Consumers have a right to sue manufacturers in class-action lawsuits over price-fixing allegations, even when they do not buy products directly from those manufacturers, the Supreme Court ruled unanimously in three cases on Thursday.
The ruling means that as many as 15 class-action lawsuits in Canada over alleged price fixing involving everything from auto parts to liquid crystal display components in television sets can now go ahead.
“It gives life and breath back to the price-fixing class actions,” Vancouver lawyer J.J. Camp, whose firm represented plaintiffs in the three cases at the Supreme Court, said.
The purpose of restitution law is to allow for recovery of gains from wrongdoing, and to deter people from doing wrong, Justice Marshall Rothstein wrote for the court. Permitting consumers to join class-action lawsuits “allows for compensating the parties who have actually suffered the harm rather than merely reserving these actions for direct purchasers who may have in fact passed on the overcharge.”
Deterrence suffers without a consumer option to sue, he said, because firms that are “direct purchasers” may not wish to challenge the large companies with whom they do business, for fear of jeopardizing those business relationships. “Indirect purchasers actions may, in some circumstances, be the only means by which overcharges are claimed and deterrence is promoted,” Justice Rothstein said.
The cases involved computer software, hardware and soft drinks, with components added at the beginning of complex distribution chains. The B.C. Court of Appeal had ruled in two of the cases that consumers are not permitted by law to seek damages against the companies at the top of the chain.
The cases revolved around a concept known as the “pass-on” defence. Say a city sues a brick-making company for fixing prices and overcharging on city projects. The brick-maker cannot defend itself by saying the city passed on the extra costs to taxpayers. Microsoft Corp. had argued in British Columbia that, as a corollary of that principle, indirect purchasers should not be able to sue over price-fixing. The B.C. appeal court accepted that argument in a 2-1 ruling. (The United States Supreme Court had accepted a similar argument in the real-life brick-making case from Illinois in 1977.)
One case before the Supreme Court involved Quebec consumers who challenged the manufacturer of a semiconductor memory product known as DRAM, found in most electronic devices. The manufacturers have acknowledged they took part in an international price-fixing conspiracy, and they have been fined heavily in the United States and Europe. The Supreme Court gave Quebec consumers the go-ahead to sue. Although the price fixing may have occurred outside of Quebec, international anti-competitive practices may well affect consumers in Quebec, the court said.
Jason Squire, a Toronto lawyer with Lerners LLP, said the rulings reflect “the obvious reality that our complex economic system shouldn’t be relied on to hide from consumers that they are at times paying increased prices where someone has fixed prices way up the stream of commerce. I think it’s fair.”
Paul Martin, a lawyer with Fasken Martineau, which represents companies defending against class-action lawsuits, said the ruling opens a gulf between a “more rigorous” approach in the U.S. and a more relaxed approach that makes it easier for consumers to begin such lawsuits.