Joshua D. Snyder, Boni & Zack LLC

“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” 15 U.S.C. § 1.

“Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States…shall be deemed guilty of a felony….” 15 U.S.C. § 2.

• § 1: Price-fixing/output restriction/market allocation/customer allocation

• Vitamins• Chemicals• Wood and Paper Products• Electronic components• Financial benchmarks• Etc.

• § 2: Monopolization: e.g., 3M litigation (alleging company set out to completely control the transparent tape market); Microsoft litigation (tying of web browser to operating system))

Cartel:

“A combination of any producers of a product, who join together to control the production and price of the product.” Black’s Law Dictionary, Bryan A. Garner editor (Pocket Edition 1996).

“Cartel” and “cartelizing” is short hand for “price fixing.” Richard A. Posner, Antitrust Law (Second ed. 2001).

Collusion among cartel members to coordinate their pricing, output or other strategies allows its members to create a monopoly-like outcome in the market.

Price Fixing: The Informant!- International cartel comprised of U.S., Japanese, and

South Korean companies

- U.S. company Archer Daniels Midland Co pleaded guilty and was sentenced to pay a $100 million criminal fine—then the largest criminal antitrust fine—for its role in two international conspiracies to fix prices and allocate sales in the lysine and citric acid markets worldwide

- Also evidence of price fixing in high fructose corn syrup market

- Class litigation brought to recover overcharges for those injured by price fixing, with substantial settlements (e.g., $400 million paid by ADM in In re High Fructose Corn Syrup Litigation, MDL. No. 1087)

• Whether common economic proof is available to establish an antitrust conspiracy on a class-wide basis; and

• Whether common economic proof is available to establish the causation elements (a.k.a. antitrust “impact”) on a class-wide basis.

Certain factors tend to make a market more favorable to collusion with widespread impact on price. For example:

• Small number of sellers account for the bulk of output/oligopoly (ease of collusive communication, etc.)

• Standardized/commodity-like products (facilitates implementation)

• Barriers to entry (hard for new competitors to break in)

• Lack of substitutes (collusion can be implemented without losing sales)

Economic Underpinnings of Class Certification (Continued)

• Buyers of corrugated sheets and corrugated containers brought antitrust action against manufacturers of linerboard used to make such sheets and boxes, alleging that the manufacturers had agreed to reduce inventories in order to increase prices

In re Linerboard Antitrust Lit, 305 F. 3d 145 (3d Cir. 2002)

• The District Court certified the class

• On appeal under Rule 23(f), Third Circuit held

(1) Evidence was sufficient to establish antitrust impact common to class:

“Plaintiffs produced affidavits of expert witnesses, Dr. Beyer and Dr. Cantor, who effectively utilized supporting data, including charts and exhibits, to authenticate their professional opinions that all class members would incur such damages.” In re Linerboard Antitrust Litig., 305 F.3d 145, 153 (3d Cir. 2002)

(2) Presumed common impact:

“A strong argument can be made that the … concept of presumed impact was properly applied here. The economic laws of supply and demand run in tandem with the tenets of logic. A reduction in supply will cause prices to rise. A deliberate cut in supply, as alleged here, is a deliberate interference with market forces.” Id. at 152.

In re Linerboard Antitrust Lit., 305 F. 3d 145 (3d Cir. 2002)

• Direct purchasers of Hydrogen peroxide and other chemicals sued their suppliers, alleging price-fixing

• The district court certified the class of direct purchasers and defendants appealed, but the Third Circuit Court of Appeals vacated the order certifying the class—

In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (3d Circ. 2008)

• The district court had wrongly presumed that when in doubt it should err in favor of certifying an antitrust class action

• “The District Court reasoned, ‘it is well recognized that private enforcement of antitrust laws is a necessary supplement to government action. With that in mind, in an alleged horizontal price-fixing conspiracy case when a court is in doubt as to whether or not to certify a class action, the court should err in favor of allowing the class’. These statements invite error.”

In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (3d Circ. 2008)

• The district court had wrongly put off resolving the “battle of the experts” until trial, even though the experts disagreed about whether a class should be certified in the first place

• “Expert opinion with respect to class certification, like any matter relevant to a Rule 23 requirement, calls for rigorous analysis. It follows that opinion testimony should not be uncritically accepted as establishing a Rule 23 requirement merely because the court holds the testimony should not be excluded under Daubert or for any other reason…Weighing conflicting expert testimony at the certification stage is not only permissible; it may be integral to the rigorous analysis Rule 23 demands”

• In short, “Class certification is proper only if the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23 are met.” Id. at 309 (citation and internal quotation marks omitted).

In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (3d Circ. 2008)

• Not an antitrust case, but implications for antitrust class actions• In 2007, Peg Bouaphakeo and several co-workers brought suit against

Tyson Foods, alleging widespread violations of the Fair Labor Standards Act and the Iowa Wage Payment Collection Law

• The employees claimed that Tyson owed them compensation for activities outside of the “gang-time” regime (the time when production line starts moving until it stops), namely for time spent donning and doffing job-related equipment and for certain walking time (which plaintiffs contend averaged 18 to 21 minutes per employee per shift)

• Before the Supreme Court, Tyson argued, in part, that the data the plaintiffs presented showed there were 212 employees within the class definition, who were not, in fact, damaged by its practices, and that this required the class be decertified, even though thousands of other class members were found by the jury to have been injured

• (In almost any price-fixing class action, in which even a relatively small class will have membership numbering into the hundreds or thousands, proof of injury will be offered through some form of statistical sampling, and a subset of absent class member customers, for one reason or another, may lack quantifiable damages.)

• Tyson argued, as summarized by the Supreme Court: “Reliance on a representative sample, petitioner argues, absolves each employee of the responsibility to prove personal injury, and thus deprives petitioner of any ability to litigate its defenses to individual claims. Calling this unfair, petitioner and various of its amici maintain that the Court should announce a broad rule against the use in class actions of what the parties call representative evidence.”

Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036 (2016)

The Supreme Court (Kennedy, J.) held that representative proof from a sample, based on an expert witness's estimation of average time that employees spent donning and doffing protective gear, could be used to show predominance of common questions of law or fact:

• “A categorical exclusion … would make little sense. A representative or statistical sample, like all evidence, is a means to establish or defend against liability. Its permissibility turns not on the form a proceeding takes—be it a class or individual action—but on the degree to which the evidence is reliable in proving or disproving the elements of the relevant cause of action. See Fed. Rules Evid. 401, 403, and 702.”

• “[R]espondents sought to introduce a representative sample to fill an evidentiary gap created by the employer’s failure to keep adequate records. Had the employees proceeded with individual lawsuits, each employee likely would have had to introduce [class plaintiffs’ expert’s] study to prove the hours he or she worked. The representative evidence was a permissible means of showing individual hours worked…. This case presents no occasion for adoption of broad and categorical rules governing the use of representative and statistical evidence in class actions. Rather, the ability to use a representative sample to establish classwide liability will depend on the purpose for which the sample is being introduced and on the underlying cause of action.”

Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036 (2016)

• Argument that Article III precludes maintenance of a class action unless every class member has been injured.

• Supreme Court did not reach Article III challenge: “As Petitioner and its amici stress, the question whether uninjured class members may recover is one of great importance. ….It is not a question yet fairly presented by this case, because the damages award has not yet been disbursed, nor does the record indicate how it will be disbursed.”

Examples of Ongoing Litigation –Antitrust Class Actions

• This consolidated multi-district litigation arises from allegations that several major banks manipulated the London Interbank Offer Rate (LIBOR), a set of interest-rate benchmarks that underlie trillions of dollars of financial instruments, in order to profit in their own trading and to maintain their reputations for creditworthiness.

• This case involves Defendants’ collusive and fraudulent manipulation of the key pricing terms in contracts that Wall Street banks promoted to state and local governmental entities, across the United States, in order to reap tremendous windfall profits at the expense of those governmental entities and U.S. taxpayers

• The London Interbank Offered Rate (Libor) is one index Wall Street banks often used to set the floating rate and other terms. These banks represented that this index was appropriate to use because it was “a reliable indicator of the state of the money markets”

• Libor is supposed to be the average interest rate at which lending banks in London could borrow from other banks in a reasonable amount in the interbank market.

• It is based on a survey of a panel of banks asking the question: “At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11am”?

• Each panel bank submits its rates every London business day electronically to Thomas Reuters, the agent of the BBA. Once each bank has submitted its rate, the submitted rates are ranked. During the relevant period, for USD Libor, the highest and lowest four were excluded (to lessen the impact of outliers) with the rest being averaged to calculate the official rate that would be published.

• Thomas Reuters then electronically communicates the official rates – called the Libor “fixings” to the BBA’s licensees.

• Even extremely sophisticated market participants were unaware of this misconduct at the time it was occurring:

• For example, Former Chairman of the Federal Reserve, Alan Greenspan, has acknowledged that “what I never contemplated was that there were bankers who would purposely misrepresent facts to banking authorities. You were honor-bound to report accurately, and it never entered my mind that, aside from a fringe element, it would be otherwise”

• Internally, some traders questioned the directive to report false Libor submissions.

• “Libors are currently even more fictitious than usual” – UBS employee , 2008 internal exchange via electronic chat

• “Isn’t Libor meant to represent the rates at which banks lend to each other”? The response: “it’s a made up number” that the panel banks were underreporting at the time “to not show where they really pay in case it creates headlines about…being desperate for cash” – UBS employees, 2008 internal exchange via electronic chat

• Other banks/traders simply accepted the manipulation • Why did UBS manipulate LIBOR? “The answer would be ‘because the whole street was

doing the same and because [UBS] did not want to be an outlier in the Libor fixings, just like everybody else” – UBS senior manager

• “Its just amazing how Libor fixing can make you that much money… it’s a cartel now in London” – RBS trader

• An FSA Report details numerous messages sent between Barclays traders and the bank's "submitters" – whose role was to send accurate information about interest rates to the British Banking Association. The submitters are not supposed to be influenced by traders.

• Submitter: "Hi all, just as an FYI, I will be in noonish on Monday.”• Trader: “Noonish? Who's going to put my low fixings in? hehehe.”• Submitter "[A manager has] asked me to put it lower than it was yesterday … to

send the message that we're not in the s**t."

• External trader to a Barclays trader, asking for a lower Libor submission: "If it comes in unchanged I'm a dead man.“

• Barclays' trader promises to "have a chat".• External trader to Barclays' trader later that day: "Dude. I owe you big time!

Come over one day after work and I'm opening a bottle of Bollinger."

• There is clear evidence that the major banks colluded in manipulating the Libor rate

• Government investigations into LIBOR manipulation have led to substantial fines of multiple banks

• Litigation is ongoing (and has already reached the U.S. Supreme Court and Second Circuit on certain issues)

In re Forex Exchange Benchmark Rates Antitrust

Litigation

• This class action alleges that the world’s largest banks engaged in a long running conspiracy to fix the prices of currencies in the foreign exchange (FX) or foreign currency market

• A consolidated amended class action complaint has been brought on behalf of U.S.-based plaintiffs alleging violations of the Sherman Antitrust Act and Commodity Exchange Act

• The FX market is the world’s largest and most actively traded financial market

• The FX market revolves around spot transactions. These transactions involve the outright exchange of currencies between two counterparties on a value date that is within two bank business days’ time. Global trading reaches trillions of dollars per day.

• Defendants conspired with each other to fix prices in the FX market

• Through the daily use of multiple chat rooms with incriminating names such as “The Cartel”, “The Bandits’ Club” and “The Mafia,” Defendants communicated directly with each other to coordinate their:

• (i) Fixing of spot prices; (ii) manipulating FX benchmark rates; and (iii) exchanging key confidential customer information

• Defendants have been fined by law enforcement and regulatory authorities around the world, with certain investigations ongoing

• Proposed class settlements of approximately $2 billion, with multiple defendants remaining in the litigation

• In re Urethane Antitrust Litigation, United States District Court for the District of Kansas, MDL No. 1616