Session Chair: James T. McKeown 56 th Antitrust Law Spring Meeting American Bar Association...

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Session Chair:

James T. McKeown

56th Antitrust Law Spring Meeting American Bar Association

Washington, DC

March 26, 2008

Proving and Disputing Damages at the

Trial of an Antitrust Case

Moderator:

Martha S. Samuelson

Speakers:

Joseph GoldbergRagesh K. TangriRichard T. Rapp

Lara Dolnik

PROVING DAMAGES IN A PRICE-FIXING CASEA PRIMER

Joseph Goldberg Freedman Boyd Hollander

Goldberg & Ives, P.A. Albuquerque, New Mexico

WHAT GETS US HERE

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Adam Smith, The Wealth Of Nations at 144

DAMAGES = OVERCHARGE

Usual measure of damages is the overcharge resulting from the price-fixing conspiracy:

“[T]he difference between the price

paid and the market or fair value,” that

is competitive, price.

Chattanooga Foundry & Pipeworks v. City of Atlanta, 203 U.S. 390, 396 (1906)

RELAXED STANDARD OF PROOF FOR ANTITRUST DAMAGES

“[T]he jury may not render a verdict based on speculation or guesswork. But the jury may make a just and reasonable estimate of the damage based on relevant data, and render its verdict accordingly. In such circumstances, ‘juries are allowed to act on probable and inferential as well as [upon] direct and positive proof. . . . Any other rule would enable the wrongdoer to profit by his wrongdoing at the expense of the victim.’” Bigelow v. RKO Radio Pictures, Inc,. 321 U.S. 251,264 (1946), quoting Story Parchment Company v. Patterson Parchment Paper Co., 282 U.S. 555, 564 (1931)

“[S]ince the defendant created the need for damage estimation by violating the antitrust laws, it should bear the burden of uncertainty in proving the consequent damages.” II. A Areeda et al., Antitrust Law ¶ 392 (3rd Ed. 2007)

CALCULATION OF PURCHASES AND ACTUAL PRICES PAID

This is not necessarily a trivial task:

Defendant’s transaction data or plaintiff’s purchase data

Transaction data: consistency over time

Price: off-invoice rebates and discounts

Identification of relevant transactions: e.g., U.S. vs. Non-U.S

ESTIMATION OF COMPETITIVE PRICES

“Before or after” or “yardstick” approaches

“Multiple regression also may be useful (1) in determining whether a particular effect is present; (2) in measuring the

magnitude of a particular effect . . . .” Rubinfeld, Reference Guide on Multiple

Regression at 181

Multiple regression analysis is “a methodology that is well established and reliable [for estimating damages].” City of Tuscaloosa v. Harcros Chemicals, 153 F.3d 548 11th Cir. 1998

MODEL SPECIFICATION ISSUES

Make sure the model is well grounded in the facts of the case

Data: reliability; completeness; aggregation; public vs firm-specific

Dependent variable: usually price

Independent variables: “Not all variables that might influence the dependent variable can be included if the analysis is to be successful; some cannot be measured, and others may make little difference.” Rubinfeld, Reference Guide on Multiple Regression at 188

Robustness

PRESENTATION AT TRIAL

Establish expert’s credibility

Summary of opinions

Simplify statistical concepts Bring expert’s opinions back to the facts: “[A]necdotal reports can provide some information.” Kaye and Freedman, Reference Guide on Statistics at 90

Visualization: A picture is worth a thousand

Take the “sting” out of defendant’s criticisms

SUMMARY OF ECONOMIC OPINIONS The structure of these markets, the conduct of the market

participants and the performance of the market all strongly suggest that there was a manipulation of this market led by Hamanaka and supported by CLR, Global, Merrill Lynch, ______ and others from mid-1993 through mid-1996.

The manipulation was successful in raising the price of copper cathode purchased by plaintiffs above competitive levels.

My estimation of anticompetitive overcharges paid by plaintiffs because of the squeeze reaches a peak of 16 cents per pound in 1995-1996.

COPPER PRICE -- OVERCHARGES

Universities and Businesses Who Have Adopted Dr. McClave’s Textbooks

International SalesPuerto Rico

CanadaEngland

BrazilMexico

AustraliaSingaporeHong Kong

Source: Prentice Hall

Margin Increase from Competitive to Conspiracy Periods

Margin Using Fiber PPI Margin Using MCI

Source: PPI’s from U.S. Bureau of Labor Statistics and Prices from Defendants’ Transaction Databases

7.76% 7.73%

Comparison of Overcharges Estimated by McClave's Regression Model To Overcharges Estimated by Defendants' Suggested Specifications

eD1 D2 D3 D4 D5 D6 D7 D8 D9

D10 D11 D12 D13 D14

Source: McClave’s Regression Model and Various Specifications Suggested by Defendants

Ten Guidelines for Thinking About DamagesDefense Perspective

by Ragesh K. Tangri

American Bar AssociationAntitrust Section Spring Meeting

1. Select the right expert (and see whether your opponent has selected the wrong expert).

2. Insist on a budget from your expert, and track his or her progress against it.

3. Test your own models against your opponent’s numbers – avoid giving unintended gifts.

4. Beware the model which yields negative damages – that which looks too good to be true usually is.

5. “Trust but verify” your expert’s work, especially when it comes to citing case documents.

6. Simplify the trial presentation.7. Press on disaggregation of damages – separate lawful vs. unlawful

conduct, and what consequences flow from each. 8. Separate direct and indirect purchasers.9. Separate some direct purchasers from others (if possible).10. Separate domestic from foreign transactions – “follow the money” to the

location where title passes.

1. Select the right expert (and see whether your opponent has selected the wrong expert).– Qualifications & experience– Reference checks– “Dings and dents”– Human factors– Find prior cross-exams

2. Insist on a budget from your expert, and track his or her progress against it.– Major cause of client heartburn– Control size of team – require justification of each member– Talk to references about team, not just testifier

3. Test your own models against your opponent’s numbers – avoid giving unintended gifts.– Run your damages model with different assumed numbers– Run non-damages models as damages models

4. Beware the model which yields negative damages – that which looks too good to be true usually is.– Why present a damages model at all?– How small is too small?– Correct your opponent’s mistakes as a way to sponsor a

number (without sponsoring a number)

5. “Trust but verify” your expert’s work, especially when it comes to citing case documents.– Ensure accurate and fair citations of documents– Ensure negative documents are discussed or accounted for– Keep your factual cross-exam powder dry for trial

6. Simplify the trial presentation– Get your expert up and moving– Keep the graphics simple (and admissible!)– Keep the cross short, high level, interesting, simple, and

gator-free

7. Press on disaggregation of damages – separate lawful vs. unlawful conduct, and what consequences flow from each.

8. Separate direct and indirect purchasers.

9. Separate some direct purchasers from others (if possible).

10.Separate domestic from foreign transactions – “follow the money” to the location where title passes

Richard T. Rapp

Special Consultant

Proving and Disputing Damages at the Trial of an Antitrust Case56th Antitrust Spring Meeting, American Bar Association Antitrust SectionWashington, DC

March 26, 2008

What’s Wrong with Antitrust Damages

What’s right: Attention to how markets work

“Framing”: Tactics and Ethics

Stupid Damage Tricks are sometimes what’s wrong with our damages. For example:

– The wrong model

– Ignoring exogenous realities

– Near-zero-marginal cost prices

Framing: Tactics and Ethics

Amos Tversky and Daniel Kahneman, "The Framing of Decisions and the Psychology of Choice." Science 211: 453-458, 1981

– Explored heuristics and biases in reasoning—Distortions and violations of the rationality assumption

– Framing—The framing of a decision affects the choice

“Framing” a DecisionAffects the Outcome

Framing bias creates a strong incentive for plaintiffs to serve up inordinately high damage estimates and defendants inordinately low ones

“Damages are $1

billion”

“Their case was weak.

Give them only $100 million”

“Framing” a DecisionAffects the Outcome

Framing bias creates a strong incentive for plaintiffs to serve up inordinately high damage estimates and defendants inordinately low ones

“Damages are

$15,000”

“Let’s punishthe SOBs.Give them $30,000.”

One Version of Price-fixingP

Profit ProfitProfit

The more pricing voices in competition—the more prices will be driven down

Cost CostCost

One Version of Price-fixing

In this price-fixing conspiracy…

Several independent pricing voices…

become a single monopolist.

One Version of Price-fixing

Regression Analysis Can Be Used to Measure theImpact of Additional Competition on Price

0 1 2 3 4 5 6 7 8 9 10 11

Equivalent Number of Equal-Sized Competitors

Estimated effect of a conspiracy involving only 3 vendors

Regression line

The Right and Wrong Model Damage Theory Doesn’t Fit the Alleged Bad Acts

That model was suitable for bid rigging or a customer allocation scheme among salespeople

It’s the wrong model for OPEC but that mistake is rare

The OPEC model, in which the market supply curve is shifted by conspiracy, is wrong for bid-rigging or customer allocation among salespeople who are not capable of restricting the market supply

Ignoring Exogenous Realities

The Simple Version: Concord Boat v. Brunswick

Simple Cournot Model—outcome 50% but-for share, but competitors mishaps were ignored

– Defective shifter

– Muffed merger

– Exit

Complex Version: Under- vs. over-specified econometric models

Near-Zero Marginal Cost Prices

“In a competitive market, P = MC”

Wordplay: A pun on “competitive”

– In perfect competition, P = MC; if it’s zero, nothing gets produced

– With investment, in talent, branding, infrastructure, rivalrous behavior yields P > MC. The “competitive” price should be the “but-for price,” not the imaginary, Ec.100 wheat-market price.

Used in the case of low-marginal cost goods and services

ABA Panel Discussion: Proving and Disputing Damages at the Trial of an Antitrust Case

Laura DolnikDolnik Consulting LLC

West Des Moines, IA

What will my decision mean outside the courtroom?

Will the cost of a large damages award be passed on to consumers (like me)?

What will my decision do to consumer choices?

How will my decision impact the number of jobs out there?

Source: Gallup

Where does the money go? What will plaintiff(s) do with the

money awarded?

Will awarding damages make any real difference?

Is awarding damages just helping someone “get rich quick”?

How much do the lawyers get?

Confidence in Institutions

Top Five(Numbers shown are percentages)

Source: Gallup

Confidence in Institutions

Bottom Five(Numbers shown are percentages)

Source: Gallup

Honesty/Ethics in Professions

Top Five(Numbers shown are percentages)

Source: Gallup

Honesty/Ethics in Professions

Low Ranked Professions(Numbers shown are percentages)

Source: Gallup

A Hypothetical Damages Problem

Six private equity firms of various sizes are alleged to have fixed prices by consortium bidding, or by agreeing to sit out particular LBO auctions in return for tacit agreements to allocate auction participation

Different private equity firms participated in the various LBOs at issue

The 30 LBOs were of significantly different sizes; the premia over pre-LBO market values varied significantly

Plaintiffs are former shareholders in 30 firms that were the subject of LBOs since 2004 and allege that the premia over public market values were depressed as a result of the alleged collusion

Session Chair: James T. McKeown 56 th Antitrust Law Spring Meeting American Bar Association...

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