Indirect purchaser class actions after the 9th Circuit Stromberg v. Qualcomm decision

On September 29, 2021, the Ninth Circuit vacated the class certification order in Stromberg et al. v. Qualcomm,[1] an antitrust class action brought on behalf of indirect purchasers alleging that Qualcomm monopolized the market for modem chips by refusing to sell chips to manufacturers that did not pay above-market royalty rates to license its patents and by otherwise limiting the ability of rival chip suppliers to compete.

Although the district court had certified the plaintiff classes under Rule 23(b)(2) and (b)(3), the Ninth Circuit vacated and remanded the case, holding that differences in states’ antitrust laws can be so great as to prevent common questions from predominating over individual ones, failing to satisfy the so-called predominance element of class certification.

The Qualcomm decision differs from recent class action decisions of the Supreme Court (including TransUnion[2]) and by other federal courts of appeal, which have focused on standing-related questions.

Background

In 2017 the FTC sued Qualcomm, alleging that Qualcomm had violated the Federal Trade Commission Act and the Sherman Act by: (1) selling modem chips only to manufacturers that also licensed Qualcomm’s patents at above-industry-regulation[3] prices; (2) refusing to license patents to competitor chip manufacturers; and (3) engaging in tying and an exclusive dealing agreement with Apple. Thereafter, multiple private antitrust class actions were filed with similar allegations, which were centralized in a consolidated class action in which the district court certified a nationwide class under Rule 23(b)(2) and (b)(3). This Article concerns that centralized set of private antitrust class actions, captioned Stromberg et al. v. Qualcomm (referred to herein simply as “Qualcomm”). The Ninth Circuit, on review of class certification under Rule 23(b)(3), held that the district court improperly had applied California’s choice of law analysis and that the class should not have been certified for damages claims because differences in state laws “swamp predominance.”[4]

The state of predominance cases before Qualcomm

The predominance element of class actions under Rule 23(b)(3) requires that “the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.”[5] Prior to Qualcomm, courts often concluded that indirect purchaser claims under the antitrust laws of the various states with so-called Illinois Brick repealer statutes were consistent enough to satisfy the predominance requirement as to nationwide classes of indirect purchasers.[6] In 2019, the Ninth Circuit addressed the question of whether California’s choice-of-law rules would allow California law to apply to a California indirect purchaser subclass under Rule 23(b)(3).[7] The Ninth Circuit answered yes, setting the stage for the resolution of the combination of these two questions in Qualcomm: whether California’s choice of law rules allow California law to apply to the claims of a nationwide class of indirect purchasers.

The Stromberg et al. v. Qualcomm decision

The district court in Qualcomm certified a nationwide class of indirect purchasers, determining that the proposed class satisfied Rule 23(a)’s threshold requirements, and met Rule 23(b)(3)’s predominance and superiority requirements.[8] In doing so, the district court determined the consumer class was able to bring damages claims nationally under California’s Cartwright Act, ruling that although some states that had not repealed Illinois Brick had materially different antitrust laws from California, those states nevertheless did not have an interest in applying their laws to the case.[9] Thus, the district court determined that California’s Cartwright Act applied to the nationwide class.[10]

The Ninth Circuit, on review, held that the district court had improperly applied California’s choice of law rules. Under the first step of California’s choice-of-law analysis, the Ninth Circuit determined that while states that had not repealed Illinois Brick had materially different antitrust laws from California, the variations in antitrust laws in states that, like California, had adopted Illinois Brick repealers also required further analysis than the district court had engaged in to determine if they, too, had materially different antitrust laws.[11] Under the second step of California’s choice-of-law analysis, the Ninth Circuit determined that, contrary to the district court’s holding, states that had not repealed Illinois Brick had a strong interest in applying their laws to consumers who had made purchases within their states.[12] Thus, the Ninth Circuit held that the district court erred in failing to conduct the third step in California’s choice of law analysis, i.e., determining which states’ interests would be more impaired if their policies were subordinated.[13] The Ninth Circuit directed the district court to reconduct the entire choice-of-law analysis.[14]

Qualcomm’s holding and Illinois Brick

Critical to understanding Qualcomm in the context of indirect purchaser claims in national markets is recognizing the import of Illinois Brick,[15] a 1977 United States Supreme Court decision that confirmed that indirect purchaser damages generally are not available under the federal antitrust laws. Since that decision, many states (thirty-five and the District of Columbia) have passed statutes establishing that their state antitrust laws grant standing to indirect purchasers to recover damages; these statutes are (somewhat inaptly) referred to as Illinois Brick “repealer” statutes (and the states themselves as “repealer” states).Thus, class actions alleging nationwide misconduct often include claims for violations of the antitrust laws of some or all of the states with Illinois Brick repealer statutes.

In Qualcomm the plaintiffs sought to apply the antitrust law of California, one such repealer state, to a nationwide class of indirect purchasers.[16] The Ninth Circuit rejected that approach and held that differences between the scope and kind of remedies available among repealer states’ antitrust laws can defeat predominance under Rule 23(b)(3). The Ninth Circuit cited to examples of repealer states (such as Florida, Massachusetts, Missouri, and New Hampshire) that limit indirect purchaser standing to consumer protection claims, and others (such as Hawaii) that limit the kinds of damages indirect purchasers can recover to compensatory damages.[17] The Ninth Circuit also went on to reject the district court’s finding that non-repealer states did not have an interest in applying their laws to the dispute.[18] Moreover, the Ninth Circuit went on to announce that, because repealer states’ laws are “hardly uniform,” it is “not clear that a single class of all repealer state Plaintiffs could be certified under Rule 23(b)(3).”[19] Rather than make a determination on the issue, the Ninth Circuit instructed the district court to make an initial determination as a part of a revised choice-of-law analysis.

Conclusion

The Ninth Circuit’s Qualcomm class action decision raises significant questions for plaintiffs seeking to certify nationwide classes of indirect purchasers with claims under one or more repealer states’ antitrust laws. Notably, Qualcomm involved the application of California’s state choice-of-law principles. Thus, the analysis litigants must conduct may vary by state as well as by Circuit. However, in California and states with similar choice-of-law principles, not only will litigants need to consider seeking to certify a subclass of only repealer state indirect purchasers, but they might also consider moving to certify subclasses of indirect purchasers whose state law claims have similar characteristics, e.g., the scope and kind of remedies available.

Footnotes

* Scott Martin of Hausfeld LLP represented a group of law professors and economist who appeared as amici curiae in this case.

[1] 14 F.4th 1059 (9th Cir. Sept. 29, 2021) [hereinafter Qualcomm].

[2] TransUnion v. Ramirez, 141 S. Ct. 2190 (June 25, 2021).

[3] The patents at issue were standard essential patents, which are adopted as industry-standard by global industry participant groups that require the patent-holders to license the adopted patents at fair, reasonable, and non-discriminatory prices. Qualcomm, 14 F.4th at 1063.

[4] Qualcomm, 14 F.4th at 1067. In addition, the Ninth Circuit also vacated class certification under Rule 23(b)(2). Before Qualcomm, the Ninth Circuit had reversed the district court’s permanent injunction in FTC v. Qualcomm, holding that Qualcomm’s licensing practices did not violate the Sherman Act and that because its contracts with Apple did not substantially foreclose competition in the relevant market and were previously terminated, there was nothing to enjoin. FTC v. Qualcomm Inc., 969 F.3d 974., 1005. In Qualcomm, the Ninth Circuit instructed the district court to consider the effect of FTC v. Qualcomm on threshold issues of certification under Rule 23(a). Qualcomm, 14 F.4th at 1074. However, this article focuses on the Court’s analysis under Rule 23(b)(3).

[5] Pipefitters Loc. 636 Ins. Fund v. Blue Cross Blue Shield of Mich., 654 F.3d 618, 630 (6th Cir. 2011).

[6] See, e.g., In re Asacol Antitrust Litig., 907 F.3d 42, 46 (1st Cir. 2018).

[7] Senne v. Kansas City Royals Baseball Corp., 934 F.3d 918, 930 (9th Cir. 2019), cert. denied, 141 S. Ct. 248 (2020).

[8] Qualcomm, 14 F.4th at 1065. As noted above, the district court also certified the class under Rule 23(b)(2).Id. at 1066.

[9] Qualcomm, 14 F.4th at 1065.

[10] Qualcomm, 14 F.4th at 1066.

[11] Qualcomm, 14 F.4th at 1068–69.

[12] Qualcomm, 14 F.4th at 1072–74.

[13] Qualcomm, 14 F.4th at 1074.

[14] Qualcomm, 14 F.4th at 1074.

[15] Ill. Brick Co. v. Illinois, 431 U.S. 720 (1977).

[16] In re Qualcomm Antitrust Litig., 328 F.R.D. 280, 312 (N.D. Cal. 2018).

[17] Qualcomm, 14 F.4th at 1068–69 n.2, n.4.

[18] Qualcomm, 14 F.4th at 1072.

[19] Qualcomm, 14 F.4th at 1074.

*Kyle G. Bates is an Associate in San Francisco and Yelena W. Dewald is an Associate in Washington D.C.