| Randy Stutz, Taryn Smith, Connor Wilson
Section 2 of the Sherman Act, Monopolies, Private Enforcement
The American Antitrust Institute (AAI) has filed an amicus brief in the Ninth Circuit arguing that states that bar antitrust suits by indirect purchasers should not prevent indirect purchasers from recovering in states that allow such suits.
In September 2018, a district court judge in California certified a nationwide class action comprised of consumers claiming to be injured by Qualcomm’s monopolization of the market for cell phone modem chips. The Federal Trade Commission recently won a trial based on similar claims before the same judge.
The challenged conduct took place primarily in California, where Qualcomm is headquartered and is alleged to have exploited market power in negotiating sales and license terms with original equipment manufacturers (OEMs) that make and sell finished cell phones. The consumers claim injury throughout the United States based on higher cell phone prices that resulted when OEMs passed on Qualcomm’s alleged overcharges.
Qualcomm successfully petitioned the Ninth Circuit for interlocutory review of the certification order and now challenges it on three grounds. AAI’s brief addresses only the third issue raised by Qualcomm: Whether a conflict of laws prevents consumers from certain states from recovering in California, which permits suits by indirect purchasers under an Illinois Brick “repealer” law.
After the Supreme Court’s Illinois Brick decision barred indirect purchaser suits under federal antitrust law in 1977, many states promptly began passing “repealer” laws, which allow such suits under state antitrust law. In 1989, the Supreme Court in California v. ARC America upheld the validity of repealer laws after a defendant challenged them as conflict preempted under the implied “obstacle” preemption doctrine. The Court held that the Illinois Brick rule is merely an interpretation of the Clayton Act and does not express a policy to prevent indirect purchaser suits under state law. Today, most states have adopted repealer laws, but approximately 12 to 13 states follow the federal rule barring indirect purchaser suits.
On appeal, Qualcomm argues that consumers located in “follower” states should not be permitted to recover in a California suit under California law, because follower states have expressed a policy interest that conflicts with California’s interests. Qualcomm also argues that follower states’ interests would be comparatively more impaired than California’s interests if California law is applied to the case. The Antitrust Division of the Department of Justice (DOJ), which has supported Qualcomm in multiple actions, submitted an amicus brief in support of Qualcomm’s argument here.
The AAI brief argues that Qualcomm and the DOJ have not shown a “conflict” under California choice-of-law rules for all the same reasons the Supreme Court did not find a conflict under the preemption doctrine in Arc America. The brief also explains why it is incorrect to presume that follower states have different interests than repealer states. Both are aligned on substantive antitrust policy, and both rely on private civil actions to compensate victims and deter future violations. They merely differ as to who they permit to sue, which does not create a conflict under choice-of-law rules.
Moreover, even if a policy conflict could be found, the balance favors application of California law because all of the challenged conduct occurred in California, the primary anticompetitive effect that caused all the claimed injury occurred there, and the defendant is headquartered there. If follower states’ laws were applied, the only discernible effect in those states would be to deny recovery to injured victims, which does not serve those states’ interests.
The brief was written by AAI Vice President of Legal Advocacy Randy Stutz, with assistance from AAI Research Fellows Taryn Smith and Connor Wilson.
