Damages in Exclusionary Conduct Cases

• Pages: 275-307

CHAPTER 9

DAMAGES IN EXCLUSIONARY CONDUCT CASES

In an exclusionary conduct case, the defendant has been accused of

engaging in activities designed to prevent the entry of, force the exit of, or

weaken its rivals with the goal of lessening the competition it faces.

Examples of exclusionary conduct are predatory pricing and

anticompetitive foreclosure through exclusive dealing, bundling, or tying.

Assuming antitrust liability has been found, a plaintiff in an exclusionary

conduct case may seek damages as compensation for injury it sustained as

a result of the exclusionary conduct. For the purposes of this chapter, we

assume that the conduct at issue has been found to be anticompetitive, and

we refer to such anticompetitive conduct as “exclusionary conduct.”

Two different types of parties may have been injured by exclusionary

conduct: the defendant’s rivals that were the target of the conduct a nd

customers for whom competition in the relevant market decreased as a

result of the conduct.1 Thus, exclusionary conduct cases may be brought

by either a rival or a customer (or class of customers). In this way,

exclusionary conduct cases differ from price-fixing cases, in which

competitors to the price-fixing conspirators typically do not have a claim

to antitrust injury.2

In principle, the same basic methods used to calculate damages in

other types of antitrust cases can be applied to exclusionary conduct cases.

In practice, however, the facts of an exclusionary conduct case may

present challenges to the application of some of these methods.

1. See Ethypharm SA France v. Abbott Labs., 707 F.3d 223, 233 (3d Cir.

2013). It should be noted that in certain circumstances, courts have

permitted parties other than customers or co mpetitors to maintain claims

where the injury suffered was “inextricably intertwined” with the antitrust

violation. See Hanover 3201 Realty, LLC v. Village Supermarkets, Inc.,

806 F.3d 162, 166-67 (3d Cir. 2015).

2. See Matsushita Electric Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.

574, 583, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Freedom Holdings, Inc.

v. Cuomo, 624 F.3d 38, 52 (2d Cir.2010).

275

276 Proving Antitrust Damages

A. Exclusionary Practices Can Harm Both Competitors and

Customers

Although exclusionary practices can harm both competitors and

customers, the nature of the harm and the nature of the damages

calculation differ between these two groups. The typical way in which

exclusionary conduct might harm a competitor is to cause it to lose profits.

Thus, the law permits an injured competitor to recover as damages its lost

profits caused by the unlawful conduct.3 In contrast, the typical way in

which exclusionary conduct might harm a customer is by lessening

competition in the relevant market. Thus, the law permits an injured

customer to recover, for example, the amount of any overcharge

attributable to the unlawful conduct.4

Although two potential groups of injured economic actors with

different types of harm exist, the harms flow from the same unlawful

conduct. This suggests a certain level of consistency should exist in their

respective theories of liability and in certain aspects of their respective

damages calculations. However, conflicts may still arise. For example, a

theory of liability may allege an increase in market price as a result of an

alleged exclusionary conduct, which would be consistent with an

overcharge theory of customer damages. This theory, however, may

ultimately imply lower competitor damages because the competitor may

have benefited from the higher prices within the relevant market caused

by the unlawful conduct.

3. See, e.g., ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254, 291-92 (3d Cir.

2012).; Palmyra Park Hosp. v. Phoebe Putney Mem’l Hosp., 604 F.3d

1291, 1305-06 (11th Cir. 2010).

4. This derives directly from § 4 of the Clayton Act, which provides that “any

person who shall be injured in his business or property by reason of

anything forbidden in the antitrust laws . . . shall recover threefold the

damages by him susta ined, and the cost of suit, including a reasonable

attorney’s fee.” 15 U.S.C. §15(a). In addition, some states permit indirect

purchasers to recover damages on the basis of some measure of overcharge.

See generally part B of Chapter 2 and part E of Chapter 8.

The issues in connection with tracing overcharges to indirect purchasers,

which can arise in state law claims in “Illinois Brick repealer” states, are

generally beyond the scope of this volume, which focuses on proving

antitrust damages under federal antitrust law.

Damages in Exclusionary Conduct Cases 277

B. The Appropriate Damages Methodology

There exist several recognized methodologies for calculating damages

in antitrust cases, including the “before-during-after” method, the

benchmark or “yardstick” method, structural models involving simulation

methods, and structural models based on business projections.5 This

chapter will discuss these methodologies in the context of exclusionary

conduct cases. The key issue in determining the overcharge or amount of

lost profits is identifying what would have happened in the “but-for”

world, in the absence of the unlawful exclusionary conduct.

1. Before-During-After Method

Where there is an appropriate time period before or after the period in

which the exclusionary conduct occurred, that is unaffected by the

exclusionary conduct (a “clean period”), a before-during-after approach

can be an appropriate approach to assess damages.6 Under this approach,

an economic outcome of interest (such as the price paid by a customer or

the revenues, share, or profits of a competitor) in the unaffected period is

used to estimate what that outcome would have been during the period

affected by the exclusionary conduct (the “affected period”) in the absence

of that conduct. For example, in a pharmaceutical patent case in which a

generic manufacturer enters following a period of exclusionary conduct,

the actual experience following entry may be used as a proxy for an earlier

but-for world in which the same entry had not been delayed.

Even where an unaffected period exists, however, there may be

differences between the unaffected period and the affected period in

economic conditions (other than the exclusionary conduct) that play a role

in determining the economic outcome of interest. For example, costs may

have been different in the unaffected period than the affected period,

which suggests that prices would have been different in the unaffected

period than in the affected period even absent the exclusionary conduct.

Given this possibility, when modeling the affected period absent the

5. Chapter 8 discusses some of these methodologies in the context of

overcharges, and Chapter 6 discusses the use of econometric methods in

some of these methodologies.

6. The before-during-after method gained acceptance in Eastman Kodak Co.

v. Southern Photo Materials Co., 273 U.S. 359, 379 (1927). See Molly L.

Zohn, How Antitrust Damages Measure Up with Respect to the Daubert

Factors, 13 GEO. MASON L. REV. 697, 700 (2005) for a discussion of the

application of this approach with respect to share.