Toward an Empirical and Theoretical Assessment of Private Antitrust Enforcement

• Publication year: 2013

Washington Law ReviewVolume 36, No. 3, SPRING 2013

ARTICLES

Toward an Empirical and Theoretical Assessment of Private Antitrust Enforcement

Joshua P. Davis & Robert H. Lande(fn*)

The predominant view in the antitrust field has been that private enforcement, and especially class action cases, yields little or no positive results. On the contrary, they are counterproductive. This prevailing belief was well summarized by J. Thomas Rosch, a former commissioner of the Federal Trade Commission, who considered treble damage class action cases “almost as scandalous as the price-fixing cartels that are generally at issue. . . . [T]he plaintiffs' lawyers . . . stand to win almost regardless of the merits of the case.”(fn1) Professor Daniel Crane has gone so far as to claim that “often” in private antitrust class actions “administrative costs swallow the entire recovery.”(fn2)

In light of these widespread beliefs, former Federal Trade Commission Chairman William E. Kovacic summarized the conventional wisdom about private enforcement succinctly and correctly: “private rights of actions U.S. style are poison.”(fn3) Abbot B. Lipsky, in his testimony before the Antitrust Modernization Commission, likened private antitrust lawsuits to the “Salem Witch trials.”(fn4) Additionally, a European academic analogized private antitrust lawsuits to a tort case where a driver allegedly “set the cruise control at 70 mph in his brand new 32-foot Winnebago motor home. When the car crashed after he got himself a cup of coffee at the back of the vehicle, [the driver] sued Winnebago for not having warned him in the manual about the consequences of leaving the drivers [sic] seat.”(fn5)

Despite these strongly worded opinions, most of the argument about private enforcement of the antitrust laws has been premised on anecdotal, self-serving, and unsubstantiated or insufficiently substantiated claims. Indeed, our 2008 study of forty private antitrust cases appears to constitute the only systematic effort to gather information about how a significant number of private actions have actually proceeded and the results they have produced.(fn6)

Our 2008 study attracted widespread attention because it so strongly challenged the conventional wisdom. It influenced the decision of the European Commission to seek expanded private rights of action in Eu-rope(fn7)and was considered by the U.S. Congress when it conducted hearings on the “Open Access to Courts Act of 2009.”(fn8) It also was attacked by leading lawyers and economists at the U.S. Department of Justice (DOJ)(fn9) and by leading academics as well, including the esteemed antitrust scholar Professor Daniel Crane of the University of Michigan Law School.(fn10)

Given this subject's importance and controversial nature, we undertook a supplemental study of twenty additional private antitrust cases.(fn11) This Article analyzes these twenty cases, compares and contrasts their analysis with that of our earlier group of forty cases, and draws new insights from the results of all sixty combined. We have done this so that empiricism, rather than conjecture, can inform decision makers about how private enforcement actually works in practice.(fn12)

The primary purpose of our new study was to determine whether private enforcement provides significant benefits that help further the overall goals of the private litigation system: compensating the victims of illegal behavior and deterring anticompetitive behavior.(fn13) To assess these benefits(fn14) we sought to avoid subjective assessments whenever possible. As a result, we focused on cases that returned more than $50 million in cash to victims.(fn15) We did not include cases that obtained an injunction as their only or primary form of relief. Also, because of our desire to ascertain whether the cases produced benefits that could be assessed objectively, we excluded coupons, products, rebates, discounts, etc. Even though each of these forms of relief may be extraordinarily valuable, we did not count them at all because their benefits can be difficult to meas-ure.(fn16)

When combined, these two studies demonstrate that private antitrust litigation has provided a substantial amount of compensation for victims of anticompetitive behavior: at least $33.8 to $35.8 billion.(fn17) The combined studies also demonstrate that private antitrust enforcement has had an extremely strong deterrent effect. In fact, this research demonstrates that private enforcement probably deters more anticompetitive behavior than even the appropriately acclaimed anti-cartel program of the DOJ Antitrust Division.(fn18)

Another purpose of our study was to ascertain the important characteristics of private antitrust cases, many of which could help to influence the debate over their efficacy. These characteristics include whether there were indicia that the cases had underlying merit, the significance of recoveries from foreign violators of U.S. antitrust law, and the size of the applicable attorney's fee awards. Our study also helps address other interesting questions, including the relationship between private and public enforcement (do most of the private cases simply follow and mirror public enforcement?); the proportion of per se and rule of reason cases (is the conventional wisdom correct that private plaintiffs prevail only in perse cases?); and the proportion of recoveries by direct purchasers, indirect purchasers, and competitors. Many of our new findings cut against conventional wisdom. For example, in the sixty cases, recoveries in rule of reason cases predominated, undermining the widely held view that private plaintiffs rarely obtain meaningful relief unless they are able to pursue a per se theory of liability.

Finally, this Article replies to the criticisms of our earlier study of private enforcement. We are grateful for the attention our work has received from high-ranking DOJ officials and Professor Daniel Crane of the University of Michigan Law School. A focused debate holds the promise for progress in our understanding. For this reason it is important for us to discuss their criticisms concerning our claims about, respectively, deterrence effects and compensation effects. We explain why their criticisms are unfounded, and why our earlier study did indeed demonstrate the truly significant benefits of private antitrust enforcement-a conclusion that our new empirical work reported in this Article confirms and strengthens.

This Article proceeds in three parts. Part I presents the empirical results and our analysis based on the combined studies of private enforcement cases. Part II summarizes and responds to the criticisms of our empirical research into private antitrust enforcement. Part III briefly concludes.

I. RESULTS OF THE COMBINED EMPIRICAL STUDIES

A. Compensation of Victims of Anticompetitive Behavior

Private antitrust enforcement provides virtually the only compensation to victims of antitrust violations.(fn19) To be sure, government actors have mechanisms by which they can seek relief for victims, but these mechanisms are limited and too rarely pursued.(fn20) Thus, it is a great virtue of private enforcement if it is able to wrest ill-gotten gains from violators of the antitrust laws and return them to those to whom they rightly belong. And that is what private enforcement has done. Our empirical work reveals that in the sixty cases we studied the total recoveries for the victims of the anticompetitive activity at issue were $33.8 to $35.8 billion.(fn21)

The forty cases in our 2008 study revealed a total recovery of $22.4 to $24.4 billion.(fn22) Because the study examined only large cases, it was possible that this study exhausted the major private cases since 1990, when this study began.(fn23)

Our new study of an additional twenty cases, however, casts the original study in a new light. The new study reflects $11.4 billion in additional recoveries, as Table 1 shows.(fn24) The original finding of $22.4- $24.4 billion was, then, only a part of the benefits that have arisen from private enforcement. We remain unsure how many more important recent cases remain unanalyzed, but the total may well be substantial.(fn25) And while we make no claims that either the original study or the new study reflects a random selection of private antitrust cases, the fact that the twenty new cases total roughly half as much as the original forty cases could mean the original group of forty cases might not be as anomalous as at first seemed possible.

Table 1: Actual (in nominal dollars) and Present Value (in 2011 dollars) of the Recoveries in the Twenty Newly Studied Private Cases(fn26)

#	Case Name	Year(fn27)	Actual Recovery Amount (Before CPI/PPI)	2011 $s (millions) (CPI)
1	3M	2006	136	153
2	Air Cargo	2011	278	278
3	De Beers	2011	295	295
4	Electrical Carbon Fiber	2006	30	34
5	EPDM	2007	107	117
6	High Pressure Laminates	2004	46	55
7	Intel	2009	1250	1322
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