Supreme Court Of Canada Rules Software Consumers Can Sue Manufacturers Over Price-Fixing

The Supreme Court of Canada (Court) has held in a series of recent cases, including Pro-Sys Consultants Ltd v Microsoft Corp, 2013 SCC and Infineon Technologies AG v Option consommateurs, 2013 SCC 59, that consumers may sue manufacturers in class-action lawsuits over price-fixing, even if they only purchased the manufacturers’ products from a third party, such as a re-seller. In such a scenario, the consumers are known as “indirect purchasers”; the parties who purchased the goods directly from the impugned manufacturer are referred to as “direct purchasers”. In Pro-Sys, the class action concerned allegations that Microsoft had unlawfully over-charged for its operating systems and software. The plaintiffs claimed that as a result of this conduct, they had paid inflated prices for those products. The class consisted solely of indirect purchasers who had bought the products from re-sellers who had purchased them either directly from Microsoft or from re-sellers higher up the distribution chain. In response, Microsoft argued that, in Canada, indirect purchasers do not have the right to sue manufacturers for losses that were passed on to them through the distribution chain. The core of its argument was, that the fact that the Court had held in Kingstreet Investments Ltd v New Brunswick (Finance) 2007 SCC 1 that passing on is not a valid defence to an action, meant that, as a corollary, passing on cannot be used as grounds for a lawsuit. Microsoft made several subsidiary arguments. First, it asserted that the availability of passing on as grounds for an action exposes defendants to liability from all purchasers in the distribution chain, creating potential double or multiple recoveries. However, the Court held that this risk can be managed by the courts on a case-by-case basis. Second, Microsoft argued that the remoteness of the overcharge would create uncertainty and place a great burden on the courts in tracing each overcharge to its ultimate result. The Court rejected that argument, stating that in bringing an action, indirect purchasers assume the burden of proving that they have suffered a loss, and that whether that burden is met is a factual question to be decided in each individual case. The Court also indicated that indirect purchaser actions provide an important deterrent against unlawful business practices. It stated that in many cases, direct purchasers may be reluctant to sue overchargers, for fear of endangering important business relationships and, that in such a situation, actions by indirect purchasers may be the only means of promoting deterrence. Finally, the Court concluded that allowing the use of passing on as grounds for a lawsuit is consistent with restitution law, which is remedial in nature and is concerned with the recovery of gains from wrongdoing. According to the Court, allowing indirect purchaser actions accords with the remediation objective because it helps compensate the parties who have actually suffered the harm, rather than reserving price-fixing actions for direct purchasers, who may have only passed on the overcharge, and not actually suffered harm. Infineon was a Québec action by both direct and indirect purchasers against microchip manufacturers that had participated in an international price-fixing scheme. The defendants had sold the chips to original equipment manufacturers (OEMs), including Dell Inc and Hewlett-Packard Company. The OEMs inserted the chips into various electronic products they manufactured, and sold those products either to intermediaries in the distribution chain or to final customers. The court allowed the action to proceed, using the same logic as in Pro-Sys. While Pro-Sys and Infineon concerned technology companies, the rationale in these decisions extends to price-fixing in any industry. In Sun-Rype Products Ltd v Archer Daniels Midland Co, 2007 SCC 1, a decision released concurrently with Pro-Sys and Infineon, the Supreme Court applied similar logic in a class-action price-fixing lawsuit against manufacturers of high-fructose corn syrup. Summary by: Kathryn May