United States District Court, W.D. Washington, Seattle
RICHARD A. JONES, District Judge.
This matter comes before the court on the parties' motions in limine. The court issued preliminary rulings to the parties in advance of a September 12 pretrial conference where it heard oral argument. The court directs the clerk to TERMINATE both motions in limine. Dkt. ## 514, 516. The parties shall abide by the rulings stated below at trial.
Costco's and Defendants' motions each contain eleven parts, many of which either overlap or address closely-related topics. Rather than address each part in the order that the parties presented them, the court will address the motions by topic, concluding its discussion of each topic with a paragraph summarizing the court's ruling and the parts of the parties' motions that the ruling resolves.
The parties are familiar with the background of this litigation, which concerns Costco's attempt to recover damages under federal antitrust law and the Washington Consumer Protection Act for overcharges it allegedly paid for finished products (televisions, monitors, and more) incorporating TFT-LCD panels whose prices were fixed by Defendants and their conspirators. The court will not address background facts except as necessary.
A. Pass-Through of Defendants' Overcharges Will Not Be an Issue at Trial.
Three parts of Costco's motion seek to prevent Defendants from attempting to reduce Costco's damages by arguing both that the vendors from whom Costco purchased finished products absorbed a portion of the overcharge for the panels in those products (upstream pass-through) and that Costco passed on a portion of any overcharge to its retail customers (downstream pass-through). Defendants would, if permitted, introduce evidence intended to minimize Costco's vendors' upstream pass-through of the overcharge and to maximize Costco's downstream pass-through to its customers. Defendants believe that they can prove that Costco's bargaining power allowed it to force vendors to absorb overcharges, and that they can prove that Costco's profit margins on finished products remained constant before, during, and after the alleged conspiracy, thus demonstrating that Costco passed on any overcharge it paid to its customers. In addition, Defendants hope to counter a Costco expert witness who bases his calculations of Costco's damages on an industry-wide overcharge by demonstrating that Costco, because of its bargaining power, paid less than the industry average for finished products. These examples are illustrative, but not exhaustive, of the pass-through arguments Defendants mentioned in briefing and at oral argument.
Whatever the logical appeal of Defendants' pass-through arguments, Ninth Circuit precedent forecloses them. Costco intends to prove that the vendors from whom it purchased finished products were in a control relationship with Defendants or their conspirators. See Sept. 11, 2014 ord. (Dkt. # 558) (discussing Costco's burden to prove "control exception" to rule that indirect purchasers lack antitrust standing). In circumstances like these, upstream pass-through arguments and evidence are likely to be appealing to price fixers, but they are unavailable despite their appeal. In Royal Printing Co. v. Kimberly-Clark Corp., 621 F.2d 323, 327 (9th Cir. 1980), the court ruled that a price fixer in a control relationship with a vendor cannot defend itself by "[d]etermining what portion of the illegal overcharge was passed on' to [the purchaser] and what part was absorbed by the middlemen, " because doing so would "involve all of the evidentiary and economic complexities" that the Supreme Court "clearly forbade" in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). Although the court recognized the possibility that allowing a purchaser to recover the full overcharge creates "an opportunity for a windfall gain, " it found "nothing wrong with the plaintiff winning a windfall gain, so long as the defendant does not suffer multiple liability, with its potential for windfall loss...." Royal Printing, 621 F.2d at 327. In cases where the price fixer is insulated from the possibility of windfall loss because it is unlikely to face suit from a middleperson with whom it has a control relationship, the risk of multiple liability is small enough to be acceptable. Id. at 327 & n.8.
Defendants attempt to avoid or distinguish Royal Printing. They suggested at oral argument that the Ninth Circuit limited Royal Printing in Brennan v. Concord EFS, Inc. (In re: ATM Fee Antitrust Litig.), 686 F.3d 741 (9th Cir. 2012). That contention finds no support in ATM Fee, which does not mention Royal Printing 's "full overcharge" rule, much less undermine it. The ATM Fee panel declined to extend Royal Printing to circumstances in which there was no control relationship between the price fixers and the middleperson. 686 F.3d at 757. And although that panel noted the Supreme Court's reluctance to carve out exceptions to the Illinois Brick rule, 686 F.3d at 757 (citing Kansas v. Utilicorp United, Inc., 497 U.S. 199, 216 (1990)), it did not suggest that any Supreme Court precedent had implicitly or explicitly overruled Royal Printing. Also unavailing is Defendants' observation that the Royal Printing panel considered pricefixing conspirators who controlled the middlepersons from whom the plaintiff purchased, whereas many control relationships in this case are ones in which the middlepersons controlled the price fixers. That is a distinction without a difference. The reasoning in Royal Printing applies with equal force to any control relationship that brings indirect purchases within the scope of the control exception to the Illinois Brick rule.
None of the cases cited above directly addresses downstream pass-through; that is the province of Illinois Brick 's predecessor and complement - Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968). In Hanover Shoe, the Court ruled that a price fixer cannot defend itself from federal antitrust liability by showing that a purchaser passed on an overcharge to downstream customers. Id. at 494. The Royal Printing court had no need to decide whether its "full overcharge" rule would also apply to downstream pass-through, but that court plainly believed that Hanover Shoe dictated that result. Rejecting the notion that a possible windfall to the plaintiff was a reason to reject the full overcharge rule for upstream pass-through, the court noted that the windfall possibility was "no more than was approved in Hanover Shoe, where the plaintiff was allowed to recover its full' damages even though it had mitigated' its damages by passing part of the excessive costs on to its customers." Royal Printing, 621 F.2d at 327. The court concludes that allowing Defendants to try to prove Costco's downstream passthrough of overcharges to its customers is no more permissible allowing it to prove that its upstream vendors did not pass through to Costco the overcharges they paid for panels.
Alternatively, Defendants contend that even if Royal Printing makes pass-through evidence irrelevant to support a damages defense, it does not exclude that evidence for other purposes. For example, they assert that they must rely on downstream pass-through evidence because they expect that Costco will attempt to curry favor with jurors by suggesting that Costco's customers were either the victims of Defendants' conspiracy or that those customers will ultimately benefit from any damage award. The court understands the concern; Costco informed the court in its motion in limine that "its members... will benefit from any recovery by Costco in this case." Pltf.'s Mot. (Dkt. # 516) at 7. The remedy for that ill, however, is not to permit downstream pass-through evidence, but rather to emphasize to Costco that the court will not permit it to try this case as the champion of its customers. If Costco attempts to do so at trial, the court will consider admitting downstream pass-through evidence or taking other curative measures.
Defendants contend that downstream pass-through evidence is relevant to its effort to counter Costco's attempt to prove control relationships between Defendants (or their conspirators) and Costco's vendors. Defendants have not demonstrated, however, that they need to introduce pass-through evidence to prove, for example, that a vendor had independent control over pricing decisions. Absent that demonstration of need, there is no need to consider burdening the jury with otherwise irrelevant pass-through evidence. Even if there were a need, the parties have now agreed that the court, not the jury, will decide whether Costco can rely on the control exception.
Defendants also argue that pass-through evidence is necessary to rebut expert damages testimony from Dr. Douglas Bernheim. The court's ruling regarding passthrough evidence applies with equal force to Costco and its witnesses. Dr. Bernheim may not opine on pass-through, even if he previously expressed opinions on it. The court notes, however, that it is not clear whether Dr. Bernheim's pass-through opinions address pass-through of Defendants' overcharges to Costco, or whether they address the extent to which the increased cost of TFT-LCD panels is reflected in the cost of finished products incorporating those panels. That issue is not before the court.
Defendants also point out that in another case stemming from the multidistrict litigation of which this case was once part, the court instructed the jury to calculate damages based on what the plaintiff actually paid for finished products. The court suggests no view on how it will instruct the jury, but Defendants need not rely on passthrough evidence to argue that the jury should calculate damages based on what Costco paid. If, as Defendants contend, Dr. Bernheim will testify that Costco (like other similarly situated purchasers) paid an 18% overcharge on finished products, Defendants may offer evidence or argument that that overcharge applies (if at all) to the prices Costco actually paid. To use pass-through evidence (including evidence of Costco's bargaining power) to dispute Dr. Bernheim's calculation of an overcharge rate that applies not only to Costco but to similarly-situated purchasers of finished products would be to offer the pass-through argument that Royal Printing rejects.
The court grants the third, fourth, and ninth parts of Costco's motions in limine. Defendants may not rely on evidence or argument suggesting either that Costco's vendors absorbed the overcharge at issue in this case, or that Costco passed that overcharge along to its customers. The same ruling applies to Costco. This ruling excludes evidence that, Costco's bargaining power allowed it to obtain better prices than others, but it does not prohibit evidence or argument about the prices Costco paid for the finished products at issue. The court prohibits Costco from offering evidence or argument that its customers will benefit from any damages the jury awards.
B. Defendants May Not Offer Evidence of Costco's Price Monitoring.
Defendants contend that they can use evidence that Costco monitors its competitors' retail prices to demonstrate that Defendants' conduct was lawful. Beyond that generic contention, Defendants offer no examples of their own conduct whose lawfulness would be illustrated by offering evidence of Costco's price monitoring. Without those examples, the court shares Costco's concern that Defendants would offer evidence of Costco's price monitoring only to suggest to the jury (without basis) that Costco's practices are questionable. Whatever marginal relevance evidence of Costco's price monitoring might have to an issue before the jury is substantially outweighed by its potential to prejudice the jury, confuse it, or put greater burdens on its time. In particular, Defendants can easily argue that monitoring market prices is lawful without pointing to Costco's conduct.
The court grants the fifth part of Costco's motion in limine, and rules that Defendants may not offer evidence that Costco monitors its competitors' prices.
C. The Court Will Not Exclude Relevant Evidence as to Conspiracies Involving Products Other than TFT-LCD Panels.
Some of the evidence Costco hopes to introduce to prove the conspiracy mentions price fixing (or, at a minimum, concerted activity among competitors) in markets for other products, ranging from cathode-ray tube products to the market for ABS (acrylonitrile butadiene styrene) plastics. In one example, a witness explains that she prefers communicating orally about TFT-LCD panel production figures and excluding Hitachi's legal department from those communications because of lawsuits involving price-fixing of dynamic random access memory products. Costco points to other evidence in which Defendants or their alleged conspirators consider lessons learned from other products when discussing their efforts to influence the TFT-LCD panel market.
Although there is some danger that the jury will be influenced by evidence showing that Defendants or their conspirators engaged in other wrongdoing, that danger is necessary in light of the probative value of the evidence. Defendants cannot avoid this evidence where it is intertwined with evidence of indisputable relevance to the conspiracy at issue. Defendants have given the court no reason to believe that Costco will introduce evidence of conspiracies as to other products unless there is a direct link to the conspiracy at issue, although Defendants may object at trial if Costco does.
The court denies the fifth part of Defendants' motion. The court will not exclude, before trial, all evidence of price fixing or similar conduct as to other products. Defendants may object at trial to an individual piece of evidence on the basis that it is not relevant to the conspiracy at issue in this lawsuit or is of such marginal relevance that the danger of prejudice substantially outweighs it. The court will also consider, on proper request from a party, an instruction to the jury that it not base its verdict on a belief that Defendants have demonstrated a propensity to engage in anticompetitive conduct.
D. The Court Will Not Exclude Evidence that Panasonic Was a Conspirator.
The court is neither convinced that Defendants were unaware that Costco believed that Panasonic was a conspirator prior to June 2014 nor is it convinced that Defendants will suffer any prejudice from Costco pursuing that contention at trial. Even if Defendants had demonstrated prejudice, they fall short of convincing the court that they ...