Antitrust and Unfair Competition Law

Competition: Fall 2014, Vol. 23, No. 2


By Robert E. Freitas, Jason S. Angell, and Jessica N. Leal*

As a result of the Class Action Fairness Act ("CAFA"), and the regular use of multidistrict litigation procedures, class actions presenting direct purchaser claims under federal law are now commonly litigated in proceedings in a single district court with indirect purchaser claims under state law. CAFA is not the only occasion for direct and indirect purchaser claims to be grouped together in the same court. Corporate plaintiffs who choose to opt out of class actions sometimes plead both federal claims based on direct purchases of price-fixed goods and state law claims based on indirect purchases of the same goods or of finished products containing price-fixed components. Opt-out plaintiffs asserting only direct purchaser or only indirect purchaser claims are also commonly parties in the same MDL court. In addition to actual direct purchase claims, some opt-out plaintiffs rely on indirect purchases they seek to bring within the "owned or controlled" or "co-conspirator" exceptions to Illinois Brick.1 This, too, can result in potential trial contexts including both "direct" purchaser federal law claims and state law indirect purchaser claims.

Under Illinois Brick, indirect purchasers lack standing to seek price-fixing damages under federal law, and Hanover Shoe2 prevents Sherman Act defendants from defending against direct purchaser claims with evidence that overcharges paid by direct purchaser plaintiffs were passed on to their customers. In the wake of Illinois Brick, various states have amended their antitrust laws to allow indirect purchaser claims. Under these so-called Illinois Brick "repealer" statutes, the plaintiffs’ claims depend on proof of "upstream" pass on of overcharges,3 sometimes by the direct purchaser plaintiffs suing the same defendants in cases pending in the same court. State indirect purchaser laws also commonly allow pass on as a defense.

With common factual and evidentiary issues typically presented by direct purchaser and indirect purchaser claims arising out of the same price fixing conspiracy, a compelling demonstration of significant judicial economy and tremendous cost savings for private parties from joint trials can usually be made. With common liability evidence, the potential for significant overlap in damages evidence and damages theories, and many common legal and evidentiary issues likely to be presented despite the differences between federal and state law, it is no surprise that defendants typically request joint trials.

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It is also typical for plaintiffs to resist the call for joint trials. A focal point for the plaintiffs’ position is the potential for prejudice resulting from the different treatment of pass on under federal and state law. Direct purchaser plaintiffs contend that a joint trial with indirect purchasers will likely prejudice them as a result of the jury hearing expert testimony and other evidence of pass on in connection with the indirect purchaser claims. Indirect purchasers fear that they will be prejudiced because jurors will hesitate to return verdicts that seem duplicative or otherwise unfair.

Given the federal law prohibition of evidence of downstream pass on, and the necessity under state law of proof that overcharges to direct purchasers were passed on to indirect purchasers, there is a clear and obvious potential for multiple or inconsistent recovery by direct and indirect purchasers. Defendants argue that state law or due process considerations forbid multiple recovery, and they argue that a joint trial structure involving all, or as many as possible, direct and indirect claimants is the only way to protect their rights. Defendants also argue that duplicative recovery can result in excessive punitive damages inconsistent with Campbell,4 especially when the mandatory trebling of damages required by federal law and some state laws is considered.

The due process questions are beyond the scope of what we address in this article. If due process forbids all duplicative recovery, or if multiple antitrust recovery results in punitive damages that are excessive under Campbell, some of the important questions are easily answered. We discuss below the issues that are presented if it is assumed that recovery that can fairly be portrayed as duplicative is not absolutely forbidden as a matter of due process.

Our consideration of these issues begins with reflection on our experience representing a defendant in a trial against Best Buy Co. and affiliates in which both federal law "direct" purchaser claims and Minnesota law indirect purchaser claims were tried together.5 While the single plaintiff context does not capture all of the issues likely to be presented when the claims of multiple individual plaintiffs or direct and indirect purchaser classes are tried together, the potential for conflict and pass-on related prejudice was present in a joint trial of multi-hundred million dollar direct and indirect purchaser claims.

Our experience convinces us that the properly-defined rights and expectations of all plaintiffs and all defendants are best served in the joint trial of direct and indirect purchaser claims.


Inevitably, trial lawyers and their clients forced into joint trials with other parties will find a reason to complain. The addition of other lawyers or parties will often mean the injection of different trial perspectives or strategies, some of which may not be compatible. In many situations, compromise or accommodation among the plaintiffs or defendants grouped together is necessary, and departure from a shared path can mean disaster for the ostensibly aligned parties. In a price-fixing case with strong evidence of collusion, the overall defense effort would not be well served by an attempt by one defendant to deny the existence of a conspiracy. Significant variations on damages issues might also hurt some or all of the plaintiff or defendant parties, by making the group position seem incredible.

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One result of the inevitable differences in trial position or trial strategy is that a joint effort may not truly reflect the views of any single member of a plaintiff or defense group. This fact alone may provide a strong motivation for a party to request a separate trial, even where there are no conspicuous legal or factual differences in the position of the party as compared to others on the same side of a case. But complaints of this nature are rarely likely to merit a separate trial. The interests of the judicial system are such that most courts will require that parties find a way to harmonize their positions, rather than conduct multiple lengthy and expensive trials simply to avoid strategic conflicts.

For the same reasons, general complaints by federal or state claimants that their interests are different from those of the other claimants are not likely to justify separate trials, and should not automatically do so. Direct and indirect purchaser plaintiffs try to overcome the typical unwillingness of courts to allow the burdens of separate trials by claiming that the different treatment of pass on under federal and state law requires extraordinary steps to avoid unique prejudice, and by insisting that the potential for duplicative recovery does not require a joint trial of direct and indirect purchaser claims.

The principal question to be answered is therefore whether there are unique factors associated with the trial of direct and indirect purchaser price fixing claims that stand out in a manner that prevents them from being tried together. Given the substantial judicial economy associated with joint trials, the plaintiffs who seek to make the case for separate trials face a heavy burden.


We think the issue of whether direct and indirect purchaser claims can be tried together requires consideration of the following questions.

Are there substantial benefits likely to result from a joint trial?
Does the governing law require or encourage a joint trial?
Can the benefits of a joint trial be achieved in a manner that does not result in unfair prejudice to the parties or burdens on the court that outweigh the benefits?
Are there alternatives to a joint trial that reduce the prejudice or burden associated with a fair trial in a manner that does not unreasonably surrender the benefits of a joint trial or ignore the requirements of the relevant law?

A. Benefits Of Joint Trials

1. Efficiency

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Most price fixing cases have an overwhelming commonality of evidence between direct and indirect purchaser claims. Multiple trials of different claims arising out of the same conspiracy lead to "inefficiency in the court system and potential prejudice to the parties."6 Separate trials "multipl[y] the determinations of liability and damages involving the same set of facts against the same defendants."7 "The multiplication of trials . . . lengthens the resolution of antitrust cases, increases costs on litigants and courts, raises the specter of inconsistent rulings . . . and significantly increases the risk that duplicative damages may be awarded if antitrust plaintiffs push towards trial in lieu of settling."8 Resolving the issues presented by the common evidence in a single trial is more efficient than trying the same or similar issues twice. Common defendants, common fact witnesses, common expert witnesses (or common expert witness subject matter), common exhibits, common damages theories, and damages cases with common elements all present the possibility of very significant duplication in the case of multiple trials.

There are also tremendous costs to the judicial system associated with multiple trials. A given courtroom is unavailable for an extended period of time in which other cases may not be tried, and the ability of a busy district judge to address other important matters is impaired. Depending on the configuration of separate trials, jurors or additional jurors will be required to commit substantial additional time.

2. Cost Savings

There are material cost savings for the parties associated with joint trials. Even parties with contingent fee counsel incur major out of pocket expenses in a price fixing trial. Expert witness fees, technology expenses, and housing for parties, witnesses, and out of town lawyers are all likely to be expensive. Add to these items the hourly fees typically charged by defense counsel, and there is no doubt that joint trials result in substantial cost savings.

B. Avoidance of Multiple Recovery

The combination of the Hanover Shoe rule forbidding the use of pass on as a defense, and state laws allowing recovery by indirect purchasers who must prove that any overcharge paid by the direct purchasers and other indirect purchasers above them in the distribution chain was passed on, results in the possibility of multiple claims based on the same overcharge. Not all litigation configurations of direct and indirect purchasers present a possibility of multiple recovery, but recurring combinations of direct and indirect purchaser classes and opt-out plaintiffs present the occasion for substantial multiple recovery.

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Defendants typically express great concern about the possibility of duplicative recovery.9 Plaintiffs’ advocates often seek to brush the issue aside with arguments based on the idea that separate claimants are permitted full recovery under separate laws, or embracing the idea that multiple or inconsistent recovery is consistent with the objective of strong private enforcement of the antitrust laws.10 Neither of these ideas can justify multiple recovery that is not allowed by the relevant state law, and neither provides a reason to refrain from reasonable steps to avoid multiple recovery that is forbidden by state law.

There is no enforcement policy that calls for multiple or inconsistent recovery. Congress has made vigorous private enforcement an important part of competition policy,11 but it is wrong to suggest that Congress has endorsed multiple recovery, much less that the important policies reflected in the federal remedial scheme would be frustrated if duplicative antitrust damage recovery is not allowed. ARC America teaches that prior cases did not "identify a federal policy against States imposing liability in addition to that imposed by federal law," and that state law "liability over and above that authorized by federal law" does not automatically result in a conclusion that the state law is preempted,12 but ARC America also acknowledges a general federal law policy against multiple recovery.13

There is no evidence that enforcement through indirect purchaser claims under state law occupies an essential place in federal policy. One of the reasons for the Illinois Brick direct purchaser rule is the Supreme Court’s view that "the legislative purpose in creating a group of ‘private attorneys general’ to enforce the antitrust laws under § 4 is better served by holding direct purchasers to be injured to the full extent of the overcharge paid by them than by attempting to apportion the overcharge among all that may have absorbed a part of it."14 Private enforcement under federal law is thus satisfactorily implemented without indirect purchaser recovery. What is the basis on which indirect purchaser recovery under state law can be portrayed as an essential part of the framework of federal regulation? More to the point, how has Congress taken action suggesting an intention to foster multiple recovery under federal law or state law? Where Congress has taken a step in the direction of providing a remedy for harm to indirect purchasers, by allowing parens patriae recovery on behalf of consumers, it has explicitly prohibited multiple recovery under federal law.15

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State indirect purchaser laws are "consistent with the broad purposes of the federal antitrust laws: deterring anticompetitive conduct and ensuring the compensation of victims of that conduct,"16 but indirect purchaser recovery is by no means essential to those purposes. Even the dissenters in Illinois Brick assumed that, if federal law permitted both direct and indirect purchasers to sue, it would be necessary to take steps such as consolidating direct and indirect purchaser actions for trial to avoid multiple liability.17 The most that can be said is that the failure by Congress affirmatively to preempt state indirect purchaser laws means that, as the ARC America Court observed, Congress has never intended for federal law to be the exclusive means by which competition concerns are addressed.18 To paraphrase ARC America, it is one thing to say that federal law does not preempt state indirect purchaser statutes, it is "something altogether different"19 to insist that the allowance of multiple recovery is essential to the aggressive, effective private enforcement of the federal or state antitrust laws. No competition policy objective requires duplicative recovery of price fixing damages.

Rejection of the false claim that multiple recovery is essential does not necessarily mean that multiple recovery is forbidden, or automatically justify all action taken in the name of preventing multiple recovery. Defendants sometimes argue that "allocation" of the damages sought by all claimants throughout the distribution chain is required. Full allocation, as in division of the overcharge among the various claimants who seek recovery, is not a possibility, for various practical and other reasons. Even if all parties are present in the same district court, allocation among federal direct purchaser claimants and indirect purchasers claiming under state law is not available because direct purchasers are entitled to the full amount of the overcharge under federal law, and state law cannot impact their rights.

No antitrust court has accepted the due process and Campbell arguments defendants sometimes make in an attempt to achieve overarching allocation among all claimants.20 But resolution of the due process arguments is not a prerequisite to all protection against multiple recovery. By statute or case law, various states have either explicitly forbidden multiple recovery or directed courts to adopt procedures to guard against multiple recovery.21 Plaintiff advocates frequently deny that multiple recovery is of genuine concern, or argue that both federal direct purchaser and state indirect purchaser plaintiffs are entitled to "full" recovery under the statutes on which their claims are based,22 but these arguments do not take account of the limits of state indirect purchaser laws. Despite the rhetoric from the plaintiff side, there does not appear to be a real dispute about the fact that "in some states, a court should exclude from a damage award any amount that has already been awarded for the same injury in a previous case," or that "in some states, courts are authorized to use their discretion to transfer or consolidate cases if necessary in order to manage duplicative recovery issues."23

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The form of the state laws varies. Some statutes direct or authorize courts to take action to prevent multiple recovery.24 Others either prohibit multiple recovery or provide a pass on or other defense specifically directed to the prevention of multiple recovery.25 In some states, prevention of multiple recovery is based, at least in part, on case law.26

The California Supreme Court’s Clayworth opinion is an example of a judicial decision recognizing the appropriateness of action directed to the avoidance of multiple recovery.

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In instances where multiple levels of purchasers have sued, or where a risk remains they may sue, trial courts and parties have at their disposal and may employ joinder, interpleader, consolidation, and like procedural devices to bring all claimants before the court. In such cases, if damages must be allocated among the various levels of injured purchasers, the bar on consideration of pass-on evidence must necessarily be lifted; defendants may assert a pass-on defense as needed to avoid duplication in the recovery of damages.27

Some plaintiffs argue that California law does not limit multiple recovery in cases other than those in which multiple recovery is had under the Cartwright Act.28 In other words, they contend that only if direct purchasers, or multiple layers of indirect purchasers, seek recovery, or have recovered, under the Cartwright Act, is it necessary to consider allocation of damages or other steps to avoid multiple recovery. Clayworth should not be read to recognize an anti-duplication rule that is limited to situations in which all claimants assert Cartwright Act claims.

The statutory authorization for Cartwright Act parens patriae actions contains a broadly worded requirement, taken from federal law, that requires courts to exclude from the amount awarded "any amount of monetary relief (A) which duplicates amounts which have been awarded for the same injury."29 "Any" means any, and there is no reason why the parens patriae statute, or California law in general, should be read to be unconcerned about multiple recovery resulting from federal law direct purchaser recovery. Indeed, it would make little sense to forbid duplicative recovery only when the duplicative relief is obtained under the Cartwright Act.30 Absent a reason to believe that the Legislature considered multiple recovery to be necessary, or even appropriate, the argument for a narrow role for the need "to avoid duplication in the recovery of damages" is not convincing.

That California law more thoroughly forbids multiple recovery is shown by the fact that the Clayworth court created an exception to its adoption of the Hanover Shoe rule forbidding the use of pass on as a defense based on the need "to avoid duplication in the recovery of damages."31 If "defendants may assert a pass-on defense as needed to avoid duplication in the recovery of damages," there must be a prohibition on "duplication in the recovery of damages."

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Some plaintiffs also rely on the California Supreme Court’s decision in Union Carbide v. Superior Court32 to require a conclusion that the California concern with multiple recovery is limited to multiple Cartwright Act recovery.33 In Union Carbide, the defendants argued that a federal lawsuit "expose[d] them to a substantial risk of multiple liability, i.e., liability to direct purchasers under the Sherman and Clayton Acts for damages based on the same alleged overcharges for which plaintiffs in the present action seek damages under the Cartwright Act as indirect purchasers and consumers,"34 and they accordingly sought joinder of the direct purchasers under a general statute allowing joinder to prevent a "substantial risk of incurring double, multiple, or otherwise inconsistent obligations."35 The California Supreme Court stated that the defendants were not entitled to relief "simply because [they] may be held liable in a federal suit under a federal statute to a person or class wholly different from the person or class to whom they are sought to be held liable in a California action under a California statute for the same tortious conduct."36 The court’s rejection of the defendants’ request for joinder was not based on a holding that the duplicative recovery from which protection is available does not include the duplication that results when a defendant is required to pay damages to a federal law claimant making a direct purchaser claim, and then pay damages to a Cartwright Act indirect purchaser based on evidence that the damages awarded to the direct purchaser under federal law were passed on. Instead, the court said that joinder was not required because "[q]uestions of whether overcharges were passed on, essential to the indirect purchaser’s California claim, are irrelevant to, and thus not subject to inconsistent determination in, a suit on the direct purchaser’s federal claim. Thus, federal actions such as the Illinois [action] do not give rise to a ‘substantial risk’ of multiple liability under section 389, subdivision (a)(2)(ii)."37

This is not an answer to the claim of duplicative recovery. Regardless of whether "inconsistent" determination of pass on issues is possible in the two cases, duplicative recovery is possible for the very reason cited by the court. The federal law direct purchasers may be awarded damages, and the state law indirect purchasers may be awarded damages based on a finding that the damages awarded to the federal direct purchaser plaintiffs were passed on by them to the state law plaintiffs. Thus, the defendants would pay the same damages to two different plaintiffs or groups of plaintiffs. That is "multiple" by any measure, as pointed out in a dissenting opinion,38 and it is "duplication" of sufficient concern to fall within the prohibition recognized in Clayworth.

At least one other California case has assumed that recovery under federal law could lead to a finding that federal direct purchaser liability and state indirect purchaser liability are duplicative. In Crown Oil Corp. v. Superior Court,39 the court of appeal rejected a due process-based double recovery argument, stating that although an agreed final judgment was entered pursuant to a settlement agreement, "no liability under the Sherman Act was admitted and, certainly, the issue of damages was never adjudicated. Thus, there is no indication of the actual damages in the federal action, which would form the basis for a charge of multiple liability."40

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Multiple recovery is a problem to be addressed, not a right held by indirect purchasers. Due process considerations aside, state laws in various jurisdictions make the prevention of multiple recovery an important objective of trial organization.

C. Burdens

Given the unquestionable cost and efficiency benefits, why not try direct and indirect purchaser cases together? Several subsidiary reasons why the benefits of joint trials are outweighed by other concerns are suggested, but the dispute over trial structure boils down to a disagreement over the likely role of pass on evidence.

1. Different Legal Standards Leading To Jury Confusion

An argument that is sometimes made is that the different legal standards applicable to federal and state claims, or to Sherman Act claims and state consumer protection or unfair competition claims, may result in confusion among jurors required to apply different standards.41 In some cases, federal and state statutory claims, state common law tort claims, and contract claims may be asserted. Arguments about jury confusion are not unique to price fixing cases, and the potential jury confusion relevant here does not justify abandoning the cost saving and efficiency associated with a joint trial of all of the claims arising out of an alleged price fixing conspiracy.

Different or even inconsistent theories are presented in various types of cases in different areas of the law. There is no reason to believe that jurors will have a unique difficulty following the court’s instructions when considering price fixing claims. We saw no indication of jury confusion in the Best Buy trial.

2. Different Measures of Damages

A related issue involves the fact that some types of state law claims may call for different measures of damages than Sherman Act claims. We see no reason why juries cannot keep track of different measures of damages. Clear instructions from the court and good work by the plaintiff and defense trial teams will ensure an orderly process.

3. Different Evidence

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It is also worth considering the extent to which federal and state law claims might call for the admission (or exclusion) of different classes or items of evidence. Pass on evidence is addressed below. Pass on aside, there is not a strong possibility of differences that would create such a high likelihood of confusion or prejudice as to justify foregoing the cost and efficiency benefits of joint trials.

4. The Impact of Pass On Evidence

There are two types of pass on evidence that may play a role in price fixing cases. The first is usually referred to as "upstream" pass on, and it refers to an overcharge being passed to a plaintiff when it buys a price fixed good or a finished product of which a price fixed good is a component. "Downstream" pass on occurs when, rather than absorbing an overcharge, the plaintiff passes the overcharge on to its customers in the form of higher prices for the products it sells. Hanover Shoe forbids the use of evidence of downstream pass on as a defense; the Illinois Brick direct purchaser rule means that a prospective plaintiff cannot base a claim on upstream pass on of an overcharge from its seller.

Evidence of downstream pass on is likely to play an important role in the trial of an indirect purchaser case in which the plaintiffs are not consumers, and evidence of upstream pass on to the indirect purchaser plaintiff is an essential part of any indirect purchaser case. By definition, indirect purchasers do not themselves suffer injury in a transaction with a defendant or another member of a conspiracy. An indirect purchaser must prove that an overcharge was paid by a direct purchaser, and that the overcharge was passed through as many levels of the distribution system as necessary to reach the plaintiff. The demonstration of "upstream" pass on is likely to include a mix of economic theory and case-specific factual information necessary to convince the jury that pass on is both something that can be expected to occur at some levels in the chain of distribution, and did occur in the specific context of the conspiracy and distribution system at issue.

The Best Buy plaintiffs were retailers, and an important part of the defense to their indirect purchaser claims was a contention that they passed on any overcharge that reached them. The jury appears to have decided that the overcharges that reached the plaintiffs were passed on in their entirety, as no indirect damages were awarded, despite a modest award of direct damages.42

Our experience in the Best Buy trial convinces us that evidence of pass on is not inevitably toxic on direct purchaser claims, and that any potential for jury confusion on the relevance of pass on evidence to direct and indirect purchaser claims does not justify abandoning the tremendous judicial economy available from joint trials. Given the trial context, we see no reason to believe that the Best Buy pass on evidence admitted on the state law claims had a meaningful impact on the federal claims. The court was able to fashion jury instructions that differentiated between the federal and state law claims on pass on and all other relevant issues, and the case was tried with the differences in mind. The jurors were told, by witnesses and counsel, and eventually, by the court, that the pass on evidence had a limited role, and there is nothing about the conduct of the trial or the jury’s verdict that suggests confusion about the role of pass on.

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In the Best Buy trial, the convention of using the terms "direct" and "indirect" to refer to the federal and state claims was consistently used, with no apparent confusion. Both sides employed separate damages experts to address the distinct issues presented by the federal and state law claims, and the damages presentations included detailed information enabling the jury to differentiate between the claims for which pass on was and was not a defense. The lawyers for the plaintiffs and the defendants were scrupulously precise when addressing pass on and the respective claims.

Independent of our specific Best Buy experience, we think the expectation of unique and inevitable prejudice overlooks the dynamic of most trials. Damage cases that are contested have real issues; no defendant will decide to go to trial in a case with serious direct purchaser claims based on an expectation of success because the direct purchasers will be prejudiced by the pass on evidence admitted on the indirect purchaser claims. In the Best Buy trial, the indirect purchaser claims were based on the overcharge calculations that also provided the foundation for the direct purchaser claims. Our primary focus was convincing the jury to accept the defense expert’s overcharge calculation. If we were not able to succeed on that score, any impact of inadmissible pass on evidence would not have saved us. Nothing about the trial context suggests that the verdict on the direct purchaser claims was an "unofficial" pass on verdict.

In ARC America, relying in part on the idea that many state indirect purchaser claims would be tried in state court, but recognizing the possibility that some would be tried in federal court, the Supreme Court characterized the burden on federal direct purchaser actions presented by state indirect purchaser laws as "minimal."43 While this observation was likely directed to the possibility of big picture conflict between direct and indirect purchaser claims, clearly the Court did not perceive that the trial of state law indirect purchaser claims would inevitably interfere with the efficient trial of federal law direct purchaser claims in a matter prejudicial to any group of plaintiffs. Based on our experience, we agree.

In a joint trial, the potential for prejudice to the direct purchasers from evidence of pass on is likely to be manageable because one of the foundational predicates of the trial will be that the direct purchasers are entitled, as Hanover Shoe requires, to the full overcharge they pay. In a trial conducted with Hanover Shoe and the state law prohibition of multiple recovery in mind, pass on plays a role only to the extent the indirect purchasers can prove the pass on of overcharges other than those for which recovery is had by the direct purchasers. Thus, in a trial in which the jury is told the direct purchasers recover for any overcharge they pay, and in which the indirect purchasers are not allowed to recover damages based on overcharges for which the direct purchasers recover, the occasion for pass-on related prejudice is muted.

Any trial has a legal, factual, and thematic context. Given the way juries are instructed regarding direct and indirect purchaser claims, and the typically intense disputes presented on all of the economic issues, a direct purchaser defense strategy based on fall out from pass on evidence is not likely to be successful. We agree that the potential for confusion or prejudice from pass on evidence should not be dismissed out of hand, but our experience is that the issues that are legally relevant to direct purchaser damages are far more important than pass-on fallout.

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D. Alternatives

Another reason to hold a joint trial is that the alternatives are not, on balance, as good.

1. Separate Trial

A full separate trial is the most expensive and least efficient alternative. We do not believe that the case can be made for such a drastic abandonment of cost and efficiency concerns, and we doubt that the return on this investment is worth it. The assumed or potential prejudice expected to result from a joint trial is not sufficient to justify the cost, delay, and burden on the judicial system associated with a full trial.

One of the reasons why separate trials are not justified is that the burdens of them fall more heavily on the defendants. The defendants incur the substantial extra expense and other burdens associated with a separate trial, and they also face a potential one-sided estoppel risk. Success in defending the liability side of an initial trial, or a favorable result on damages, will not result in an estoppel enforceable against non-privy plaintiffs waiting for a second trial, but the defendants are likely to face an issue preclusion argument if they are not successful in the first trial. While the general rule forbids the use of offensive, non-mutual issue preclusion under these circumstances,44 there is no absolute prohibition.

2. Post-Trial Action by the Court

Plaintiffs who acknowledge the limits on multiple recovery imposed by state law argue that the interest in avoiding multiple recovery and the direction to take "all steps necessary" to avoid duplicative damages can be satisfied by post-verdict or post-judgment action by the court.45 Waiting until a verdict is returned or a judgment is entered does not involve all necessary steps, however, and refraining from straightforward confrontation of the potential for multiple recovery at trial may result in avoidable complications that can frustrate the attempt to avoid multiple recovery.

Duplicative recovery is not present in every case in which plaintiffs at multiple levels of the chain of distribution recover damages. The specific indirect purchaser plaintiffs whose claims are in issue may not have purchased from, or through, the direct purchasers who have pursued federal law claims. Complications associated with settlements may make it difficult to prove duplication. It is therefore important that the specific facts associated with each plaintiff’s claim be probed in detail if "all steps necessary" to avoid multiple recovery are to be taken.

When the possibility of multiple recovery is present and multiple recovery is forbidden by state law, the necessary steps begin with a recognition that multiple recovery is a problem to be avoided. Those steps also require that the trial of the respective claims be structured in a manner that will allow a determination of whether the indirect purchaser claims would result in multiple recovery. If direct and indirect purchaser claims are tried together, it is easier to resolve the multiple recovery issues in a clear and efficient manner by coordinating the evidence regarding the sameness or difference of the distribution chains in which the respective plaintiffs purchased price-fixed goods or finished products containing price-fixed components, the extent of pass on, and any other issues needed to make a proper assessment of the existence and extent of multiple recovery. Appropriately worded verdict forms can be used to ensure that the relevant facts are resolved in a meaningful way.

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If, rather than taking all steps, courts defer consideration of multiple recovery to post-trial proceedings, there is a risk that uncertainty about the basis for the recovery by the various parties might result and interfere with the defendants’ ability to establish that the recovery awarded to parties at different levels of distribution is duplicative. Direct purchasers have no interest in the resolution of some of the issues that are essential to the avoidance of multiple recovery, and they are likely to contest attempts to complicate the trial of their claims with attention to multiple recovery-issues of no concern to them. A joint trial presents the simplest and best forum for achieving clarity on the issues. Even in the absence of a specific legislative command to take "all steps necessary" to avoid multiple recovery, there is no reason to avoid reasonable steps helpful in making a clear record.

Emilio Varanini argues that post-trial allocation is acceptable because pass-on related issues are equitable and not within the right to jury trial.46 We are skeptical about this argument. Pass on is an element of the indirect purchaser’s claim to damages because an indirect purchaser cannot recover unless it proves that an overcharge was passed on by its seller. As such, pass on appears to us to be a factual issue within the indirect purchaser plaintiff’s and the defendant’s Seventh Amendment right to jury trial. That is a further reason why an attempt by a trial court to make sense of the results of multiple trials is not an acceptable way to avoid the possibility of multiple recovery.

3. Collateral Estoppel (Issue Preclusion)

It is sometimes argued that joint trials are unnecessary because similar judicial efficiency can be achieved through the use of collateral estoppel (issue preclusion). Issue preclusion-based solutions avoid direct consideration of multiple recovery and are generally not useful efficiency-creating tools.

Issue preclusion-based solutions are, at best, one-sided, and only helpful when the defendants, or at least a significant number of them, lose whichever trial occurs first. It is possible that a defendant found liable for price fixing will not be able to relitigate aspects of its liability or damages defenses in a subsequent trial, but issue preclusion cannot benefit a successful defendant in most cases. A plaintiff that is not a privy of an unsuccessful plaintiff will not be bound by a verdict in favor of a defendant on any issue.47 It is not helpful to build a trial structure around issue preclusion because it cannot be assumed that all defendants will be held liable, or, as discussed below that they will be held liable in a manner supporting the efficiency-producing use of issue preclusion.

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Traditionally, issue preclusion required full "mutuality."48 Issue preclusion was available only when both parties would be bound by the facts determined in the underlying proceeding.49 A bystander plaintiff could not, for example, offensively employ collateral estoppel against a defendant held liable in a trial against another party not its privy.50 The first significant departure from the mutuality rule occurred in 1942 when mutuality was eliminated as a requirement by the California Supreme Court in Bernhard v. Bank of America.51 The Supreme Court first approved the use of defensive non-mutual collateral estoppel in Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation.52 "Defensive use of collateral estoppel precludes a plaintiff from relitigating identical issues by merely ‘switching adversaries.’"53

In Parklane Hosiery v. Shore, the Supreme Court approved the discretionary use of offensive non-mutual issue preclusion, but with an important protection that is inconsistent with the use of issue preclusion as a substitute for a joint trial.54 "[Offensive use of collateral estoppel does not promote judicial economy in the same manner as defensive use does."55 When offensive issue preclusion is available, "a plaintiff will be able to rely on a previous judgment against a defendant but will not be bound by that judgment if the defendant wins."56 A plaintiff therefore has an incentive "to adopt a ‘wait and see’ attitude, in the hope that the first action by another plaintiff will result in a favorable judgment."57 As a result, "offensive use of collateral estoppel will likely increase rather than decrease the total amount of litigation, since potential plaintiffs will have everything to gain and nothing to lose by not intervening in the first action."58

The Parklane Hosiery Court considered the various arguments in favor of and against mutuality in the offensive non-mutual issue preclusion context, and concluded that the proper solution was to allow offensive use of issue preclusion where mutuality is lacking on a discretionary basis.59 This result came with an important limitation that renders issue preclusion a poor solution for the issues presented in price fixing cases. "The general rule should be that in cases where a plaintiff could easily have joined in the earlier action or where, either for the reasons discussed above or for other reasons, the application of offensive estoppel would be unfair to a defendant, a trial judge should not allow the use of offensive collateral estoppel."60

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Solutions based on issue preclusion are also questionable in light of the requirements for application of the doctrine. Issue preclusion is not available unless the "identical" issue has been resolved following "actual litigation" in a manner that is sufficiently final.61 In cases in which bifurcation has been ordered, "the existence of a conspiracy" is sometimes identified as an issue to be tried apart from impact and damages.62 "The existence of a conspiracy" is not, however, likely to be an issue with "identical" application to all direct and indirect purchaser claims, or an issue that can be efficiently separated from other issues in a manner that saves meaningful trial time.

In every case, proof of impact and damages will include substantial liability evidence. A finding of the existence of a conspiracy will not eliminate the need for much of the evidence in a later trial phase involving the damages claimed by a different group of claimants. Evidentiary duplication aside, it will not always be the case that the "conspiracy" issue resolved in a price fixing trial is "identical" to the "conspiracy" issue presented in a subsequent trial.

For example, it is common for different plaintiffs to rely on different damages periods. A determination that there was "a" conspiracy may not be sufficient to support the specific damage case presented by another group of claimants. Differences in the duration, membership, and scope of a conspiracy claimed by different plaintiffs may make the use of issue preclusion impractical.

The mere existence of "a" conspiracy is usually not a central disputed fact in the trial of a price fixing case. Some defendants are likely to admit the existence of a conspiracy, or their participation in a conspiracy, especially where, as is common, a criminal investigation has resulted in one or more guilty pleas. The "conspiracy"-related disputes often involve nuance important to the specifics of a given damage case and not generally relevant. For example, in the Best Buy trial, our client had pleaded guilty to price fixing and acknowledged liability to the plaintiffs. It argued, however, that there was no evidence of its participation in a conspiracy outside of the temporal period identified in its plea agreement. In addition, the plaintiffs’ claims about the scope of the conspiracy by product, product grouping, and participants were disputed.

A finding that there was "a" conspiracy would have had no benefit in a subsequent trial in which the same acknowledgement would presumably be made, and where the other plaintiffs might not care about the specifics of the conspiracy alleged by the Best Buy plaintiffs.

4. Separate "Conspiracy" Trial

[Page 92]

For similar reasons, bifurcating a trial with all parties participating in a "conspiracy" focused phase may not be helpful. Most price fixing cases that survive summary judgment will be based on a conspiracy of some sort that can be proved, and the existence of a conspiracy will often be conceded. The conspiracy-related issues likely to matter are not always sufficiently common or separable from the questions of impact and damages to make a "conspiracy" phase productive.

Suppose, for example, that one group of plaintiffs alleged a conspiracy with a starting point and an ending point that are disputed. Suppose further that the evidence of whether a conspiracy was active during at least part of the period included the presence or absence of price impact, perhaps in a comparison of the overcharges revealed by the plaintiffs’ damages model and the conduct of the alleged conspirators. These and other issues link proof of conspiracy and proof of impact and damages in ways that make a separate "conspiracy" trial inefficient and not likely on average to generate useful information in a verdict. It is clearly preferable, for example, for the same jury at the same time to consider evidence of conduct and the impact alleged to have resulted from the conduct. Even when "conspiracy" issues suitable for a separate trial can be identified, there will be substantial duplication of evidence when impact and damages are subsequently considered.

5. Sequenced Trials

Hybrid solutions providing for an initial trial on "conspiracy" issues, combined with damages issues for one group of plaintiffs or another are sometimes proposed. One such solution was adopted by the MDL court during the class action phase of the TFT-LCD (Flat Panel) Antitrust Litigation.63 The court’s order provided for the direct and indirect class purchasers to present their case on the existence of a conspiracy in a first phase, and, if they succeeded, the jury would be asked to assess the question of liability to the direct purchasers, and the amount of direct purchaser damages. In the second phase, the indirect purchasers were to present their case for liability and the amount of damages.

A sequenced trial structure does not fairly address the possibility of multiple recovery in the legal context required under the law of various states. When state law forbids multiple recovery, the potential for multiple recovery should be directly and forthrightly confronted. In a joint trial, the parties can efficiently address the question of whether the indirect purchasers are customers of the direct purchasers, and, if so, whether they seek to recover damages that duplicate those that will be awarded to the direct purchasers under federal law. Where state law directs the taking of "all steps necessary" to avoid multiple recovery, or simply forbids multiple recovery, these issues should be confronted at trial.

An assumption behind sequencing trial of the damages claims appears to be that the indirect purchasers have an unrestrained right to recovery that duplicates the damages awarded to the direct purchasers. Under the state laws commonly in issue, that is not so, and a sequenced trial structure does not provide an efficient way to address the possibility of multiple recovery.

[Page 93]

ARC America makes clear that state indirect purchaser statutes are not preempted by federal law, but ARC America does not define the content of the state laws. Regardless of whether they might provide for "liability over and above that authorized by federal law," state laws tend not to provide for the duplicative recovery by indirect purchasers of damages that have been recovered by direct purchasers under federal law. The trial structures used for the trial of direct and indirect purchaser claims should accordingly reflect the need for orderly avoidance of multiple recovery.

[Page 94]



*. Freitas Angell & Weinberg LLP, Redwood Shores, California. This article expresses the views of the authors, which should not be attributed to their firm, its clients, or any other person or organization. The authors thank Lee Berger for his thoughtful comments on drafts of this article.

1. Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).

2. Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968).

3. See generally California v. ARC America Corp., 490 U.S. 93, 98 (1989) ("[A]ppellants also alleged violations of their respective state antitrust laws under which, as a matter of state law, indirect purchasers are arguably allowed to recover for all overcharges passed on to them by direct purchasers.").

4. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003).

5. In re TFT-LCD (Flat Panel) Antitrust Litigation, No. M 07-1827 SI (N.D. Cal.).

6. Emilio E. Varanini, Exiting the Fun House of Mirrors: Clayworth v. Pfizer and the Handling of Pass-On in Post-Trial Allocation Proceedings in Federal and State Court, 20 Competition 28, 40 (2011) ("House of Mirrors").

7. Id. at 41.

8. Id.

9. See, e.g., Defendants’ Motion to Dismiss Indirect Purchaser Plaintiffs’ Consolidated Class Action Compliant at 23 of 35, In re Flash Memory Antitrust Litigation, No. 07-CV-00086 SBA (N.D. Cal.), Dkt. No. 374; Defendants’ Motion to Dismiss Consolidated Class Complaints at 43 of 71, In re Automotive Parts Antitrust Litigation, No. 12-MD-02311 (E.D. Mich.), Dkt. No. 230.

10. See, e.g., Indirect Purchaser Plaintiffs’ Opposition to Defendants’ Motion Regarding Trial Structure at 1-7 of 10, In re TFT-LCD (Flat Panel) Antitrust Litigation, No. M 07-1827 SI (N.D. Cal.), Dkt. No. 5411.

11. See, e.g., Illinois Brick, 431 U.S. at 745.

12. ARC America, 490 U.S. at 105.

13. Id. See Associated Gen’l Contrs. v. California State Council of Carpenters, 459 U.S. 519, 543-44 (1983).

14. Illinois Brick, 431 U.S. at 745-46 (citation omitted); see id. at 745 ("Added to the uncertainty of how much or an overcharge could be established at trial would be the uncertainty of how that overcharge would be apportioned among the various plaintiffs. This additional uncertainty would further reduce the incentive to sue. The combination of increasing the costs and diffusing the benefits of bringing a treble-damages action could seriously impair this important weapon of antitrust enforcement."). See also ARC America, 490 U.S. at 103 ("We construed § 4 as not authorizing indirect purchasers to recover under federal law because that would be contrary to the purposes of Congress.").

15. 15 U.S.C. § 15c(a)(1) (in state attorney general parens patriae action: "The court shall exclude from the amount of monetary relief awarded in such action any amount of monetary relief (A) which duplicates amounts which have been awarded for the same injury.").

16. ARC America, 490 U.S. at 102.

17. Illinois Brick, 431 U.S. at 761-64 (Brenan, J., dissenting).

18. Id. at 101 ("it is plain that this is an area traditionally regulated by the States"); id. ("There is not claim that the federal antitrust laws expressly pre-empt state laws permitting indirect purchaser recovery."); id. at 103 ("It is one thing to consider the congressional policies identified in Illinois Brick and Hanover Shoe in defining what sort of recovery federal antitrust law authorizes; it is something altogether different, and in our view inappropriate, to consider them as defining what federal law allows States to do under their own antitrust authority.").

19. 490 U.S. at 103.

20. See, e.g., Order Regarding Trial Structure, In re TFT-LCD (Flat Panel) Antitrust Litigation, No. M 07-1827 SI (N.D. Cal.), Dkt. No. 5518.

21. See ABA Section of Antitrust Law, Indirect Purchaser Litigation Handbook, Appendix A (2007).

22. See, e.g., Indirect Purchaser Plaintiffs’ Opposition to Defendants’ Motion Regarding Trial Structure at 1-7 of 10, In re TFT-LCD (Flat Panel) Antitrust Litigation, No. M 07-1827 SI (N.D. Cal.), Dkt. No. 5411.

23. Direct Action Plaintiffs’ Response to Defendants’ Motion Regarding Trial Structure And Duplicative Recovery at 11 of 23, In re TFT-LCD (Flat Panel) Antitrust Litigation, Dkt. No. 5414 (April 4, 2012).

24. E.g., Fla. Stat. § 542.22(2)(a) (parens patriae); 740 Ill. Comp. Stat. 10/7(2) ("[I]n any case in which claims are asserted against a defendant by both direct and indirect purchasers, the court shall take all steps necessary to avoid duplicate liability for the same injury including transfer and consolidation of all actions."); New York General Business Law § 340(6), ("in any action in which claims are asserted against a defendant by both direct and indirect purchasers, the court shall take all steps necessary to avoid duplicate liability, including but not limited to the transfer and consolidation of all related actions"); S.D. Codified Laws § 37—1—33 (In any subsequent action for the same conduct, "the court may take any steps necessary to avoid duplicative recovery."); Vt. Stat. Ann. tit. 9, § 2465(b) ("The court shall take all necessary steps to avoid duplicate liability, including but not limited to the transfer or consolidation of all related actions.").

25. E.g., N.M. Stat. Ann. § 57—1—3(C) ("In any action under this section, any defendant, as a partial or complete defense against a damage claim, may, in order to avoid duplicative liability, be entitled to prove that the plaintiff purchaser or seller in the chain of manufacture, production, or distribution who paid any overcharge or received any underpayment, passed on all or any part of such overcharge or underpayment to another purchaser or seller in such chain."); Wash. Rev. Code 19.86.080 ("The court shall exclude from the amount of monetary relief awarded in an action pursuant to this subsection any amount that duplicates amounts that have been awarded for the same violation. The court shall consider consolidation or coordination with other related actions, to the extent practicable, to avoid duplicate recovery.").

26. E.g., Bunker’s Glass Co. v. Pilkington PLC, 206 Ariz. 9, 18 (2003); Clayworth v. Pfizer, Inc., 49 Cal. 4th 758, 787 (2010).

27. Clayworth, 49 Cal. 4th at 787.

28. See, e.g., Indirect Purchaser Plaintiffs’ Opposition to Defendants’ Motion Regarding Trial Structure at 6-7 of 10, In re TFT-LCD (Flat Panel) Antitrust Litigation, No. M 07-1827 SI (N.D. Cal.), Dkt. No. 5411.

29. Cal. Bus & Prof. Code § 16760(a)(1) (emphasis added).

30. See also House of Mirrors, 20 Competition at 36-37 (procedures to avoid duplication available "if the different groups of plaintiffs cannot be joined or consolidated into one proceeding but rather remain in different proceedings or even different state and federal forums").

31. 49 Cal. 4th at 787.

32. 36 Cal. 3d 15 (1984).

33. See, e.g., Direct Action Plaintiffs’ Response to Defendants’ Motion Regarding Trial Structure and Duplicative Recovery at 5-6 of 23, In re TFT-LCD (Flat Panel) Antitrust Litigation, No. M 07-1827 SI (N.D. Cal.), Dkt. No. 5414.

34. 36 Cal. 3d at 20.

35. See Cal. Code Civ. Proc. § 389(a)(2)(ii).

36. Id. at 22-23.

37. Id. at 23.

38. Id. at 29 (Richardson, J., dissenting) ("Thus, both federal direct purchaser plaintiffs and state indirect purchaser plaintiffs may recover based on the same overcharge. This potential arithmetic expansion is further complicated by the possibility of further damage awards for others in the chain of distribution. Despite the rather cavalier approach of my colleagues, the risk is neither speculative nor clearly permissible.").

39. 177 Cal. App. 3d 604 (1986).

40. Id. at 613.

41. See, e.g., Direct Purchaser Class Plaintiffs and Indirect Purchaser Class Plaintiffs’ Joint Statement Regarding Suggested Trial Order at 5-6 of 11, In re Polyurethane Foam Antitrust Litigation, No. 10-MD-2196 JZ (N.D. Ohio), Dkt. No. 1243.

42. Special Verdict, In re TFT-LCD (Flat Panel) Antitrust Litigation, No. M 07-1827 SI (N.D. Cal.), Dkt. No. 8562 at 5 of 5 (Question 10).

43. ARC America, 490 U.S. at 104.

44. Parklane Hosiery v. Shore, 439 U.S. 322, 331 (1979).

45. See Indirect Purchaser Plaintiffs’ Opposition to Defendants’ Motion Regarding Trial Structure at 1-7 of 10, In re TFT-LCD (Flat Panel) Antitrust Litigation, No. M 07-1827 SI (N.D. Cal.), Dkt. No. 5411.

46. See, e.g., House of Mirrors, 20 Competition at 29.

47. See ReadyLink Healthcare, Inc. v. State Compensation Fund, — F.3d — , 2014 WL 2611166, at *5 (9th Cir. June 12, 2014).

48. See Parklane Hosiery, 439 U.S. at 326-27.

49. Id.

50. Id. at n. 7.

51. 19 Cal. 2d 807 (1942).

52. 402 U.S. 313 (1971).

53. Parklane Hosiery, 439 U.S. at 329 (citing Bernhard, 19 Cal. 2d at 813).

54. Id. at 331.

55. Id.

56. Id. at 330.

57. Id.

58. Id.

59. Id. at 331.

60. Id.

61. See ReadyLink Healthcare, Inc., 2014 WL 2611166, at *4-5.

62. See, e.g., Order Regarding Trial Structure, In re TFT-LCD (Flat Panel) Antitrust Litigation, No. M 07-1827 SI (N.D. Cal.), Dkt. No. 5518.

63. Order Regarding Trial Structure, In re TFT-LCD (Flat Panel) Antitrust Litigation, Dkt. No. 5518.

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