Lexpert US Guides

www.lexpert.ca | LEXPERT • December 2014 | 35 ANTITRUST CLASS ACTIONS petition laws. Indirect purchasers are individuals or companies who have acquired products from resellers; while indirect purchasers have no direct relationship with the antitrust violator, they often bear the ultimate costs of anti-competitive conduct. In coming to its conclusion, the Supreme Court notably departed from US federal law and the law in many US states, where indirect purchaser claims have been prohibited since the 1977 decision of the US Supreme Court in Illinois Brick Co. v. Illinois, 431 U.S. 170 (1977) ("Illinois Brick"). In so doing, Canada's highest court held that Canadian courts have jurisdiction over certain antitrust claims brought by indirect purchasers against foreign defendants. This means that Canada's departure from Illinois Brick will have impor- tant ramifications for foreign manufacturers and distributors selling directly or indirectly into the Canadian market. Faced with the Supreme Court of Canada's go-ahead for indi- rect purchaser class actions, foreign manufacturers and distributors can expect plaintiffs' counsel to become more aggressive in bring- ing broad-based indirect purchaser class actions in Canada. Given that the US and Canada remain each other's most important single trading partners, it has become that much more critical for US com- panies doing business in Canada to consult with Canadian counsel and develop appropriate strategies to minimize their exposure under Canada's competition laws. DIRECT AND INDIRECT PURCHASER CLAIMS DISTINGUISHED Section 36 of Canada's Competition Act R.S.C. 1985, c. C-34 — the US analog to which is s. 4 of the Clayton Act, 15 U.S.C. §§ 12-27 — authorizes any person who has suffered loss or damage as a result of certain anti-competitive actions to sue and recover the loss or dam- age from the person who engaged in the offending conduct. In most instances these follow-on cases (so called because they follow on the heels of antitrust investigations) arise from price-fixing and bid-rig- ging schemes. Plaintiffs sue to recover the extra amount they paid for a good, as compared to the price they would have paid in the absence of the anti-competitive conduct. This excess amount is typically re- ferred to as an overcharge. Direct purchasers have long had a cause of action against antitrust violators, even where the direct purchaser has "passed on" the over- charge to its own customers. The "passing-on" defense — invoked by overchargers at the top of the distribution chain to defend actions brought by direct purchasers where the direct purchasers have passed on the overcharge to their own customers — has been rejected in Canada and in the United States. See: Kingstreet Investments Ltd. v. New Brunswick (Finance), 2007 SCC 1, [2007] 1 S.C.R. 3 and Il- linois Brick. The plaintiffs in the Pro-Sys trilogy sought to expand the avail- ability of overcharge claims to indirect purchasers. In the US, indi- rect purchaser antitrust claims have been barred since the Supreme Court's decision in Illinois Brick. However, since that decision, over 35 states have enacted so-called "repealer statutes," making Illinois Brick inapplicable at the state level in those states. The US Supreme Court has held that state level repealer statutes are not pre-empted by federal antitrust law. See: California v. ARC America Corp., 490 U.S. 93 (1989) ("ARC America"). In Illinois Brick, an indirect purchaser sought to recover antitrust treble-damages under s. 4 of the Clayton Act by establishing that the direct purchaser, who had paid the overcharge to the antitrust viola- tor, had passed on the overcharge to the indirect purchaser, inclusive of consumers. The US Supreme Court held that because pass-on the- ory cannot be used defensively by antitrust defendants against direct purchasers, the necessary corollary was that the same theory may not be used offensively by indirect purchasers to ground a cause of action against antitrust defendants. THE NEW (PRO-SYS) APPROACH IN CANADA The Pro-Sys trilogy involved allegations against defendants by classes of direct and indirect purchasers. First, in Pro-Sys, a class of indirect purchasers alleged that Microsoft Corporation and Microsoft Cana- da Co./Microsoft Canada CIE engaged in unlawful conduct by over- charging for Intel-compatible PC operating systems and applications software; next, in Sun-Rype, a class comprised of direct and indirect purchasers alleged that the defendant companies had engaged in an illegal conspiracy to fix the price of high-fructose corn syrup; and fi- nally, Infineon involved a proposed class action by direct and indirect purchasers under the Québec Code of Civil Procedure, alleging that a price-fixing conspiracy had artificially inflated the prices of dynamic random-access memory chips ("DRAM") and products containing DRAM sold in Québec. While the three cases each offered their own nuances arising from different facts, the Supreme Court's key holding, applicable to all, has sent a strong message that indirect purchaser actions are available and, indeed, encouraged in Canada. CANADA REJECTS ILLINOIS BRICK In Pro-Sys, the Supreme Court upheld — in common with Illinois Brick — the principle that defendants in antitrust and other class ac- tions cannot use the defense of passing-on. The court held that the passing-on defense is contrary to basic principles of restitution; reject- ing the passing-on defense ensures that "wrongdoers who overcharge their purchasers do not operate with impunity" and prevents defen- dants from using any complexity in tracing the overcharge through the chain of distribution as a shield from liability. However, the court rejected Illinois Brick's corollary holding that "The plaintiffs in the Pro-Sys trilogy sought to expand the availability of overcharge claims to indirect purchasers. In the US, indirect purchaser antitrust claims have been barred since the Supreme Court's decision in Illinois Brick. However, since that decision, over 35 states have enacted so-called 'repealer statutes,' making Illinois Brick inapplicable at the state level in those states."

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