Using Econometric Analysis in Indirect Purchaser Class Action Cases

by info-services@infotechinc.com | Dec 10, 2020 | Blog

Defendants are defendants, but plaintiffs can wear many hats — direct class plaintiff, indirect class plaintiff, opt-out, end-payor plaintiffs — each presenting their own version of their litigation story. In our practice, the Infotech Consulting team has seen a growing number of indirect class action cases, despite the complicated legal precedent they face.

Part and parcel of navigating this complicated legal landscape in the indirect class actions is providing reliable and robust expert economic and econometric analyses in the face of discovery issues and limitations. While sales data for a direct purchaser — one who buys directly from an alleged antitrust conspirator — is typically produced in discovery, will a discovery production include complete purchase records of indirect plaintiffs who buy the product further down the sales chain? If transaction data for indirect purchasers is incomplete, does the production include a sufficient sample to support a reliable analysis? If there is a simultaneous direct class action, is there coordination among the parties to avoid inconsistencies in analyses? 

Indirect Action: A Brief History

Section 4 of the Clayton Act authorizes damages suits in federal court by “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws.” (15 U.S.C. sec. 7; 15(a)). However, in the seminal Illinois Brick case, the US Supreme Court essentially limited recovery to those plaintiffs who purchased directly from the defendants. (Illinois Brick Co. v. Illinois, 431 US 720 (1977)).  

Embedded in matters related to judicial economy and concerns regarding duplicative recovery, the Court held that indirect purchasers are barred from pursuing damages under federal antitrust law. This landmark decision shut the door on potentially injured purchasers while allowing direct purchasers to recover the full amount of overcharges even if they passed some or all of those overcharges on to their customers. So how do these plaintiffs recover damages in federal court? 

Thanks to Illinois Brick repealer statutes, many states have secured standing for indirect purchasers. These states, numbering around 30 including the District of Columbia, have enacted legislation that permits indirect purchasers to initiate antitrust actions in state or federal court under state antitrust laws. 

The Supreme Court most recently weighed in on the indirect purchaser issue in its 2019 decision in Apple v. Pepper, in which the Court eschewed overturning Illinois Brick but arguably expanded the definition of “direct purchasers” permitted to pursue claims under federal antitrust laws.  By defining consumers who purchased third party apps through Apple as direct purchasers, the Court may have created an opportunity for purchasers in a two-sided market to circumvent Illinois Brick in certain situations.  A whole new category of “direct purchasers” may have been created: those consumers who make purchases using platform services such as ticket brokers or online platform sellers.  Particularly noteworthy in cases where platform services are involved, the Court specifically ruled that the form of the upstream arrangement between the manufacturer and the allegedly “monopolistic retailer” — e.g., who sets the retail price — is not relevant to the direct purchaser inquiry.

Building a Robust Econometric Analysis for Indirects

Since a robust empirical analysis is critical to certifying a class of indirect purchasers and ultimately demonstrating impact and damages, data is key. Defendants’ sales data typically is used to estimate the overcharges incurred by direct purchasers, a critical first step in the indirect plaintiffs’ impact and damages analyses. But that data rarely includes sufficient (or any) indirect purchaser end-user information: once Defendant sells Widget X to its distributor (the direct purchaser), Defendant has no record of Widget X’s sale to our Indirect Plaintiff. 

Further complicating the matter, there may be multiple layers of indirect purchasers in an industry: distributors, retailers, consumers, and, in the increasingly common pharmaceutical cases, third party payors (insurance companies). Securing transaction data that includes records of sales between the direct purchasers and indirect plaintiffs is essential to an empirical analysis of the indirects’ claims, but our experience has been that obtaining all records of all indirect purchases is uncommon. 

In that event, a statistically valid sample of direct-to-indirect records can form the basis for the econometric analysis, bolstered by documentary and other evidence. Identification of large indirect purchasers who maintain their own complete transaction records also may yield supporting data for the expert analysis. 

The more-data-is-better rule of thumb puts indirect plaintiffs in a better position to defeat challenges such as ascertainability, particularly with a robust empirical analysis supported by ample documentary evidence of pass through and widespread impact. Access to and the ability to fully understand the purchase transactions of the named indirect plaintiffs can help to avoid additional roadblocks to class certification. 

Regardless of the source of the data, early access to this data, and leaving sufficient time for follow-up with the producing parties and analysis is critical. Often, coordination with direct plaintiffs in parallel litigation can present opportunities to share data, data processing and even analysis. Since, again, the first step of the indirect plaintiff’s expert analysis often is the estimation of an overcharge to the direct purchasers, some coordination with the direct plaintiff’s expert to avoid unnecessary inconsistencies can prevent experts being pitted against each other. 

While the production of data from defendants, from direct purchasers, and from indirect plaintiffs themselves and the coordination of various expert analyses can seem daunting, the importance of strategic and timely planning in an indirect case is elevated given the complicated and multi pronged analysis necessary to support class certification.