U.S. District Court For The Northern District Of California Rejects Class Certification Of Indirect Purchasers In Lithium Ion Battery Price-Fixing Litigation Based On Plaintiffs’ Failure To Address Focal Point Pricing
On March 5, 2018, Judge Yvonne Gonzalez Rogers of the U.S. District Court for the Northern District of California denied class certification for a group of indirect purchasers alleging price fixing in the sale of lithium batteries, holding that the plaintiffs failed to demonstrate that they had a reliable method of proving pass-through of the alleged overcharges on a class-wide basis. In so holding, the Court relied primarily on the plaintiffs’ expert’s failure to account for the effects of “focal point pricing,” the practice of pricing consumer products at certain attractive retail price points, for example, $799 or $1299.
Indirect purchaser plaintiffs alleged that defendants engaged in a multi-year conspiracy among Japanese and Korean manufacturers and their U.S. subsidiaries to fix the prices of lithium ion battery cells. In seeking class certification, indirect purchaser plaintiffs—those who purchase the allegedly price-fixed products from a downstream reseller rather than directly from an alleged conspirator—must offer a model of impact and damages that demonstrates the alleged anticompetitive overcharge was passed through to each successive link in the distribution chain, and ultimately to the plaintiffs. At the class certification stage, the Court does not make an ultimate determination of the admissibility of an expert’s report for purposes of a dispositive motion or trial. Rather, the court considers only whether the expert evidence is “useful in evaluating whether class certification requirements have been met.” Courts in the Ninth Circuit have consistently held that “uncertain damages calculations should not defeat certification . . . as long as a valid method has been proposed for calculating those damages.” Lambert v. Nutraceutical Corp., 870 F.3d 1170, 1182 (9th Cir. 2017).
Judge Gonzalez Rogers previously denied class certification for the lithium battery indirect purchasers without prejudice based upon the indirect purchasers’ failure to put forth a “reliable model for determining damages to a putative class.” At that time, Judge Rogers found that the plaintiffs’ expert’s analysis did not include data from a sufficient variety of putative class members and product categories to find a reliable pass-through rate applicable to the entire putative class. In response, the indirect purchaser plaintiffs renewed their motion for class certification, offering additional testimony and analysis from their expert that purported to show a method for proving class-wide antitrust injury. The renewed motion sought to certify a Federal Rule of Civil Procedure 23(b)(3) class of consumers who purchased a variety of electronics containing or comprising lithium ion batteries, including: (i) portable computers, (ii) power tools, (iii) camcorders, or (iv) a replacement battery during the putative class period.
Judge Gonzalez Rogers rejected the indirect purchaser plaintiffs’ renewed motion for class certification because the plaintiffs’ expert’s models failed to adequately account for the effect of focal point pricing on the price paid by the putative class members. The Court agreed with defendants that certain retail focal price points, such as prices ending in the digit “9,” increase consumer demand. Further, the cost of the lithium battery component was often a small portion of the total retail price of the product that the consumer purchased. For example, the estimated overcharge on the battery for a notebook computer was $2.16, a cost difference that is much smaller than the differences between attractive retail price points for notebook computers. Consequently, retailers may assign the same price point to products with small to moderate differences in costs, or may not increase the price point of a product in response to relatively small cost increases. As a result of the focal point pricing strategy, many indirect purchasers would not experience any monetary overcharge attributable to an alleged battery overcharge.
Plaintiffs’ expert attempted to counter this point with a “hedonic” or “quality adjusted” analysis that purported to show that because OEMs design their products to arrive at specific focal price points, the result of an overcharge on batteries would be to reduce the quality of the other components delivered to the consumer. Based on this analysis, he concluded that all class members experienced 100% pass-through of the overcharge, either through higher prices or the monetized value of quality reductions. The Court rejected this analysis as “pure theory without any factual support,” finding that the expert’s analysis did not show that any products suffered a quality reduction as a result of the alleged overcharge. Judge Gonzalez Rogers also held that plaintiffs’ expert failed to explain how alleged quality adjustments—which would occur at the manufacturing level—would affect pass-through rates for points later in the distribution chain, particularly the retail level where pricing decisions are “most volatile” and “most likely to be affected by the focal point pricing strategy.”
Because the indirect purchaser plaintiffs failed to account for the effects of focal point pricing in their expert analysis, the Court concluded that they failed to meet their burden of showing that “antitrust injury to the class can be determined on a common basis as to the putative class” and denied the motion for class certification.