Departing from U.S. jurisprudence, the Supreme Court of Canada has allowed an antitrust class action to proceed against Microsoft, despite the fact that plaintiffs were “indirect purchasers” who did not buy the software directly from the company itself.
By upholding the certification of a class of indirect purchasers – people who purchased from a distributor or retailer but had no direct commercial relationship with the defendants – the Supreme Court of Canada’s decision in Pro-Sys Consultants Ltd. v. Microsoft Corporation opened the door to more indirect purchaser antitrust class actions in Canada.
In its October 31 decision, Canada’s Supreme Court expressly declined to follow the U.S. Supreme Court’s 1977 holding in Illinois Brick Co. v. Illinois, which barred indirect purchasers from suing under U.S. federal antitrust laws. After closely evaluating Illinois Brick and its underlying principles, the Supreme Court of Canada decided to deviate from it and embrace indirect purchaser actions.
Among the issues before the Court was whether an indirect purchaser could sue under the Canadian Competition Act (similar to the Sherman Act in the United States). With regard to that, the Supreme Court of Canada held that indirect purchasers have standing to sue if they show that the overcharge caused by defendants’ anticompetitive behavior was “passed on” from the direct purchaser to the indirect purchaser. The Court rejected Microsoft’s argument that because Canadian jurisprudence barred the “pass-on theory” as a defense, the court was required to bar plaintiffs’ offensive use of the pass-on theory as well.
The Court rejected Microsoft’s argument regarding the pitfalls of the offensive pass-on theory for three main reasons. First, it found that courts possess the tools to avoid multiple recoveries. Second, it stated that all antitrust cases are complex and overcharge calculations can be resolved with expert testimony. Finally, it found that the offensive use of the pass-on theory in fact promoted deterrence. The pass-on theory provided particular deterrence where the direct purchaser would not sue the would-be defendant for fear of endangering their ongoing business relationship.
It appears that as a result of the ruling, the future of private antitrust litigation could see direct and indirect purchasers litigating together in the same case to generate a single pot of damages, which the direct and indirect purchasers must allocate between them.
This is the second time in as many months that a Canadian court has rejected a trend by the U.S. Supreme Court to inhibit a plaintiff’s right to bring a lawsuit.
The Supreme Court of Canada decision came three weeks after Ontario Superior Court Justice Barbara A. Conway rejected arguments by defendant BP plc that the court should limit the scope of a class action to cover only investors who bought BP stock on a Canadian exchange. In her October 9 decision, Justice Conway explicitly rebuffed the argument that she should follow the standards set by the U.S. Supreme Court in its 2010 decision, Morrison v. National Australia Bank.
These and other recent decisions seem to indicate that the Canadian courts are far more protective of the rights of victims of corporate malfeasance than U.S. courts, which have been swayed by corporate efforts to limit the recoveries available through class actions.