On May 7, 2008 the B.C. Supreme Court released its decision in Pro-Sys Consultants Ltd. v. Infineon Technologies AG. This decision is particularly significant for the antitrust bar in the United States and Canada, since it represents the first instance where the courts have considered and denied the certification of a class action in Canada arising from a multi-jurisdictional antitrust case.
Canadian courts have certified antitrust class actions in a number of cases to implement a settlement (i.e., in the vitamins cartel case). However, there have only been a handful of cases where the courts have considered the merits of certifying an antitrust class action on a contested basis, given the strict requirements of provincial class proceedings legislation. Moreover, the decision in Pro-Sys Consultants Ltd. v. Infineon Technologies AG (Pro-Sys) appears to be the first case where the court considered the certification of an antitrust class action on a contested basis in the context of a number of parallel class actions in the U.S. and elsewhere in Canada. In Pro-Sys, the court denied certification. In its reasoning, the court suggested that an antitrust plaintiff bears a heavy onus to certify an indirect purchaser class action in Canada, particularly where the product is an input to other products, rather than a final product, and where the product is marketed through a complex distribution chain.
Canadian courts have not adopted equivalent rules to those in Hanover Shoe and Illinois Brick. As a result, it remains open to plaintiffs to seek to certify direct and/or indirect purchaser class actions before the provincial courts. Moreover, defendants can raise passing-on issues as a defence to the merits and as a defence to certification in Canada. But, prior to 2007, there had been only two decisions in Ontario where the court considered the certification of a class action for price-fixing activity and other criminal conduct. In both cases Chadha (2001-2003) and Price (2002) the court denied certification.
However, during the past year, there have been four additional certification decisions across three provinces namely, Axiom (2007), Quizno's (2008), Harmegnies (2007-2008) and now Pro-Sys (2008). While the Axiom, Quizno's and Harmegnies cases primarily raised allegations of vertical price-fixing, the proposed class action in Pro-Sys was described as "the first application in Canada with respect to certifying a class action that includes both direct and indirect purchasers" based on allegations of horizontal price-fixing.
Facts of the Pro-Sys Case
In Pro-Sys, the plaintiffs sought to certify a class of direct and indirect purchasers of dynamic random access memory chips (DRAM) based in British Columbia. However, the vast majority of the class consisted of indirect purchasers of DRAM that had been manufactured outside of Canada. Given the underlying facts, the case was seen as a test case for a number of putative class actions across Canada arising from multi-jurisdictional antitrust investigations in the electronics industry (i.e., DRAM, SRAM, LCD, flash memory and other products).
In its decision, the court underscored that the plaintiff bears the onus of establishing the existence of common issues and, as an extension of that onus, must demonstrate that the core issues of loss and liability under the Competition Act (Canada) could be ascertained on a class-wide basis. Given the complexities of the distribution channels for DRAM, the fact that DRAM is used as an input into a wide range of products (such as PC computers, gaming consoles, MP3 players, etc.), and the "theoretical" and "preliminary" nature of the plaintiff's expert analysis with respect to the incidence of passing-on, the court held that the plaintiffs had failed to demonstrate "a viable class-wide method of establishing harm."
Accordingly, the court found that the plaintiff had failed to establish that liability could be proven on a class-wide basis. Given the plaintiff's failure to establish this critical issue as a common issue, the court found that the plaintiff's case would dissolve into many individual issue trials and was lacking "the semblance of a manageable and workable process." Moreover, the court found that the representative plaintiff had irreconcilable conflicts with the other class members. For these and other reasons, the court found that certification ought to be denied.
Significance of Case
This case highlights the difficulties of certifying an antitrust class action in Canada, particularly where the class includes indirect purchasers and where the product is an intermediate product distributed through a complex distribution chain. The court's decision also underscores that the application of the certification criteria in an antitrust class action will heavily depend on the court's assessment of the quality and "rigorous" nature of the expert evidence. Furthermore, the court appeared to express considerable doubt as to whether a representative plaintiff could represent a combined class of both direct and indirect purchasers in Canada in light of the serious conflicts of interest relating to the incidence of the overcharge.
Given the importance of this decision, there is a good prospect that it will be appealed and there are still parallel certification proceedings in DRAM in Québec. As such, it remains to be seen whether the court's decision is the final word on the principles governing certification in electronics class actions and other indirect purchaser cases in Canada.
Peter Franklyn is the Chair of the firm's highly regarded Competition/Antitrust Law Group. Christopher Naudie is a partner in the Litigation Department in firm's Toronto office. Tris Mallett is the Managing Partner of Osler, Hoskin & Harcourt LLP's Calgary office where he carries on a litigation practice focussed on complex corporate and commercial disputes.
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