By Isabel Cox, 3L
While class actions are often celebrated for advancing access to justice, in the antitrust law context their primary goal may be to deter anti-competitive behaviour. In 2013, the Supreme Court of Canada held that indirect purchasers can bring claims against sellers to recover losses incurred from the passing down of unlawful overcharges (Pro-sys Consultants Ltd v Microsoft Corporation, 2013 SCC 57). An indirect purchaser is one who buys a product down the chain of distribution. For example, an indirect purchaser may be a consumer who purchased a device made up of various materials and parts, or a business that purchased a part from a reseller. By providing a mechanism for accountability down the chain of distribution, competition class actions brought on behalf of indirect purchasers fulfil an important behaviour modification function.
A brief primer on the Competition Act
The Competition Bureau enforces the Competition Act which contains civil, criminal, and administrative law provisions. Pursuant to section 36 of the Act, “all persons” (individuals and corporations) can bring an action to recover losses incurred as a result of anti-competitive behaviour. Section 36 is available if the defendant (a) contravened a provision under Part VI of the Act, which contains criminal offences, or (b) failed to comply with an order from the tribunal or a court of competent jurisdiction. Provided one of these conditions is met, private parties can recover damages for anti-competitive behaviour. While section 36 provides private parties with the right to seek damages for anti-competitive behaviour, this right becomes increasingly complex as it moves down the chain of distribution.
Why indirect purchasers can bring claims, and how they work
“Passing on” refers to the transfer of an illegal overcharge down the chain of distribution. While the “passing on” defence cannot defeat claims of anti-competitive behaviour in Canada, passing on can form the basis to initiate such a claim. For example, in Pro-Sys Consultants Ltd v Microsoft Corporation, the indirect purchaser plaintiffs asserted that Microsoft unlawfully overcharged for its Intel-compatible PC operating systems and software (para 3). While the plaintiffs did not purchase the affected products from Microsoft, the intermediary or direct purchaser “passed down” the unlawful overcharge to the plaintiffs. Although the direct purchasers suffered the initial loss, they recovered their losses through the chain of distribution.
The behaviour modification objective is central to indirect purchaser class actions. If indirect purchasers were barred from bring an action based on the passing down of losses or the complexity of tracing such losses, wrongdoers would be shielded from liability. Pro-Sys Consultants Ltd opened the door for indirect purchaser class actions like the recently certified Barroqueiro v Qualcomm Incorporated (2023 BCSC 1662).
In Barroqueiro v Qualcomm, the indirect purchaser plaintiffs alleged that Qualcomm engaged in anti-competitive practices relating to the sale and licensing of their modem chips, which are in “[e]very cellular-enabled device” spanning the period of January 1, 2007, to the present. Because cellular communications are subject to a global standardization process, parties seeking to manufacture devices that meet these standards must use approved materials that have obtained the status of, and are protected by, standard essential patents (“SEP”), like Qualcomm’s chips. According to the indirect purchaser plaintiffs, Qualcomm charged inflated prices for, or “imposed unfair terms” on, their chips and SEP licenses. Through Qualcomm’s alleged anti-competitive behaviour, indirect purchasers incurred losses by purchasing cellular devices at inflated prices.
Craig Jones suggests that class actions are a means of enforcing compliance through the private law. Jones notes that class actions are a necessary means of enforcement because regulators are overworked, underfunded, and may be subject to regulatory capture. As such, indirect purchaser class actions provide a private law means to not only enforce compliance with competition law, but also encourage competitive business practices. This reasoning underlies the Qualcomm decision.
In Qualcomm, the court found that the proposed action satisfied the preferable procedure requirement for certification for two reasons: (1) the Competition Bureau does not compensate complainants for their losses, and (2) given the claim’s complexity, the costs to individual litigants would be too steep (para 242). The court also noted that the Competition Bureau would be unlikely to pursue a complaint comparable to that of the plaintiffs’ because of the length of time over which Qualcomm engaged in the alleged anti-competitive practices (para 243). Accordingly, absent a class action, the alleged anti-competitive behaviour would likely go unaddressed.
How deterrence functions in price-fixing class actions
The purpose of the Act is to encourage the efficiency of local economies, create opportunities in international markets, and provide individuals with competitive prices. Allowing indirect purchasers to recover losses passed down to them advances the behaviour modification objective of class actions. In obiter, the SCC noted that direct purchasers may excuse anti-competitive behaviour in favour of preserving commercial relationships (Pro-Sys at para 49). If indirect purchasers were prohibited from bringing an action against primary sellers, anti-competitive behaviour would go unchecked and market integrity would be jeopardized.
By virtue of section 36 of the Act, indirect purchaser class actions have become a form of public law. Despite their complexity, indirect purchaser class actions provide a private law means of enforcing compliance with the Act. While such cases achieve access to justice by providing a vehicle to redress large-scale wrongs that may not be economically viable for individual litigation, indirect purchaser class actions primarily advance the behaviour modification objective.