determine liability before turning to the apportionment of damages. This Note also advocates for a presumption that damages are appropriately allocated to purchasers on a pro rata basis, consistent with common practice in the limited-fund class action context. Proper allocation would depend on the purchaser’s position in the supply chain, with direct purchasers receiving the largest share of the recovery. This Note’s proposal provides three primary advantages: (1) it eliminates the possibility of duplicative litigation; (2) it aligns the interests of all the potential plaintiffs to better incentivize vigorous antitrust enforcement; and (3) it reduces the need for complex damages calculations. INTRODUCTION .....................................................................................914 I. INDIRECT-PURCHASER STANDING ..........................................917 A. A History of Indirect-Purchaser Standing Under Federal Law ...................................................................918 * J.D., Candidate 2015, University of Florida Levin College of Law; M.A. 2009, Eastern Michigan University; B.S. 2006, Eastern Michigan University. I would like to thank the staff of the Florida Law Review and all the members, especially the editors on this Note: William Cochran, Andrew Daeschsel, Lauren Evans, Jordan Horowitz, Kimberly Kelley, Angela Korge, Suh Lee, Krista Mackay, Ryan McConnell, Maris Snell, Marla Spector, and Megan Testerman. Any mistakes are, of course, my own, but their selfless efforts deserve recognition. I also owe a sincere debt of gratitude to the faculty of the University of Florida Levin College of Law, including Professor E. Lea Johnston for her support and guidance, Professor Elizabeth T. Lear for her insights and expertise in civil procedure, Professor William Page for his engaging seminar on class actions and course on antitrust law, and Professor Sharon Elizabeth Rush for her inspiring course on the federal courts. Lastly, I must thank my family for their love and support, and Lindsay Vecchio to whom this Note is dedicated with love. 913 Published by UF Law Scholarship Repository, 2016 1 Florida Law Review, Vol. 67, Iss. 2 [2016], Art. 8 914 FLORIDA LAW REVIEW [Vol. 67 1. Illinois Brick and Offensive and Defensive Pass-On ...........................................................................919 2. Reaction to the Rule of Illinois Brick .............................923 B. Indirect-Purchaser Standing: Where Are We Now? ..................................................................924 II. THE LIMITED-FUND APPROACH..............................................926 A. An Introduction to Limited-Fund Class Actions ............................................................................927 1. Unique Features of Limited-Fund Class Actions ...........................................................928 2. Challenges of Litigating Limited-Fund Class Actions ...........................................................930 B. The Ortiz Factors ...........................................................931 III. LIMITED-FUND CLASS ACTIONS APPLIED TO ANTITRUST CLAIMS ................................................................932 A. Eliminate Duplicative Litigation ....................................934 B. Improved Enforcement ...................................................935 C. Pro Rata Distribution .....................................................936 CONCLUSION .........................................................................................938 INTRODUCTION We are all victims of antitrust violations—the goods and services that we purchase every day are more expensive than they would otherwise be in the absence of anticompetitive conduct.1 Even consumers who never purchase products directly from price-fixing companies or illegal monopolies have paid supracompetitive prices, either for goods whose prices were manipulated higher up the supply chain, or through increased prices of component parts or ingredients.2 For decades, antitrust scholars, lawmakers, and judges have been divided over the wisdom of providing indirect purchasers standing to assert claims under the antitrust laws versus reserving the exclusive right to sue for direct purchasers.3 While current federal law prohibits 1. See HERBERT HOVENKAMP, THE ANTITRUST ENTERPRISE 17–20 (2005). Anticompetitive conduct can refer to a wide variety of practices, from large cartels joining together to fix prices to single firms abusing their monopoly power. 2. For an economic analysis of the extent to which price fixing harms purchasers beyond merely increasing prices for units purchased, see Leonardo J. Basso & Thomas W. Ross, Measuring the True Harm from Price-Fixing to Both Direct and Indirect Purchasers, 58 J. INDUST. ECON. 895, 897 (2010). 3. For an early scholarly debate in the aftermath of Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), compare William M. Landes & Richard A. Posner, Should Indirect Purchasers Have Standing to Sue Under the Antitrust Laws? An Economic Analysis of the Rule of Illinois Brick, 46 U. CHI. L. REV. 602 (1979) [hereinafter Landes & Posner, Indirect Purchaser Standing], and William M. Landes & Richard A. Posner, The Economics of Passing On: A http://scholarship.law.ufl.edu/flr/vol67/iss2/8 2 Carr: Reconsidering Indirect-Purchaser Class Actions 2015] (...truncated)