SETTLEMENT NEGOTIATION TACTICS, CONSIDERATIONS AND SETTLEMENT AGREEMENT PROVISIONS IN ANTITRUST AND UCL CASES: A ROUNDTABLE

Moderated by Paul Riehle¹

INTRODUCTION

While trial lawyers love to talk about trying cases—hence the Golden State Institute’s successful long-running panels on Big States Antitrust Trials,—the reality is that many cases settle. Why antitrust cases and Unfair Competition Law ("UCL") class actions settle, how they settle, when they settle, what they settle for, settlement agreement provisions and other settlement considerations are rarely the subject of frank public discussion involving leading lawyers with plaintiff, defense and government. We are fortunate to have such an accomplished panel of counsel discuss those topics and other intractable issues in settling antitrust cases and UCL class actions.

Our illustrious panel consists of:

• Joseph R. Saveri, the founder of the Joseph Saveri Law Firm in San Francisco, specializes in antitrust law, as well as complex civil and class action litigation, in state, federal and international arenas. He earned his B.A. from UC Berkeley and his law degree from the University of Virginia. Mr. Saveri started practicing law with McCutchen, Doyle, Brown & Enersen, LLP. In 1992, he joined Lieff, Cabraser, Heimann & Bernstein, LLP where he founded, developed and chaired the firm’s antitrust and intellectual property practice. During his 20 years at Lieff, Cabraser, he handled numerous groundbreaking and landmark cases. Most recently, he played a prominent role in In re Cipro Cases I & II and In re High Technology Employee Antitrust Litigation.
• Holly House is an Antitrust and Competition partner in the Litigation Department of Paul Hastings in San Francisco. She is a graduate of Smith College and Harvard Law School. She worked for many years at McCutchen, Doyle where she spent a part of her life representing Eastman Kodak in all stages of the Image Technical Services, Inc. v. Eastman Kodak Co. case, including in its trip to the Supreme Court and a jury trial. Ms. House has received numerous accolades and recognitions, including one of the "Top 250 Women in Litigation" nationwide in the last two years and one of the "Top 100 California Women Lawyers" for each of the last five years. Perhaps most notably, she is a past Chair of the Antitrust & UCL section and a past Chair of the Golden State Institute.
• Heather Tewksbury is a partner with WilmerHale in Palo Alto and leads the firm’s California cartel practice. She is a UC Berkeley graduate, both undergrad and the School of Law. While working for the Department ofJustice, she handled some of the most significant investigations and criminal prosecutions brought in recent years: she served as one of the lead trial lawyers in United States v. AU Optronics; and she was lead trial counsel in the jury trials of two AU Optronics executives. Ms. Tewksbury has received numerous awards and accolades, including Attorney of the Year by the Recorder. She has served on the Antitrust, UCL & Privacy Executive Committee since 2013, and for the last two years has been the Editor-in-Chief of Competition.

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Paul Riehle, chair of Sedgwick LLP’s Antitrust & Unfair Competition Practice Group, moderated this discussion, which builds upon the recent panel at the Antitrust, UCL & Privacy Law Section’s 2015 Golden State Institute. Mr. Riehle moderated the combined panel discussion and was joined by Ms. House, Mr. Saveri and Ms. Tewksbury.

Settlement Panel Discussion

Moderator: Our general approach for this panel will be to discuss settlement issues in a chronologic life-of-the-case format. Our first topic is the consideration of settlement at the outset. Assume that direct and indirect class actions and state attorney general actions have been filed after a government criminal probe has been announced. What is the role of the government enforcer and view of the government enforcer regarding early resolution of private civil litigation?

Ms. Tewksbury: Let me start with a disclaimer. Although I worked as a prosecutor in the Department ofJustice ("DOJ") Antitrust Division in San Francisco for eight out of the past ten years, the views that I am about to express are not those of the Antitrust Division. My views are drawn from my perspective as defense counsel.

Part of the mandate of the Antitrust Division is to help and assist victims of price-fixing to get restitution for rightful claims. The Department of Justice’s advocacy with respect to getting ACPERA² passed through Congress is a real indicator of that. On the one hand, it was in an effort to incentivize leniency applicants to bring cartel cases to the DOJ in order to get leniency for the corporation and its executives. But ACPERA also was about incentives for civil follow-on litigation; if the leniency applicant satisfies the requirements of ACPERA, they receive the benefit of de-trebling and single damages in the civil litigation. It is another incentive to get not only the ACPERA applicant into a settlement posture with plaintiffs, but to allow plaintiffs to garner evidence more quickly through cooperation in order to leverage settlement with others. So clearly the DOJ has recognized and demonstrated its support for settlements and early settlement.

However, there is tension as sophisticated plaintiffs’ attorneys bring cases almost immediately after a grand jury investigation is made public and a search warrant is executed. Typically, the DOJ has a window where it can use the secrecy of the grand jury as leverage against non-cooperating defendants by holding information close to the vest as to who the informants are and what the key documents are.

As plaintiffs’ class action cases are being filed more quickly, ACPERA is becoming immediately utilized by plaintiffs and the ACPERA applicant to leverage cooperation. Thus, the DOJ may not be able to as effectively use the tools they typically have had available to them in the past to investigate and prosecute these cases. Discovery is potentially opening up more quickly and causing defendants—who maybe would have been in a position where the leverage was so great and the concern about what the DOJ had against them was high—to perhaps decide to settle. It is possible now that defendants might just hold out for the immediate discovery they could get to determine whether or not they face a real problem. Currently, the only thing the government has as a tool to deal with this issue is the use of a stay, which in this district has been widely utilized in an effort to allow the DOJ to continue with its historical approach to investigating these cases.

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While this tension has been developing and might continue to expand in the future, I don’t think that there’s anything the DOJ would do to impinge upon an early settlement, which I think is still a significant goal.

Moderator: Does the strategy of plaintiffs include typically an effort toward early resolution with one or more defendants? If so, what factors do you consider?

Mr. Saveri: Absolutely, the plaintiffs’ strategy does entail and focus early in the case on efforts to resolve the case with one or more of the defendants.

In terms of criteria or considerations, there are a number of them. First, if we are talking about cartel cases, is trying to identify who the ACPERA applicant is because of the obligations under ACPERA to help the civil plaintiffs. Sometimes it is difficult to actually identify with certainty who the ACPERA applicant is because there’s really no clear disclosure obligation. Of course, moving forward, there also is frequently some disagreement between the private plaintiffs and the ACPERA applicant about what sufficient cooperation is—qualitatively and also in terms of timing.

Another consideration that is important to keep in mind is that there may be parties to criminal proceedings who have substantially advanced their efforts to resolve the case with the DOJ and who have come to the conclusion that, whatever the problem is, it is something to be resolved—life is too short. They want global peace and resolution of the civil damage claims. So identifying defendants that are interested in resolution is also important.

An additional issue is to identify defendants who have a financial condition which provides an incentive for early resolution. The economic situation of a defendant may be poor, such that its financial resources will be exhausted by the civil litigation—and those resources might be better used to resolve claims for those that have been injured. So it is important to try to figure out which defendants are in a bad financial condition, which might be facing some form of bankruptcy, or for which ones there might be some inability to pay.

Those are the general kinds of things or considerations we have when we are trying to figure out where to focus our settlement efforts. And then sometimes you just have to answer the phone and call people back because people have all sorts of reasons to resolve cases.

Moderator: When does it make sense strategically to settle as a defendant, and what are the impediments of doing so?

Ms. House: One place to start is to look at your key customer base. As we all know, some of these cases turn into opt-out cases. You may not be able to get rid of the classes early, but you might be able to settle early with some of the customers. You also may have a better point of leverage because perhaps there has not yet been a plea deal. That depends on the case itself, as uncertainty can be a positive and negative. Early on, before the case develops, there is the possibility of a lower settlement; there is no plea—nothing has developed yet. But by the same token, that uncertainty makes it that much harder to deal with, particularly the larger customers, or the class counsel, because the expert work has not been done. We do not know what the scope of the volume of commerce is, or what the defendant shares are. No plaintiff wants to feel like they are leaving money on the table, or from defendants’ point of view, overpaying. So that means that early resolution can be very difficult.

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A lot of times, too, it depends on the sophistication of your defendant client and whether they understand how this is going to play out, how long it is going to take. Sometimes it really does make sense to try to deal with these settlements early because it is going to be a very long and expensive process otherwise. But, again, the uncertainty makes it somewhat difficult to settle early on.

Moderator: One of the early decisions for defendants is whether or not to enter into a judgment-sharing agreement. What drives a judgment-sharing agreement is that antitrust laws provide for treble damages, joint and several liability, no right of contribution and trebling before offsets. So if you are one defendant and you are found liable, at the end of the day, you can be found liable for the whole kit and caboodle—or at least a large portion of it. A judgment-sharing agreement seeks to neutralize these aspects of the remedial scheme by creating a contractual right of contribution among the defendants. A judgment-sharing agreement diminishes the downside risk by a formula, typically market shares, based on which a settling defendant must require plaintiffs to agree to take out the settling defendant’s share of damages from the amount of the ultimate verdict. Judgment-sharing agreements repeatedly have been upheld by the courts in antitrust cases.³ From a defense point of view, it would seem that a rational defendant would want to ink a judgment-sharing agreement. And there is a lot of buzz that judgment-sharing agreements are prevalent, yet a review of settlement agreements in recent antitrust cases—DRAM, SRAM, LCDs, High-Tech Employment, and CRTs—reflects no judgment-sharing agreements were entered into those cases. In fact, the settlement agreements in those cases specifically said otherwise.⁴ So the questions for our panelists: what has been your experience with judgment-sharing agreements, do they promote settlement, and why aren’t they entered into in every price-fixing case?

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Ms. House: Perhaps the best analogy is judgment-sharing agreements, like cartel agreements themselves, are rife for cheating. Different defendants with different shares typically have different incentives and different desires to settle earlier. Even where a company has a financial situation causing it to be more likely to settle, it is really difficult to get a group to agree on what the shares are going to be, what the formula is going to be and how long the agreement is going to last. It is like herding cats. So it is not at all surprising to me that you do not see as many judgment-sharing agreements as you might anticipate.

Obviously there are some benefits to judgment-sharing agreements. And there may be some judgment-sharing agreements that have a limited shelf life that provide the opportunity to conduct collective negotiations. They can allow the defense group to stay on message, because everyone knows with certainty what your share is going to be. Obviously clients like that and just as obviously the plaintiffs do not like it. But, like feral cats, some defendants do not want to be part of the herd.

Moderator: What is the plaintiffs’ view about the propriety of judgment-sharing agreements and whether they promote or detract from settlement?

Mr. Saveri: Let’s start with this basic premise, which I think is noncontroversial, that the purpose and effect of a judgment-sharing agreement is to alter some of the core principles underlying private enforcement antitrust law in the United States. You have identified the key one, joint and several liability with treble damages. If you start from the premise that those features of the antitrust law are key to private enforcement, something that undercuts that or prevents those principles from operating is flatly inconsistent with the purposes of private enforcement of the antitrust law. There is academic literature that shows, both using economic tools and empirical evidence, that judgment-sharing agreements reduce settlement values, lead to the suppression of incriminating evidence, reduce the likelihood of successful meritorious price-fixing cases and make price-fixing cost-beneficial in the end. So if you put that all together, I think there is a very, very strong public policy argument that judgment-sharing agreements are against public policy, should be limited or should not be enforceable at all.

Unfortunately, the clear weight of authority is completely the other way. And the only case stating otherwise is the San Juan Dupont Plaza Hotel Fire case.⁵ Since then, the courts have been pretty clear that they disagree with what I just said. I do not think those cases were correctly decided, but I am on the losing end of that argument.

Having said that, if a judgment-sharing agreement does exist, it should be disclosed. One of the issues we frequently have in a case, from plaintiffs’ side, is that we do not know that they exist. They are not disclosed to us. Sometimes even when they are subject to clear discovery requests along the lines of insurance agreements, which usually don’t exist in the antitrust context, they are withheld on privilege or joint defense grounds. I think to the extent a judgment-sharing agreement does exist, it is important that it be disclosed. And then we can have a fight about whether it is enforceable and its impact.

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Ms. House: Will you provide your sharing arrangements from the plaintiffs’ bar side as well?

Mr. Saveri: There is a difference to me, in my mind, between agreements that create a common alliance and allow for joint prosecution or joint defense of a case. To me those are conceptually distinct. I recognize common interest agreements exist on both sides of the bar, and I think they are consistent with the attorney-client privilege and work-product doctrine and the doctrines that support the confidential protection of legal rights. As such, they should be protected.

But judgment-sharing agreements are different because they qualitatively change the dynamic of what we are dealing with in an antitrust case. It is very problematic in the settlement context to be negotiating in a traditional manner and to not be aware that there is a judgment-sharing agreement. The unwillingness to disclose a judgment-sharing agreement frequently frustrates the ability of the parties to resolve the case, as it presents an impediment because a judgment-sharing agreement changes the traditional settlement dynamic.

I’ll stop there, but I could go on for a while about this.

Moderator: Have government enforcers taken a public position on judgment-sharing agreements and have they sought the production by defendants of judgment-sharing agreements?

Ms. Tewksbury: I have never heard of any public announcements expressing views by any of the authorities on judgment-sharing agreements. I also would be surprised if the DOJ would ever be interested in getting discovery on those agreements. In any large cartel case, there likely will be in any plea agreement, and the accompanying sentencing memoranda, an acknowledgement of the defendant’s obligation to provide restitution. In those cases, where there is a robust class action follow-on litigation system, particularly here in the Northern District, the DOJ has by and large concluded that restitution can very capably be handled by the plaintiff’s in the follow-on litigation. In effect, they have ceded that territory to the plaintiffs’ bar and, in many ways, washed their hands of it. When looking at the civil litigation, the focus is on what are the DOJ’s prosecutorial interests and whether there is anything going on in the civil litigation that might impinge upon those interests.

For example, in the LCDs case, there were in the six or seven years of prosecution and investigation of that case, anywhere from five to ten DOJ staff" attorneys on that case. Looking at this room, about two-thirds of you, I think, were involved in that case in the civil litigation and many more outside of this room. So the ability for staff" to really understand, appreciate and get their hands dirty on what’s happening in the civil litigations—for example, whether there are judgment-sharing agreements or whether that even matters to the DOJ—I imagine, is quite low. I think the view is that the DOJ does not want to frustrate the process that is happening on the civil side, which, again, is very capably being handled by both sides of the v.

Moderator: Next, our hypothetical case has gotten past the pleadings, and class certification motion practice is underway. From the plaintiffs’ view, is this an attractive settlement window and, if so, what characteristics in the case posture or the profile of a defendant make it more or less attractive?

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Mr. Saveri: I do think this is a significant window where the case can and should be resolved. Especially with the advent of Twombly⁶ and higher pleading standards, I think that defendants want to wait and see the extent to which plaintiffs are successful or not in satisfying their pleadings burden. It has been my view for a long time, particularly in cartel cases, that the burdens of Twombly will be overcome by the plaintiffs eventually to a great or almost a complete degree. Nonetheless, we are put through our paces and we meet our obligations, and so at that point the case actually becomes ripe for settlement. It is game on at that point; that is the beginning of it.

The other end of this window is class certification. Again, with heightened class certification standards, it is generally the view that once the plaintiffs are able to satisfy their Rule 23 obligations and the class is certified, then the risk profile of the case has changed substantially both in terms of the plaintiffs and the defendants. Obviously it’s less risky for the plaintiffs and, at the same time, I think it is fair to say that exposure to the defendants is greater. Particularly, if you view the burdens as having been increased by recent jurisprudence, if the plaintiffs get a class certified, they have really gone a long way toward what they need to do to be successful in the case.

With those bookends, the class certification motion is the point at which both sides really have skin in the game and after class certification, things are liable to happen which will substantially change the expectations of the parties. Those are circumstances which make settlement more likely. And for that reason, that is a time that some cases settle. However, settlement usually occurs much more toward the end of that process, typically after the class certification briefs are filed, after the expert work has been done, and after both sides have had an opportunity to kick each other’s experts around a little bit. At that point the landscape is pretty clear, and people who are serious about the case can figure out what it’s worth and whether they can resolve it.

Moderator: If settlement is discussed in this time frame, as the defendant first out, what conditions would you require and what demands would you expect?

Ms.Tewksbury: Obviously a defendant would like a broad release, which would include a release of all claims spanning all aspects of commerce. Implicit in that is a contradiction in that defendants will have been arguing that the FTAIA⁷ bars most ofplaintiffs’ claims. But in settlement negotiations, that is what a defendant would expect and require.

Settling first increases your chances of limiting opt-outs as well, and that’s obviously a good reason to settle early. Later in the panel discussion, we will consider aspects of that that can be put into a settlement agreement to address the risk if too many plaintiffs opt-out.

On the other hand, in terms of what I would expect plaintiffs to require of a first-out operator is substantial cooperation, and that is particularly true if they are really trading dollars for cooperation. A first-out settler in follow-on litigation can expect to provide the same documents and information as has been provided to the Department ofJustice, so that plaintiffs are in the same posture as the DOJ.

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Moderator: Do plaintiffs’ attorneys put a numeric value on a cooperation clause?

Mr. Saveri: It depends what you mean. Do we have a rule that says if you cooperate, you get 10 percent off or something like that? The answer to that is no. But certainly conceptually I think Heather is right; at a certain level, as part of the settlement negotiation, you are exchanging strict financial consideration, which is dollars or yen or something else, for cooperation. But I can’t say if it is 10 percent, 20 percent, 50 percent, 75 percent. Depending on the cooperation and depending on some of the other things we were talking about, like the ability to pay, cooperation can be really the most valuable part of an early settlement.

Moderator: To that end, we pulled out some cooperation clauses in the LCD cases. In the Epson settlement in 2010, there is a one-paragraph clause that required the defendants to produce all the documents that they had provided to the DOJ during its investigation and also provide aggregated sales data.⁸ A year later, the Hitachi defendants settled out and there were those requirements, plus, plus, plus which ran over a page in length.⁹ Then when LG settled out two years later, the cooperation clause was over four pages.¹⁰

Mr. Saveri: I think LG had a lot of cooperating to do.

Moderator: The court grants plaintiffs’ certification motion and one of the most difficult aspects of an antitrust case becomes more intractable: the competing interests by direct and indirect purchasers, as well as opt-outs and state AGs, for a limited pot of money. Holly, from a practical point of view, what is a defendant to do when confronted with what would amount to a duplicative recovery?

Ms. House: If you think of it conceptually, the issue is one of a limited amount of damage. In an ideal justice system, the damage should be apportioned by all the plaintiffs, by how much they actually absorbed. But unfortunately our federal direct purchaser system is expressly blind to the fact of whether or not the direct purchaser absorbed the damage. That is just the way the system is set up. So inherently you are going to have some duplicative recovery, just by virtue of the fact that there’s a direct purchaser system that does not care whether the direct purchaser absorbed the damage, and then all the follow-on indirect actions.

First of all, what do you do as defense lawyers, especially when you have foreign companies facing our antitrust damages system for the first time, in effect saying, "What—I am going pay everybody, multiple people in this chain of distribution, multiple amounts for the same damage, every one of which is saying the damage stopped with me, it stopped with me, it stopped with me? What can you lawyers do to help?" And after listening to the screaming for a while, you say, "Let’s be creative."

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We tried to be creative with Judge Illston in the TFT-LCD case. One of the things we briefed fairly extensively is trying to get some procedural relief based on our claim that duplicative recovery was something that she had to wrestle with as a matter of law, citing both the U.S. Constitution and also various state court statutes that literally say you have to do everything you can to curb duplicative recovery. In the first instance we were addressing that when there was the question of how the trial was going to be structured, with the direct and indirect classes. In the accompanying materials, you will see that we created a list of options of how to deal with duplicative recovery¹¹ and what the judge decided to do.¹²

Judge Illston decided there was going to be a single trial with the direct and indirect classes, and she came up with some procedural ways to try to deal with the screaming from the plaintiffs’ side—both direct purchaser and indirect purchaser classes did not want this to happen. But she came up with procedural ways so that the jury was not going to hear about the pass-on in the first instance, in the first phase. If the jury decided that there was liability and damages for the direct purchasers, then there would be a second phase where there was going to be the pass-on evidence and the damages for the indirect purchasers. But not surprisingly, the defendants did see that as a victory because there was at least some hope that the same jury would at least get that paying twice at least does not feel right. And, not surprisingly, there were some settlements that occurred after that.

Another way to do it practically is in the indirect purchaser cases, the follow-on cases. The more indirect purchasers you can get into one trial, particularly if they are at different points in the distribution chain, the better it is going to be to try to at least eliminate some of the duplicative recovery problem because you are going to have a jury hearing the inconsistency between somebody higher up in the chain saying, "Hey, the harm stopped here," and then somebody lower down say, "No, it all came down to me and stopped here." That is hopefully something that you can exploit as a defendant.

Practically, make sure your experts are all over this. This should be in their expert reports. And then use every opportunity, creative or otherwise in motion practice, both before the MDL judge and then, if you get remanded, before the remand courts, to try to talk about the problem of duplicative recovery and the legal ways that you can try to argue that the judge has to grapple with this and deal with this. Kicking it down the road is an option, but it is not a really good answer for defendants.

Ms. Tewksbury: The problem is obviously not just residing in this follow-on civil litigation where there’s the real concern about duplicative recovery. You have the criminal litigation, where not only do you have the Antitrust Division who might be going after you, you might have other components of the DOJ who are also looking at that same conduct and trying to get fines with respect to that. The likelihood in those areas of having follow-on civil litigation is low, but still, again, they are not looking at the damages aspect of this.

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In some respects it really is one pot of money because you have one company that has a finite amount of resources. The goal of the antitrust laws and of the enforcers, and hopefully civil plaintiffs, is not to put that company out of business. That does not help competition.

Not only do we have criminal penalties here in the U.S., but you have enforcers around the world, as Judge Illston mentioned, and others in the last panel. There are over 100 competition authorities. There are now somewhere around 40 or 50 who actually have robust competition programs, and that is really due to the proliferation of leniency. It used to be five to ten years ago you were going into only a few jurisdictions to deal with this. Now companies are going into China to seek leniency. And that a complete unknown.

There has been a lot of criticism of the DOJ with respect to what is called double-counting, the concept that the same commerce is getting counted in the volume of commerce in the U.S. and Japan and other places. I believe that the Antitrust Division has tried to work hard to avoid double-counting. I do not think it has been perfected, but certainly they have the discretion to do that. But the problem is that other jurisdictions do not. The JFTC¹³has no discretion. They have to count a certain amount of turnover, and that is it, there’s nothing they can do, although it was just announced that they are considering through their legislature to modify that and give them discretion. Even in the European Union, they similarly are held to strict assessment on commerce.

Now that we are seeing more active enforcement authorities, the danger of double-counting is becoming more of a reality. Overall, it is becoming a fairly difficult problem for companies.

Moderator: Joe, you have worn both the indirect purchaser hat and the direct purchaser hat. Does how you approach this conundrum vary based on which class you represent?

Mr. Saveri: It depends what question you are asking. If you are talking about a trial perspective, I am thinking it does, because we struggle with the other side with a lot of the issues that Holly discussed. From a settlement context, in large measure the way the direct purchaser class and the indirect purchaser class address settlements with defendants is largely the same, although we have slightly different complications.

The indirect purchasers have to deal with the presence of the fact that there are a number of State Attorneys General who represent indirect purchaser consumers. That presents real issues in a settlement context of how to structure a settlement, how to figure out who gets what dollars.

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With respect to the direct purchasers, the settlement issue really involves the opt-out plaintiffs. Frequently, at least in my experience, the opt-out plaintiffs are not part of a settlement process. They are sitting in the same room with the class lawyers, but certainly when we sit down with defendants to discuss settlement and we are talking about how much is going to be paid, obviously one of the issues that we have to grapple with is how much of the direct purchaser settlement money is being siphoned off to the opt-out plaintiffs, and how you deal with that in a settlement context.

Moderator: Traditionally antitrust cases have been settled without the help of third parties, but mediation is certainly becoming more frequent. What do you see with respect to mediation in the future of antitrust and UCL class actions?

Mr. Saveri: Let me say a couple things. First of all, I think it is definitely the case, historically, that antitrust class actions have been a place where there’s been relatively low involvement of third parties to help mediate disputes. With the passage of time, that has changed somewhat and now there are a number of very significant antitrust cases that have been resolved in large part through the aid of third-party neutrals. The LCD case is one of them. Same with the In re High-Tech Employee Antitrust Litigation, which I recently handled. The CRT indirect purchaser class case was largely settled through a mediation process. So it is definitely the case that the use of third-party neutrals has increased over time. But having said that, I still think at the end of the day most of the resolutions in class-action antitrust cases are really reached as a result of negotiations, lawyer-to-lawyer.

Ms. House: I believe that mediation is definitely here to stay in the big antitrust cases. However, there is a time when it is going to be the most effective. You have to have the case gelled to a certain degree in order to have mediation be able to be meaningful for settlement. You have to have enough information about what the scope of the case is, what the size of the case is, before everybody is ripe for the opportunity to settle the case. If it is appropriately gelled and you do have enough understanding of what the court’s likes are, some rulings that give you some direction, enough expert work to get at least a reasonable idea of what you are talking about in terms of sales at the end, then I do think there is an opportunity.

For all the reasons that mediation makes sense in all cases, mediation makes sense in antitrust cases. There can be client control issues that mediation can help address. Maybe the client is more receptive to what a neutral judicial officer says about where the client is blind about aspects of the case. So let’s bring them to Jesus and tell them what’s good and what’s bad.

It also can be a good opportunity if you have plaintiffs that have a bunch of different counsel and they have a different idea of what the case is worth, as well as whether to settle now or later. Again, it is an opportunity to get people onto the same page.

There comes a certain momentum, particularly if it looks like it is going to happen and certain blocks are going to fall, that you can actually push things through. So I think mediation can be extremely helpful if it comes at the right time.

Moderator: One controversial settlement agreement term in the antitrust context is the most favored nation ("MFN") clause, which is where an early settling defendant essentially says, "I will pay, but I don’t want to overpay. And if you settle with other defendants on better terms, I want the same terms." If that occurs, the early settling defendant gets back money initially paid if the plaintiffs settle with somebody else for less.¹⁴ Joe, have you ever agreed to a most favored nation clause and under what circumstances?

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Mr. Saveri: Let me say one thing about this: I hate them, I resist them, and I give them.

I think MFN clauses are a fact of life—and that they are frequently more trouble than they are worth. Let me just say briefly one of the ways they are more trouble than they are worth. It kind of goes back to one of the things that Holly touched on a few minutes ago. They are really hard to structure in ways in which there are reliable and objective criteria for measuring them—how do you determine whether you have given someone else a better deal? Is it measured by some measure of sales? Is it measured by some volume of commerce? Even if you agree on what the measure is, there is wide disagreement about how that’s measured. If you sit down all the defendants in a room and you ask them, each one of them, what their market shares are and you add that up, you end up with about 86 percent. So there are always incentives for undercounting and they are difficult to enforce.

Having said that, I think they happen in almost every case.

Ms. House: I am in agreement with Joe: MFN clauses are more trouble than they are worth. A lot of this is, frankly, about client control. Many of the defendants are intensely competitive rivals. So a lot of this is about the client wanting to make sure that they are not going to be disadvantaged in the market by paying more than their intense rival. The clients are where much of this push is coming from.

Also, the reality is that things cost money. The plaintiffs are going to demand something for a most favored nation clause. Moreover, I have never had a situation where the plaintiff ever ended up paying under a MFN clause. Given all the headaches and the cost related to a MFN clause, I personally do not think it is worth it. But I also understand why clients insist on one.

Moderator: At some point, through mediation or direct negotiations between counsel, a settlement has been achieved, and you are now seeking the court’s final approval. Out of the woodwork come objectors. Is there a general approach you have when dealing with objectors or is it idiosyncratic?

Mr. Saveri: In general, objectors are idiosyncratic, but there are a couple of important caveats. There are a group of objectors who many acknowledge as professional objectors. These are repeat players. They appear in cases of all types, all over the country. I think that these repeat objectors make up one of the big scandals in class action practice in the country. With respect to that group of objectors, I do think there are common ways of trying to protect your client in the case from them, such as a quick-pay agreement in the settlement agreement or trying to secure a court order requiring an appellate bond from the objector. While there are pretty common ways of dealing with them, I do not think that those solutions are very effective.

Now, on the other hand, if you have folks who are really interested in a particular case that come forward for one reason or another and basically say, "Look, you haven’t got enough money." With those you just have to deal with them directly, and it is a sui generis exercise.

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Ms. House: It does depend on the basis for the objection. If it is the standard objection, then defendants typically sit back and let the plaintiffs take care ofit. The objection oftentimes is an attack on plaintiffs’ attorney’s fees or class representative payments. If so, it is not the defendants’ problem. Obviously, we look at the papers and decide if a response is appropriate.

If you can anticipate something, where you know there’s going to be very serious objectors, you have to have a strategy to address that and then you are going to be more involved. In the In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation¹⁵ last August, for instance, a proposed class settlement of claims against American Express was scuttled, and the previously approved $7.25B settlement with Visa and MasterCard threatened, because of improper communications between a lawyer for the merchants and a lawyer for MasterCard, who were friends. That is very unusual, and there has been a lot of involvement from the defendants in that case. Again, the involvement of defendants in dealing with objectors is going to depend on what the objection is.

Mr. Saveri: When we are talking about cartel cases, it is really not much of an issue. The settlements usually involve the payment of money. I cannot think of a Section 1 cartel case where there was a structural relief as part of a settlement. To the extent there is structural relief in a class action settlement, you are changing the way people do business and changing the way stakeholders relate to one another, there is potential for objections from them.

Moderator: The case has been settled, but there are many opt-outs, particularly large purchasers. What explains the trend of more and more opt-outs and what does the defendant do to limit the risk of overpayment?

Ms. Tewksbury: One aspect of that is there are distinct customers that can effectively trace their actual damages, and they want their own advocates to handle that. Another aspect of it relates to cartel cases involving electronic components, in particular, where a customer no longer potentially engages in that business line, but still uses the technology either because it is a legacy or there’s nothing to replace it or they completely exited that business line and there is no opportunity for a business resolution. It is a way for companies to turn their legal departments into potential profit centers where they can pursue damage claims and potentially provide revenue to the company.

In terms of ways to limit overpayment to opt-outs, one we have already talked about is to settle early with the class in hopes of people not opting out at that point. Seeking business resolution is another avenue. Taking advantage of any arbitration clause is another option—and companies are becoming more sophisticated with their major purchasers by engaging in contracts that have very explicit arbitration clauses. Another is crafting a settlement that allows a defendant to essentially exit its resolution with plaintiffs if the opt-outs become too overwhelming. I think you have some examples of that.

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Moderator: Correct. In the Sharp LCDs settlement, the settling defendants had the right to void the settlement if 25% of the remaining commerce opted out.¹⁶ In the Samsung settlement, the right to reject the settlement was based on opt-outs representing $150 million or more in a defined line of commerce.¹⁷

With respect to commerce, a significant issue in international cartel litigation is what sales abroad are included in the volume of commerce within the reach of the United States antitrust laws. What are the implications for settling antitrust cases in light of that issue?

Ms. House: Obviously, the larger the amount of foreign sales that are going to be included for the settlement calculations, the larger the payout, the larger the exposure. Overreaching by plaintiffs on foreign sales can make early settlement very difficult to achieve. Until the court rules on what is in and out, which generally comes fairly late in the process, there is going to be such a delta between what foreign sales are in or out that it becomes impossible to settle until you know what the true scope of the case is going to be.

Mr. Saveri: Here is the problem. Defendants want to have it both ways. Defendants want the broadest possible release, releasing claims as far across the globe as is possible. At the same time, they don’t want to pay for the broad release. That incongruity presents difficulties for the parties to the settlement and courts charged with supervising class action litigation and approving class action settlements. If foreign commerce is to be included in a settlement, and thereby released, and it should be because foreign commerce is not excluded by the FTAIA, then there should be some consideration paid.¹⁸

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Moderator: In California v. Intelligender,¹⁹ a nationwide class settlement was approved by the federal district court, after the Class Action Fairness Act notice was sent out, but lo and behold, a civil government enforcer filed another lawsuit seeking restitution, essentially the same restitution that had already been settled. The Ninth Circuit reversed the district court’s refusal to enjoin the restitution claims, but not the enforcer’s request for penalties. Heather, what is your view about whether this decision will have any impact on the position the government enforcers will take in connection with motions for approval of class settlements?

Ms. Tewksbury: I do not see any real impact for antitrust cases, particularly cartel cases where there is follow-on litigation. The reason is that the DOJ, in those types of cases, articulates in their sentencing memoranda that it is to be left to the follow-on litigation to deal with restitution. I do not see a situation where this decision would impact the current approach and the policies of the Antitrust Division with respect to how to treat restitution.

The decision upholds the right for the government to recover penalties and the criminal fines placed on perpetrators serves the goal of deterrence, which is the paramount, hallmark aspect of the DOJ’s mission. I believe the DOJ’s view is that this is also achieved by putting executives in jail and requiring actual jail time for those executives. In negotiated resolution with individuals, we have seen a 24-month average jail time. That is a substantial uptick from many years ago when executives could plead and receive custodial time of around three months. I think that is where the DOJ Antitrust Division is going to focus, as opposed to going back to the well on restitution where that is dealt with otherwise.

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[The Appendices on pages 159-211 have been omitted in the digital version.]

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Notes:

^1. Paul Riehle is a partner in the San Francisco office of Sedgwick LLP, where he serves as the Chair of the firm’s Antitrust & UCL Practice Group and the Co-chair of its Class Action Task Force. Mr. Riehle is the 2015-16 Chair of the Executive Committee of the California State Bar’s Antitrust, Unfair Competition Law and Privacy Section, and was the Chair of the 25th Annual Golden State Institute in 2015. He was Student Body President at the University of Notre Dame and Editor-in-Chief of the Hastings Constitutional Law Quarterly.

^2. Antitrust Criminal Penalty Enhancement and Reform Act of 2004, tit. II, Pub. L. No. 108-237, 118 Stat. 661.

^3. Cimarron Pipeline Construction, Inc. v. Nat’l Council on Compensation. Ins., No. CIV-89-1886-T, 1992 WL 350612, at *3 (W.D. Okla. Apr. 10, 1992); In re Brand Name Prescription Drugs Antitrust Litig., No. MDL 997, 1995 WL 221853, at *1-*4 (N.D. Ill. Apr. 11, 1995); California v. Infineon Techs. AG, No. C 06-4333 PJH, 2007 WL 6197288, at *2-*3 (N.D. Cal. Nov. 29, 2007). But see In re San Juan Dupont Plaza Hotel Fire Litig., No. MDL-721, 1989 WL 996278, at *2 (D.P.R. Sept. 14, 1989) (judgment-sharing agreement invalidated where the purpose behind the agreement was to "prevent resolution of plaintiffs’ claims using the armor of a defense cooperation" agreement and the judgment-sharing agreement required signatories to decline all admissions of liability and aid to the plaintiffs or otherwise supporting plaintiffs).

^4. See, e.g., Settlement Agreement between Cypress Semiconductor and SRAM Direct Purchaser Class at 17, In re Static Random Access Memory (SRAM) Antitrust Litig., No. 4:07-md-01819-CW (N.D. Cal. Mar. 11, 2011), ECF No. 1331-1 ("This Agreement does not settle or compromise any claim by Plaintiff or any Class Member asserted in the complaint against any defendant or alleged co-conspirator other than the Cypress Releases. All rights against such other defendants or alleged co-conspirators are specifically reserved by Plaintiff and the Class, including the right to seek damages from such other defendants or alleged co-conspirators based on Cypress’s sales to the Class, and Cypress’s sales to the Class shall not be removed from the Action.").

^5. See In re San Juan Dupont Plaza Hotel Fire Litig., supra note 3.

^6. Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).

^7. Foreign Trade Antitrust Improvements Act of 1982, 15 U.S.C. § 6a.

^8. See Epson Defendants Settlement Agreement with Direct Purchaser Class at 15, In re TFT-LCD (Flat Panel) Antitrust Litig., No. 3:07-md-01827-SI (N.D. Cal. July 12, 2010), ECF No. 1851-1 ("Within five (5) business days of the execution of this Agreement, Epson Defendants will, to the extent they have not already done so, produce (i) all documents kept by Epson Defendants in the ordinary course of their business that were provided to the Department of Justice during the course of its investigation; and (ii) data reflecting aggregate sales or purchases of TFT-LCD Products by Epson Defendants . . .").

^9. See Hitachi Defendants Settlement Agreement with Direct Purchaser Class, Appendix 1, at 17-18, In re TFT-LCD (Flat Panel) Antitrust Litig., No. 3:07-md-01827-SI (N.D. Cal. Aug. 30, 2011), ECF No. 3407-4.

^10. See LG Defendants Settlement Agreement with Direct Purchaser Class, Appendix 2, at 40-44, In re TFT-LCD (Flat Panel) Antitrust Litig., No. 3:07-md-01827-SI (N.D. Cal. July, 12, 2012), ECF No. 6141-3.

^11. See Notice of Motion and Motion of Defendants Regarding Trial Structure and for Relief to Avoid Duplicative Recovery, Appendix 3, In re TFT-LCD (Flat Panel) Antitrust Litig., No. 3:07-md-01827-SI (N.D. Cal. Mar. 21, 2012), ECF No. 5258.

^12. See Order on Trial Structure, Appendix 4, In re TFT-LCD (Flat Panel) Antitrust Litig., No. 3:07-md-01827-SI (N.D. Cal. Apr. 20, 2012), ECF No. 5518; see Order Denying Motion for Leave to Amend to add additional defenses and a counterclaim for declaratory relief to address the risk of duplicative liability caused by multiple plaintiffs seeking to recover for the same alleged overcharge, Appendix 5, In re TFT-LCD (Flat Panel) Antitrust Litig., No. 3:07-md-01827-SI (N.D. Cal. May 25, 2012), ECF No. 5795. See also In Re Vitamins Antitrust Litig., 259 F.Supp.2d 1 (D.D.C. 2003) (order denying motion in limine to preclude the evidence that plaintiffs passed on any indirect-purchaser overcharges).

^13. Japan Fair Trade Commission.

^14. See Appendix 6 for an example of a most favored nation clause.

^15. 986 F. Supp. 2d 207 (E.D.N.Y. 2013).

^16. Sharp Defendants Settlement Agreement with Direct Purchaser Class at 11-12, In re TFT-LCD (Flat Panel) Antitrust Litig., No. 3:07-md-01827-SI (N.D. Cal. Aug. 30, 2011), ECF No. 3407-9 ("If the Court permits class members to opt out of this settlement, Co-Lead Counsel will cause copies of requests for exclusion from the Class to be provided to counsel for Sharp no later than ten (10) Court days before the commencement of the hearing regarding final approval of this Settlement. Sharp shall not have the right to rescind the settlement unless purchasers responsible for 25% of the remaining relevant commerce are granted exclusion. Such purchasers do not include persons and entities that opted out of the Litigation Panel Class and/or Litigation Product Class by January 4, 2011, as reflected in the list of opt-outs filed January 31, 2011 (Docket No. 2384), and also do not include the Apple, Inc. entities noted in the Court’s February 18, 2011 Order (Docket No. 2477).") (emphasis added).

^17. Samsung Defendants Settlement Agreement with Direct Purchaser Class at 13, In re TFT-LCD (Flat Panel) Antitrust Litig., No. 3:07-md-01827-SI (N.D. Cal. Aug. 30, 2011), ECF No. 3407-7 ("Exclusions. If, contrary to Plaintiffs’ and Samsung’s expectations, the Court permits class members an opportunity to opt out of the Settlement, Samsung will have an option to terminate the Settlement if new opt outs who exclude themselves from the Settlement account for more than $150 million of commerce as measured by panel value (as opposed to finished product value). Samsung may exercise the option to terminate conferred by this paragraph within 14 days after Samsung receives notice of the identity of any new opt outs who exclude themselves from the Settlement, if after such exclusion the threshold specified in this Paragraph 19 is exceeded.") (emphasis added).

^18. As an example of how this tension is resolved, in the Hynix direct purchaser settlement in the DRAM litigation, foreign purchaser sales were not released. See Hynix Defendants Settlement Agreement with Direct Purchaser Class, In re Dynamic Random Access Memory (DRAM) Antitrust Litig., No. 4:02-md-01486-PJH (N.D. Cal. Apr. 28, 2006), ECF No. 829-1 ("This Agreement shall not affect whatever rights Releasors or any of them may have (i) to seek damages or other relief from any person with respect to any DRAM purchased directly from the manufacturer (or any subsidiary or affiliate thereof) outside the United States . . .").

^19. California v. Intelligender, LLC, 771 F.3d 1169 (9th Cir. 2014).