Over the past few years, in addition to cooperating with international counterparts in many cases, the DoJ has made efforts to further common understandings on a variety of substantive and procedural antitrust issues. Developments in competition law, both substantive and procedural, can be driven by courts, particularly in countries that allow for private antitrust enforcement in the form of class actions. The upcoming decision of the UK Supreme Court in Merricks v. MasterCard is of interest to competition enforcers around the world because it involves novel questions on the proper approach to certification of an opt-out collective action — akin to a class action in the United States — brought by indirect purchasers.
This essay, available here, aims to share the United States’ experiences confronting similar questions to those faced by the UK Supreme Court in this case – in particular, how the class representative can show “a realistic prospect of establishing loss on a class-wide basis,” and what should be the “approach to distribution” of damages among individual purchasers.
Section II summarises the proceedings in Merricks v MasterCard.
In 2016, Mr. Walter Hugh Merricks CBE applied before the Competition Appeal Tribunal (CAT) to bring collective proceedings against MasterCard on behalf of 46 million consumers. He alleged that MasterCard’s decision to set an interchange fee applicable to cross-border payments — which the European Commission held in 2007 to be a violation of competition law — caused merchants, i.e. shops accepting card payments, to pay higher fees to acquirers, i.e. banks or financial institutions that provide payment services to merchants. Merchants, Mr. Merricks contends, subsequently passed on this overcharge to the consumers comprising the putative class.
The CAT rejected the application. It found that the claims were unsuitable to be brought in collective proceedings, as two issues were not common: (1) the degree of pass-through from merchants to claimants and (2) the amount each claimant spent at each merchant. The Tribunal also found that there was no “plausible way” to distribute damages to each individual in a way that estimates the loss s/he suffered. In reaching its conclusion, the Tribunal emphasised that although in theory “calculation of global loss through a weighted average pass-through … is methodologically sound,” applying that methodology “across virtually the entire UK retail sector over a period of 16 years is a hugely complex exercise requiring access to a wide range of data” unlikely to be available.
Upon appeal, the Court of Appeal held the Tribunal had “demanded too much” from Mr. Merricks to show pass-on at the certification stage, and that the Tribunal’s decision to consider a proposed method of distribution was “both premature and wrong.” The Court of Appeal considered that it was not necessary at this stage for the proposed representative to be able to produce all the evidence necessary for assessing the level of pass-on to the represented class, still less to enter into a detailed debate about its probative value. In the Court of Appeal’s view, the proposed methodology needs only be “capable of or [offer] a realistic prospect of establishing loss to the class as a whole”. In July 2019, the UK Supreme Court granted MasterCard permission to appeal the Court of Appeal’s judgment.
Section III compares the US and the UK’s collective action procedures.
Unlike UK competition law, U.S. federal antitrust law generally does not permit recovery by indirect purchasers – even if approximately two-thirds of U.S. states and the District of Columbia currently permit the use of pass-on analysis to apportion damages for violations of state antitrust law. Indirect purchasers suing under state antitrust law nonetheless face a number of hurdles: several courts have held the indirect purchasers in the cases before them lacked “antitrust standing” to sue because their injury was too derivative or remote. Based on these concerns, courts have dismissed state-law antitrust claims involving tying of credit card and debit card services at the “motion to dismiss” stage — comparable to a strike out in the UK — before the cases even reached the class-certification stage.
Section IV considers legal standards for class certification in the US.
The first issue before the UK Supreme Court is what legal standard a court should apply in certifying a collective proceeding by indirect purchasers. Within the United States, Federal Rule of Civil Procedure 23 or the corresponding state rule governs class certification. These rules set forth criteria to determine when the class-action device is appropriate.
Under Rule 23, a court cannot certify a class action unless it finds the plaintiffs have satisfied the four prerequisites of Rule 23(a) — often referred to as numerosity, commonality, typicality, and adequacy of representation — as well as one of the requirements of Rule 23(b). Of relevance here, Rule 23(b)(3) provides that, in suits for damages actions, class certification is appropriate only if “the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members…” Certification of indirect purchaser classes often turns on this “predominance” inquiry.
In deciding whether to certify a class, a U.S. court must conduct a “rigorous analysis” of requirements in Rule 23, which will inevitably “entail overlap with the merits of the plaintiff’s underlying claim”. Questions on the merits, however, may be considered at this stage “only to the extent that they are relevant to determining whether Rule 23 prerequisites for class certification are satisfied’. Class-certification proceedings typically involve extensive evidentiary presentations by the parties, and courts assess whether plaintiffs meet their burden of proving each requirement for certification by a “preponderance of the evidence”.
Section V looks at how US courts consider damages and passing on.
In U.S. antitrust class-action suits brought by indirect purchasers, the crucial question for certification is often whether there is predominance of common over individual issues. In assessing whether plaintiffs meet the predominance standard, U.S. courts ask whether and how plaintiffs intend to show:
(a) Class-wide proof of “antitrust impact” or “antitrust injury” — that is, whether all or nearly all class members were in fact injured from the alleged anticompetitive conduct;
(b) Class-wide proof of damages; and
(c) For each of these inquiries, that class-wide proof of impact and damages predominate over individualised issues, such that class treatment of damages claims is appropriate. Although there is no explicit requirement of predominance under English law, English courts have relied heavily on Canadian case law that, in turn, relies on this US concept of common impact
Problems with proving antitrust injury at the certification stage are typically more present in suits brought by indirect purchasers than in those brought by direct purchasers, because causation is more attenuated. Whether indirect purchasers suffered injury on a class-wide basis often depends on whether an alleged overcharge was “passed on”. U.S. courts typically require indirect-purchaser plaintiffs to show more than an estimate of aggregate damages to show pass-on and, thus, antitrust impact. In deciding whether to certify an antitrust class action, U.S. courts have rejected methods of inferring class-wide injury from only aggregate damages and generalised statistical averaging; instead, direct proof is necessary.
Nonetheless, in some instances, courts have certified indirect-purchaser classes after determining that the proffered expert methodology appropriately accounted for potential variations among class members. However, in other instances courts refused certification because the methodology for determining class-wide injury did not account for indirect purchasers that did not suffer injury — i.e. indirect purchasers to whom injury was not passed on. Still, certain district courts have continued to apply a more relaxed standard of proof, creating some uncertainty about precisely how much a court should engage with an expert’s proposed methodologies on class-wide impact at the certification stage.
In deciding whether indirect-purchaser plaintiffs should proceed as a class, a U.S. court also considers whether computation of damages for putative members of the class is susceptible to common proof. In certain circumstances, courts rely on plaintiff measures of aggregate damages to help meet this burden. Indeed, the class-action mechanism itself contemplates the use of aggregate damage calculations, which is well established in federal courts. Nonetheless, proving aggregate damages alone is insufficient for class certification because courts must conduct a “rigorous analysis” into the question of whether common proof of such damages predominates over individualised questions of damages. Although estimates of class-wide damages need not be proven with certainty, courts are becoming more willing to subject damages methodologies to increased scrutiny in order to confirm all or almost all class members are injured.
Although class-wide impact and class-wide damages are two distinct inquiries, the analyses and supporting expert methodologies often overlap.
Section VI discusses the distribution of damages.
The second key issue before the UK Supreme Court concerns the proper approach to distribution of damages. Although U.S. courts do consider whether individual damages can be proven according to a common method across the whole class during the class-certification phase, they generally conceive of the “distribution” of aggregate damages as occurring in a later phase of litigation, such as after a determination of liability. In addition, courts rarely use “manageability” of the class action as a ground to deny certification under Rule 23.
Some courts have nevertheless taken a much more exacting in reviewing the plaintiffs’ proposed methods to distribute damages at the class-certification stage. To be sure, difficulties involved in distribution are heightened in complex antitrust cases, and courts tend to look suspiciously upon proposed methods of distribution that would “require individual trials.” Some jurisdictions therefore remain sceptical that distributing damages for individual class members can truly be separated from determining common antitrust injury during the class-certification phase.
I am not in a position to comment on this paper, nor would it be appropriate for me to do so given the quality in which the author writes.
Nonetheless, I think it is uncontroversial to point out that this is an interesting initiative on the part of the DoJ, which finds a parallel in its numerous interventions in private antitrust disputes in the US. The paper provides an interesting overview of the challenges of bringing collective actions – which I remain convinced are necessary for final consumers to benefit from private competition enforcement.