Canada: Certification of competition class actions: The tide turns against defendants

Until recently, Canadian courts were generally reluctant to certify class actions alleging violations of competition law, principally on the basis that plaintiffs failed to put forward a workable class-wide method for determining the existence of harm for each class member.

In 2009, however, two significant decisions in Ontario and British Columbia - Irving Paper Ltd. v. Atofina Chemicals Inc.¹ in the Ontario Superior Court of Justice and Pro-Sys Consultants Ltd. v. Infineon Technologies AG et al.² in the Court of Appeal for British Columbia - signalled a new openness to such claims.

A third example of this trend is the recent 2010 British Columbia Supreme Court ruling in Pro-Sys Consultants v. Microsoft Corporation et al.,³ in which the plaintiff alleges that Microsoft engaged in anti-competitive behaviour that allowed it to charge higher prices for all of its operating systems and some of its application software. The plaintiff seeks damages for the tort of intentional interference with economic interests and common law conspiracy and also pursues civil remedies for breach of sections 45 (conspiracy) and 52 (misleading advertising) of the Competition Act, as well as relief for unjust enrichment and waiver of tort.

The proposed class in Microsoft consists of British Columbia residents who, on or after January 1, 1994, indirectly acquired a license for Microsoft Operating Systems and/or Microsoft Applications Software for their own use and not for purposes of further selling or leasing, including those who purchased new computers pre-installed with Microsoft's software. The key issue to be determined on the motion was whether the plaintiffs had put forward "a credible or plausible methodology" for establishing an overcharge and pass-through to this indirect purchaser class.

It is clear from Justice Myers' decision in Microsoft that he felt constrained in his approach by the appellate decision of the B.C. Court of Appeal in Infineon. Justice Myers held that Infineon stands for the following propositions with respect to certification:

• A plaintiff need only show a "credible or plausible methodology" for proving class-wide issues. Because the threshold is low, conflicting expert evidence is not to be given the level of scrutiny to which it would be subject at trial.
  
• Until the issue of waiver of tort has been determined substantively, a waiver of tort claim may be certified on the assumption that it will be sufficient at trial to show wrongful conduct by and resulting gain to the defendant without proof of any loss to the plaintiff.
  
• In a claim for damages for tortious economic loss, it is not necessary to propose a methodology that can demonstrate harm to all class members. Instead, it is sufficient if harm can be shown to some of the class members. In addition, the aggregate damages section of the B.C. Class Proceedings Act allows for harm to be shown in the aggregate to the class as a whole.

Given these extremely low thresholds, it is not surprising that the chambers judge in Microsoft was satisfied that the proceeding met the test for certification as a class action.

The plaintiff in Microsoft used economic and econometric analyses employed by plaintiffs' experts in similar U.S. actions against Microsoft to persuade the chambers judge that they did indeed have a "credible or plausible methodology" for establishing that the price overcharge was passed on through each level in the distribution channel to the class members. The fact that one of the economic models was based solely on American data did not detract from its status as a "credible or plausible methodology", in the chambers judge's view. Nor was he persuaded by Microsoft's argument that the plaintiffs had failed to satisfy section 4(2) of the B.C. Class Proceedings Act, which provides that the court must consider as a factor whether "a significant number of the members of the class have a valid interest in individually controlling the prosecution of separate actions." Microsoft argued that volume purchasers of its software would have a valid interest in separate actions, pointing specifically to purchasers with at least 250 desktop computers. Having noted that the possibility that certain class members might opt out does not preclude certification, the chambers judge added that the fact that an entity is a volume user does not automatically support the inference that it would have an interest in pursuing a separate action, particularly considering the costs of doing so. Finally, to the extent that volume purchasers are differently situated, the chambers judge felt that difference could be addressed by the formation of sub-classes.

Given the low level of judicial scrutiny applied in Infineon, Irving and now Microsoft, there appears to be a risk that the certification of price-fixing and other competition class actions (including classes comprised solely of indirect purchasers) will become the "new normal" in Canada. The Infineon case is the subject of a pending application for leave to appeal to the Supreme Court of Canada. If leave is granted, the highest court in Canada will weigh in on these challenging issues. For defendants, the hope is that appellate intervention will reverse the recent turning of the tide.

Footnotes

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