Proving and Disputing Damages
at the
Trial of an Antitrust Case
Session Chair:
James T. McKeown
Moderator:
Martha S. Samuelson
Speakers:
Joseph Goldberg
Ragesh K. Tangri
Richard T. Rapp
Lara Dolnik
56th Antitrust Law Spring Meeting
American Bar Association
Washington, DC
March 26, 2008
PROVING DAMAGES IN A
PRICE-FIXING CASE
A PRIMER
Joseph Goldberg
Freedman Boyd Hollander
Goldberg & Ives, P.A.
Albuquerque, New Mexico
WHAT GETS US HERE
“People of the same trade seldom meet
together, even for merriment and
diversion, but the conversation ends in a
conspiracy against the public, or in some
contrivance to raise prices.”
Adam Smith, The Wealth Of Nations at 144
DAMAGES = OVERCHARGE
Usual measure of damages is the overcharge
resulting from the price-fixing conspiracy:
“[T]he difference between the price
paid and the market or fair value,” that
is competitive, price.
Chattanooga Foundry & Pipeworks v. City of Atlanta, 203 U.S.
390, 396 (1906)
RELAXED STANDARD OF PROOF
FOR ANTITRUST DAMAGES
“[T]he jury may not render a verdict based on speculation or
guesswork. But the jury may make a just and reasonable estimate of
the damage based on relevant data, and render its verdict accordingly.
In such circumstances, ‘juries are allowed to act on probable and
inferential as well as [upon] direct and positive proof. . . . Any other rule
would enable the wrongdoer to profit by his wrongdoing at the expense
of the victim.’”
Bigelow v. RKO Radio Pictures, Inc,. 321 U.S. 251,264 (1946), quoting
Story Parchment Company v. Patterson Parchment Paper Co., 282
U.S. 555, 564 (1931)
“[S]ince the defendant created the need for damage estimation by
violating the antitrust laws, it should bear the burden of uncertainty in
proving the consequent damages.” II. A Areeda et al., Antitrust Law
¶ 392 (3rd Ed. 2007)
CALCULATION OF PURCHASES
AND ACTUAL PRICES PAID
This is not necessarily a trivial task:
Defendant’s transaction data or plaintiff’s purchase
data
Transaction data: consistency over time
Price: off-invoice rebates and discounts
Identification of relevant transactions: e.g.,
U.S. vs. Non-U.S
ESTIMATION OF COMPETITIVE
PRICES
“Before or after” or “yardstick” approaches
“Multiple regression also may be useful (1) in
determining whether a particular effect is
present; (2) in measuring the magnitude of a
particular effect . . . .” Rubinfeld, Reference Guide on Multiple
Regression at 181
Multiple regression analysis is “a methodology
that is well established and reliable [for
estimating damages].” City of Tuscaloosa v. Harcros Chemicals,
153 F.3d 548 11th Cir. 1998
MODEL SPECIFICATION ISSUES
Make sure the model is well grounded in the facts of
the case
Data: reliability; completeness; aggregation; public
vs firm-specific
Dependent variable: usually price
Independent variables: “Not all variables that might
influence the dependent variable can be included if the
analysis is to be successful; some cannot be
measured, and others may make little difference.”
Rubinfeld, Reference Guide on Multiple Regression at 188
Bias
Robustness
PRESENTATION AT TRIAL
Establish expert’s credibility
Summary of opinions
Simplify statistical concepts
Bring expert’s opinions back to the facts:
“[A]necdotal reports can provide some
information.” Kaye and Freedman, Reference Guide on
Statistics at 90
Visualization: A picture is worth a thousand
words
Take the “sting” out of defendant’s criticisms
SUMMARY OF ECONOMIC
OPINIONS
 The structure of these markets, the conduct of the market
participants and the performance of the market all strongly
suggest that there was a manipulation of this market led by
Hamanaka and supported by CLR, Global, Merrill Lynch,
______ and others from mid-1993 through mid-1996.
 The manipulation was successful in raising the price of
copper cathode purchased by plaintiffs above competitive
levels.
 My estimation of anticompetitive overcharges paid by
plaintiffs because of the squeeze reaches a peak of 16 cents
per pound in 1995-1996.
COPPER PRICE -- OVERCHARGES
Universities and Businesses Who Have Adopted
Dr. McClave’s Textbooks
International Sales
Puerto Rico
Canada
England
Brazil
Mexico
Australia
Singapore
Hong Kong
Source: Prentice Hall
Margin Increase from Competitive to Conspiracy Periods
8%
7.76%
7.73%
6%
4%
2%
0%
Margin Using Fiber PPI
Margin Using MCI
Source: PPI’s from U.S. Bureau of Labor Statistics and Prices from Defendants’ Transaction Databases
Comparison of Overcharges Estimated by McClave's Regression Model To
Overcharges Estimated by Defendants' Suggested Specifications
12%
10%
8%
6%
4%
2%
Source: McClave’s Regression Model and Various Specifications Suggested by Defendants
14
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Ten Guidelines for Thinking
About Damages
Defense Perspective
by Ragesh K. Tangri
American Bar Association
Antitrust Section Spring Meeting
Ten Guidelines for Thinking About Damages
Defense Perspective
1.
Select the right expert (and see whether your opponent has selected the
wrong expert).
2. Insist on a budget from your expert, and track his or her progress against
it.
3. Test your own models against your opponent’s numbers – avoid giving
unintended gifts.
4. Beware the model which yields negative damages – that which looks too
good to be true usually is.
5. “Trust but verify” your expert’s work, especially when it comes to citing
case documents.
6. Simplify the trial presentation.
7. Press on disaggregation of damages – separate lawful vs. unlawful
conduct, and what consequences flow from each.
8. Separate direct and indirect purchasers.
9. Separate some direct purchasers from others (if possible).
10. Separate domestic from foreign transactions – “follow the money” to the
location where title passes.
Ten Guidelines for Thinking About Damages
Defense Perspective
1. Select the right expert (and see whether your opponent
has selected the wrong expert).
–
–
–
–
–
Qualifications & experience
Reference checks
“Dings and dents”
Human factors
Find prior cross-exams
Ten Guidelines for Thinking About Damages
Defense Perspective
2. Insist on a budget from your expert, and track his or her
progress against it.
–
–
–
Major cause of client heartburn
Control size of team – require justification of each member
Talk to references about team, not just testifier
Ten Guidelines for Thinking About Damages
Defense Perspective
3. Test your own models against your opponent’s numbers
– avoid giving unintended gifts.
–
–
Run your damages model with different assumed numbers
Run non-damages models as damages models
Ten Guidelines for Thinking About Damages
Defense Perspective
4. Beware the model which yields negative damages –
that which looks too good to be true usually is.
–
–
–
Why present a damages model at all?
How small is too small?
Correct your opponent’s mistakes as a way to sponsor a
number (without sponsoring a number)
Ten Guidelines for Thinking About Damages
Defense Perspective
5. “Trust but verify” your expert’s work, especially when it
comes to citing case documents.
–
–
–
Ensure accurate and fair citations of documents
Ensure negative documents are discussed or accounted for
Keep your factual cross-exam powder dry for trial
Ten Guidelines for Thinking About Damages
Defense Perspective
6. Simplify the trial presentation
–
–
–
Get your expert up and moving
Keep the graphics simple (and admissible!)
Keep the cross short, high level, interesting, simple, and
gator-free
Ten Guidelines for Thinking About Damages
Defense Perspective
7. Press on disaggregation of damages – separate lawful
vs. unlawful conduct, and what consequences flow
from each.
Ten Guidelines for Thinking About Damages
Defense Perspective
8. Separate direct and indirect purchasers.
Ten Guidelines for Thinking About Damages
Defense Perspective
9. Separate some direct purchasers from others (if
possible).
Ten Guidelines for Thinking About Damages
Defense Perspective
10. Separate domestic from foreign transactions – “follow
the money” to the location where title passes
What’s Wrong with
Antitrust Damages
Richard T. Rapp
Special Consultant
Proving and Disputing Damages at the Trial of an Antitrust Case
56th Antitrust Spring Meeting, American Bar Association Antitrust Section
Washington, DC
March 26, 2008
What’s Wrong with Antitrust
Damages
 What’s right: Attention to how markets work
 “Framing”: Tactics and Ethics
 Stupid Damage Tricks are sometimes what’s
wrong with our damages. For example:
– The wrong model
– Ignoring exogenous realities
– Near-zero-marginal cost prices
Framing: Tactics and Ethics
 Amos Tversky and Daniel Kahneman, "The
Framing of Decisions and the Psychology of
Choice." Science 211: 453-458, 1981
– Explored heuristics and biases in reasoning—
Distortions and violations of the rationality assumption
– Framing—
The framing of a decision affects the choice
“Framing” a Decision
Affects the Outcome
 Framing bias creates a strong incentive for
plaintiffs to serve up inordinately high damage
estimates and defendants inordinately low ones
“Damages
are
$1
billion”
“Their case
was weak.
Give them only
$100 million”
“Framing” a Decision
Affects the Outcome
 Framing bias creates a strong incentive for
plaintiffs to serve up inordinately high damage
estimates and defendants inordinately low ones
“Let’s punish
the SOBs.
Give them
$30,000.”
“Damages
are
$15,000”
One Version of Price-fixing
The more pricing voices in competition—
the more prices will be driven down
Cost
Profit
Price
Cost
Profit
Price
Price
Profit
Cost
One Version of Price-fixing
In this price-fixing conspiracy…
Several independent
pricing voices…
become a single
monopolist.
One Version of Price-fixing
Regression Analysis Can Be Used to Measure the
Impact of Additional Competition on Price
$140
$120
Regression line
Unit Price Paid
$100
$80
Estimated effect of a conspiracy
involving only 3 vendors
$60
$40
$20
$0
0
1
2
3
4
5
6
7
8
Equivalent Number of Equal-Sized Competitors
9
10
11
The Right and Wrong Model
Damage Theory Doesn’t Fit the Alleged
Bad Acts
 That model was suitable for bid rigging or a
customer allocation scheme among salespeople
 It’s the wrong model for OPEC but that mistake is
rare
 The OPEC model, in which the market supply
curve is shifted by conspiracy, is wrong for bidrigging or customer allocation among salespeople
who are not capable of restricting the market
supply
Ignoring Exogenous Realities
 The Simple Version: Concord Boat v. Brunswick
 Simple Cournot Model—outcome 50% but-for
share, but competitors mishaps were ignored
– Defective shifter
– Muffed merger
– Exit
 Complex Version: Under- vs. over-specified
econometric models
Near-Zero Marginal Cost Prices
Used in the case of low-marginal cost
goods and services
 “In a competitive market, P = MC”
 Wordplay: A pun on “competitive”
– In perfect competition, P = MC; if it’s zero, nothing
gets produced
– With investment, in talent, branding, infrastructure,
rivalrous behavior yields P > MC. The “competitive”
price should be the “but-for price,” not the imaginary,
Ec.100 wheat-market price.
ABA Panel Discussion: Proving and Disputing
Damages at the Trial of an Antitrust Case
Laura Dolnik
Dolnik Consulting LLC
West Des Moines, IA

What will my decision mean outside the
courtroom?

Will the cost of a large damages award
be passed on to consumers (like me)?

What will my decision do to consumer
choices?

How will my decision impact the
number of jobs out there?
Source: Gallup
Source: Gallup

Where does the money go?

What will plaintiff(s) do with the money
awarded?

Will awarding damages make any real
difference?

Is awarding damages just helping
someone “get rich quick”?

How much do the lawyers get?
Confidence in Institutions
Top Five
(Numbers shown are percentages)
Source: Gallup
Confidence in Institutions
Bottom Five
(Numbers shown are percentages)
Source: Gallup
Honesty/Ethics in Professions
Top Five
(Numbers shown are percentages)
Source: Gallup
Honesty/Ethics in Professions
Low Ranked Professions
(Numbers shown are percentages)
Source: Gallup
A Hypothetical Damages
Problem
 Six private equity firms of various sizes are alleged to have
fixed prices by consortium bidding, or by agreeing to sit out
particular LBO auctions in return for tacit agreements to
allocate auction participation
 Different private equity firms participated in the various
LBOs at issue
 The 30 LBOs were of significantly different sizes; the
premia over pre-LBO market values varied significantly
 Plaintiffs are former shareholders in 30 firms that were the
subject of LBOs since 2004 and allege that the premia over
public market values were depressed as a result of the
alleged collusion