Monetizing

Your Company’s

Litigation Assets

CORPORATE CLASS ACTION, OPT-OUTS, AND PRIVATE LITIGATION

Paul Nightingale

Senior Vice President and General Counsel

HP Hood LLC

Topics

Corporate Class Action Litigation

Opt-Out Litigation

Private Litigation / Recovery Practice

Major corporations serving as class representatives in successful antitrust class actions:

Credit card services. Walmart, Sears, Safeway and others: In re Visa Check/Mastermoney

Antitrust Litig., 280 F.3d 124 (2d Cir. 2010).

Large and small merchants, and three trade associations alleged illegal tying of credit

and debit card services and attempted monopolization of the debit card market.

Corn syrup. H.J. Heinz, Coca Cola Co., PepsiCo, Kraft Foods Inc. and others: In re High

Fructose Corn Syrup Antitrust Litig., 156 F. Supp.2d 1017 (C.D. Ill. 2001), aff’d 295 F.3d 651 (7th

Cir. 2002).

Purchasers of high fructose corn syrup alleged a price fixing conspiracy.

Corporations Serving as Class

Representative in Antitrust Actions

Corporations Serving as Class Representative in Antitrust Actions (cont’d)

Smaller corporations also serve as class representatives:

Vitamin C. In re Vitamin C Antitrust Litig., 2012 WL 251909 (E.D.N.Y. 2012).

Corporate plaintiffs alleged a price fixing conspiracy, with a damages class and an

injunctive relief class.

Flat Panel Displays. In re TFT/Flat Panel Display Antitrust Litig., No. M 07-1827 SI, MDL No. 1827

(N.D. Cal. Mar. 28, 2010).

Direct purchasers of flat panels and/or direct purchasers of products containing flat

panels alleged a price fixing conspiracy.

Corporations Serving as Class Representative in Antitrust Actions

(cont’d)

Chemical components. In re Vitamins Antitrust Litig., 209 F.R.D. 251 (D.D.C. 2002).

Direct purchasers alleged that the defendant manufacturers conspired to fix prices for

vitamins and vitamin components.

Cardboard boxes. Kleen Products LLC v. International Paper, Case No. 1:10-cv-05711(N.D.

Ill. 2010).

Direct purchasers of corrugated sheets and containers allege a conspiracy to reduce

inventory and raise prices.

Citric acid. In re Citric Acid Antitrust Litig., 1996 WL 655791 (N.D. Cal. Oct. 2, 1996), aff’d on

other grounds 191 F.3d 1090 (9th Cir. 1999).

Direct purchasers of citric acid alleged a price fixing conspiracy that affected all forms

of citric acid in all purchasing situations.

My case: News America Marketing

The Dial Corporation, et al. v. News Corporation, et al., Civ. Action No.

13-CV-06802 (S.D.N.Y) (Judge Pauley)

Six corporate class representatives

HP Hood LLC

Dial Corporation/Henkel Consumer Goods Inc.

Foster Poultry Farms

BEF Foods Inc.

Kraft Heinz Foods Co.

Smithfield Foods, Inc.

News America Marketing Case

Filed in December 2013

Product at issue: In-Store Promotions (at shelf advertising) in grocery

stores and drug stores

Conduct at issue: Monopolization of In-store Promotion market

Amount of overcharge: between $230 and $446 million

News America Marketing Case –

Conduct at Issue Exclusive, Long-Term, and Staggered Lease Contracts with

Retailers That Block Competitors’ Access to 85% of Available In-

Store Promotion Space and Limit Annual Opportunities for

Competitor Entry

Use of Large Cash Payments with Retailers to Exclude In-Store Competitors (Floorgraphics, Insignia, Valassis)

Exclusive, Long-Term and ROFR Sales Contracts with Consumer

Packaged Goods Companies for In-Store Promotion Services

News America Marketing Case –

Conduct at Issue (cont’d)

Acquisitions of Competitors (ActMedia (1997) and Floorgraphics

(2009))

Removal of Competitor Products from Stores

Hacking of Competitor Computer Systems and Stealing Data

Prior successful actions by competitors laid groundwork for customer

claims

Damages Settled on first day of trial for $244 million and various forms

of injunctive relief

400 claimants recovered in excess of single damages –

approximately 10 cents back for every dollar spent on the

in-store marketing services after fees and expenses

Hood’s Recovery: $1.809 million in damages and $50,000

incentive fee

We also recovered approximately $250K in fees we had

agreed to front

Costs of Being a Class

Representative

Litigation fees and costs, unless taken on full

contingency

Document discovery

Depositions

Publicity

Benefits of Being a Class

Representative

Being able to control your own litigation

Recovering legal fees and costs

Seeking incentive fees

Making a statement to future antitrust violators

Building relationships with other companies and counsel

Direct v. Indirect Claims for Antitrust

Violations

Under the U.S. Supreme Court’s Illinois Brick decision, only

direct purchasers (e.g., wholesalers, retailers) may bring

private Sherman Act damage claims

Twenty-eight states have enacted “Illinois Brick

Repealer” statutes allowing indirect purchasers (end

payors, i.e., retailers, consumers) to sue for damages

under state antitrust law

Direct v. Indirect Claims for

Antitrust Violations (cont’d) Indirect purchaser claims subject to a pass-on defense: no recovery

to the extent plaintiff passed on the overcharge to the next

purchaser

Total indirect purchaser damages cannot exceed the total

overcharge; some states have damage trebling, some do not

Indirect claims must be brought in state court unless there is (a)

complete diversity, or (b) a federal claim (e.g., direct purchaser claim) to which they can be pendent

Pharmaceutical cases where direct

purchaser classes have produced

more significant settlements than end

payor classes

Case Name Direct Purchaser

Class Settlement

End Payor Class

Settlement

Settlement Date

King Drug Co. v. Cephalon (Provigil)

$512,000,000 No settlements

4/20/15

In re Skelaxin (Metaxalone)

Antitrust Litig. $73,000,000 $2,000,000 6/30/14

In re Flonase Antitrust Litig. $150,000,000 $35,000,000 6/14/13

In re Wellbutrin SR Antitrust Litig.

$49,000,000 $21,500,000 11/21/11

Meijer, Inc. v. Abbott Labs. (Norvir)

$52,000,000 $10,000,000 8/11/11

In re Tricor Direct Purchaser Antitrust Litig.

$250,000,000 $65,700,000 4/23/09

End Payor Class Recovery Challenges

Perception that federal cases often are

stronger and simpler (hence attracting

stronger class counsel)

Tougher class certification hurdles for end

payor classes - class counsel often take

lower settlements

End Payor Class Recovery

Challenges

Challenge securing class reps from every repealer state

reduces viable state claims

There have been some bad class certification decisions

in pharmaceutical cases that create challenges for

those types of actions

But these factors do not apply to opt-out end

payor plaintiffs

Opt-Outs

What is an Opt-Out?

“opt-out”: to choose not to participate in

(something); to decide not to be part of a

group or system “with so many plaintiffs opting

out of the class, the defendant braced itself for

multiplicitous lawsuits.” Black's Law Dictionary (10th ed.

2014)

Civil Litigation Opt-Out

In civil litigation, an “opt-out” is a company that chooses

to opt-out of a certified class

Timing: at any point after a class action complaint is

filed and before the opt-out deadline in the class notice

Damages

Evidence from recent price-fixing cases:

anticompetitive conduct caused the prices to be

at least 10 % to 20 % higher than what they would

have been in the absence of collusion.

Examples from the Headlines

“Jury Awards Costco $110 Million in LCD Price-Fixing Trial”

In the cartel class action against the manufacturers of liquid-crystal-display (LCD) panels, more than 75 companies—including Apple, Best Buy, Dell, Costco, and Kodak—opted out and pursued direct recovery through individual actions.

“Google Sues Visa, MasterCard after Opting Out of $5.7B Antitrust Settlement.” Google, Inc. v.

Visa, Inc., No. 15-cv-00197 (E.D.N.Y.) Settled on January 30th, 2015, a month after it was filed.

Example of opt-out plaintiffs doing well

In the Remeron Antitrust Litigation, a pharmaceuticals case, nine opt-out retailers (suing via assignment from direct purchaser wholesalers) settled their claims for $59.8 million

Health insurance companies have started

opting out of pharmaceutical cases

Case Opt-out plaintiffs from end payor classes

In re Lidoderm Antitrust Litig. Government Employees Health Association (GEHA)

(pending)

In re Aggrenox Antitrust Litig.

Humana Inc., Louisiana BCBS

(pending)

In re Nexium (Esomeprazole)

Antitrust Litig.

Humana Inc., Cariten Ins. Co., Emphesys, Insurance

Co., M.D. Care Inc., CHA HMO, Inc., Careplus Health

Plans, Inc., Arcadian Health Plan, Inc.

In re Neurontin Marketing and

Sales Practices Litig.

Kaiser Foundation Health Plan, Inc. and Kaiser

Foundation Hospitals, Aetna, Inc.

In re Flonase Antitrust Litig. Blue Cross and Blue Shield affiliates

In re Lorazepam and

Clorazepate Antitrust Litig.

BCBS MA, BCBS MN, Federated Mutual Ins. Co.,

Health Care Service Corp.

Checklist for Potential Opt-Outs

Step 1: Monitoring for New Class Actions

Step 2: Identifying Potential Opt-Out Opportunities

Potential damages – trade spend?

Strategic business relationships?

Strength of legal claims?

Step 3: Deciding Whether to Opt Out of the Class

Step 4: Weighing the Timing of the Opt-Out Decision

Source: Charles H. Samel and Cori Gordon Moore, Whether to Opt Out of

Antitrust Class Actions: A Four-Step Checklist, ABA Section of Litigation,

Corporate Counsel Newsletter (May 26, 2015)

Benefits of Not Opting Out of the Class

No risk: If you opt-out, you bear the risk of litigation for

single claim

Anonymity: If you opt-out and proceed on your own, you would lose the anonymity afforded by the class action

Opt-out actions can be expensive

Legal fees of class counsel : some courts require opt-outs to pay a portion of class counsel fees to avoid “free riders”

Source: Gregory Asciolla and Bernard Persky, The Advantages of Not Opting Out of Class Action Litigation, Antitrust Counselor, (February 1, 2008)

Private Litigation/

Recovery Practice

DuPont turns its law department

into a profit center

Years ago, DuPont formalized what it called a “legal

recovery program” in order “to proactively assert the

company’s rights by recovering lost value which can

positively contribute to profitability.” LexisNexis, The Profitable Legal

Department—How Legal Departments Can Prosper by Generating Revenue for Their

Company—2010 Research Report 10.

Between 2004 and 2008, DuPont reported more than $1

billion in total recoveries, some of which resulted from

antitrust litigation. Id. at 9–10.

Develop a systematic approach

to analyze each potential case

Allows CLO to pick and choose when to opt-out of cases

and when to stay in a putative class

Facilitates identification of high-value cases (strong on

liability, causation, and damages) as to which company

may want to pursue its own action

This strategy has been successfully implemented by drug

stores, grocery stores and large corporations in other

industries affected by antitrust violations

Actions to turn your law

department into a profit center

Do you have a market that is affected by exclusionary conduct?

Can be an input market, a market that your company competes in or a

market that services your company, i.e. in-store marketing

Review purchase agreements and purchasing records

Retain experienced outside antitrust counsel

Interview purchasing officers regarding market dynamics

Reach out to competitors (with care)

Draft Complaint

Retain expert to refine damages calculations

Three principal litigation

options

1. Do nothing, remain in any certified classes, and

apply for any available claims money

or

2. Opt out of direct class and litigate any available

direct claims and/or

3. Opt out of end payor class and litigate any available

state law indirect purchaser claims

Option #1: Do nothing

If no class certified, zero recovery

End payor class settlements likely to be

relatively small compared to direct

purchasers

Some large claimants have inserted

themselves into the class settlement

process, which sometimes may result in a

larger share of a small class settlement

Option #2: Pursue potential direct

claims

Assess amount of direct buys at-issue

Is it feasible to obtain assignments from wholesalers?

If assignments obtained for all indirect purchases, possible

to make a direct claim for 100% of purchases nationwide

Under federal law, there is no pass-on defense and all proven damages are automatically trebled

(a) potential direct buys;

(b) via assignment from wholesalers

Option #3: Pursue indirect claims

under available state laws

Twenty-eight states have antitrust or

consumer protection laws that permit

indirect purchasers to recover damages

AL, AZ, CA, DC, FL, HI, IL, IA, KS, ME,

MA, MI, MN, MS, NE, NV, NH, NM, NY,

NC, ND, OR, SD, TN, UT, VT, WV, WI

Some of these states also allow treble

damages

Potential Suit:

Individual or Joint Action

Possible litigation options:

Sue individually as a direct purchaser

Sue jointly with one or more other similarly situated direct-purchaser

companies

Sue in parallel with one or more competitors

Enter into tolling agreement with potential defendants while preparing for

one or more of the above options

Single Damages

A corporate plaintiff can potentially recover tens or even hundreds

of millions of dollars in damages through settlement or trial.

Usually 10% to 30% of expenditures on the products in antitrust cases

Can be more, can be less

Damage period (federal actions): four years which continues after

complaint is filed

Settlements are typically single damages or a fraction thereof

News America Marketing settlement: clients are recovering

approximately 10 cents back for every dollar they spent on the products

Treble Damages if you go all the

way

Potential for treble damages with a jury verdict

E.g., with a 30% overcharge and treble damages, for each $1 million

that your company spends, overcharge damages at trial could be

trebled to as high as 90% or $900,000

Settlements are typically single damages or a fraction thereof

Cases that went all the way to treble damages

Moist snuff. $350 million, trebled to $1.05 billion. Conwood v. US Tobacco, 290

F.3d 768 (6th Cir. 2002).

Urethanes. $400 Million. Trebled to $1.2 Billion. In re: Urethane Antitrust

Litigation, Case No. 2:04-md-01616 (D. Kan.)

Terms of Representation

Outside counsel are generally flexible as to hybrid or fully contingent

representation

In large hybrid or fully contingent cases, outside counsel typically

work with other law firms, to share resources and risk

Resource commitment

Company to commit sporadic time of in-house counsel and purchasing

officer(s) or others with plenty of advance notice

Discovery obligations (document and deposition)