The rulings could have a substantial impact in cutting back on indirect purchaser class actions as a Canadian class action phenomenon, says John Laskin in Law360

Canadian Rulings Imperil Indirect Purchaser Actions

April 18, 2011

Two rulings issued Friday by a Canadian appeals court could dramatically alter the course of competition class actions in the country, experts say, and potentially set the stage for a broader fight over whether indirect purchasers can band together to pursue antitrust claims.

The rulings by the Court of Appeal for British Columbia mark the first time a Canadian appeals court has decided to bar indirect purchaser class actions, putting Canadian courts more in line with U.S. federal law on this issue and echoing the reasoning used in the U.S. Supreme Court’s 1977 decision in Illinois Brick Co. v. Illinois, which rejected the right of indirect purchasers to sue.

One case, Pro-Sys Consultants Ltd. v. Microsoft Corp., involved allegations brought by retail buyers of computers installed with Microsoft operating systems and applications software. The plaintiffs, all indirect purchasers, claimed that Microsoft together with the computer makers schemed to exclude competition and raise prices.

In the other case, Sun-Rype Products Ltd. v. Archer Daniels Midland Co., the plaintiffs argued that a group of high fructose corn syrup makers participated in an illegal price-fixing scheme to overcharge for a sweetener used in food products. That case involved both direct purchasers and indirect purchasers, who both made claims for losses they had suffered as part of the scheme.

The same three-judge panel heard both cases, as there were overlapping issues. Writing for the majority in both rulings, Justice P.D. Lowry found that a pass-on defense is not allowed in Canada, citing a 2007 ruling by the country’s highest court in Kingstreet Investments Ltd. v. New Brunswick that rejected the pass-through defense in a tax dispute.

In the competition context, a pass-on defense would allow an alleged wrongdoer to fight off direct purchaser claims of overcharges on the grounds that the overcharge was entirely passed on to indirect purchasers.

If a pass-on defense cannot be allowed, indirect purchasers also cannot be permitted to pursue claims, or defendants could be forced to pay doubly for the same overcharges, Lowry reasoned, finding Canadian law to be "consistent with American federal law" on this issue as established in Illinois Brick Co. v. Illinois.

The rulings are a significant departure from other recent decisions by Canadian courts to certify classes of indirect purchasers in competition class actions, including a 2009 ruling from the Ontario Superior Court of Justice, granting certification to a class of direct and indirect purchasers in Irving Paper Ltd. v. Atofina Chemicals Inc., a case involving allegations of hydrogen peroxide price-fixing.

John Laskin says we’re going to be in a position of uncertainty until we know whether the Supreme Court of Canada will hear the case.

While the plaintiffs wait to see whether the Supreme Court of Canada will weigh in, courts around the country are likely to take Friday’s rulings into consideration as they grapple with similar issues in a broad range of pending cases, experts say. In any case, if the Supreme Court of Canada decides not to take up the matter, the question will have to be fought out separately in each jurisdiction, with Friday’s rulings leading the way.

"They will have persuasive value, and will no doubt be invoked in certification motions elsewhere in the country," John said. "It could have a substantial impact in cutting back on indirect purchaser class actions as a Canadian class action phenomenon."

Read the full article here.

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