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|Kevin W. Caves is a Senior Economist and Hal J. Singer is a Principal at Economists Incorporated. Prior to the class certification hearing, both authors served as consultants to plaintiffs in Comcast Corp. v. Behrend. A longer version of this article appeared in the Spring 2014 issue of Antitrust.|
In Comcast Corp. v. Behrend, the Supreme Court reversed certification of a class of cable subscribers because plaintiffs’ economist could not decompose damages between the two principal theories of harm: clustering of cable systems (a horizontal restraint), and exclusive dealing of sports programming (a vertical restraint). Comcast confirms that economic experts need not decompose damages in Section 2 “monopoly broth” cases involving two or more theories of harm—provided that all theories remain part of the case. If one or more theories do not survive scrutiny, however, Comcast highlights the need for the economist to adhere to the basic principle that the harm suffered by class members must flow only from the anticompetitive conduct encompassed by the surviving theory.
From an economic perspective, these standards for class certification imply that allocation of damages may be necessary in cases where both theories of harm are sufficient to generate price effects. In contrast, in cases where both theories of harm are necessary to generate price effects—that is, removing the behavior referred to in either theory would cause prices to revert to competitive levels in the hypothetical “but-for world” used to quantify overcharges—the economic expert should not be required to allocate damages. Economic logic implies that, if one theory of harm is discarded, then damages should be attributed in full to the surviving theory of harm.
By way of analogy, a three-legged stool remains standing because exactly three separate points of reference (the three legs) are necessary to delineate a flat plane (the floor). Removal of one leg causes the stool to lose exactly the same amount of functionality as if two or three legs had been removed. The same logic can be applied to a monopoly broth case involving two (or more) theories of harm. Assume, for example, that plaintiffs allege they suffered harm via both horizontal restraints (e.g., anticompetitive consolidation) and vertical restraints (e.g., exclusionary conduct), resulting in $100 million of overcharges to class members. Suppose further that plaintiffs demonstrate that both types of restraints were necessary for the defendant to cause any anticompetitive harm. If both theories of harm survive scrutiny, then overcharges would be $100 million, as both the horizontal and vertical restraints would be absent in the but-for world.
But what if, say, only the horizontal theory survives scrutiny? Plaintiffs’ theory collapses under its own logic, and damages fall to zero, if defendants can show that they did not actually practice the necessary vertical restraint. In many cases, however, modeling the but-for world would require that the economist construct a counterfactual in which the vertical restraints remain in place (e.g., they are deemed procompetitive or not susceptible to common proof of injury). The horizontal restraints, are, by definition, removed in the but-for world. Because the defendants could not have imposed any overcharges in a but-for world without the horizontal restraints, it follows that overcharges should remain unchanged (at $100 million). Exactly the same logic applies if only the vertical restraint survives scrutiny. The surviving theory is like one leg of a three-legged stool; its removal will cause a collapse.
By this logic, plaintiffs in Comcast cannot necessarily be faulted for failing to put forth a model allocating damages specifically to Comcast’s horizontal and vertical restraints. Provided that plaintiffs were prepared to argue that Comcast’s horizontal clustering, as the sole surviving theory, was a necessary ingredient in the monopoly broth, removing the clustering would return prices to competitive levels.
In general, there are two logical possibilities for damages allocation in monopoly broth cases. First, if both theories of harm are necessary ingredients for generating anticompetitive price effects, then, by the logic above, the economist would not need to engage in any allocation exercise. Overcharges in this scenario can be described as “inseparable.” To establish inseparability and avoid allocation, plaintiffs must offer proof that each theory of harm is necessary, such as a profitability analysis demonstrating that removal of either type of restraint would have rendered the allegedly anticompetitive price hikes unprofitable in the but-for world. The standard tools of “critical loss” or “critical elasticity” may also be informative here. Second, it could be the case that each theory of harm is sufficient, on its own, to raise prices significantly above competitive levels. Under this scenario, overcharges are separable. If one theory does not survive scrutiny, the economist will, in general, be required to estimate the overcharges attributable to the surviving theory. Techniques such as multiple regression may be necessary to empirically gauge the relative contribution of each restraint.
Plaintiffs might also assert monopoly broth claims that incorporate a theory that is neither necessary nor sufficient to generate anticompetitive harm (e.g., where the horizontal restraints are necessary, and the vertical restraints increase prices but cannot cause any anticompetitive harm on their own). As long as the horizontal restraints remain part of the case, the economist would not need to decompose damages: Prices revert fully to competitive levels in a but-for world in which the horizontal restraints are removed. However, disggregation may be necessary if only the vertical restraints remain in the case, but the horizontal restraints remain in the but-for world. In this instance, overcharges would be limited to the price increase induced by the vertical restraints, making it necessary for the economist to quantify that increase. Here again, multiple regression may be informative.
Finally, note that there is no need to consider cases in which one theory of harm is necessary and the other sufficient, because such a theory of causality is incoherent. For example, if the horizontal restraints in Comcast were necessary to achieve anticompetitive price effects, then the vertical restraints could not have been sufficient to generate price effects on their own.
After Comcast, plaintiffs electing to assert Section 2 monopoly broth claims or other antitrust claims involving multiple types of challenged conduct may be subjected to more scrutiny than those alleging a single theory of harm. Nevertheless, the additional burden may not be as broad as an initial reading of Comcast might imply. The allocation question arises only if one theory does not survive scrutiny. In that event, the question then turns on whether or not the surviving theory encompasses conduct that would be necessary for the defendant to inflict any anticompetitive harm. In cases where damages are not separable, no purpose is served by requiring the plaintiffs’ economist to try to disaggregate damages among types of alleged anticompetitive conduct and injury.