Will Size Matter? Ninth Circuit Agrees to Review Certification of Largest-Ever Antitrust Class Action
By Lincoln Wesley
On September 27, 2018 a federal judge in the Northern District of California certified what is likely the largest class action ever in In re Qualcomm Antitrust Litigation, No. 17-MD-02773 (N.D. Cal. Sept. 27, 2018). The class consists of individuals and entities who purchased cellphones containing Qualcomm technology, for their own use, since February 11, 2011. Plaintiffs allege that they paid inflated prices due to Qualcomm’s anticompetitive patent policies, and are claiming $4.84 billion in damages. The claims are asserted under state law because federal law prohibits indirect purchaser antitrust claims. Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). The certified class covers an estimated 250 million consumers and 1.2 billion phone purchases. As Qualcomm noted, the class size is equivalent to the entire United States adult population, and it covers virtually every cellphone purchase in the United States since February 2011.
Certification was obviously a significant victory for plaintiffs, but four months later, on January 23, 2019, a Ninth Circuit panel granted Qualcomm’s petition for interlocutory appeal pursuant to Federal Rule of Civil Procedure 23(f). Rule 23(f) gives an appellate court the discretion to hear an immediate appeal from a district court’s class certification decision. Rule 23(f) grants are uncommon: the Ninth Circuit, which receives far more petitions than other circuits, grants them in only around 18% of the time.1 The grant here suggests that the panel found some aspect of the certification decision troubling, or at least warranting further scrutiny.
The panel provided no explanation for its decision to grant the petition, but the Ninth Circuit has recognized three typical Rule 23(f) scenarios: (1) the certification decision effectively ends the litigation for either the plaintiff or defendant due to the risks/costs of pursuing the case further (known as “death-knell” situations); (2) the certification decision presents an unsettled and fundamental issue of law relating to class actions that would likely remain unreviewed at the end of a case; or (3) the certification decision is “manifestly erroneous.” Chamberlan v. Ford Motor Co., 402 F.3d 952, 959 (9th Cir. 2005).
Plaintiffs were quick to point out that Qualcomm did not, and could not, argue that the certification decision was a “death-knell” because the estimated $4.84 billion in damages represented only “a fraction of Qualcomm’s $35 billion on-hand cash and cash equivalents.” Plaintiffs’ Opp. at 2. They also noted that, at the time, Qualcomm had already spent over $400 million in litigation costs for the year. All of this, plaintiffs suggested, signified that Qualcomm had the ability to continue to defend the class action. Of course, other companies in a similar posture could well show that certification of such a large class was a “death knell” to the defense, given the pressure to settle.
Indeed, Qualcomm argued that the district court’s certification decision was “manifestly erroneous” for two reasons, and separately attacked the unprecedented size of the proposed class. First, Qualcomm disputed the decision’s application of California law to a nationwide class despite important differences in state antitrust laws. Specifically, Qualcomm argued that while California antitrust law permits indirect purchasers, like those here, to bring suit for damages that were allegedly “passed on” by direct purchasers, 24 other states bar such indirect purchaser claims (consistent with Illinois Brick). Applying California law to the claims of purchases from these 24 states, Qualcomm argued, would improperly override the policy decisions of those states to limit corporate liability, and would threaten their efforts to attract foreign businesses and generate jobs for their citizens. Plaintiffs countered that California has the predominant interest in regulating Qualcomm’s anticompetitive conduct because Qualcomm is headquartered in California and carried out its allegedly anticompetitive conduct there.
Second, Qualcomm argued that the district court’s decision was also manifestly erroneous because it ignored significant differences in “antitrust impact” (i.e., damages) that each class member experienced. Specifically, Qualcomm argued that plaintiffs’ proposed damages model could not account for the different pricing strategies employed by carriers and retailers when selling cellphones. Qualcomm also argued that the class included millions of members who would be found uninjured even under plaintiffs’ own damages model. Plaintiffs responded that Qualcomm’s arguments were merits-based, and that damages could be dealt with later.
Finally, Qualcomm argued that certifying a 250-million-person class presented “unsettled and fundamental issues of class-action law that [would] likely evade end-of-case review.” Qualcomm Pet. at 25. Qualcomm contended that such a large class would be “inherently unmanageable, unfair, and inferior to alternative forms of adjudication.” Id. at 26. For example, Qualcomm questioned the feasibility of providing adequate notice to all class members, as well as whether any claims administrator would be able to process, verify, and administer the 1.2 billion purchases allegedly involved. Although plaintiffs identified other cases that involved millions of class members, Qualcomm pointed out that those classes paled in comparison, and were generally on the order of 1/100th the size of this class.
This case merits close attention because the outcome of the appeal could have important ramifications for class action litigation. It involves many fundamental issues, such as choice of law analysis, the vitality of Illinois Brick, the standing of uninjured class members, the outer bounds of manageability, and the role of in terrorem settlement pressure. If certification is upheld, companies headquartered in Illinois Brick-repealer states like California (which permit indirect purchaser claims) may find themselves even more uncomfortably exposed to potential future liability. The case also serves as a reminder that as companies grow, they may face increasingly larger class action cases, and this appeal will test the size limits of such classes. Understanding how courts address certification issues inherent to such large cases is critical to preparing for them.
1 See David L. Balser et al., Interlocutory Appeal of Class Certification Decisions Under Rule 23(f): An Untapped Resource (March 16, 2017), https://www.bna.com/interlocutory-appeal-class-n57982085304/.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.