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- Big Stakes Antitrust Trials: O'Bannonvnational Collegiate Athletic Association
- California Antitrust and Unfair Competition Law Update: Procedural Law
- California Antitrust and Unfair Competition Law Update: Substantive Law
- Chair's Column
- Considerations, Not Limitations: An Argument Against Defining the Anticompetitive Harm Under F. T.C. Vactavis As the "Elimination of the Risk of Potential Competition"
- Editor's Note
- Ftc Data Security Enforcement: Analyzing the Past, Present, and Future
- Keynote Address: a Conversation With the Honorable Tani Cantil-sakauye, Chief Justice of California
- Managing Antitrust and Complex Business Trials-a View From the Bench
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- The Decision of the Supreme People's Court In Qihoo Vtencent and the Rule of Law In China: Seeking Truth From Facts
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- The Ucl-now a Money Back Guarantee?
- Golden State Institute 25Th Anniversary Retrospective and Prospective Views On California Antitrust and Unfair Competition Law
GOLDEN STATE INSTITUTE 25TH ANNIVERSARY RETROSPECTIVE AND PROSPECTIVE VIEWS ON CALIFORNIA ANTITRUST AND UNFAIR COMPETITION LAW
Edited by Craig Corbitt1
To commemorate the twenty-fifth anniversary of the Golden State Institute, there was a panel discussion of significant past and future trends in law and practice, in both state and federal antitrust laws and California’s Unfair Competition Law ("UCL")2 Senior District Judge Susan Illston was the moderator, and the panelists were four experienced and prominent practitioners. Craig Corbitt and Dan Wall discussed antitrust developments from the plaintiff and defense perspectives, respectively, while Kim Kralowec and Will Stern discussed plaintiff and defense perspectives on the UCL.
- Judge Illston was appointed to the Northern District of California in 1995 by President Clinton, and took Senior Status in 2013. Before that she was in private practice for over twenty years with Cotchett & Illston in Burlingame, where she litigated numerous antitrust cases, among others. She has presided over many antitrust and other complex cases on the bench, including the massive LCD criminal and civil price-fixing litigation and other high-profile cases such as United States v. Barry Bonds.
- Craig Corbitt is Of Counsel to Zelle LLP in San Francisco. He has been a practicing antitrust lawyer for nearly forty years, a majority of the time representing plaintiffs in both individual and class cases. He has been honored numerous times by Best Lawyers, Global Competition Review, Super Lawyers, and others. Craig was the California State Bar’s Antitrust, UCC, and Privacy Section’s "2015 Antitrust Lawyer of the Year."
- Daniel Wall is a partner of Latham & Watkins LLP in San Francisco. He has been an antitrust lawyer for almost thirty-five years, representing defendants in litigation and companies in mergers and counseling. He has been honored numerous times by Chambers USA, Best Lawyers, Global Competition Review, and Super Lawyers, and was named one of the "Top 100 Lawyers in California" by the Daily Journal in 2011.
- Kimberly Kralowec is the principal of the Kralowec Law Group in San Francisco. During her nearly twenty-five years as a litigator, Kimberly has represented plaintiffs in class actions involving antitrust and the UCL, in areas including consumer finance, employment (wage and hour and misclassification), and civil rights (Unruh Act). Kimberly publishes The UCL Practitioner,3 a legal weblog covering the UCL, Consumer Legal Remedies Act, and class action law in California and the Ninth Circuit. Kimberly has been selected by the Daily Journal as one of the "Top 100 Labor & Employment Lawyers in California" as well as one of the "Top 75 Woman Lawyers (Litigation) in California" and received a 2013 "California Lawyer Attorney of the Year" Award.
- William Stern is a partner of Morrison & Foerster in San Francisco. He has been practicing for nearly thirty-five years, primarily representing defendants in consumer class actions. He is the author of The Rutter Group’s Bus. & Prof. C. §17200 Practice, and was the principal author of the 2004 voter initiative Proposition 64, which amended and narrowed the standing requirements of the UCL. William has been honored numerous times by Best Lawyers and Super Lawyers, and is a fellow of the American College of Consumer Financial Services Lawyers.
Judge Illston: Thank you, and good afternoon, ladies and gentlemen. I am delighted to be here with all of you and with such a splendid panel this afternoon. We are going to do a retrospective and a little bit of a prospective on the twenty-five years that the Golden State Institute has been tracking antitrust and unfair competition law issues. To that end, we’ll get to some questions and answers in just a moment. First, though, I wanted to start with a joke, of course, and my joke is going to be a joke on the Australian Competition Commission. Nothing like this could ever happen here, this is about Australia.
There were a group of three business owners who were sitting in the anteroom of the Australian Competition Commission offices, each waiting to be charged for having gotten into dreadful trouble. Eventually the conversation turned among them to why are you here, what have you done? The first said, "Well, I charged higher prices than everybody else, and they accused me of profiteering." The second said, "I charged lower prices than everybody else, and they accused me of predatory pricing." The third said, "I charged the same prices as everybody else, and they accused me of collusion and price-fixing."
As I say, that could only happen in Australia. But if it were to happen here, we have experts on the panel to deal with price-fixing.
First, we thought we would talk a little bit about the antitrust side of things. Our time is limited, and we are going to discuss on the antitrust side three primary questions or issues that have come up that are interesting. One is the rise of the major cartel cases that we have seen, certainly out here, second is the globalization of antitrust and the consequences of that to the practice, and the third is antitrust in the high-tech field.
For those of you who have been here and paying any attention at all, in the last twenty-five years one of the biggest things that has happened has been the rise of the huge global price-fixing cases. They have spawned criminal prosecution, all kinds of civil litigation, class actions, direct actions and everything else. In this district alone we have had the LCD cases, the Optical Disc Drives (ODD), DRAM, and many others.
So first I’d like to ask Dan and Craig: explain this to us, what do you attribute this to and how has it affected your practice? Dan?
Wall: Thank you for joining us here today. I am really happy to be a part of this program. Actually, I am conflicted because it means that I am old enough to be asked to be on a retrospective panel now, which is too bad.
But as we thought about this, one of the things, it was an interesting thing to try to think, what are the big things that have happened in the last twenty-five years? And one of the ones that just seemed to me to be so hugely transformative to the practice of antitrust law really comes out of the DOJ corporate leniency policy in 1993. That’s when it went into effect. It really was transformative of criminal antitrust law and, therefore, indirectly of class actions.
If you remember back then, if you were around then as a few of us were, criminal law was not a very important part of the practice. It really wasn’t anything of any great consequence, it was mostly cases that people called the "roadrunner cases," paving contractors and school milk lunch programs and things like that. Meanwhile, it’s obvious that there were gigantic amounts of price-fixing going on all over the world in all sorts of different industries.
It really wasn’t until the corporate leniency that came along that created the incentive system for people to self-report this that we saw this enormous change in both the frequency and the scale of the cartel cases that went along. Much of this happened right here in the Northern District of California, where the San Francisco field office, which at that time was led by Gary Spratling, prosecuted some of the first key cases and secured for itself a very unique role within the antitrust division as the one field office that had a very strong charter to go after cartel cases.
That then sort of intersected with the existence of this extraordinary plaintiffs’ bar that has always been here in San Francisco, and that is obviously well-represented to my left, but so many of the great antitrust plaintiff lawyers in the country were also here, and it has made this one of the districts that had a natural home for this kind of case, particularly the follow-on class action case, which led to the inevitable direct purchaser case, followed by the inevitable indirect purchaser case, which, of course, allowed the plaintiff lawyers to engage in their own market division as to who would do which one.
No, as if it doesn’t happen, yeah. Somehow I guess it’s okay. So here we are.
Judge Illston: Here we are. Craig, what do you say about that?
Corbitt: Well, I think Dan certainly has the big picture right. I am gratified to hear such a proud defense lawyer admit that there was enormous cartel behavior all over the world.
Wall: But not by my clients.
Corbitt: And of course we know that from the concentration of cases here and the information we got in discovery.
As Judge Illston mentioned, there have been enormous cases here, DRAM, LCD, CRT, ODD, new ones, relatively new ones like Capacitors, Lithium Ion Batteries, and so forth that have really made this district the center of this kind of litigation across the country.
Part of it, I think, is the high-tech reputation that this area has, deservedly so. Part of it also was the judges. You know, not only Judge Illston, but Judge Alsup, Judge Conti, who had the CRT case, Judge Hamilton with DRAM, were all highly regarded jurists, and the multidistrict litigation panel really had no problem about sending these cases here.
Dan mentioned the deep plaintiffs’ bar. I don’t know how deep it is, but it is certainly bigger than it was twenty-five years ago. That’s a huge change. Maybe we will hear more about that tonight. But when I started out with Fred Furth in 1979, there were a few people that did this, mostly alumni of Joe Alioto—Mayor Joe Alioto—Guido Saveri, Fred, Fran Scarpulla, and some others, but not that many. There are many, many more now, new firms that are spinoffs of people who have left their former ones.
As a consequence, for example, I think in LCD there were over 100 indirect cases filed, and many direct purchaser cases. Opt-outs are a huge deal now, which they weren’t twenty-five years ago, that’s when it started.
And the state attorneys general are in there in a big way in many of these cases. So it’s all very, very complicated to deal with.
That is a huge change for plaintiffs’ lawyers in having to deal not just with defense counsel and the judge, but with all the various co-plaintiffs’ constituency groups and the state attorneys general, who may not have exactly the same interests. That’s been a big—that’s exciting, but it’s been a big challenge and a big change in the practice.
Judge Illston: Nobody ever said market allocation was easy, Craig. But one of the other things that both Dan and Craig have alluded to that has been a big change in the last twenty-five years as well is class action practice. The rules, the guidance that we have gotten from the Supreme Court about class actions over the past couple of decades have altered the landscape somewhat. So does that affect antitrust cases, there’s so much class action activity in them, does it and how does it, Dan?
Wall: Well, sure. A lot has changed in twenty-five years in this area. Twenty-five years ago there was practically an irrefutable presumption that class certification was appropriate in most antitrust cases, if not all antitrust cases.
In fact, I met Susan Illston when she whacked me in a class certification case on the Kodak cases that Holly House, I, and others had. That was a monopolization case. At that time, the prevailing reading of the Supreme Court’s Eisen4 decision was that every issue that touched on the merits was off-limits. There was no practical ability for a defendant to appeal an adverse class certification decision. So it was almost all district court-level law that was made, and it was overwhelmingly in favor of class certification in antitrust cases.
Things have gotten a little bit better for the defendants. I think the first major reason for that was just the amendments to Rule 23 that allowed for Rule 23(f) appeals. And it is not that very many cases go up, it is just that a few do now and they have created some amount of pro-defendant case law that has evened things out a little bit.
I think we are probably in a transition period right now because of the obviously intentional efforts that the conservative majority on the Supreme Court is making to take class certification cases right now. We have Wal-Mart,5 Comcast,6 AmEx,7 Tyson Foods being argued the week after next,8 and it has been consistently changing those standards, whether it’s eliminating the Eisen presumptions or subjecting extra proof to greater scrutiny or, what I think is the most important thing, which is the emphasis that Wal-Mart tells us to place on dissimilarities rather than just whether people in the class have something in common.
I think it is hard to tell whether we are going to be in a world where class certification is still the norm in antitrust cases or not. The Supreme Court has told us it is not presumed even in antitrust cases, but certainly at the moment, I say that certification remains more likely than not.
Judge Illston: Craig.
Corbitt: Well, from personal experience, that’s not always true. I don’t know if it was ever irrefutable. Defendants certainly fought these things hard enough.
But it is certainly true in the last twenty-five years it has gotten much more difficult for plaintiffs, not just in the law, but in how things have to be done. In those days we had Eisen and there wasn’t the emphasis on economics that there is today. And getting the material to support the class motion, as Dan mentioned, merits used to be bifurcated and it was something that was done early in the case, before you really had—as a plaintiff’s lawyer fronting the costs yourself—before you had to spend a lot of money. Now it seems like you have to prove the whole case before you can even bring the class motion. I think in a close case, if the judge perceives it is a strong case on the merits and that defendants actually may be guilty of conspiring, if there’s a grand jury or indictments or something, that obviously really helps.
I think that the trend, as amplified by the Wal-Mart case and some others, such as Hydrogen Peroxide9 in the Third Circuit is, if anything, probably going to intensify in favor of defendants. There are some cases now where cert’s been granted, and I think one or two have been argued, and Tom Greene went into some of these this morning.
And one in particular is the Tyson Foods case, because a big issue in the class with these experts battling back and forth is how you can demonstrate a measure of damages on a class-wide basis and is it possible to come up with some formula that can be applied to all the class members? And, of course, plaintiffs’ economists do their big reports with regressions and so forth. The defendants always derisively dismiss those as averaging, saying economists never do that, which is crazy.
But the issue in the Tyson Foods case really kind of gets to the heart in an antitrust case of that practice and whether or not that is legitimate. And if that is decided in the way that favors the defendants, as a lot of people think that it will be, that will have a huge impact on the practice and make it that much more difficult to get the class certified.
Where you have got a period of years, maybe many different products all affected by the conspiracy, different prices, different levels of distribution, it is going to be harder. So that’s a prospective, somewhat pessimistic view from the plaintiffs’ standpoint.
Judge Illston: Even now it is certainly true that the merits discussion has been rocketed forward to the beginning of the case in a way that it never was previously. I still think that the development of sophisticated economic tools will help all of us at some point figure out what the actual economic consequences were of given patterns and behavior. So I think there’s promise in that and the tools are more sophisticated than they were fifty years ago when some of the damage law was first written by the Supreme Court, but it’s a challenge to stay up.
Corbitt: Can I just respond to something that you said, Judge?
At the beginning of the case, which used to be defined as deciding whether to certify the class, that can now be four or five years after the complaint is filed and millions of dollars and thousands of hours expended before you actually get to that stage and get a ruling on that. Of course, that’s pretty much make or break for a plaintiff’s case.
Wall: I just had an experience a couple weeks ago where a very prominent plaintiff’s lawyer who filed a couple of actions in a matter I am handling called me and basically explained to me that his cases were individual cases because he was done with class actions. He says he just felt that it was getting too difficult, too time-consuming, and he was trying to find another path that could allow cases to go forward more quickly.
Judge Illston: This raises an interesting question, which brings us to our point number two, which is sort of the globalization of antitrust. Certainly we have seen that, even in the context of United States antitrust law, many of these cartel cases have involved a lot of foreign players, sometimes it’s United States corporations with foreign subsidiaries, sometimes it’s foreign corporations with United States subsidiaries, but the world having flattened as it did, the consequences are felt in many reaches of the various different national jurisdictions. So has that changed the antitrust practice somehow?
Wall: I really think this is one of the most profound changes that has occurred in the last twenty-five years because it’s that issue and it’s so many more. Somewhere in the last twenty-five years it’s stopped becoming a United States law issue. It became—there’s now over one-hundred countries that have their own antitrust laws, but principally there is the United States and there is Europe and there is this kind of uneasy mix of it.
Particularly around here, with the high-tech economy and the global footprint of the high-tech economy, we have seen that manifest itself in very different standards being applied to certain practices in the United States and Europe, and I take that a step further, that the degree of difference varying from administration to administration in the United States, which means that there’s opportunity for global forum shopping.
There’s profound counseling challenges in trying to figure out, how do you manage a global company? Do you do different things in different places? Do you manage to the most restrictive standard, which is the only one that’s going to make you safe everywhere? And so forth. We have obviously seen Silicon Valley companies and other companies flock to Brussels to complain about Microsoft. Now they are flocking to Brussels to complain about Google, which is forum shopping for sure. And it’s made everything—really made everything more interesting, a lot harder, a lot more expensive, you travel a lot more, and you eat at a lot better restaurants.
But then you deal with these incredibly complicated jurisdictional issues that, Judge Illston, you had to deal with, the saga of what do you do with a product that was made outside of the United States and shipped somewhere else, incredibly complicated stuff on top of the native antitrust complexity of all of this.
Judge Illston: Craig, have you seen that?
Mr. Corbitt: Yeah, I think Dan is absolutely right on this one. And it’s become increasingly the case in the last few years since the Europeans finally got around to authorizing a forum of collective action. It is still not quite the same as here, but after talking about it for many, many years, it’s now real in the U.K. and in other places.
There are American firms, Hausfeld, probably the best-known one, where Mike Lehmann, who was up here a while ago, and his partners have opened offices not only in London, but in Berlin, and I think in Brussels.
And a thing that—one thing that is just coming to be a big change in the last couple years, which I think will be really significant in the years to come, is the advent of these litigation financing companies, like Burford and others, that basically will lend money in exchange for a stake of the case. And that’s controversial, but it is a way to get these things off the ground and be able to afford to do that and cover the risk of the loser-pays rule that otherwise may not be possible.
The FTAIA,10 which I am sure everyone in the room is somewhat familiar with, is a huge issue in many of these cases, particularly these cartel cases, like LCD and the others we mentioned. You know, that area of the law is really unsettled. It has largely been a pro plaintiff resolution of it up to now, except Motorola,11 but they were in sort of a unique fact situation compared with the way class action claims are typically handled. But this issue has not been addressed by the Supreme Court in many years. They declined the chance to do so in Motorola. However, I think this issue will be up there in the Supreme Court eventually, and this may also be something that really cuts back on United States jurisdiction and will drive an increase in plaintiff lawyers seeking to go to Europe or Asia.
Judge Illston: One thing I learned earlier this year is that the European Union, through several of its directives, is requiring European Union member states to draft up laws that will allow for claims to be made by consumers effectively against anticompetitive behavior. They are not embracing class actions altogether, but they are talking about that. But at the very least, they are in the process of drafting up rules and regulations. Their slate is kind of clean, and it is a really intriguing time over there to see how they will come out. They are taking guidance from the United States and other jurisdictions who have had this kind of regulation, but I think they are going to be careful what they accept and what they reject when they come up with those.
We have been talking about antitrust over the last twenty-five years. I think at this time it might be good to talk about UCL over the last twenty-five years. With antitrust we were retrospective just to the recent development of antitrust in the last twenty-five years. With UCL, as somebody said, the last twenty-five years is the UCL. That’s kind of all there’s been. Practically speaking, the whole history of it has been during this period that this institute has been functioning.
Although the statutes were drafted in the 1930s, the UCL was infrequently invoked until the 1990s, and even then it was mostly a catch-all. At the end of all the real causes of action, there would be a UCL cause of action. Prop 64, about which more later, changed some of that, and then from my personal point of view, CAFA12 changed some of that, too. Because with the enactment of CAFA, much of the UCL, which persons like myself had watched with interest but not any particular alarm in the development in the state court, now had to deal with it because CAFA brings many of those UCL cases over to the federal side. For good or for ill, much of the UCL law gets drafted by federal judges, who perhaps aren’t the best ones to do it. These are some of the issues that we will talk about, and we have real experts here to do so.
So first we had a few areas where we were going to cover, the first is the UCL’s applicability outside the borders of California. That’s something Kim was going to bring us up to date on.
Kralowec: Thank you,Your Honor, and thanks to everyone for coming. The UCL can be an extremely powerful cause of action, just standing all by itself in a complaint. It has been applied nationwide in appropriate cases, and the question is whether your case is one where it would be a good idea to seek nationwide class certification or not.
The first case that really started to grapple with that issue was decided in 1999, a case called Norwest Mortgage, Inc., v. Superior Court.13 And all the cases we are mentioning, the full cites are in the materials. In that case, the court of appeal divided up the case into three different categories. The trial court had granted nationwide class certification, and the defendant was challenging that ruling on appeal. And essentially what the court said is that California residents, of course, can assert a UCL claim regardless of where the conduct occurred. Category 2 is non-California residents who may have been affected by conduct occurring in California. And Category 3 is non-California residents where the conduct occurred entirely in other states, by actors outside of California.
And the court held that in this particular case, class certification was not proper as to Category 3, non-Californians. Because the defendant in this particular case was not a California corporation, they were based outside California, and the specific wrongdoing that was being challenged happened outside of California. And that case has been kind of the basic framework that has been applied in later cases.
One very interesting case was handed down by the California Supreme Court in 2011, Sullivan v. Oracle Corp.14 And in that case, the Supreme Court was looking at Categories 1 and 2, so California residents, Category 1, and then Category 2, non-California residents, where the conduct allegedly occurred in California. And the UCL claim was predicated on violations of the California Labor Code. And the Court held that California residents who were harmed in state, while they were working in state, could bring a UCL claim. The Court held that out-of-state residents who are harmed out of state could not invoke the UCL to seek a remedy for violation of the Federal Fair Labor Standards Act. And the reason for that was that the Court determined that the violation actually occurred outside of state. So even though the defendant, Oracle, was based in California, made certain decisions regarding how to compensate their employees in California, the violation was not consummated until the wages were paid or not paid. And there was no evidence in the record of where that occurred.
So the Court left the door open, that if you could show that the California-based defendant made its employment-related definitions in California and paid its employees within the state, out-of-state people who were harmed might be able to invoke the UCL. It was very interesting. The Court cited in Footnote 10 Wershba v. Apple Computer, Inc.,15 in which nationwide class certification was granted in a Category 2 case where the defendant, Apple, was based in California. So I think the Court recognized that nationwide classes are appropriate in some cases.
The most recent received was a case called Rutledge v. Hewlett-Packard Co.,16 in which the court of appeal reversed an order denying a nationwide class, also citing Apple, in a case against Hewlett-Packard, which is based here and conducts its business here and makes its decisions from its California corporate headquarters.
So the decision that you face if you are a plaintiff’s lawyer as I am deciding whether I am going to bring a particular case, if the defendant is based in California, I can choose to simply assert claims on behalf of a California class only, file in state court, and have some hope of remaining there. If I choose to try to assert a nationwide class, then there’s a very serious probability that we would be removed under CAFA, which may be fine. But you need to weigh that decision very carefully, and if you want to stay in state court with a California class or try for a nationwide class and try to convince a federal judge to grant that.
I think there will be more litigation, and I think this issue of how many of the decisions have to be made in California versus, you know, larger corporations often have operations across the country, I think that’s where we will see more litigation.
Judge Illston: Will, I want you to tell us about some of the same issues, but as related to safety. You have seen lately a lot of safety-related defects and warranty issues that may or may not come under the UCL.
Stern: Well, the issue about safety claims comes up in the context of omission claims under the fraudulent prong of the UCL. And of all the hot topics that are percolating right now in the UCL, I would say that omissions claims are probably one of the top two or three hot topics. It’s easy to understand why: If you can get an omission claim past a motion to dismiss, past summary judgment and push it toward class certification, you have almost automatic commonality because your argument is going to be on the plaintiff’s side that everybody didn’t hear the same omission. So there’s a big advantage to bringing an omission claim.
So how do you bring an omission claim and what is it? Typically a defendant has no duty to disclose a defect unless it is a material defect. And in Kim’s world and mine, typically this evolves into whether or not the undisclosed defect affects safety or whether it affects some other aspect of the product’s functionality, but not safety.
So, for example, if you’re an auto manufacturer, sudden accelerations, brake problems, those would clearly be omission cases. Those would get past a motion to dismiss. On the other hand, if it is an undisclosed claim that you don’t get very good quality reception on the radio, and so my Sirius radio, when I drive to work in the morning, doesn’t come in as clearly as I would like it, typically not.
So the safety issue has become kind of a fault line in terms of whether you can or cannot state an omission claim under the fraudulent prong of the UCL. And it’s been that the fault line has been drawn on the safety line for probably ten years or so, starting with a case called Daugherty v. American Honda Motor Co., Inc.17
That was recently upset by the Rutledge decision that Kim referred to a moment ago, because a different aspect of the same Rutledge case, which also addressed nationwide classes, addresses whether that safety fault line should be the gatekeeper, if you will, in terms of whether you can bring an omission claim or not.
What’s interesting about Rutledge is that last year there was a bill in the California Legislature which was one of the top three priority bills sponsored by the Association of California Trial Lawyers to overturn Daugherty and overrule the safety feature in terms of whether you can bring an omission claim or not. And that bill died.
So what then happened is this spring, the court of appeal decided the Rutledge case and decided to abrogate the safety requirement in terms of whether you can bring an omission claim or not.
That case involved a computer defect. It had nothing to do with safety features in the computer. By the way, the case has been going on so long, twelve or fifteen years, the computer that’s at issue in the Hewlett-Packard case is probably in the Smithsonian. Nobody has one of these anymore. But that’s partly why just what happens here, this case has been up and down the courts of appeal twice. So a petition for review has been filed in Rutledge. They extended their time to just about Thanksgiving.18
And the argument is going to be that we now have a conflict among the courts of appeal because you have Daugherty on the one hand and now you have Rutledge on the other.
Judge Illston: Something to look forward to. But in the meantime, and perhaps over the last fifteen or twenty years that the case has been pending, to the extent the plaintiffs ever are able to, how will they measure restitution and obtain restitution as a remedy for that?
Kralowec: Those are very good questions. By the way, I would say I don’t see a conflict between Daugherty and Rutledge, but that’s another panel, probably.
Business and Professions Code Section 17203 is the source for the remedy of restitution, and it allows the trial court to enter "such orders as may be necessary to restore to any person any money or property that may have been acquired by means of the unfair competition."19
There’s nothing else in the statute, no further guidance as to "what may have been acquired by means of" actually means in practice, and it’s something that litigants have been struggling with. The first case that really gave any guidance on this that was meaningful was the Colgan v. Leatherman Tool Group, Inc. case in 2006,20 in which the trial court had ordered $13 million in restitution.
That case, it was a "Made in the U.S.A." case where the defendant’s tools were not entirely made in the U.S.A., but they were marketed that way and labeled that way. The trial court based the $13 million award on the thought that what would be fair to consumers would be to award twenty-five percent of the average wholesale price of these mislabeled tools.
The court of appeal reversed the restitution award in its entirety, holding that there was not substantial evidence in the record to support that measure, and in fact, I think, held that that would not be an appropriate measure regardless. But the court also talked about how could you measure restitution and what sorts of evidence would you put on in order to support an actual monetary restitution award. And the court cited the Restatement of Restitution, which I think is a very helpful source of guidance in this area, and suggested a couple of possible measures.
One would be the portion of the purchase price attributable to the false representation, so how much more was the defendant able to charge if you label your product as "Made in the U.S.A.," how many more units are you able to sell of your product if you falsely labeled it "Made in the U.S.A.?" These are questions that would probably require expert testimony, which was not offered in the Colgan case.
Another measure would be the difference between the price paid and the value received. So how much are the foreign-manufactured tools worth? You might put on evidence of the price for comparable tools made in China. And then the question becomes what’s a comparable tool, are there even any tools in the market that are comparable? Again, an area where I think that expert testimony may have to be put on.
There was an interim case that was not cited. It is called In re Vioxx Class Cases, decided in 2009,21 and in that case the court pretty much held that the appropriate measure would be the difference between the price paid and the value received. That was another case in which the court held that plaintiffs had not put on substantial evidence of that.
Finally the most recent case is called In reTobacco II Cases,22 which might be a familiar name. That’s another case that’s been going on for a very long time. The case involves light cigarettes and the defendant’s failure to disclose that they are just as dangerous as regular cigarettes. And this is the case that led to the landmark opinion on Prop 64 standing a few years ago. The court of appeal, again, held that there was no evidence in the record to support a restitution award and affirmed the trial court’s decision to deny any monetary relief, even though the plaintiffs had proven that the defendant’s conduct was, in fact, deceptive and people had been deceived.
And the question the court was grappling with was whether this price paid versus value received measure is the only measure that’s allowed under the UCL, or are there other cases where a different measure might be appropriate, and are there any cases where a full value measure of restitution might be appropriate, a case where the product really doesn’t have any value at all, but for the misrepresentation?
And I think it leads to a number of questions. The cases we are seeing are all involving a failure of proof. So we have yet to see a case where a plaintiff was successful in convincing a court to apply one measure of restitution or another.
I think there are questions about what if you had never bought the product at all, but for the misrepresentation? There are examples such as a wine connoisseur and the bottle was mislabeled being from the Napa Valley, would that person have bought the product at all? If food is falsely labeled as kosher and it is actually not, some people might not care, they might buy the food anyway, but an observant Jewish family, it would be worthless to them.
So there are a lot of unresolved questions here, and I think that the stronger proof you put on, the greater the evidentiary showing you make, the court is going to be more likely to accept your proposed measures.
We did have an example ofthat in the Ninth Circuit in a case called Pulaski & Middleman, LLC v. Google, Inc.,23 a class certification context, but the court did hold that the plaintiffs had submitted a measure of restitution that would be workable at trial.
Judge Illston: What Kim just said, "A measure of restitution that would be workable at trial." My only advice to you is if you are going to bring a case like this, try to think what you are going to urge as the measure of damages or restitution, how you are going to measure and find some way you’ll be able to prove something that will support that, because otherwise we get just way off into the weeds before anybody can figure out if this case can even sort of survive the process.
There’s an awful lot more intellectual work that needs to be done up front in some of these cases, I think. Because we figure restitution, that’s in the Restatement, everybody knows what restitution is, I’ll worry about that later.
Well, you need to build that into the theory of the case in the beginning, otherwise it can flounder.
One last thing I wanted to ask Will about, as we are going to the actual wisdom, is Prop 64 and standing under Kwikset and monetary losses and how are we to evaluate that?
Stern: Okay. Restitution, which we just talked about, Kim talked about, I would say is the second of the three hot topics in the UCL. Prop 64 standing, I think, is probably the third.
We are still, ten years, twelve years after Prop 64, we are still grappling with that. You need to show injury in fact and loss of money or property in order to have Prop 64 standing.
So what does that mean? We used to think it meant, and the drafters of Prop 64 thought it meant, that it was congruent with what you could recover as restitution at the end of the case, what Kim just talked about. We now know that it is broader than that, because the California Supreme Court has reminded us of that now several times. It’s broader in settling disputes.
The best way to describe it is to kind of go back to my old, dumb example, which I still think applies. If you think about restitution as true restitution and also loss of money or property as a situation in which Kim gives up a dollar and Will Stern gets that dollar, then that’s going to be a recoverable item of restitution. It is also going to be something that will satisfy loss of money or property. The moment you diverge from that paradigm, then you have problems on the plaintiff’s side, you have opportunity on the defendant’s side.
For example, Will Stern got the dollar, but it didn’t come from Kim. It came from Judge Illston. That’s not necessarily restitution, not necessarily loss of money or property for standing purposes.
Or the alternative situation, the dollar was received—Kim gave up the dollar—but it was received by Craig or Dan Wall. Again, you are breaking from the paradigm, and you may not be in a scenario in which you could satisfy standing.
Where these walls are breaking down particularly are in the area of business, B-to-B cases, business-to-business cases, direct competitor cases in which things that you and I would think of as traditional damages, you need to lay out to be pled.
And we’ll get past a demurrer for the purposes of satisfying loss of money or property, an example being the recent case in your materials, Law Offices of Matthew Higbee v. Expungement Assistance Services.24 That was a case in which a law firm was suing a non-law firm that was providing expungement services for practicing law without a law license. And the defendant demurred, and the argument was this wasn’t a true loss of property claim, not a true restitution. What did you lose? And the lawyer said, "What I lost was I had to spend more time and money advertising my services to compete with you" Even though, go back to my paradigm, the defendant didn’t get that money. It went to the newspapers and it went to other advertising services. That was, nevertheless, sufficient to show loss of money or property for standing purposes.
So I guess, to kind of cap this discussion, what we do know is that standing is broader than restitution that you’ll be able to recover and prove at trial. Exactly how broad that is, we are still experimenting with.
Judge Illston: So as far as looking into the future, there are questions and puzzles and conundrums left. We have just a couple of more minutes for this panel.
I wanted to circle back to one thing that’s been alluded to by all four of the speakers. In one way or another we have talked about the members of our high-tech community here and the Silicon Valley-type companies that have been the key players in many of these lawsuits that have been described this morning or this afternoon. But there’s—particularly for folks in the competition and antitrust field— there’s an interesting relationship between intellectual property and some of the competition rules. I wanted to know, Dan, if you had anything you wanted to add on that?
Wall: I don’t think that you could have a complete retrospective on what’s happened in California antitrust without noting the tremendous amount of attention and work that has come out of the high-tech community. The cases, even though many of them were not venued here or didn’t even involve first-parties that are here, like United States v. Microsoft,25certainly it emanated from the work of lawyers in this area representing companies in the Silicon Valley. The FTC cases against Intel, the Rambus case, the Oracle merger case, all the manifestations of the Google cases and on and on and on and on.
And they have been—the Kodak cases that dealt very centrally with the role of antitrust and intellectual property law—they have really every imaginable issue that could have come up and seems to have come up.
There have been landmark decisions on what one can do and not do with their intellectual property rights that emanated out of the cases that involve Silicon Valley companies. There’s been a lot of academic and judicial attention, agency attention, to the role of innovation in competition, both in a sense that possibly an adverse competitive effect of a merger or something else is to reduce innovation, but also just as another way of looking at competition itself, not just price, but how innovative is the industry.
Tremendous number of cases that in one way or the other deal with the control of platforms. Some of them are obvious platforms, like the Google disputes are clearly about the control of a platform. The Microsoft case was clearly about the control of a platform.
But also less obvious platforms, like the Kodak cases and the other cases having to do with manufacturers controlling the replacement parts that work only with their machines. Massive amount of work done on that.
And then industry standards, that the high-tech industry is heavily based upon industry standards.
It’s really been an interesting revolution from twenty-five years ago, where we were worried about—from standard-setting was that the process might get rigged by competitors who came along and sort of co-opted the process and pushed their own interests. Now we are dealing with fascinating issues about the control of standard essential patents. Is there an antitrust restriction on when you can actually enforce your right to a standard essential patent that you had committed that you had licensed to folks?
For me, I actually think that this has been consistently the most interesting part of the practice over the last twenty-five years. Because when I started, what were the industries in San Francisco? There were a few banks that are all in Charlotte or someplace like that now. And then this amazing thing happened fifty miles south of here, and it really has given us all a wonderful ride.
Corbitt: Right. That’s clearly been a huge development and is ongoing, as Dan said. I think it also relates to what we were talking about before with international globalization of antitrust, because you don’t just worry if you are a defense lawyer representing them or a plaintiff’s lawyer looking at an angle to make some money off of this.
You don’t just think of that in the United States anymore.
The Europeans obviously are investigating Microsoft and Intel and now Google very hard and the standards that they are applying, their law and their approach to this, may be a lot different than what you would find in this country.
So that’s another thing prospectively that I think is going to be a big deal in the future.
Judge Illston: Well, that brings us to a close. As you have noticed, we can’t tell you what the future is going to bring, but I can make two predictions for you: One is that it is going to be very, very interesting for everyone in this room to watch and figure out how the law develops; and two, none of you are going to be out of work any time soon based on what we have seen. Thank you.
1. Craig C. Corbitt, Of Counsel, Zelle LLP.
2. Cal. Bus. & Prof. Code § 17200.
3. UCL Practitioner, http://www.uclpractitioner.com/ (last visited Mar. 10, 2016).
4. Eisen v. Carlisle & Jacqueline, 417 U.S. 156 (1974).
5. Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011).
6. Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013).
7. Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304 (2013).
8. The Supreme Court subsequently decided Tyson after this panel. See Tyson Foods v. Bouaphakeo, No. 14-1146 (U.S. Mar. 22, 2016).
9. In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305 (3d Cir. 2008).
10. Foreign Trade Antitrust Improvement Act, 15 U.S.C. § 6a.
11. Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816 (9th Cir. 2014), cert. denied, 135 S. Ct. 2837 (June 15, 2015).
12. Class Action Fairness Act, 28 U.S.C. §§ 1332(d), 1453, 1711-1715.
13. 72 Cal. App. 4th 214 (1999).
14. 51 Cal. 4th 1191 (2011).
15. 91 Cal. App. 4th 224 (2001).
16. 238 Cal. App. 4th 1164 (2015).
17. 144 Cal. App. 4th 824 (2006).
18. Review was denied in Rutledge on November 10, 2015.
19. Cal. Bus. & Prof. Code § 17203.
20. 135 Cal. App. 4th 663 (2006).
21. 180 Cal. App. 4th 116 (2009).
22. 46 Cal. 4th 298 (2009).
23. 802 F.3d 979 (9th Cir. 2015).
24. 214 Cal. App. 4th 544 (2014).
25. 253 F.3d 34 (D.C. Cir. 2001).