The Effectiveness of Private Enforcement and Class Actions to Secure Antitrust Enforcement

• Published date: 01 September 2017
• Date: 01 September 2017
• Author: Žygimantas Juška
• DOI: 10.1177/0003603X17719764
• Subject Matter: Articles

Article

The Effectiveness of Private

Enforcement and Class

Actions to Secure Antitrust

Enforcement

Z

ˇygimantas Jus

ˇka*

Abstract

The U.S. system has relied heavily on antitrust classactionsasameansofensuringcompensation

and deterrence. Although this tool seems sensible in theory, the reality is that it remains highly

controversial. On the one hand, commentators argue that class actions force defendants to settle

cases lacking merit. Even if a settlement agreement is assumed to have a merit, class actions are

accused of doing a poor job in compensating victims and deterring wrongdoers. On the other

hand, the proponents of class actions claim that there is no reliable empirical evidence proving

that class action schemes caused negative effects on antitrust litigation. The public debate about

the effectiveness of class actions illustrate the controversial nature of American class actions fairly

well. Therefore, using comparative insights from the predominant controversies, this study will

determine how well antitrust class actions fulfill compensation objectives and to what extent they

can facilitate deterrence.

Keywords

antitrust, class actions, enforcement, compensation, deterrence, controversy

Introduction

Private litigation has always played a major role in the antitrust enforcement of the United States. Even

though private enforcement was meant to only complement public enforcement, in reality private

claims far outstrip governmental actions. Private remedies are aimed at achieving either compensation

or deterrence goals. When the American class action mechanism emerged, it became a very potent

fixture to bridge the gap between both objectives. A primary purpose of the class action device is to

enable large groups of victim to aggregate their claims and hence to claim damages or to seek

injunctive relief as a result of the alleged violation. Throughout the development of these sorts of

proceedings, the Supreme Court has given a broad remedial function for class actions to assure that the

*

Leiden University, Leiden, the Netherlands

Corresponding Author:

Z

ˇygimantas Jus

ˇka, Leiden University, Steenschuur 25, 2311 ES Leiden, the Netherlands.

Email: zyjuska@gmail.com

The Antitrust Bulletin

2017, Vol. 62(3) 603-637

ªThe Author(s) 2017

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DOI: 10.1177/0003603X17719764

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antitrust objectives are achieved. Yet the approach has recently changed in Twombly.

1

There, it was

alleged that antitrust class actions can incentivize defendants to settle cases that lack merit.

2

Some

critics characterize this phenomenon as a “blackmail settlement.”

3

Despite the Court’s criticism, some

commentators argue that the decision has no merit itself: it relies on the “unsupported opinion of

another appellate court judge” and no empirical study was performed.

4

The public debate between

these opposing views well illustrates the controversial nature of private antitrust enforcement in the

United States. Ironically, even if the phenomenon of blackmail settlement would be assumed to have

no ground, a series of additional controversies underlie the understanding on class actions, both in

compensating class members and deterring the wrongdoers.

Therefore, this article aims to assess the effectiveness of class actions in securing antitrust enforce-

ment. Using comparative insights from the predominant controversies in the United States, it will

determine how well antitrust class actions fulfil compensation objectives and to what extent they can

facilitate deterrence. A particular emphasis is on cases where plaintiffs suffered harm but the cost of

litigation exceeds the expected awa rd (“negative expected value claims ”). Thus, the debate over

compensation focuses on three major controversies:

1. Class members obtain little or no compensation.

2. The compensation mechanism is framed to (largely) overpay attorneys.

3. Class actions do not compensate the real victims.

The discussion on deterrence will analyze one major controversy: that class actions give little or no

weight to deterrence. To give an additional flavor to the debate between critics and proponents, the

optimal deterrence theory will be applied in order to assess the rol e of class actions in deterring

infringers.

Part I of this article discusses the rationale for private enforcement and class actions in antitrust

enforcement. Part II examines three key controversies underlying the compensation objective in small-

stakes antitrust class actions. Part III considers the impact of class actions on deterring the wrongdoers

(“rational actors”) by applying the standards of optimal deterrence theory.

I. The Rationale for Private Enforcement and Class Actions

in Antitrust Enforcement

The U.S. policy of promoting competition is based on the Sherman Act of 1890

5

and the Clayton Act of

1914.

6

Section 1 of the Sherman Act prohibits any agreement in restraint of trade, while Section 2

forbids monopolistic behavior.

7

The Clayton Act is far more detailed than the Sherman Act, expanding

the provisions on price discrimination, exclusive dealings, and the ability for individuals to sue for

1. Bell Atlantic Corp. v. Twombly 550 U.S. 544 (2007).

2. Id. at 558–59.

3. See,e.g., John T. Rosch, Fed. Trade Comm’r, Designing a Private Remedies System for Antitrust Cases-Lessons Learned

from the US Experience, Remarks before the 16th Annual EU Competition Law and Policy Workshop, 10 (June 17, 2011)

(stating that treble antitrust class actions “can put tremendous pressure on the defendant to settle a case regardless of its merit,

and can lead to extortionate settlements”); Jonathan M. Landers, Of Legalized Blackmail and Legalized Theft: Consumer

Class Actions and the Substance-Procedure Dilemma,47S.C

AL.L.REV.842, 843 (1974) (asserting that plaintiffs’ attorneys

are using class actions to “blackmail” businesses).

4. See Joshua P. Davis & Robert H. Lande, Defying Conventional Wisdom: The Case for Private Antitrust Enforcement,48G

A.

L. REV. 1, 67 (2013) (noting that the Court in Twombly cites Frank H. Easterbrook, Comment, Discovery as Abuse, 69 B.U. L.

REV. 635, 638 (1989)).

5. Sherman Antitrust Act, 15 U.S.C. §§ 1–7 (1890).

6. Clayton Act, 15 U.S.C. §§ 12–27 (1914).

7. Sherman Antitrust Act, 15 U.S.C. §§ 1, 2.

604 The Antitrust Bulletin 62(3)

damages.

8

At the federal level, the U.S. Department of Justice (DOJ) and the Federal Trade Commis-

sion (FTC) have the authority to enforce antitrust laws. On the private side, U.S. antitrust law permits

enforcement by victims of antitrust infringements. In enacting the antitrust laws, private enforcement

was meant to supplement public enforcement, which lacks sufficient resources to detect and prosecute

antitrust violations. However, private claims have become much more prominent and far outpace

government claims. Over 90%of antitrust litigation was filed by private plaintiffs between 1975 and

2004.

9

More recently, in 2013, it was indicated that 98%of antitrust cases in federal courts were

private actions.

10

In fact, private enforcement has become so powerful that private enforcers indeed fill

in gaps of public enforcement of low detection and suboptimal fines.

A. Two Interrelated Goals of Private Antitrust Enforcement: Compensation and Deterrence

The U.S. Supreme Court has repeatedly held that the private right of action under the antitrust laws

serves two purposes: compensation and deterrence.

11

As regards the first objective, the enactment of

both the Sherman and Clayton Acts appreciated the compensation role of private claims. In order to

facilitate the objective of compensation, federal antitrust law authorizes the award of automatic treble

damages.

12

In fact, treble damages are the only meaningful tool to provide compensation to antitrust

victims.

13

However, considering the complexities in compensating antitrust victims, treble damages

are considered to provide only “rough justice” to sufferers.

14

Indeed, an overcharge can be so wide-

spread that the estimation of actual harm may be an insurmountable burden.

Another viewpoint holds that private suits are necessary to deter potential wrongdoers.

15

This

concept is based on the idea that public authorities have insufficient time and resources to prosecute

all the unlawful conduct and hence private litigators can secure additional layer of antitrust enforce-

ment. Trebling ensures that infringers internalize the sufficient cost of the harm caused by antic-

ompetitive behavior. In that regard, the Supreme Court noted that the “treble -damages provision

wielded by the private litigant is a chief tool in the antitrust enforcement scheme,” because the fear

of treble damages creates “a crucial deterrent to potential violators.”

16

Moreover and most importantly,

8. Clayton Act, 15 U.S.C. §§ 13–15.

9. SOURCEBOOK OF CRIMINAL JUSTICE STATISTICS ONLINE, Table 5.41 (Antitrust Cases Filed in U.S. District Courts, by Type of

Case 1975-2004) (Aug. 1, 2016), http://www.albany.edu/sourcebook/pdf/t5412004.pdf.

10. Fed. Judicial Caseload Statistics, Table C-2: U.S. District Courts—Civil Cases Commenced, by Basis of Jurisdiction and

Nature of Suit, During 12-Month Period Ending March 31, 2012 and 2013, http://www.uscourts.gov/Statistics/

FederalJudicialCase loadStatistics/caselo ad-statistics-2013.a spx (last visited Aug. 1, 2016) (i ndicating that out of 776

antitrust cases in federal courts 762 were private actions).

11. See,e.g., Pfizer, Inc. v. Gov.’t of India, 434 U.S. 308, 314 (1978) (stating that “[the Clayton Act] has two purposes: to deter

violator and deprive them of ‘fruits of their illegality,’ and “to compensate victims of antitrust violators for their injuries”)

(citations omitted); Am. Soc. of Mech. Eng’rs v. Hydrolevel Corp., 456 U.S. 556, 575–76 (1982) (asserting that “treble

damages serve as a means of deterring antitrust violations and of compensating victims”).

12. 51 Cong. Ch. 647, July 2, 1890, 26 Stat. 209, part 7 (1890). The private right of action provision was slightly modified in

1914 in Section 4 of the Clayton Act; 63 Cong. Ch. 323, 38 Stat. 73, part 4 (1914).

13. See,e.g., Blue Shield of Va. v. McCready, 457 U.S. 465, 472 (1982) (noting that treble damages “would provide ample

compensation to victims of antitrust violations”). For further discussion, see,e.g., Steven C. Salop & Lawrence. J. White,

Economic Analysis of Private Antitrust Litigation,74G

EO. L.J. 1001, 1051 (1986).

14. Edward D. Cavanagh, The Private Antitrust Remedy: Lessons from the American Experience,41LOY.U.CHI. L.J. 629, 632

(2010) (citing Robert H. Lande, Are Antitrust “Treble” Damages Really Single Damages? 54 OHIO ST. L.J. 115, 118

(1993)). Cavanagh provides a monopolization example where the difficulties occurred in reconstructing the “but for” test in

the case LePage’s, Inc. v. 3 M Co., 324 F.3d 141, 164–66 (3d Cir. 2003) (en banc), cert.denied, 542 U.S. 953 (2004)).

15. Blue Shield of Va. v. McCready, 457 U.S 465, 472 (1982). On this point see,e.g.,A

NTITRUST MODERNIZATION COMMISSION,

REPORT AND RECOMMENDATIONS, 246–47 (2007), http://govinfo.library.unt.edu/amc/report_recommendation/

amc_final_report.pdf (last visited Aug. 11, 2016).

16. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 635 (1985) (citations omitted).

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