Ninth Circuit Reverses Certification Of A Nationwide Indirect Purchaser Class Due To State Law Differences And Its Prior Decision In FTC v. Qualcomm
10/06/2021On September 29, 2021, the United States Court of Appeals for the Ninth Circuit reversed a district court’s order certifying a nationwide class of up to 250 million people. The Ninth Circuit concluded that a common issue of law does not predominate because the laws of other several states apply, not just California’s Cartwright Act and Unfair Competition Law. In re Qualcomm Antitrust Litig., No. 19-15159, 2021 WL 4448713 (9th Cir. Sept. 29, 2021). The indirect purchaser plaintiffs are consumers who allege that Qualcomm Incorporated (“Qualcomm”) violated federal antitrust laws and California’s Cartwright Act and Unfair Competition Law by engaging in certain corporate policies regarding their licensing of standard essential patents (“SEPs”) and related sales of modem chips. The Ninth Circuit held that California’s choice of law rules precluded class certification because states without an Illinois Brick repealer statute, which often authorize indirect purchasers to bring antitrust damages suits, “have a clear interest in applying their laws to class members” and to apply only California law would “allow California to set antitrust enforcement policy for the entire country.”
Plaintiffs here allege that Qualcomm maintained a monopoly in modem chips by: (1) engaging in a “no-license-no-chips” policy by which Qualcomm sold chips only to original equipment manufacturers (“OEMs”) that paid royalty rates greater than the required fair, reasonable, and non-discriminatory (“FRAND”) rates to license Qualcomm’s SEPs; (2) refusing to license its SEPs to rival chip suppliers; and (3) entering into exclusive dealing arrangements with Apple that prevented rival chip suppliers from competing with Qualcomm to supply Apple. The case follows a Federal Trade Commission (“FTC”) lawsuit that alleged that Qualcomm violated the Federal Trade Commission Act and the Sherman Antitrust Act based on similar claims of anticompetitive conduct.
Plaintiffs sought certification under Federal Rule of Civil Procedure 23 (“Rule 23”) for an indirect purchaser class comprised of “[a]ll natural persons and entities in the United States who purchased, paid for, and/or provide reimbursement for some or all of the purchase price” of certain cellular phones. The district court granted class certification after applying California’s choice of law rules and concluding that, even though there are material differences between California law and the laws of non-repealer states, the non-repealer states have no interest in applying their laws because non-repealer laws disadvantage consumers and are not intended to protect out of state businesses.
Reversing the lower court decision, the Ninth Circuit held that the district court incorrectly analyzed California’s choice of law rules. The Court concluded that non-repealer states “have an interest in how their markets are managed and how best to enforce antitrust violations and regulate commerce in their states.” By choosing not to pass Illinois Brick repealer statutes, states seek to “reduc[e] the risk that transactions within their borders expose businesses to excessive and ‘complicated’ antitrust litigation with ‘duplicative damages’ recovery.”
The Ninth Circuit also pointed to its opinion in FTC v. Qualcomm, 969 F.3d 974 (9th Cir. 2020), which concluded that Qualcomm’s business practices at issue here did not violate the antitrust laws. The Court held that the district court should “reconsider certification of the entire class given [its FTC v. Qualcomm] decision, particularly in light of the threshold requirements of Rule 23(a).”
This case highlights that courts must consider state law differences in any effort to certify a nationwide indirect purchaser class claim for antitrust damages, and that the home state of the defendant is not a license to apply that state’s laws nationwide without an examination of the interests of all the potentially affected states. As a practical matter, plaintiffs seeking class certification will continue to have difficulty persuading courts that common issues of law or fact predominate when a proposed class includes indirect purchasers from both repealer and non-repealer states.