Existential threshold

The number of companies that can bring treble-damages claims against drug manufacturers for violating federal antitrust law has dwindled. The scarcity has grown so acute that last week it crossed an existential threshold.

For the first time ever, a federal judge in Philadelphia ruled that a class of direct pharmaceuticals purchasers did not meet the “numerosity” requirement of Rule 23(a)(1) for class-action treatment. See “Pharma Buyers Too Few for Class“.

The ruling may portend an end to similar class actions. With billions in treble damages at stake, the two dozen or so direct purchasers that once passively relied on class actions to recoup overcharges may have to rouse themselves.

Their ability to do so successfully will depend largely on the feasibility of pursuing the same claims on a non-class basis. What does the available evidence suggest?

Opt-Out Multiples Over Class Recoveries in Direct Purchaser Cases as Proxy

“It does not appear that anyone has undertaken and published a comprehensive empirical study that analyzes and quantifies the financial success of opt-out plaintiffs.” Charles H. Samel & Cori Gordon Moore, “Whether to Opt Out of Antitrust Class Actions: A Four-Step Checklist,” Corporate Counsel, May 26, 2015. Some examples are nonetheless available

Vitamins (2.28X). A price-fixing case by direct purchasers against a cartel of vitamins manufacturers yielded a class settlement totaling $1.17B. After the district court preliminarily approved the global pact, class members representing 75 percent of vitamins purchases opted out of the class.

They did well. “The opt-outs reaped more than $2 billion in settlements, driving down the size of the class settlement to about $300 million.” Krysten Crawford, “No More Mr. Nice Guy,” Corporate Counsel, June 1, 2004. The opt-outs thus took home roughly 2.28 times what they would have if they had stayed in the class and accepted their pro rata share of the initial class settlement ($2 billion ÷ [$1.17 billion x .75] = 2.28).

Methionine and Lysine (3X). A pair of price-fixing cases against Archer Daniels Midland accused it of fixing prices on two animal feed additives, methionine and lysine. The conspiracies generated criminal charges, guilty pleas, and a movie, The Informant!  Quaker Oats opted out “and recouped three times the amount it would have pocketed as a class member”. Id.

TFT-LCD Panels (3.5X). The direct purchaser price-fixing class action against makers of thin filter transistor and liquid crystal display monitors settled for a total of $437 million. “TFT-LCD (Flat Panel) Products Direct Purchaser Antitrust Settlement”. Of the more than 75 opt-outs, three of them (Tech Data, All American Semiconductor, and Best Buy) settled for more than $529 million. “Opt-Out Plaintiffs Recover over $300 Million in LCD Antitrust Litigation,” Press Release, June 5, 2017. My firm’s opt-out clients also achieved resolutions providing substantial multiples.

Linerboard (largeX). The class claims against 12 linerboard makers settled for an aggregate of $202,572,489, an average of $2,500 for the 80,000 class members. Brandon J.B. Boulware & Jeremy M. Shur, “Opting Out of an Antitrust Class Action: Should Your Company Do It and, If So, When?,” The Antitrust Counselor, Dec. 2011. A group of 13 opt-outs reported settling with just one defendant, Weyerhaeuser, for $25 million, nearly $2 million apiece. Id.

So?

These anecdotes suggest that opt outs can do materially better by opting out than they could if they remain a passive class member in an antitrust class action. They also indicate that even if class actions become infeasible because of dwindling numbers among direct purchasers, individual cases may fill the gap, averting loss of opportunities to recover billions into in compensation for overcharges.