Indirect Purchaser Settlements

• Pages: 277-302

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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 antitrust standing), or class certification might be denied

(reducing the likelihood that the case will be pursued). Indirect

purchaser cases that are not resolved by motion often settle. Both

plaintiffs and defendants alike recognize that indirect purchaser cases

are notoriously complex and expensive to litigate. With potentially

significant damages exposure in these types of cases,1 defendants are

reluctant to take their chances with a jury,2 and plaintiffs 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;3 rather, it aims to describe the standards by which such

1. See William H. Page, The Limits of State Indir ect Pur chaser Suits:

Class Cer tification 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 risk of treble damages for civil liability

to any direct purchasers or harmed competitors and criminal fines

amounting to twice the overcharge. See 2 PHILLIP AREEDA, ROGER

BLAIR, & HERBERT HOVENCAMP, ANTITRUST LAW ¶ 395d n.26 (2d

ed. 2004).

2. See generally Ronald Dav is, Indirect Pur chaser 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 A ct’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 facin g $25 billion in potential liability

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

roll these dice. That is putting it mildly. The y will be under intense

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

F.3d 1293, 1298 (7th Cir. 1995)).

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

confidentiality provisions, so the information available will be

limited. The American Antitrust Institute has compiled data on

indirect purchaser class settlements, which can be downloaded from

their website. See Patrick Cafferty, AAI Working Paper 10-03:

Indirect Purcha ser Settlement Da tabase Up dated (Am. Antitrust

278 Indirect P urchaser Litigation Ha ndbook

settlements—the majority of which require judicial approval—are

evaluated. This chapter also describes provisions of the Class Action

Fairness Act of 2005 (CAFA)4 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. Both sides consider the same general liability

and damages issues considered in other types of litigation. For

example, parties to any litigation usually consider the probability of

proving or disproving liability, including the existence of a

conviction, guilty plea, consent decree, or prior judgment; whether

there are “bad” documents and testimony; the probable range of

damages; the ability of the defendant or a third party to satisfy any

judgment; whether other parties in the matter have already settled;

and the stage of the proceedings.

There are some variants on these issues that are unique to indirect

purchaser cases. For example, the difficulties of proving the amount

of damages that were passed on through one or more distribution

levels is often at issue in indirect purchaser cases.5 Ultimately, in

deciding whether or not to settle, the parties weigh the strengths and

uncertainties of the case against the costs of further proceedings.

The parties also consider settlement amounts in other indirect

purchaser cases, which are generally reflected as either a percentage

of sales or as a percentage of any direct purchaser settlement. If

seeking a global settlement of cases pending in several states, the

parties evaluate the challenge and cost of coordinating the settlement,

as well as the risks associated with proceeding on multiple litigation

tracks.6 If the settlement negotiations are conducted in conjunction

Inst., Working Paper 10-03, 2010), availa ble a t http://

www.antitrustinstitute.org/content/aai-working-paper-no-10-03-

indirect-purchase-settlement-data-base-updated.

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

discussion of CAFA, see Chapter IV.A.4.

5. AREEDA, BLAIR & HOVENKAMP, supra note 1, ¶ 395(f).

6. See Antitrust Modernization Comm’n, Civil Remedies – Indirect

Purchaser Discussion Memorandum, at 7-8 (May 4, 2006), a vailab le

at http://govinfo.library.unt.edu/amc/pdf/meetings/CivRem-IndP _

DiscMemo060504-fin.pdf (summarizing concerns regarding potential

effects of duplicative litigation on settlement efforts).