Judge Sarah S. Vance, Eastern District of Louisiana Establishing Damages Under U.S. Antitrust Law

 Clayton Act, Section 4—any person injured in business or property by violation of antitrust laws may sue for three times damages + costs and attorneys’ fees.  A company that violates the Sherman Act is subject to both criminal fines paid to government and civil liability for treble damages.  Statutory maximum fine is greater of:  $100 million; or  Twice the gain to the company or loss to the victim. Establishing Damages Under U.S. Antitrust Law1

 Victim compensation  Deterrence  Penalties should reflect social cost of violations.  Treble damages account for undetected violations.  Is 3X the correct multiplier?  Incentive for private enforcement  Private litigation supplements government enforcement and increases overall enforcement. Establishing Damages Under U.S. Antitrust Law2

 Treble damages and attorneys’ fees can encourage frivolous lawsuits, which can over-deter legitimate business conduct.  Limitations on antitrust actions:  Antitrust injury: compensation must be consistent with the purposes of the antitrust laws.  Remoteness/Standing: injuries may not be too far removed from the antitrust violation.  Direct purchaser doctrine: only direct purchasers and not indirect purchasers may sue for price fixing.  Proof of damages requires competent evidence. Establishing Damages Under U.S. Antitrust Law3

 Compensation must be consistent with purposes of antitrust laws.  “Antitrust Injury”  Injury must be of type antitrust laws are intended to prevent.  Injury must result from anticompetitive effects of defendant's conduct.  Brunswick (1977)  Facts: Defendant acquired several failing retail locations and kept them operating, thus preserving competition. Plaintiffs challenged the acquisition and sought damages based on profits they would have earned had the other firms gone out of business.  Rule: No antitrust injury when losses arise from increased competition. 4Establishing Damages Under U.S. Antitrust Law

 Competitors may not sue for antitrust violations that do not injure them.  Rivals may not challenge antitrust violations that increase market prices.  Rivals may challenge practices that illegally foreclose rivals from the market, such as predatory pricing and boycotts.  Consumers almost always have correct incentives to sue. 5Establishing Damages Under U.S. Antitrust Law

 At some point, the effects of an antitrust violation become too far removed for courts to redress.  When a plaintiff’s injury is indirect or derivative of a more direct injury to some other entity that has an incentive to sue, the plaintiff generally may not sue for treble damages. Establishing Damages Under U.S. Antitrust Law6

 Illinois Brick (1977)  Rule: Indirect purchasers cannot sue for overcharges passed on to them by direct purchasers.  Reasons  Avoid multiple liability for same violation.  Avoid administrative burden and uncertainty of complex apportionment of damages.  Encourage effective enforcement by not diluting recoveries. 7Establishing Damages Under U.S. Antitrust Law

 Courts must determine what the market prices or profits would have been had there been real competition.  Damages reflect the difference between the plaintiff’s actual experience, and what the plaintiff’s experience would have been “but for” the antitrust violation. Establishing Damages Under U.S. Antitrust Law8

 Proving what would have happened in a hypothetical market is necessarily imprecise.  Proof of damages does not require same level of confidence as proof of violation.  Courts accept “just and reasonable” estimates of damages based on relevant data.  Calculations and assumptions must not be speculative.  Damages must be attributable to the defendant’s illegal conduct, and not to other factors like a recession, mismanagement or lawful competition.  Expert witnesses are typically used to study and calculate damages. Establishing Damages Under U.S. Antitrust Law9

 Calculation of damages depends on the type of plaintiff:  Customers suing for price fixing or monopolistic overcharges recover the difference between the price they actually paid, and the price they would have paid if pricing had been competitive (the overcharge).  Competitors and suppliers recover lost profits – i.e., the difference between what they actually earned, and the amount they would have earned if there had been no antitrust violation.  Customers who would have bought at a competitive price but did not buy at the monopoly price have no right of recover. Establishing Damages Under U.S. Antitrust Law10

 Before and After: compare victim’s performance during a period not affected by the violation to its performance during the violation period.  Price fixing: compare prices charged before (or after) conspiracy with prices charged during conspiracy period.  Lost profits: compare profits before (or after) conspiracy with profits during conspiracy period.  Problems with before and after approach arise when victim’s actual experience in violation period is influenced by factors other than unlawful conduct.  Plaintiff must show that the comparison periods are generally alike, except for the violation. Establishing Damages Under U.S. Antitrust Law11

 Yardstick Method: compare prices charged in the cartel market to those charged in similar market not affected by cartel prices.  Lost profits: compare profits for a comparable firm in a market not affected by the violation.  Plaintiff must demonstrate that there is similarity in relevant respects between the comparison firms or markets.  Yardstick method may be useful when:  The victim does not have an established business track record;  Price fixing or bid rigging is geographically localized. Establishing Damages Under U.S. Antitrust Law12

 Cost plus Markup: estimate competitive price based on production costs plus a reasonable profit.  Proper amount of profit is typically the firm’s weighted average cost of capital, i.e., the return required by investors to invest in the firm’s activities. Establishing Damages Under U.S. Antitrust Law13

 In estimating overcharges, simple price comparisons may be misleading because other factors affecting price can vary over time and geographic locations.  Econometrics: identify factors affecting price and use regression analysis to isolate the impact of collusion on price.  Simulation: use theoretical models of industry behavior to construct a model of the market without collusion to predict what prices would be but for collusion. Establishing Damages Under U.S. Antitrust Law14

 A theory of damages may be rejected if its assumptions are demonstrably false or fail to make economic sense.  A statistical model may be challenged if:  It fails to account for all significant independent variables;  Its underlying data are not complete or representative;  It fails to separate losses caused by lawful or competitive conduct.  More than one method of calculating damages may be used to demonstrate consistency of results. Establishing Damages Under U.S. Antitrust Law15

 Interest accrues only from the date of judgment until paid.  The victim’s award will be diluted to the extent damages arose before the end of litigation. Establishing Damages Under U.S. Antitrust Law16