More of the same: growth in private antitrust litigation and cutbacks by the US Supreme Court
This is an Insight article, written by a selected partner as part of GCR's co-published content. Read more on Insight
Federal court antitrust filings poised to hit highest level in decades
Our research into databases of US litigation filings reveals that the number of federal court antitrust cases filed each year not only continues to grow, but is poised to reach levels not seen since the 1970s. We found nearly 850 distinct federal court antitrust cases filed in the first seven months of 2008, a figure that would equate to nearly 1,500 for the full year if filings were to continue at the same pace. The last time that many private antitrust cases were filed in a single year was 1977, according to federal court statistics.3
The 1,500-case pace for 2008, if sustained, would be a significant increase over 2006 and 2007 (which each saw just under 1,100 filings). It would also mark the first time in decades that private plaintiffs have filed 1,000 or more antitrust cases in three consecutive years, which represents a distinct departure from recent history. Indeed, the number of antitrust cases did not approach 1,000 in any year during the 20 years prior to 2006 and averaged fewer than 750 cases per year during that period.4 The 1,000 to 1,500 level over the past three years thus represents a significant increase of more than 30 per cent over recent history.
The surge in class action filings
Our research also shows some interesting sub-trends within this overall growth. First, most of the growth is fuelled by extraordinary increases in the number of antitrust class action lawsuits filed in recent years. The number of private antitrust cases filed by individual plaintiffs has, in fact, been relatively steady. For example, individual plaintiffs filed roughly 470 antitrust lawsuits per year in 1998, 2002 and 2006. To be sure, there is some variation in the numbers each year, but the overall trend of individual antitrust lawsuits has been fairly stable. In contrast, the number of class action lawsuits has skyrocketed over that same period, increasing from fewer than 75 distinct cases in 1998 to nearly 700 in 2007 (and is on pace to approach 900 in 2008). Class action lawsuits have thus grown from roughly 15 per cent of all antitrust cases filed in the late 1990s to 70 per cent or more in recent years.
Second, most of the growth in class action lawsuits appears to be made up of filings that are, in a sense, duplicative. Some background helps explain why. A plaintiff filing an antitrust case on behalf of a class action seeks to represent all similarly situated potential plaintiffs, that is, all people or businesses allegedly injured by the same antitrust conduct. The typical antitrust plaintiff in federal court seeks to represent a nationwide class. If the plaintiff's request to represent a class is certified under Federal Rule of Civil Procedure (FRCP) 23, the plaintiff will effectively be permitted to prosecute the case on behalf of all other similarly situated potential plaintiffs across the country, and none of those class members need file its own lawsuit.
If multiple plaintiffs each file similar antitrust lawsuits, that is, lawsuits based on the same cause of action and similar purported facts regarding defendants' conduct, and each seeks to proceed on behalf of the same nationwide class, the cases are, in effect, duplicative for most purposes because a single successful class action lawsuit would result in recovery for all potential plaintiffs.
Nonetheless, multiple duplicative lawsuits are common. In fact, they are so common that the federal court system has a mechanism to reduce the burdens on the judiciary (and the parties) of these duplicative lawsuits while, at the same time, preserving each plaintiff's right to trial in the forum it has chosen.
The Judicial Panel on Multidistrict Litigation (JPML), composed of district court judges from around the country, has authority to consolidate these overlapping class action lawsuits into a single proceeding and transfer them to a single federal district court for all pre-trial purposes. In effect, the JPML treats the many cases that duplicate each others' legal claims and factual allegations as one case, albeit one that actually comprises a cluster of multiple but substantively similar cases. For example, more than 24 separate lawsuits seeking class action status to press price-fixing claims against paper producers were consolidated into a single lawsuit for pre-trial purposes in federal district court in Connecticut.5 Dozens of lawsuits seeking to prosecute alleged price-fixing over railway fuel surcharges were consolidated into a single case cluster in federal district court in Washington, DC,6 and dozens seeking to press claims against manufacturers of television tubes were consolidated in federal court in California.7 So the tenfold increase in antitrust class action lawsuits in recent years does not represent a tenfold increase in unique antitrust cases. On the contrary, the increase in the number of unique class action clusters - while still significant - has been far smaller. Between 1990 and 1996, for example, the JPML consolidated multiple duplicative antitrust class actions into an average of four class action clusters per year. That figure more than doubled in recent years, to an average of nine antitrust class action clusters each year between 1997 and 2007. That doubling of the number of class action clusters is significant, but it is a far smaller increase than the tenfold increase in overall antitrust class action lawsuits.
This all means that the last few years have seen an explosion of more and more duplicative lawsuits, all seeking class action status for claims that are essentially the same. The average number of duplicative class action cases that are consolidated into a single case for pre-trial purposes has, thus, increased dramatically. For example, between 1990 and 1996, the average case cluster consolidated by the JPML contained 23 similar lawsuits. That figure is deceptive, however, because a single cluster (the Brand-Name Prescription Drugs litigation) contained 187 individual cases by itself.8 Excluding that set of cases, which skew the results, the average multi-districted cluster contained 17 separate lawsuits during the period from 1990 to 1996. From 1997 onwards, however, the average cluster contained 30 similar cases; many of those duplicative cases were filed by the same law firms.9
Why the overall growth?
There are undoubtedly many reasons for this growth in private antitrust litigation. Detailed analysis is beyond the scope of this article. We will, however, posit some likely catalysts.
One overall (and obvious) catalyst that is likely causing private antitrust plaintiffs to file more cases is increasingly vigorous government enforcement. The mid-1990s saw significant changes designed to increase the rigour of government antitrust enforcement in both the US and the European Union, changes designed to strengthen the incentives for companies to self-report violations and obtain amnesty, for example.10
The 1990s also saw the beginning of a significant surge in the magnitude of the fines obtained by government enforcement. In the US, the DoJ's late-1996 criminal guilty plea against Archer Daniels Midland for price fixing of lysine and citric acid, for example, resulted in a historic fine that crossed the US$100 million line for the first time11 - and was subsequently surpassed time and time again in the next decade.12 The European Commission's then-record €70 million cartel fine against Asea Brown Boveri constituted a similar sea change in European enforcement.13 Because antitrust enforcement in the US is not a zero-sum game, the invigoration of US and EC cartel enforcement that began in the mid-1990s did not diminish the incentives for private lawsuits. Instead, increased government enforcement appears to have had the effect of spurring more and more private lawsuits. Federal antitrust enforcement in the US is the dual province of both the federal government and 'private attorneys general'.14 In fact, it is commonly understood that the class action plaintiffs' bar will likely file dozens of 'tag-along' class action lawsuits in the wake of an announced investigation by the US Department of Justice or, in recent years, the European Commission.
This makes sense. A government investigation may uncover a wrong affecting unsuspecting private litigants and, if successful, may dramatically reduce the risks of a subsequent private civil suit by developing evidence against the defendants. Moreover, if the government investigation results in a conviction or a guilty plea in the US, it may provide civil litigants with prima facie proof of liability.15 So, in general, more vigorous government enforcement over the last decade (and bigger fines) appears to lead to more vigorous private enforcement because it has a realistic potential to uncover potential private cases and reduce their risks and expense.
Why the growth in duplicative class action lawsuits?
That might explain the growth in private lawsuits, but it does not necessarily explain the surge in duplicative lawsuits, all seeking to represent the same putative class, however. In particular, it does not explain why the same law firm may file numerous duplicative lawsuits seeking class action status. There are two likely catalysts for these latter occurrences. First, the potential payouts from class action litigation are enormous. Second, some of the mechanisms employed in selecting counsel for the class promote duplicative case filings.
Class actions are typically gargantuan in scope. They involve dozens of plaintiffs' law firms and, on average, nearly 100 individual lawyers and others working on plaintiffs' behalf. A smaller - though still large - number of law firms and lawyers is typically involved on the defence side.16 The typical class action cluster over the past two decades has taken more than five years, from the date the first complaint was filed to the time when the consolidated cluster was resolved and closed, and that duration appears to have lengthened in recent years.
This massive scope requires an organisation, and a division of labour, among the lawyers on both the defence and plaintiffs' side of the case. As a result, the plaintiffs typically ask the court to appoint a lead or liaison counsel to run their case. The position of lead or liaison counsel for the class is coveted because the firm (or firms) in that position can control staffing and workloads among the plaintiffs' firms during the course of the case and, as a result, will typically earn more in any attorneys' fee award obtained.
The selection of liaison counsel is typically made up front shortly after the consolidated cases are transferred by the JPML to a single district court for pre-trial purposes. This court's selection of liaison counsel is thus often dependent upon showing that a law firm (or firms) has knowledge of the industry and the facts purportedly at issue in the case, and that it has sufficient support among the plaintiffs themselves. In practice, a firm that files the first case - and a firm that files many cases - can stake a strong claim to the lead counsel position.17
The second likely catalyst behind the surge in class action lawsuits appears to be a corresponding increase in the per-case award obtainable from a class action suit (and, thus, the likely attorneys' fees obtainable).
Very few antitrust class actions actually go to trial. Our analyses show that roughly one per cent of all of the dozens of consolidated class action clusters filed in recent years actually went to trial. That is consistent with overall statistics regarding the infrequency of trials in all types of civil litigation. For example, two independent studies conducted in the past two decades found that 97 per cent of all civil cases were dismissed or settle before trial.18
But those figures are, in a sense, an overestimate. The total number of defendants sued in the dozens of class action clusters in recent years easily tops 250, while the total number of defendants who went to trial in one of those cases can be counted on the fingers of one hand. Thus, the actual percentage of the defendants in those class action clusters that went to trial is extraordinarily small: to the order of a fraction of a percent.
On the other hand, the vast majority of the class action clusters result in settlements by at least one defendant and, often, by all defendants.19 Our research shows, for example, that more than 80 per cent of all class action antitrust clusters resulted in at least one settlement.20
The payout from these pre-trial settlements is, on average, huge. For example, using data obtained from court records and other reliable public sources for several dozen class action clusters, we found that the average cluster since 1990 resulted in more than US$300 million in settlements.21 This figure is skewed upwards by a handful of clusters that resulted in multibillion dollar settlements, such as the settlements in the In re Vitamins Antitrust Litigation,22 but excluding those clusters still shows an average settlement greater than US$100 million.
Attorneys' fees for these cases typically range from 10 to 30 per cent or more, and are often deducted from the settlement figures (along with costs incurred by the plaintiffs' attorneys and costs of providing notice to the class members) before settlement monies are distributed to the class. Assuming an average attorneys' fee award of 20 per cent, which seems plausible based on our review of numerous plaintiffs' fee petitions, plaintiffs' attorneys can expect to receive roughly US$60 million in fees per class action cluster if they are able to negotiate a successful settlement. And the firms that are selected as lead or liaison counsel for plaintiffs typically receive a larger than pro-rata share of the fees in order to compensate them for their lead role. Although it may take years on average to collect these fees, it bears repeating that the risk of trial is low, the probability of settlement is high, and the burdens of discovery faced by plaintiffs are often lessened by a preceding government investigation.
Continued cutbacks by US Supreme Court
In the past 18 months, the Supreme Court has handed down four major antitrust decisions - Leegin Creative Leather Products v PSKS Inc,23 Bell Atlantic Corp v Twombly,24 Credit Suisse Securities (USA) LLC v Billing25 and Weyerhauser Co v Ross-Simmons Hardwood Lumber Co26 - and all four made it more difficult for a private plaintiff to plead and prove an antitrust violation across a range of different antitrust causes of action and theories.
In Leegin, the Supreme Court confronted vertical resale price maintenance under section 1 of the Sherman Act; that is, a manufacturer's ability to determine the price at which its customers resell its products. The court reversed a 96-year-old legal rule that considered vertical resale price maintenance to be per se illegal.27 This doctrine had been long criticised by economists and antitrust practitioners as failing to recognise the potential benefits of resale price maintenance - namely, protecting against discounters who claim a free ride on the back of other retailers' service and marketing - that helps to foster interbrand competition.28 The court had previously recognised these benefits with respect to vertical non-price restraints29 and found 'little economic justification for the current differential treatment' for vertical price restraints. Thus, the court held that '[v]ertical price restraints are to be judged according to the rule of reason', which calls for weighing the economic costs and benefits of the alleged restraints on trade.30
In Twombly, the Supreme Court clarified the pleading requirements that are necessary to state a Sherman Act, section 1 horizontal conspiracy claim; that is, a claim that two or more rivals conspired to refrain from competing against each other. The court held that a plaintiff must plead sufficient facts to render its conspiracy claim 'plausible' in order to survive a motion to dismiss under FRCP 12(b)(6).31 A mere allegation that defendants engaged in parallel conduct, coupled with 'mere labels and conclusions' that the conduct resulted from 'a conspiracy' was insufficient.32 Instead, a plaintiff must allege facts that suggest that the defendants' parallel conduct resulted from a 'preceding agreement' among them.33 Failure to plead such facts required dismissal of the case. The court's reasoning was based, in part, on its recognition that discovery in modern antitrust cases imposes extraordinary burdens and costs on defendants. As a result, the court observed, district judges must ensure that a plaintiff's complaint states a valid claim before it should allow those costs and burdens to be imposed upon defendants.34
The Supreme Court confronted section 2 of the Sherman Act in the Weyerhaeuser case and extended the predatory pricing test that was established in Brooke Group35 to allegations of predatory bidding. Under the Brooke Group test, the plaintiff must show that a dominant firm's prices were below a relevant measure of cost, and create a 'dangerous probability' that the firm would recoup its losses with future monopoly profits.36 As we have discussed in previous articles, the law of dominant firm conduct, or 'monopolisation', is currently in a state of flux in the United States, as there is disagreement among the lower courts as to whether the Brooke Group test should be extended to other types of pricing-related conduct.37 In Weyerhaeuser, the Supreme Court reasoned that this test should apply to buying practices, finding monopsony and monopoly power to be 'analytically similar'.38 The court reasoned that, like predatory pricing, predatory bidding schemes 'are rarely tried, and even more rarely successful' and failed schemes 'can be a boon to consumers' by resulting in lower prices.39 The court was equally concerned with 'chilling legitimate pro-competitive conduct', and thus held that the cost-screen applied to predatory pricing should also be applied to predatory bidding.40
Finally, in Credit Suisse, the Supreme Court confronted a defence of pre-emption that cuts across all types of antitrust claims, although it will likely only apply in narrow factual circumstances. As in its other decisions, the court made it more difficult for plaintiffs to press claims under certain circumstances where the conduct allegedly at issue is already subject to regulatory oversight. Credit Suisse held that US securities law precludes the class plaintiffs' antitrust claims against the commission structure of underwriting firms.41 Even though securities law was silent as to whether antitrust suits were permitted against practices in the securities industry, the court found securities law and antitrust law to be 'clearly incompatible'.42 The court reasoned that the US Securities and Exchange Commission (SEC) had 'full regulatory authority' over the practices in question and found that antitrust law would prohibit several types of conduct - for example, tying and market allocation - that the SEC expressly permits an underwriter to engage in.43
These Supreme Court cases continue a long-term trend making it more difficult for plaintiffs to plead and prove antitrust violations. They are likely to have some effect on future cases. For example, the Twombly decision in particular has already been applied to dismiss several large multidistrict litigation cases on the basis that the complaint did not plead sufficient facts to establish a conspiracy.44 But in our view these decisions are unlikely to change the fundamental factors leading to the recent surge in private antitrust litigation. We expect both trends to continue in the short term.
1 See Joseph Ostoyich and Eric Berman, 'Trends in Dominant Firm Litigation: Convergence Towards What?', Global Competition Review: The Antitrust Review of the Americas 2008, and Joseph Ostoyich and Arturo DeCastro, 'The Increasing Risk of US Litigation for Global Companies', Global Competition Review: The Antitrust Review of the Americas 2006.
2 Joseph Ostoyich and Stacy Turner, 'Private Antitrust Trends in the US: Growth Abroad, but Cutbacks at Home', Global Competition Review: The Antitrust Review of the Americas 2007.
3 Sourcebook Of Criminal Justice Statistics Online, Table 5.41.2007, Antitrust Cases Filed in US District Courts, www.albany.edu/sourcebook/pdf/t5412007.pdf.
4 By comparison, there were over 10,000 products liability lawsuits and roughly 1,500 securities actions filed in 2007.
5 In re Publication Paper Antitrust Litigation, MDL No. 1631 (transferred 12 November 2004).
6 In re Rail Freight Fuel Surcharge Antitrust Litigation, MDL No. 1860 (transferred 6 November 2007).
7 In re Cathode Ray Tube Antitrust Litigation, MDL No. 1917 (transferred 5 February 2008).
8 In re Brand Name Prescription Drugs Antitrust Litigation, MDL No. 997.
9 In In re Publication Papers Antitrust Litigation, for example, a handful of law firms filed a significant portion of the numerous duplicative complaints that were consolidated.
10 James M. Griffin, Deputy Assistant Attorney General, Department of Justice Status Report to ABA Antitrust Section Spring Antitrust Meeting, 28 March 2001; United States Department of Justice, International Anticartel Enforcement and Interagency Enforcement Cooperation, www.usdoj.gov/atr/icpac/chapter4.htm.
11 Archer Daniels Midland Co. To Plead Guilty And Pay $100 Million For Role In Two International Price Fixing Conspiracies: Largest Criminal Fine Ever, www.usdoj.gov/opa/pr/1996/Oct96/508at.htm.
12 For example, the DoJ has issued fines exceeding US$100 million against cartel members in the vitamins, dynamic random access memory (DRAM) and graphite electrodes industries. 'Sherman Act Violations Yielding a Corporate Fine of $10 Million or More', www.usdoj.gov/atr/public/criminal/220752.htm
13 A former EC enforcement officer called the ABB fine the 'defining moment' for European cartel enforcement: '[p]reviously, we were handing out parking tickets'. A Crackdown on Cartels By European Regulators, New York Times, 27 December 2005, www.nytimes.com/2005/12/27/business/worldbusiness/27cartel.html.
14 Hawaii v Standard Oil Co of Cal, 405 US 251, 262 (1972).
15 15 USC section 16(a).
16 We base this on estimates drawn from actual notices of appearance and fee applications filed in numerous recent class action clusters.
17 Jill E Fisch, 'Lawyers on the Auction Block: Evaluating the Selection of Class Counsel by Auction', 102 Columbia Law Review 650, 656 (2002).
18 'Government Survey Shows 97 Percent of All Civil Cases Settled', Phoenix Business Journal (28 May 2004), www.bizjournals.com/phoenix/stories/2004/05/31/newscolumn5.html; 'The Region: In Lawsuits How Much Should Courts Keep Secret?', New York Times, 3 March 1991.
19 For example, a number of defendants in the In re High Pressure Laminates Antitrust Litigation paid more than US$40 million, collectively, to settle pre-trial. That class action cluster, however, is the rare one in which a defendant went to trial (and, in that case, won a verdict). MDL No. 1368, 2006-1 Trade Cas. (CCH) paragraph 75,298 (SDNY 15 May 2006).
20 To be conservative in our analyses, we excluded class action clusters consolidated within the last four years, as those cases were younger than average in duration and, therefore, were still likely to be in earlier stages and less likely to be resolved. We collected settlement data from court filings when readily available, but also from a range of other public secondary sources such as news articles and case studies on the websites of plaintiffs' firms.
21 We have included both class settlements and opt-out settlements, where known, for purposes of this calculation.
22 The best available data on the combined settlements among the parties in the Vitamins case provides an aggregate settlement of roughly US$5 billion. Other cases in which aggregate settlements surpassed US$1 billion include In re NASDAQ Market-Maker Antitrust Litigation, MDL No. 1023, In re Cigarette Antitrust Litigation, MDL No. 1342, and the recently settled In re Visa/MasterCard Antitrust Litigation, MDL No. 1575.
23 127 S Ct 2705 (2007).
24 127 S Ct 1955 (2007).
25 127 S Ct 2383 (2007).
26 127 S Ct 1069 (2007).
27 127 S Ct at 2721-25.
28 Id at 2714-16.
29 See Continental TV Inc v GTE Sylvania, 433 US 36 (1977).
30 127 S Ct at 2725.
31 Id at 1964-65.
33 Id at 1966.
34 Id at 1967.
35 Brooke Group Ltd v Brown and Williamson Tobacco Corp, 509 US 209 (1993).
36 509 US at 224.
37 See Joseph Ostoyich and Eric Berman, 'Trends in Dominant Firm Litigation: Convergence Towards What?', Global Competition Review: The Antitrust Review of the Americas 2008.
38 127 S Ct at 1077-78.
40 Id at 1078.
41 Id at 2389-97.
42 Id at 2394.
43 Id at 2393-95.
44 See In re Insurance Brokerage Antitrust Litigation, MDL No. 1663, No. 04-5184, 2007 US Dist LEXIS 25632 (DNJ 5 April 2007); In re Parcel Tanker Shipping Services Antitrust Litigation, 541 F. Supp. 2d 487 (D Conn. 2008).