Chapter IX. Indirect Purchaser Settlements

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CHAPTER IX

INDIRECT PURCHASER SETTLEMENTS

Indirect purchaser cases, like other cases, are most likely to be

resolved short of trial. Cases might be dismissed (for example, for lack

of causation), or class certification might be denied (reducing the

likelihood that the case will be pursued). Indirect purchaser cases that

are not resolved by motion generally settle. Both the plaintiffs and the

defendants alike recognize that indirect purchaser cases are notoriously

complex and expensive to litigate. With significant damages exposure,840

the defendants will be reluctant to take their chances with a jury,841 and

the plaintiffs will likewise consider both the cost and risk of going to

trial. In the past ten years, there have been dozens of settlements

involving indirect purchasers in courts around the country. This Chapter

does not purport to catalog all of them; rather, it aims to describe the

standards by which such settlements—the majority of which require

judicial approval—are evaluated. This Chapter also describes provisions

840. See William Page, The Limits of State Indirect Purchaser Suits: Class

Certification in the Shadow of the Illinois Brick, 67 ANTITRUST L.J. 1, 2

(1999). Indirect purchaser cases can represent increased exposure to the

defendant of as much as 4.5 times the amount of the overcharge, in

addition to the spectre of treble damages for civil liability to the direct

purchasers and criminal fines amounting to twice the overcharge. See 2

PHILLIP AREEDA, ROGER BLAIR, & HERBERT HOVENCAMP, ANTITRUST

LAW ¶ 395d n.26 (2d ed. 2004) [hereinafter Areeda, ANTITRUST LAW].

841. See generally Ronald Davis, Indirect Purchaser Litigation: ARC

America’s Chickens Come Home to Roost on the Illinois Brick Wall, 65

ANTITRUST L.J. 375 (1997); Charles Casper, The Class Action Fairness

Act’s Impact on Settlements, ANTITRUST, Fall 2005, at 26 (“The potential

liability can be so large that a defendant has a powerful incentive to settle

even weak claims to avoid the ruinous effect of an adverse judgment.

Judge Richard Posner made this point ten years ago in a mass tort class

action, but it applies as much or more to large antitrust class actions: The

defendants ‘might, therefore, easily be facing $25 billion in potential

liability (conceivably more), and with it bankruptcy. They may not wish

to roll these dice. That is putting it mildly. They will be under intense

pressure to settle.’” (quoting In re Rhone-Poulenc Rorer, Inc., 51 F.3d

1293, 1298 (7th Cir. 1995)).

226 Indirect Purchaser Litigation Handbook

of the Class Action Fairness Act of 2005 (CAFA)842 that now affect

indirect purchaser settlements.

A. General Principles for Indirect Purchaser Settlements

In one sense, the settlement of an indirect purchaser case is like any

other settlement, and both sides will consider the same basic kinds of

liability and damages issues considered in other types of litigation. For

example, they will consider the probability of proving (or disproving)

liability—whether there is a conviction, guilty plea, or prior judgment;

whether there are “bad” documents; and whether there is a cooperating

member of the conspiracy. Likewise, the parties will consider the

maximum amount (and probable range) of damages, including some

variants on these issues unique to indirect purchaser cases, such as the

difficulties of proving the amount of damages that were passed on.

Then, the parties will weigh these uncertainties against the costs of

further proceedings.

The parties will also consider settlement amounts in other indirect

purchaser cases, as either a percentage of sales or as a percentage of the

direct purchaser settlement.843 If seeking a global settlement of cases

pending in several states, the parties will need to evaluate the challenge

of coordinating the settlement, as well as the risks associated with

proceeding on multiple litigation tracks.844 If the settlement negotiations

are conducted in conjunction with settlement of direct purchaser claims,

the parties will also consider the allocation between direct and indirect

claims.845

Finally, in a class action, the parties will consider the requirements

for obtaining court approval, including at least a rough cut of a plan for

distribution of the settlement proceeds. If the case has been brought as a

842. Pub. L. No. 109-2, 119 Stat. 4 (2005). For a more complete discussion of

CAFA, see supra Chapter IV.D.

843. Settlements with private plaintiffs are likely to be subject to

confidentiality provisions, so the information available will be limited.

844. See Antitrust Modernization Commission Staff, Civil Remedies—Indirect

Purchaser Discussion Memorandum, at 7-8 (May 4, 2006) (available at

http://www.amc.gov/pdf/meetings/CivRem-IndP_DiscMemo060504-

fin.pdf) (summarizing concerns regarding potential effects of duplicative

litigation on settlement efforts).

845. See, e.g., Crouch v. Crompton Corp., 2004 Trade Cas. (CCH) ¶ 74,601,

2004 WL 2414027, *15 (N.C. Super. Oct. 28, 2004) (observing that state

and federal actions are sometimes settled together).