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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
Bias
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
words
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
0%
2%
4%
6%
8%
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
0%
2%
4%
6%
8%
10%
12%
McC
lave
Est
imat
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
Ten Guidelines for Thinking About DamagesDefense Perspective
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.
Ten Guidelines for Thinking About DamagesDefense Perspective
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
Ten Guidelines for Thinking About DamagesDefense Perspective
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
Ten Guidelines for Thinking About DamagesDefense Perspective
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
Ten Guidelines for Thinking About DamagesDefense Perspective
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)
Ten Guidelines for Thinking About DamagesDefense Perspective
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
Ten Guidelines for Thinking About DamagesDefense Perspective
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
Ten Guidelines for Thinking About DamagesDefense Perspective
7. Press on disaggregation of damages – separate lawful vs. unlawful conduct, and what consequences flow from each.
Ten Guidelines for Thinking About DamagesDefense Perspective
8. Separate direct and indirect purchasers.
Ten Guidelines for Thinking About DamagesDefense Perspective
9. Separate some direct purchasers from others (if possible).
Ten Guidelines for Thinking About DamagesDefense Perspective
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 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
ric
e
Pri
ce
Pri
ce
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
$20
$40
$60
$80
$100
$120
$140
0 1 2 3 4 5 6 7 8 9 10 11
Equivalent Number of Equal-Sized Competitors
Un
it P
ric
e P
aid
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
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