Promoting Competition in Competition Law: the Role of Third-party Funding in Overcoming Competitive Barriers in Private Antitrust Enforcement Practice
| Publication year | 2020 |
| Author | By Jiamie Chen |
By Jiamie Chen1
Among the most fundamental antitrust concerns are barriers to entry in concentrated markets. Yet antitrust practice itself——specifically big-ticket private enforcement—remains a concentrated market subject to longstanding competitive barriers within the greater legal industry. Private enforcement contingency practice inherently involves high risks and high rewards. Recent developments have driven contingency risks even higher, requiring greater investments at early stages of litigation while creating more ways for plaintiffs to lose. No one can meaningfully compete—or continue competing—in the private enforcement market without effectively managing the financial risks of the practice.
But the private enforcement world is changing. The targeted conduct itself is evolving, from proverbial smoke-filled rooms to computer algorithms2 and two-sided e-commerce platforms.3 New thought leaders like Lena Kahn4 and Dina Srinivasan5 are shifting the conversation on how traditional antitrust principles apply to today's economic and commercial realities. In addition, key precedents in antitrust collective actions are developing abroad, particularly in the United Kingdom.6
These factors create room for new players and new ways to compete in the private enforcement market. One development in particular—the rise of third-party commercial litigation funding in the United States—can help competitors overcome the risk management barriers in this practice market. Commercial funding provides non-recourse capital to law firms and operates like an investment. By contrast, a traditional recourse loan must be repaid with interest regardless of litigation outcome. Moreover, it makes truly institutional-scale capital available to the legal market and can help level the playing field with well-resourced corporate defendants. Of course, there is no substitute for requisite experience.7 But third-party commercial litigation funding can and should play a key role in promoting competition in competition law.
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Private antitrust enforcement occupies a niche that draws certain practitioners—and the draw is as powerful as it is well-founded. As one Harvard Business School professor quipped, "[t]he phrase 'doing well by doing good' has been used, at my last unscientific count, roughly 38 trillion times."8 Yet it aptly applies to the (successful) practice of private antitrust enforcement.
The Supreme Court itself has emphasized the critical role of "private attorneys general" in antitrust enforcement.9 The Court most recently reiterated this view in the seminal Apple v. Pepper case, stating that, in the private enforcement action at issue, "[t]he plaintiffs seek to hold retailers to account if the retailers engage in unlawful anticompetitive conduct that harms consumers who purchase from those retailers. That is why we have antitrust law."10 To put a finer point on it, "unlike public enforcers, private enforcers can obtain significant damages," which "serves as a crucial source of deterrence for illegal anticompetitive conduct and the major avenue for compensating victims for harms suffered at the hands of cartelists and dominant firms."11 Private enforcement of antitrust law is needed perhaps now more than ever.12
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Of course, fulfilment from such laudable work alone won't keep the lights on (or put the kids through college). Successful practitioners in this sector should have no trouble doing either. For example, a recent empirical study conducted by University of San Francisco School of Law and Huntington National Bank found that, between 2013 and 2018, antitrust class actions resulted in over $19 billion in recoveries, and that the plaintiffs' attorneys obtained fee awards amounting to 20%-40% of the total recovery.13 Lex Machina found that, between 2009 and 2018, courts awarded over $34 billion in antitrust damages, excluding fees, costs, and prejudgment interest.14 Antitrust class actions likely make up the vast majority of those damages.15
It comes as no surprise that private antitrust enforcement is big business. For example, as multidistrict litigations (MDLs) have rapidly taken over national civil dockets, rising from 16% in 2002 to 39% in 2015 of federal courts' entire civil case load,16 private antitrust actions constitute a significant portion of all MDLs. In fact, of the 190 currently pending MDLs, 48 are antitrust matters, second only to products liability, which accounts for 66 MDLs.17
Yet this billion-dollar market is dominated by a small number of repeat players—firms that show up, and, critically, are appointed to leadership positions again and again in high-stakes nationwide collective actions.18 Antitrust matters19 in particular demonstrate the prevalence of this "repeat player" pattern in MDLs, which has drawn empirical study as well as heated commentary from scholars.20
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The small number of readily-identifiable repeat players shows that appetite for the practice, even when coupled with skill, does not suffice to create robust competition in this market.21 That is because no one can meaningfully compete—much less thrive—in the private antitrust enforcement market without effectively managing the significant financial risks of the practice.
B. Risks of the PracticeIn contingency and hybrid-contingency representations, legal risk translates to economic risk. Scholars (especially Professor Herbert M. Kritzer) have studied contingency representations in fields like personal injury and worker's compensation at length.22 However, "[t]here is relatively little literature on the nature of contingent representation in more complex areas of law such as antitrust."23
As discussed below, in addition to readily observable patterns, other, perhaps less obvious, factors also manifest as further risks unique to antitrust contingency practice, especially with certain recent developments in the field.
1. No More Cheap Losses for Antitrust PlaintiffsTraditionally, plaintiffs must prevail at up to six stages—at pleadings, class certification, Daubert, summary judgment, trial, and appeal—to win a case. Defendants need only win once. Savvy plaintiffs' firms have historically succeeded within this construct by apportioning risk such that, if they lose, they do so as inexpensively as possible.
However, recent trends are making it increasingly difficult to "lose cheap," even early in a case. Instead, firms now must make increasingly substantial upfront investments24 in their contingency antitrust cases, while having to fight (and win) ever more dispositive battles before even reaching the merits.
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To begin with, the costs of filing a viable antitrust complaint have entered a race-to-the-top. To meet the heightened antitrust pleading standards25 resulting from Twombly,26 Iqbal,27 and, in the Ninth Circuit, Kendall,28 as well as to position themselves for leadership,29 plaintiffs' attorneys now also routinely retain economics and/or industry experts to produce substantial original content for their complaints.30 The more case-specific investigation and analyses a firm performs, the more factual allegations it can put forth in its complaint to survive motions to dismiss.31 In addition, the earlier a firm begins and the more resources it spends on its investigation, the stronger its leadership bid becomes.32 In a system with these incentives and pressures, a plaintiffs' firm, especially one seeking leadership, is hard-pressed to limit its investment and corresponding risk, even if it loses at the pleading stage.33
Several steps, and several years, later, if the plaintiffs prevailed at the pleadings stage and mustered resources to conduct discovery, they now must fight—and win— class certification and Daubert battles, before even reaching the merits. And recent developments have made this supposedly preliminary stage increasingly difficult and costly for antitrust plaintiffs.
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First, merits inquiries have increasingly seeped into the certification analysis, such that plaintiffs arguably must prove their case at certification.34 The Supreme Court blessed this trend by providing for merits assessment at the certification stage as to commonality in Dukes and extending it to the critical predominance requirement in Comcast.35
In addition, antitrust plaintiffs now must overcome the additional hurdle of Daubert challenges at class certification before reaching merits. Even before Dukes and Comcast, from 2000-2009 alone, expert challenges increased over 340%,36and a plaintiff expert in private antitrust cases is four times more likely to be excluded than a defendant's expert.37 With Daubert challenges at certification becoming even more widespread after Dukes and Comcast, the majority of appellate courts facing the unsettled issue of whether class certification expert evidence must meet the full Daubert standard have answered in the affirmative.38 This means that the risks and costs of litigating a full Daubert challenge, which traditionally occurred if and after plaintiffs won certification, now must be borne during, or before, certification.39 This also means that, in some cases, plaintiffs now must bear the costs of litigating—and must win—full Daubert challenges twice: at certification and again at summary judgment. Litigating certification and Daubert has thus become more expensive, more time-consuming, and riskier.
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2. Longevity Risk of Antitrust Enforcement CasesFor comparison, antitrust cases take more than twice as long to litigate40 as patent infringement cases, which themselves are known to take a "relatively long period of time to resolve."41 In antitrust class actions from 2013-2018 where the court granted final approval of a settlement, the median time...
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