Nov 11

Canada Allows Antitrust Indirect-Purchaser Suits and Loosens Class Certification Tests

Canada’s Supreme Court, in three decisions announced on October 31, parted ways with the U.S. Supreme Court on antitrust indirect-purchaser suits and the standards for class certification.  Under these decisions, Canadian consumers who buy from a store or dealer can sue an upstream manufacturer for anticompetitive conduct like price-fixing or abuse of monopoly power.  They also make it easier to certify a class action than in U.S. federal courts.  More Canadian antitrust and consumer class actions against U.S. companies doing business there are likely.

Canada Allows Indirect Purchasers to Sue.  In 1977, the U.S. Supreme Court refused to permit indirect purchasers to sue for damages under federal antitrust law, reasoning that recovery of 100% of the overcharge by direct purchasers, whether or not it was passed on to final customers, is better policyIllinois Brick Co. v. Illinois, 431 U.S. 720 (1977).  All three Canadian cases included indirect purchasers:  of juice in Sun-Rype Prods. Ltd. v. Archer Daniels Midland Co., 2013 SCC 58; computer software in Pro-Sys Consultants Ltd. v. Microsoft Corp., 2013 SCC 57; and computer memory chips in Infineon Technologies AG v. Option consommateurs, 2013 SCC 59.  All indirect-purchaser damage claims would have been barred under U.S. federal law.  But Canada, noting that 34 U.S. states have rejected Illinois Brick for their state antitrust laws, declined to adopt the Illinois Brick doctrine, and ruled that consumers should be able to sue for manufacturers’ overcharges passed on to them.

The Supreme Court of Canada made a policy choice.  It reasoned:

  • Direct purchasers may be reticent to sue because of business relationships with manufacturers.
  • Trial courts can alleviate the risk of double recovery—one of the reasons for Illinois Brick—when both direct and indirect purchasers can sue for the same wrong by joining direct and indirect purchasers in the same case.  Indeed, Sun-Rype and Infineon both included direct and indirect purchasers as plaintiffs.
  • The complexity of sorting out which overcharges are passed on to consumers and which are absorbed by middlemen—another Illinois Brick rationale—could be managed in most cases.

But the decisions do not compel Canadian trial courts to allow indirect purchasers to sue.  Whether “tools will be sufficient to meet the burden of proof . . . is a factual question to be decided on a case-by-case basis.”  Pro-Sys, slip op. at 34.  Eliminating the risk of double recovery in Pro-Sys will be harder than in Sun-Rype and Infineon because in Pro-Sys only indirect purchasers are plaintiffs.  The court invited Microsoft to bring evidence of double recovery before the trial court, which can deny the claim if double recovery can’t be avoided.

Canada Adopts Lighter Class Certification Test.  In U.S. federal courts, the plaintiff must prove its case meets the class certification requirements with “evidentiary proof.”  Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1432-35 (2013).  “Factual determinations supporting Rule 23 findings must be made by a preponderance of the evidence.”  In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 306 (3d Cir. 2008).  The trial court must be satisfied, after a rigorous analysis, that Rule 23’s requirements have been satisfied.  Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011).  While “reaffirming the importance of certification as a meaningful screening device,” Pro-Sys, slip op. at 62, Canada’s Supreme decided to adopt a lighter test:  “some basis in fact which establishes each of the individual certification requirements.”  Id. at 60.  The court rejected the “balance of probabilities” standard—“preponderance of the evidence” in the U.S.—and “emphasize[d] that the Canadian approach at the certification stage does not allow for an extensive assessment of the complexities and challenges that a plaintiff may face in establishing its case at trial.”  Id. at 63.

Expert evidence, crucial in an antitrust case, “must be sufficiently credible to establish some basis in fact for the commonality requirement.  This means that the methodology must offer a realistic prospect of establishing loss on a class-wide basis . . . .  [It] must be grounded in the facts of the particular case in question.  There must be some evidence of the availability of the data to which the methodology is to be applied.”  Id. at 69.  Canadian courts may not scrutinize expert evidence as closely as a U.S. federal court would or resolve conflicts between experts, but under these decisions should nonetheless insist on a credible methodology for proving loss, grounded in the facts of the case with some assurance that evidence to carry it out will be available.

One Class Foundered on Ascertainability.  The need to show a class is ascertainable—that its members can be identified using objective criteria without the need for extensive fact-finding or mini-trials—is seeing a resurgence in the U.S., due largely to three Third Circuit decisions in 2012 and 2013. In Canada, the case against Sun-Rype foundered on the similar requirement that at least two class members can be identified.  Consumers would be unable to prove they bought juice containing high fructose corn syrup—the ingredient whose price was allegedly inflated—because Sun-Rype switched back and forth between that sweetener and liquid sugar, and used a generic label “sugar/glucose-fructose” for both.  No buyer could know which one his juice contained.

Conclusion.  Although these decisions increase U.S. companies’ exposure to class actions in Canada, evidence opposing a class certification motion is as important as ever.  Despite the policy choices, they require case-by-case evaluation and show openness to evidence on the class certification tests.

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