Judges in Ontario and B.C. have reached different decisions on
whether cartel members may be liable for umbrella pricing. These
two cases of first impression may be headed for the Supreme Court
Umbrella claims are not unusual in U.S. antitrust litigation,
though not all U.S. courts have permitted such claims to proceed.
Last year, the European Union Court of Justice held that umbrella pricing claims are allowed
in European cartel cases.
What is Umbrella Pricing?
Umbrella pricing is where cartel outsiders increase their prices
for substitute products because of reduced quantities and increased
prices by cartel members. The higher prices charged by the cartel
members create an umbrella effect and enable non-cartel members to
raise their prices to at or just below the cartel price without
losing sales. For example, in the EU case, the plaintiff bought
elevators and escalators from both members of the cartel and
non-cartel members. It alleged that its damages included amounts
paid to the non-cartel members that had raised their prices higher
than they would otherwise because of the non-competitive
What Are These Cases About?
In Shah v
LG Chem, Ltd., the plaintiffs commenced an action on
behalf of direct and indirect purchasers of rechargeable lithium
ion battery cells. The defendants are designers and manufacturers
of the cells. The cells are incorporated into electronic consumer
products such as computers and tablets. The plaintiffs proposed
class included purchasers who bought cells and products containing
cells manufactured by non-cartel manufacturers. On the
certification motion, Justice Perell of the Ontario Superior Court
held these umbrella purchasers have no cause of action and refused
to certify a class including umbrella purchasers:
umbrella pricing claims are inconsistent with restitutionary
law because there is no indirect transfer of wealth between the
umbrella purchasers and the defendants or any collateral benefit to
umbrella claims would cause indeterminate liability on the
defendants, which would make the defendants liable for the
"advertent, inadvertent, voluntary, or involuntary
conduct" of the non-cartel members
In Godfrey v Sony Corporation, the
plaintiffs alleged that the defendants participated in a global
cartel to increase or maintain the price of optical disc drives and
products containing ODDs. As in Shah, the proposed class
definition included umbrella purchasers: purchasers of ODDs and ODD
products not manufactured or supplied by the cartel members.
Justice Masuhara of the B.C. Supreme Court, with the benefit of the
Shah decision, expressly rejected Justice Perell's
First, Justice Masuhara agreed that umbrella purchaser claims
were inconsistent with restitutionary law but, in his view,
restitutionary law does not determine the scope of claims under the
Competition Act. Second, he reasoned that
purchases from cartel members would exceed umbrella purchases,
which would lead to significant double liability for the defendants
but not an indeterminate amount. Third, the non-cartel members'
pricing is not independent because it is a reaction to the
cartel's market price distortion. Finally, Justice Masuhara
concluded that umbrella purchaser claims furthered the goals of the
Competition Act, including compensation, deterrence and
What is the Impact of These Cases?
Both cases may be reviewed: the defendants in Shah have
sought leave to appeal to the Ontario Divisional Court, and the
time limit for an appeal in Godfrey to the B.C. Court of
Appeal is imminent. It's important to remember that both cases
were decided on a preliminary basis and not after a full trial or
with the benefit of a full evidentiary record. Given how few class
actions go to trial, these decisions are significant because they
set up an important debate in Canadian antitrust litigation. Given
the current divergence in the jurisprudence, it seems as if these
cases might be destined for the Supreme Court of Canada.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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