Once again competition law will give rise to high profile developments in the coming year.
We have picked out three themes to be aware of this year:
- the rapid rise in class actions;
- the ongoing revolution in digital antitrust; and
- the regulatory challenge faced by businesses looking to achieve COP26 sustainability goals.
1. Lights, Camera, (Class) Action!
The class action pipeline in the UK is bulging. Four cases were certified this year, five are awaiting a certification judgment, and a further four are pending a certification hearing, with rumours of more to come. These cases involve millions of class members and could result in damages awards that run into the billions of pounds. The characteristics of the cases span a broad spectrum. Some have been brought on behalf of direct purchasers and others on behalf of indirect purchasers. Some have been filed on behalf of end-consumers and others on behalf of businesses. Some are follow-on cartel damages cases, while others relate to alleged standalone abuses of dominance.
The general consensus that the Supreme Court set a low bar at the certification stage in its Merricks judgment appears to have been borne out this year: no cases have fallen at this hurdle. Interest in the criteria and approach to certification is likely to continue into 2022, given that judgments are awaited in relatively complex cases with different characteristics from those that have been certified this year. For example, the Trucks and Forex judgments will be the first to involve large-scale claims by businesses rather than end-consumers, and the first to involve competing class action claims.
Nevertheless, attention in 2022 is likely to begin to turn away from certification and towards consideration of how the scale and diversity of class action cases will be dealt with in practice as they progress to trial. A relevant consideration in this regard is whether the economic analysis for the purpose of assessing damages may be different for class actions as compared to individual proceedings. Below we discuss this issue in relation to three key aspects of a damages assessment: precision, pass-on and disclosure.
In those instances where it is appropriate to estimate certain elements of loss on a “market-wide” basis, the economic analysis in class action cases is likely to mirror closely the equivalent analysis undertaken in individual proceedings. This is because in both situations the economic analysis would make use of data on all sales made by the defendant(s) over a certain time period. This may be the case where the effects of an infringement are expected to be similar across all sales and/or where large samples of data are required to produce robust damages estimates.
However, it is yet to be seen whether there could be greater emphasis on achieving precision in class action cases than would be the case in individual proceedings. Whilst the “broad axe” principle is a relevant consideration for both types of proceeding, the scale of class action claims means that any uncertainty around damages calculations could potentially lead to wild swings in overall estimates. For example, if a class action has 20m class members who each spent £100 per year over an alleged 10-year infringement period on the relevant product or service, then every additional percentage point of overcharge would – all else equal – be worth £200m across all of the class members. The materiality of such “swings” may lead to a greater degree of scrutiny regarding the level of precision underlying damages estimates in class actions. The challenge for economists faced with such an increased emphasis on precision is that any damages assessment can only ever produce estimates within a corridor of uncertainty.
Assessing pass-on issues could be particularly complex in class action cases. Any such assessment would traditionally be claimant-specific and would involve: (i) exploring the nature of any link between the input cost(s) affected by the allegedly infringing conduct and price-setting by the relevant entity; and (ii) quantifying the strength of this link (to the extent possible). However, as Merricks illustrated it may not be practicable to apply this framework at the same level of granularity for class actions as for individual claims, given the sheer number of class members involved. However, it remains to be seen whether a more general alternative approach could be adopted for class actions, and what it would look like in practice.
The difficulty of the pass-on challenge in class actions may also depend on the characteristics of the case. Matters may be more complex in cases involving indirect purchasers, where pass-on issues are likely to occupy a central role in any damages assessment given that pass-on by the direct purchaser will be a necessary step in determining any prima facie loss suffered by the class members. Similarly, the challenge may be tougher if the case involves a large number of potentially affected markets, as a separate pass-on analysis would probably be required for each one.
The assessment of certain issues typically relies on claimant-specific disclosure (such as pass-on, as set out above, or compound interest and tax). It may be difficult to obtain this type of disclosure on a systematic basis, or at all, in class actions. Parties to these cases may therefore need to explore creative approaches, such as representative sampling of class members (where it may be difficult to determine what is representative without first going through some or all of the disclosure process) and/or using publicly available information (where the challenge may be in establishing the extent of read-across from such sources to the case at hand).
There could also be significant variation in the level and types of difficulty associated with claimant disclosure depending on the characteristics of the class action in question. For example:
- for opt-out cases, the potential for engaging with class members on disclosure is currently unclear;
- for indirect purchaser cases, information held by intermediaries may be relevant for assessing pass-on to the class members, but it may be difficult to collect if these intermediaries are not involved in the case; and
- for claims by commercial enterprises, these challenges are likely to arise in relation to several issues (e.g. downstream pass-on tax), whereas fewer of these issues may apply to claims by end-consumers.
The discussion above suggests that in the coming year class action cases may start to present plenty of novel challenges to keep the competition litigation community busy. Importantly, there is unlikely to be a one-size-fits-all approach to case management or the assessment of damages.
Frontier Economics is advising class representatives and defendants involved in a number of class action cases in the UK, including Mastercard in relation to the Merricks case, Mr. Justin Le Patourel in relation to the BT case, and parties to other proceedings currently at the certification stage.
Click here to read about the ongoing revolution in digital antitrust and the regulatory challenge faced by businesses looking to achieve COP26 sustainability goals.