The chips are down - certification denied in key price-fixing class action decision

May 9, 2008
In the first contested certification decision in a class action in British Columbia involving allegations of competition law violations, the British Columbia Supreme Court has dismissed a motion for certification brought against the manufacturers of silicon memory chips known as DRAM (Dynamic Random Access Memory).

In dismissing the plaintiff's request that the action be permitted to proceed as a class action, the British Columbia court has adopted an approach which confirms and extends the law in Ontario and Quebec, and has articulated several principles regarding certification which apply not only to Competition Act cases, but also to class actions generally. This has been a closely-watched case throughout Canada, of great significance to the development of class action jurisprudence in this country.

Stikeman Elliott represents Infineon Technologies AG and Infineon Technologies North America Corp. (together, "Infineon") in Canadian class actions commenced in British Columbia, Quebec and Ontario, with a team that includes Katherine Kay, Eliot Kolers, Yves Martineau and Mark Walli. Infineon, a manufacturer of DRAM, is a defendant in these price-fixing class actions, along with several other DRAM manufacturers. DRAM is an essential component in a wide variety of consumer and business electronics products, including computers, mainframes, servers, cellular phones, digital music players, cameras, automobile systems, and many others.

The B.C. plaintiff alleges that the defendant manufacturers of DRAM engaged in an international conspiracy to fix the price of DRAM for the period from April 1, 1999 to June 30, 2002, and that B.C. purchasers of DRAM and products containing DRAM suffered harm by way of overcharges for the DRAM contained in products the class members purchased. The plaintiff claims damages for violation of the conspiracy provisions of the Competition Act, common law conspiracy, and tortious interference with economic interest, and seeks restitution from the defendants on unjust enrichment, waiver of tort and constructive trust claims.

Although the proposed class was designed to include both direct purchasers (i.e., those who bought DRAM directly from the manufacturers) and indirect purchasers (i.e., those who bought DRAM or products containing DRAM from someone other than the DRAM manufacturers), the proposed British Columbia class consisted overwhelmingly of indirect purchasers and numbered in the millions of B.C. residents. The matter was further complicated by the wide range of electronic products that contain DRAM, and the numerous manufacturers and chains of distribution (most of which were outside of British Columbia) by which the allegedly price-fixed DRAM could have reached British Columbia residents.

A major issue considered by the British Columbia Supreme Court focused on the question of whether the fact of harm - not the quantum of harm, but the fact of harm - could be shown on a class-wide basis. The defendants argued that the plaintiff had failed to provide a workable method to demonstrate that there was an overcharge by reason of the alleged price-fixing agreement, and whether and in what amount any overcharge would have passed along the various chains of distribution. Canadian law does not recognize the so-called Illinois Brick doctrine, which exists in the United States and precludes (at the federal level) recovery by indirect purchasers of such damages (the result of the U.S. doctrine is that direct purchasers can sue federally, and defendants cannot rely on the overcharge having been "passed on" or "passed through" to others further along the chain of distribution to defeat liability). Absent such a doctrine in Canada, the B.C. court was left to consider how the fact of harm could be established on a class-wide basis for a class consisting of direct and indirect purchasers, all at different places in different chains of distribution. As the court characterized it, whether the alleged overcharge on DRAM could, on a class-wide basis, be "identified as having been passed through" from direct purchasers to indirect purchasers in B.C. was a "key aspect" of the plaintiff's certification application.

Denying certification, Justice Masuhara of the B.C. Supreme Court held that the plaintiff's application for certification did not provide any workable class-wide method for determining whether any overcharge was passed through to class members, which was essential for the plaintiff to demonstrate that the defendants' liability on the price-fixing (and other) claims was a common issue for the class. The result was that the proposed class proceeding would "dissolve[] into a series of individualized inquiries that would overwhelm the common aspects of the case". In reaching this conclusion, the court examined and reviewed at length the expert economic evidence on pass through tendered by the plaintiff, and found that it did not satisfy the plaintiff's burden of "establish[ing] that the proposed methodology has been developed with some vigour and will be sufficiently robust to accomplish the stated task." Justice Masuhara found that "scrutiny" of the evidence offered at the certification stage was required to avoid "the real risk of dysfunction which cannot be in the interest of the litigants or the judicial process".

Justice Masuhara held that the absence of a class-wide means of proving liability to the class members made the proposed class action unmanageable, that resolution of common issues (such as the existence of a conspiracy) would not move the litigation forward in a meaningful way, and that the individualized inquiries required to establish pass through "would not promote access to justice or judicial economy". The court also found that the prospect that individual litigation would not continue (or be brought) was insufficient to make a class action the "preferable procedure" for resolution of the plaintiff's price-fixing claims.

Justice Masuhara also rejected the plaintiff's assertions that the "clear trend" in B.C. is to certify actions as class proceedings and to permit any difficulties with the proceeding to be addressed "in the laboratory of the trial court". The court found that proposition to be "inconsistent with judicial economy or fairness in a case such as this". Similarly, Justice Masuhara rejected the use of statistical sampling or averaging methodologies which have recently been applied in non-Competition Act cases by courts in Canada, holding that "the plaintiff cannot circumvent the need to prove harm on a class-wide basis by resorting to the aggregation principles of the Act, which would be available only after such a pass through was already established on a class-wide basis."

The plaintiff has advised that there will be an appeal from the decision of the B.C. court. The Quebec motion for authorization (certification) has been argued in the Quebec court and is presently under reserve. These continuing developments will all be watched with great interest.

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