Not Treble Damages: Cartel Recoveries Are Mostly Less Than Single Damages

• Author: John M. Connor & Robert H. Lande
• Position: Senior Fellow, American Antitrust Institute and Professor Emeritus, Purdue University/Venable Professor of Law, University of Baltimore School of Law; and a Director of the American Antitrust Institute
• Pages: 1997-2023

Not Treble Damages: Cartel Recoveries Are Mostly Less Than Single Damages John M. Connor * & Robert H. Lande ** ABSTRACT: Antitrust law provides treble damages for victims of antitrust violations, but the vast majority of private cases settle. The average or median size of these settlements relative to the overcharges involved has, until now, been only the subject of anecdotes or speculation. To ascertain what we term “Recovery Ratios,” we assembled a sample consisting of every completed private U.S. cartel case discovered from 1990 to mid-2014 for which we could find the necessary information. For each of these 71 cases we collected, we assembled neutral scholarly estimates of affected commerce and overcharges. We compared these to the damages secured in the private cases filed against these cartels. Our main findings are that the victims of only 14 of the 71 cartels (20%) recovered their initial damages (or more) in settlement. Only seven (10%) received more than double damages. The rest—the victims in 57 cases—received less than their initial damages. In four cases the victims received less than 1% of damages and in 12 they received less than 10%. Overall the median average settlement was 37% of single damages. The unweighted mean settlement (a figure that gives equal weights to the cartels that operated in large markets and to those that operated in small markets) was 66%. However, because plaintiffs tend to be rewarded relatively poorly in the largest cases, the weighted mean (a figure that weights settlements according to cartels’ sales) was only 19%. The mean and median average Recovery Ratios are higher (81.2% and 52.4%, respectively) for the 36 cases that followed criminal convictions of U.S. antitrust law. The conclusion of this Essay briefly discusses some of the implications of these findings. * Senior Fellow, American Antitrust Institute and Professor Emeritus, Purdue University. ** Venable Professor of Law, University of Baltimore School of Law; and a Director of the American Antitrust Institute. The authors are grateful to Joshua Davis, Albert Foer, Herbert Hovenkamp, and Daniel Mogin for their extremely helpful suggestions, and to Graham Bennie for his valuable research assistance. 1998 IOWA LAW REVIEW [Vol. 100:1997 I. INTRODUCTION ........................................................................... 1998 II. ALMOST EVERY SUCCESSFUL ANTITRUST DAMAGES ACTION SETTLES....................................................................................... 1999 III. ARE SETTLEMENTS LIKELY TO BE AT THE “RIGHT” LEVEL? ........ 2002 IV. ANALYSIS OF THE SETTLEMENTS: THE RECOVERY RATIO ............ 2008 V. ANTITRUST’S NEED FOR MULTIPLE DAMAGES ............................ 2014 VI. CONCLUSIONS ............................................................................. 2018 APPENDIX .................................................................................... 2023 I. INTRODUCTION In theory, victims of antitrust violations receive treble damages. 1 In practice, however, almost every successful antitrust damages action settles. Because final verdicts in antitrust cases are exceptional, it may be more accurate to describe the antitrust damages level not as “treble” damages, but as the average or median percentage of damages successful antitrust cases actually settle for. Until now the actual average or median size of antitrust settlements has only been a matter of speculation. To bring empirical analysis to this issue, we assembled a sample of 71 cartels for which we could find the necessary information. We believe that the sample includes every completed private U.S. cartel case since 1990. For each cartel a neutral scholar calculated the firms’ United States overcharges. We compared these results to the damages secured in the private cases filed in the United States against these cartels. We find that the victims of only 14 of the 71 cartels (20%) recovered their initial damages (or more) in settlement; of these, only seven (10%) received at least double damages. The rest—the victims in 57 cases—received less than their initial damages. Four received less than 1% of their damages and 12 received less than 10%. Overall, the median average settlement was 37% of single damages. Because the distribution of settlement percentages is so skewed, the weighted mean (a figure that weights settlements according to their sales) is much lower (19%) than the unweighted mean settlement of 66% (which gives equal weights to the cartels that operated in large markets and those that operated in small markets), because plaintiffs tend to be rewarded relatively poorly in the biggest cases. 1. 15 U.S.C. § 15(a) (2012). Successful victims also receive “the cost of suit, including a reasonable attorney’s fee.” Id. 2015] NOT TREBLE DAMAGES 1999 Our analysis of the “Recovery Ratios” (i.e., size of antitrust settlements relative to damages) will proceed in the following parts. Part II briefly explains why almost every antitrust case settles. Part III analyzes whether these settlements are likely to be at the “right” levels. Part IV analyzes our sample of cartel settlements and the size of the damages recovered by plaintiffs in these cases. Part V shows that both the deterrence and the compensation goals of antitrust necessitate damages that significantly exceed the violations’ actual damages. Finally, in Part VI, we present some conclusions and implications of our work. Throughout this Essay we will use cartels as an example, although we also will discuss how these results might apply to different types of antitrust violations. II. ALMOST EVERY SUCCESSFUL ANTITRUST DAMAGES ACTION SETTLES Almost every successful antitrust damage action settles. 2 We expect this to happen. 3 We expect that most parties would settle for a sum that might be 2. “Settlement agreements invariably involve compromise and risk, and the decision to settle or not is a strategic one that is an ordinary part of the litigation process.” 1 PHILIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW: AN ANALYSIS OF ANTITRUST PRINCIPLES AND THEIR APPLICATION ¶ 205g, at 285 (3d ed. 2006). “As would be expected, a large percentage (70–88%) of antitrust cases are settled.” E. THOMAS SULLIVAN, HERBERT HOVENKAMP, HOWARD A. SHELANSKI & CHRISTOPHER R. LESLIE, ANTITRUST LAW, POLICY, AND PROCEDURE: CASES, MATERIALS, PROBLEMS 137 (7th ed. 2014) (citing S. Salop & L. White, Private Antitrust Litigation: An Introduction and Framework , in PRIVATE ANTITRUST LITIGATION 10–11 (L. White ed., 1988)). This is true for many or most other areas of law as well. For example, “the overwhelming majority of all patent litigation settles.” Aaron Edlin, Scott Hemphill, Herbert Hovenkamp & Carl Shapiro, Activating Actavis, 28 ANTITRUST 16, 23 n.51 (2013) . For convenience, we will sometimes refer to the parties using such terms as “victims” and “violators” even though, unless there was a civil or criminal judgment in the same matter, a term like “alleged victims” or “alleged violators” would be more accurate. 3. As Professor Leslie cogently observes: Judges and litigants generally view settlement as a win-win outcome. Because plaintiffs face great difficulty in winning antitrust cases, settlement is attractive to class counsel, who want to ensure some recovery for both the class and themselves. Conversely, because damages awarded upon a plaintiff’s victory in antitrust litigation are automatically trebled, the risk-averse defendant has a strong incentive to settle in order to eliminate the pricey worst-case scenario. Presiding judges, too, favor settlement and routinely attempt to convince and sometimes cajole litigants to settle their litigation rather than rely on juries to resolve the dispute. Courts often invoke the “‘strong judicial policy in favor of settlements, particularly in the class action context.’” Settlement purportedly carries several benefits. First, settlement brings certainty to an inherently uncertain process. All interested parties seek repose: defendants want to minimize their exposure, the class wants some compensation, and the class counsel want to ensure that they recover their costs and receive some remuneration for their efforts. A settlement guarantees that defendants will not face bankrupting liability and that the class members (and their counsel) will not end up with nothing. In addition to assuring some recovery for the class, settlements generally speed the delivery of payments, as class members do not have to wait for the years of pre-trial, 2000 IOWA LAW REVIEW [Vol. 100:1997 expressed as the discounted present value of the expected probabilities that various recovery amounts would constitute the final verdict if the case went to trial and survived appeal. 4 Of course, this would be true only if a number of conditions held, including rationality on the parts of both plaintiffs and defendants, adequate and symmetric information, risk neutrality, an equal view of the strength of the plaintiffs’ case, and no compelling short-term need on the part of either party. 5 If these assumptions hold, and if the parties share an assessment of the likely underlying parameters, then—in light of the extreme cost, risk, and time involved in litigation—both parties have a strong incentive to settle. 6 We know of no reliable data on the percentage of antitrust cases that settle or that go to final verdict, either for cartels or for other types of antitrust cases. We do know, however, that final verdicts in cartel cases are extremely rare. In an earlier study, we searched antitrust cases since 1890 for final verdicts in cartel damages actions that calculated an overcharge amount and trial, and appeals processes to run their courses before receiving recompense from the defendant. Similarly, the class counsel—who, absent a settlement, would not get paid until years later—receive their fees and reimbursements for costs sooner with a settlement. Second, settlements conserve...