More can be better: contribution and setoffs in antitrust.
When a girl gets coy In front of a boy After three or four dances Ah, you can bet She'll play hard to get To multiply her chances. Multiplication. That's the name of the game. (1)
By definition, an alleged violation of section 1 of the Sherman Act involves multiple defendants participating in the contract, combination or conspiracy. As a matter of fact, most antitrust cases ultimately settle. Settlements may involve multiple defendants in a single case, or several defendants in multiple (but factually related) cases.
Multiplicity of defendants (either in one or in several related cases) engenders interesting strategies for both plaintiffs and defendants in antitrust cases, particularly because of the antitrust rules concerning contribution and setoffs. This article examines both situations in the context of antitrust settlements: the impact of having multiple defendants in a single antitrust case, and then expanding the analysis to multiple defendants in several (but related) cases. Some of the issues involving multiple defendants in a single case have been examined somewhat, although incompletely and in ways different from the presentation here. The impact of having multiple defendants in multiple (but related) section 1 cases appears not to have been examined at all.
The article begins by summarizing the legal rules applicable to multiple defendants concerning contribution and setoffs. It then continues to illustrate how those rules predictably would influence litigants' behavior in various situations involving multiple defendants, either in a single action or in several related actions. The analysis here is mostly positive, i.e., predictive, although we also identify various effects that are, as a matter of normative legal policy, perhaps unintended but certainly problematic. (2)
II. CONTRIBUTION AND SETOFFS IN ANTITRUST
Except to the extent that a more specific antitrust doctrine conflicts, civil antitrust violations involving more than one defendant are analyzed as joint torts, therefore subject to general tort law doctrines. (3) Thus, many states apply ordinary tort law principles concerning contribution to antitrust cases, recognizing the right of one guilty defendant to recover against other participants in the illegal activity. (4) However, in federal antitrust cases, the Supreme Court has held that contribution from settling antitrust coconspirators (joint tortfeasors) is barred. (5) So, "a single defendant may have to pay the entire damages award, even though several coconspirators participated in the violation that caused the plaintiff's injury." (6)
Since they are complex and therefore expensive cases to litigate, most antitrust cases settle. An antitrust plaintiff cannot, however, collect for the same damages twice. Any settlement payments must be deducted as setoffs from the trebled damage award that would be payable following litigation against any nonsettling defendants. (7)
Taken together, the antitrust rules concerning contribution and setoffs when several defendants are involved have interesting--perverse, some might say--effects. As shown in the next section, the rules have important implications for defendants' incentives to settle civil cases. For instance, the terms of settlement, and indeed the likelihood of settlement itself, may be affected by a mere variation in the number of coconspirators, even when the other relevant aspects of the case are constant. And the plaintiff's likelihood of victory in court creates surprising incentives for multiple defendants to settle rather than go to court.
III. THE POSITIVE EFFECTS OF ANTITRUST'S SPECIAL REMEDIAL RULES
A. The number of defendants and the incentive to settle
Taking the antitrust rules concerning contribution and setoff as just summarized, two numerical tables help to explain the position of codefendants in a civil antitrust case during settlement negotiations. As outlined below, the scenarios in the tables differ only in the underlying merit of the cases being litigated--a critical factor, one discovers.
1. METHODOLOGY IN TABLES BELOW Assume that a plaintiff and the several defendants have some notion of the strength of the case and behave rationally in settling. That is, plaintiffs get what they can and defendants pay no more than the probabilistic value of what they would have to pay if the case were litigated to judgment. To demonstrate the interesting underlying effects simply, we initially generate numerical results via a numerical model in which settling defendants calculate their settlement offers risk-neutrally. Defendants anticipate that, absent settlement, their expected liability will be a pro rata share of the remaining liability, with due regard for the current number of nonsettling codefendants and for the offsets created as a result of any previous settlement payments. (Later, we comment briefly on how the introduction of risk aversion and more sophisticated decisionmaking by defendants is likely to exacerbate the effects identified in the initial simple model.)
Both tables model cases in which the damages claimed are identical. The numerical illustrations assume that the trebled damage recovery if the case is won totals $1. (Obviously, scaling the $1 by any multiplicative factor--for instance, 100,000 or one million--would not change the implications of the analysis.) In both tables, the probability of establishing liability measures the ex ante expectation that the plaintiff will prevail by securing a verdict on liability, and thus be awarded the $1 damage payment. To some extent, this probability can be regarded as a proxy for the ex ante "merit" of the case, although we note that winning a judgment is not necessarily the same thing as merit in the sense of a socially beneficial case.
The two tables differ in their assumptions about a plaintiff's actually proving liability, thus portraying two hypothetical cases with substantially different merits. Table I below represents a "weak" case, one with only a ten percent chance of a plaintiff's establishing liability if litigated to judgment. By contrast, the set of results depicted in table 2 represents a much stronger case, one with a fifty percent expectation of a liability verdict.
Since the damages provable in both examples are $1, one might think initially that the settlement values set on the respective cases a priori ought to be approximately $.10 for the weak case and $.50 for the stronger one, (8) thus varying in direct proportion to their underlying merits. Those would indeed be the approximate settlement values in a Sherman Act section 2 monopolization case with a single defendant. However, when there are multiple defendants, the calculation for any individual antitrust defendant is more complicated because of the special rules concerning antitrust damages discussed above.
2. RESULTS IN TABLES 1 AND 2 In fact, those rules concerning contribution and setoff have several little-understood effects. First, the rules provide settling plaintiffs with an opportunity to collect significantly more than the objective value of the suit. Second, the rules artificially motivate plaintiffs, ceteris paribus, to manipulate opportunistically both the size of the plaintiff pool and the nature of the claims asserted and maintained. Third, the effects described in the first two points vary in a way that is arguably perverse in view of the underlying merits of the individual case. That is, the rules provide the greatest incentive enhancement for plaintiffs to bring cases that have the least probability of succeeding on their factual and legal merits.
In tables I and 2, for each codefendant, the expected value of what he has to pay if the case goes to judgment is p[(D-S)/n]. Term p is the probability of being held liable for payment, and the terms collected within the square brackets represent a non-settling defendant's pro rata (1/nth) share of the liability remaining after any applicable setoffs. (9) Within the brackets, D is the original $1 prospective judgment, S represents any settlement payments made by settling codefendants, and n is the number of remaining nonsettling codefendants among whom the judgment must be spread. Therefore, the square-bracketed term captures the impact created by the legal rules confronting the nonsettling defendant. The liability pool has been reduced by any applicable setoffs, but the impact of settlement is borne only by the n nonsettling defendants without any further contribution by the joint tortfeasors who have settled.
Assume for the moment that a plaintiff settles seriatim with individual defendants; each settlement, that is, results from an individual agreement between the plaintiff and a given defendant. The cells in tables 1 and 2 show the changes in settlement value (1) as each successive stage of multidefendant settlement occurs and (2) as the number of joint tortfeasors (coconspirators) varies. All else is held constant. The tables' calculations assume that, at each stage, a prospective settler will be willing to pay the expected value of his liability if he stays in the case (the p[(D-S)/n] just described). (10)
At the bottom of each column in the tables is (1) the total (Sum) of the expected values of all such payments from defendants and (2) the ratio (Sum/Eval in the tables) of those payments to the case's true expected value without the peculiar "wrinkle" that the no-contribution doctrine creates. To the extent that Sum/Eval is greater than 1.0, it indicates the degree to which the existence of the no-contribution rule artificially enhances the settlement value of the case beyond its expected value, that is, its value if litigated without settlement.
Several points that emerge from table 1 are noteworthy. Observe, first, that the expected value of a case derivable through settlement is greater than analogous prospective damages obtainable if plaintiff were to choose the option of litigating. The expected value of the case in table 1--if tried without settlement--is $.10, but the sum of the settlement amounts from all defendants ranges from $.145 for a two-defendant case to more than $.26 when the same case names ten defendants. Just as a gambling casino wants as many bettors as possible around the table, so do plaintiffs want as many defendants as possible. All defendants lose; to plaintiffs, the more losers the better.
Second, holding constant the number of defendants, the increasing numbers in any column show how the expected cost of staying in the case rises significantly for a defendant as other codefendants settle out. Settlement by other defendants creates a "whipsaw" effect for those who have not yet settled. The common sense explanation of the whipsaw effect is as follows. Under antitrust's no-contribution/setoff rules, when each settling defendant leaves the case, it increases the total expected liability for nonsettlers because their proportional share of the remaining liability pool increases to a degree less than the setoff-induced reduction in the liability pool. The liability pool falls only by approximately the probability-weighted expected value of its 1/n share of the remaining liability. Whenever that probability of liability is less than 1.0, the liability of the remaining defendants is reduced by only some fraction of each settling defendant's true pro rata share. A defendant at the end of the settlement chain is, therefore, left with a disproportionately high share of liability. Thus, in a dynamic settlement process, the numbers shown in the tables are arguably underestimates of the willingness of defendants to pay. A defendant might reasonably be prepared to pay a premium to avoid being preempted in the settlement process, and thus left in an unfavorable tail-end position. We return to this point below. (11)
Finally, however, note also that the whipsaw effect, though present in any multidefendant setting, grows smaller at the margin as more and more defendants are implicated in the case. As both the Sum and Sum/Eval rows of table 1 show, increasing the number of defendants from one to five more than doubles the value of a settled case to a plaintiff. But adding another five defendants, though increasing the total value of a settled case to the plaintiff relative to the suit's expected value if litigated, adds much less at the margin to the value of settlement. For plaintiffs, in other words, there are positive but diminishing returns from settlement in adding defendants to the case.
The points just described are even more interesting when one considers that some cases are more meritorious than others. As noted above, table 1 describes a weak case for a plaintiff, in which the likelihood of recovery in court is only ten percent. Suppose, alternatively, that the probability of recovery for a plaintiff is fifty percent, as in table 2.
In table 2's moderate-strength case, several of the points noted in connection with table 1's weak case are reinforced. One sees again that a settled case is worth more to plaintiffs than the expected value of the case if litigated. Likewise, one observes that antitrust's recovery rules create a whipsaw effect to settle.
Importantly, however, the impact of the whipsaw effect is actually lower when the case is more meritorious. As table 2 shows, the last of ten defendants to settle pays ($.176) less than four times more than the first to settle ($.05). With the weak case in table 1 and ten defendants, the last to settle pays ($.082), over eight times as much as the first to settle ($.01). So, as table 2 illustrates, the magnitude of the whipsaw effect varies inversely with the probability that the case is a "winner" on the merits. The whipsaw effect demonstrably diminishes as the likelihood of a plaintiff's recovering at trial rises. Had we provided yet another table with a 100% liability scenario, no over-recovery would arise from settlement, nor is any whipsaw effect created.
One observes, finally, that the returns to adding defendants to a moderate-strength case diminish even more than they do in a weak-strength case. Comparing table 2 to table 1, one sees that the increased value to plaintiffs (measured by Sum and Sum/Eval) in going from five to ten defendants is relatively slight. As already shown in table 1, it is beneficial to plaintiffs to maximize the number of plausible defendants, but the marginal effect of additional defendants diminishes. But as shown in table 2, the marginal returns to adding defendants diminish even more when the merits of the case are relatively strong.
Antitrust's recovery rules in effect create a (quasi) prisoner's dilemma among defendants. (12) If defendants agreed collectively not to settle, the value of the case to plaintiffs would be less ($.01 on average for the ten defendants in table 1, $.05 on average for the ten defendants in table 2). But acting noncooperatively in their best interests, settling sequentially, defendants in total will pay much more. Collectively, they would be better off agreeing among themselves not to settle and to share liability, should it be imposed, equally. But the recovery rules make it more for a defendant individually to settle or to agree not to settle and then to cheat on the agreement by settling.
The whipsaw effect of the no-contribution/setoff rule has been recognized by others. (13) As a comparison of tables 1 and 2 shows, for any given p of winning, the sum of the expected payoffs to the plaintiff (Sum in either table) rises as the number of joint defendants increases. Thus, a plaintiff has an incentive to include as many defendants as possible in a case, ceteris paribus. Even if the total amount of recovery in the event of litigation (here, $1) is the same, including as many defendants as possible benefits plaintiffs, who earn more from settlement as the number of defendants named increases. (14) But there has been no recognition that, as just shown, the whipsaw effect is at its strongest precisely when the merits of the liability case, as measured by the probability of liability p, are at their weakest. Nor has the diminishing marginal impact of adding defendants been analyzed, although, as discussed below in connection with naming several defendants in multiple suits, that phenomenon may be of considerable importance to plaintiffs.
3. RELAXATION OF ASSUMPTIONS As must every model, the analysis above makes several simplifying assumptions to isolate the effects of particular interest. It was assumed, for example, that firms were risk neutral in appraising their options. It was likewise assumed that plaintiffs could create among defendants acting individually a rush to settle that, in the end, results in a suit of higher value than plaintiffs could obtain through litigation itself. It is shown next that relaxing these assumptions does not change--indeed, may strengthen--the conclusions already drawn.
a. Risk Aversion among Defendants In positing risk neutrality among defendants, tables 1 and 2 assumed that defendants were indifferent to the spread (variance) in possible outcomes. An alternative supposition is that defendants are risk averse. This possibility is discussed in various ways in the extant literature concerning antitrust's special recovery rules. (15) One might ask how an assumption of risk aversion would affect the conclusions of the model presented here. (16)
In fact, if defendants are risk averse, the present model's conclusions are strengthened. For example, adding defendants to a suit increases the risks that defendants face in settling, and so make them even worse off than the sheer numbers of tables I and 2 (based on risk neutrality) would indicate. (17) Compare in table 2, for example, the impact of going from three to ten defendants. With three defendants, the range of outcomes is between $.167 (for the first to settle) and $.313 (for the last). The last pays not quite double the amount paid by the first. With ten defendants, however, the amounts that will be paid, depending on one's place in the settlement queue, go from $.05 to $.176. The last settler pays more than three and one-half times what the first settler pays. The whipsaw effect, then, is even greater when risk aversion among defendants is assumed. And, of course, having more defendants makes successful collective action by them in the face of plaintiff settlement offers less likely. More generous early settlement offers from plaintiffs make the unraveling of collective strategies more likely and increase the variance of possible outcomes.
Moreover, the whipsaw effect operates more strongly in a weak case, making the impact of any assumed risk aversion even greater in weak cases. In table 1, the last of three defendants to settle pays almost three times the amount paid by the first settler. But with ten defendants, the difference is over eight times greater. Risk averse defendants will be even more likely to settle a weak case.
b. Plaintiffs' Incentives If Defendants Compete to Settle First The models above assume that plaintiffs are willing to accept defendants' "breakeven price" for the current number of settlers. That is, plaintiffs will allow defendants to settle at the lowest price defendants will offer at each stage by taking as given the number of the named defendants who settle. This assumption is not implausible, since plaintiffs are made better off by this settlement process than if they insist on litigating the case, as the gains in the Sum rows in tables 1 and 2 show. However, this assumption is a static one and ignores a possibly critical part of the dynamics of a settlement process in which the eventual number of settlers and their order of settlement are not fixed.
Specifically, this assumption passes over the likelihood that plaintiffs can gain even further by negotiating the order of settlement among defendants. When there is only one plaintiff (18) but there are many defendants, a plaintiff presumably would benefit by pitting defendants against one another to settle, given that settling earlier is more advantageous than settling later. As shown in tables 1 and 2, if one defendant offers $.01 in a weak case (table 1) or $.05 in a stronger case (table 2) to settle first, a plaintiff can drive that offer up by taking it to other defendants and, in effect, "shopping" the right to settle before the others. Those others, realizing that they will lose if they get in line behind the first settler, will have an incentive to out-bid the first offeror.
Indeed, Stanley shows, a plaintiff's gains are maximized by establishing a repeat-bid auction for settlement. In the auction, defendants all know what others are bidding to settle out, and have the right to revise their offers until the plaintiff drops the suit, once all defendants agree to settle and agree on the amount of settlement. In such a process, the plaintiff can attain a solution in which all defendants, at the conclusion of the bargaining with the plaintiff, pay the same amount to settle. That price also is higher than the initial settler would pay if plaintiffs were not shopping the first settlement bid. (19)
Stanley's results are insightful in principle. But they obtain only when transaction costs between a plaintiff and multiple defendants are relatively low, such that a plaintiff can bargain virtually without cost with all defendants more or less simultaneously until the maximum payment available is agreed to by all. If transactions were relatively costless to conclude, however, defendants could agree among themselves not to settle and to split the damages in any litigation, in effect achieving contractually the contribution rule not available automatically by law. Defendants could alternatively agree to a most-favored-nation clause, by which they would settle only on the same terms as other defendants and less than a plaintiff would extract by contracting with defendants directly.
Such transaction-costless arrangements are rarely seen, however. (20) It is far from clear whether an agreement among defendants to settle on the same terms would be enforceable, and it is highly unlikely that defendants would trust one another when confronted with claims that all are paying the same. Certainly, they have no reason to trust plaintiff's reports as to what other defendants are paying.
More realistically, it is likely that defendants would indeed pay a premium to avoid being left without a seat in the settlement game of musical chairs (that is, the only defendant still in when all others have settled), but that negotiation costs would still result in defendants' settling one by one. (21) In that case, the results above still obtain generally. Indeed, their effects are strengthened. Consider table 3, which assumes that each defendant except the last will pay a thirty percent premium to settle before other defendants in a table 1 ("weak case") setting. (The size of the premium is chosen arbitrarily for illustrative purposes; as long as the premium is positive--a highly probable assumption--some degree of the effects notable in table 3 would occur.)
Comparing table 3 with its analogue, table 1 (both tables portraying "weak-case" scenario in which a plaintiff has just a ten percent chance of winning in court), one notices that defendant-settlers' willingness to pay more than their otherwise-expected losses in litigation has several effects. First, early settlers by definition pay more to settle, meaning that there is less for those at the back end of the settlement line to pay under antitrust's setoff rules. But second, the overall value of the case (Sum in the two tables) is greater when defendants bid a premium to settle. (22) Not surprisingly, the ability (at an acceptable transaction cost) to negotiate with defendants inures to a plaintiff's benefit.
Notably, though, the range of payments among defendants is different when defendants will pay a premium to settle. In table 3, the amount (Sum) defendants will pay is greater than it is in table 1, but the dispersion of amounts owed (risk) is lower. A priori, then, the reduction in risk is not unambiguously good for defendants, not even those who are risk averse, because they pay the plaintiff more collectively.
IV. MULTIPLE DEFENDANTS IN MULTIPLE CASES
The previous two sections discussed issues involving multiple defendants in a single section 1 case. We focused in particular on the no-contribution rule, the subject that has concerned most analysts of antitrust recovery rules. Antitrust's recovery rules also concern setoffs, a subject of considerable interest when there are multiple defendants in different, but closely related, cases. Even with a certain number of well-defined possible defendants, that is, multiplicity also extends across time and space.
Assume that a set of defendants is involved in a series of alleged contracts claimed to violate section 1. The same defendants (or varying subsets of the entire group) may also be involved in fixing the prices of many contracts, at different times and places. At the outset, this scenario raises many interesting legal issues. The party that frames the legal complaint--the prosecutor in a criminal antitrust case or the plaintiff in a civil antitrust case--has great discretion in how to define the "conspiracy," and the legal rules on this issue are not well settled. (23) Depending on how broadly or narrowly the conspiracy is characterized, the identities of the coconspirators, and hence the defendants, may differ considerably.
A. Implications of conspiracy definition
To a considerable extent, this defendant-choosing issue presents problems that are related to, but not identical with, those discussed above. Suppose it is at least plausible that many defendants have conspired with respect to many contracts over time. This was a familiar situation in many price-fixing cases in the 1980s and 1990s, when several cities and states alleged collusion in bidding for contracts involving highway paving, chlorine, and school milk. (24) The fact that the same defendants were charged in multiple conspiracies in different cases sets up intriguing situations concerning settlement. Consider the following, based on a series of actual cases (in the hypothetical State of Sunshina) involving several defendants.
Over many years, 25 percent or more of the highway construction contracts let by the State of Sunshina were rigged by the paving companies bidding on the jobs. The evidence establishing that any particular contract for which damages can be claimed varied from 0 to 1.0, analogously to the "merits" probabilities used in tables 1 and 2. The number of actual parties to each rigged bid varied anywhere from two to a dozen or more, depending on the circumstances. The ability of highway contractors to compete spatially is limited by their asphalt production facilities, since asphalt can only be shipped a limited distance. Some of the bid riggers were essentially single-plant, local companies that operated only in a few counties. The larger multiplant companies operated in larger areas of the state or even statewide.
The attorney general of Sunshina filed suit with respect to all of the known or suspected rigged jobs, but the suits were brought on a regional basis. All of the contracts in the north, central, and south parts of the state were clustered in three separate district court suits (here called Suits I, II, and III). The suits were brought in the same temporal order as the numbers indicate. Many, if not all, of the paving companies could potentially have been named as defendants in more than one of the regional suits. Instead, the plaintiff State of Sunshina filed against a subset of the paving companies in Suit I and settled with all defendants. All of the settlement agreements contained a clause similar to the following:
This Covenant Not to Sue is neither entered into nor in any way intended to release any claim or any cause of action which the State may have against other companies or persons arising from or related to the claims made in this suit, and the State specifically reserves all claims it may have against any such other companies or persons.
Then, the plaintiff filed Suit II against an additional (nonoverlapping) set of contractors, all of whom settled. Finally, the plaintiff filed Suit III against the remaining fourteen companies, of whom only two nonsettling defendants remained as Suit III went to trial. The cumulative total of the settlement payments in all of the suits was over $100 million. In Suit III, the state was seeking $3.3 million in damages allegedly accrued on 35 construction contracts. At the original filing of Suit III, the complaint had claimed substantially higher damages, based upon the 35 contracts on which it now claims damages plus an additional 100 contracts.
Most of the settlement agreements simply contained a general covenant not to sue, discharging all antitrust claims:
The Sunshina Department of Legal Affairs does hereby release and forever discharge [Settling Defendant] and its subsidiaries, divisions, affiliates, successors, predecessors and assigns, and all of their present and past officers, directors, employees, agents and shareholders and their heirs, executors, administrators and assigns, of and from any and all actions, claims and demands, both State and Federal, both civil and criminal, which the State has or ever had arising from or related to any violation or alleged violation of any Federal or State antitrust law or laws, or the common law of restraints of trade....
Some of the settlement agreements, however, appended to the above clause the following more focused language that purported to allocate settlement payments to specific damage claims
based upon, arising out of, or related to the following Sunshina Department of Transportation highway construction projects: Date Contract # Location Damages 6-30-76 12258 Sunshina City/Oakland $157,345 ... 9-15-83 17898 Metro-Kingsland Hwy. $234,897
Expanding on the settlement discussion of the immediately preceding material, one can see how a crafty plaintiff, by carefully designing both its antitrust allegations and then its settlement agreements, could substantially circumvent the effects of the setoff doctrine.
If a Suit I defendant settles for $1 million and receives a general release of the type recited, it is clear that this defendant has de facto "purchased" freedom from the claims in Suits II and III. The economic reality then is that the payments made by settling defendants in Suit I will be enhanced by the threat value of the avoided liabilities in prospective Suits II and III. Nevertheless, plaintiffs then would not implausibly argue--as did plaintiffs in the real Sunshina case--that the Suit I settlement payments are not formally applicable as setoffs to judgments in the subsequent suits, leaving the other defendants, if ultimately found guilty, liable for the full amounts in those suits. By this argument, there would be no setoffs attributable to any payments in an earlier lawsuit. Notwithstanding the reality that the plaintiff has already collected part of the damages during settlement negotiations of the earlier suit(s), later defendants would be exposed to the full value of any later damage claim. On the other hand, nonsettling defendants would urge a court in later suits to recognize the underlying economic reality of the transaction: part of the settlement payments during earlier lawsuits were in fact payments made to "buy free" from liability in the subsequent Suits II and III. (25)
As applied to Suit III, the economic realities would require a court to make a reasonable imputation of those amounts paid to "presettle" Suit III, thus reducing the amount for which the remaining nonsettling defendants would be liable. To say the least, it would not be easy to make such an imputation. On the other hand, the failure to do so might result in substantial injustice to defendants in Suits II and III, as well incentivizing forms of manipulative and opportunistic behavior that the Supreme Court is unlikely either to have recognized or intended.
One difficulty in imputating presettlement payment amounts is that the decisionmaker would have to be apprised of the risks and returns as the settling parties (both plaintiff and defendant) would reasonably have viewed them at the time of settlement. This is a fact-intensive inquiry and, moreover, reasonable people might disagree substantially as to how the relevant prospects would have been viewed at different points in time. But perhaps an equally intractable problem arises when one confronts the problem of attempting to draw valuation inferences from "bundled" transactions.
To illustrate the bundling problem, consider this hypothetical example. Buyer enters into a contract for $1 million to buy a mansion with additional amenities in form of a beautiful garden and pool on an adjacent back lot. After closing, it becomes clear that Seller erroneously thought that he owned the back lot, which, in fact, is owned by Thirdparty. Assuming that Buyer still wants the house, how can we tell what parts of the contract price were separately imputable to the garden and the pool?
Letting V stand for the relevant values, superscripts b and s for the identities of the parties, and subscripts m and a for the mansion and amenities, all that we (or a judge, or a jury) really know is that:
[V.sup.b.sub.m] + [V.sup.b.sub.a] > [V.sup.s.sub.m] + [V.sub.s.sub.a]
Thus, would it not even be possible that Seller attributed $350,000 to the back lot amenities and Buyer only $150,000, or vice versa? Since the parties may attribute widely disparate values to the amenities, there is no conceptually unambiguous quantification of the offset value [V.sub.a]. Once it is conceded that [V.sup.b.sub.a] and [V.sup.s.sub.a] may be quite disparate, it emerges that the problem is not ended even if the practical issue of arriving at those values were surmounted: if the values are different, whose valuation is dispositive for offset purposes, that of plaintiff/ seller or defendant/buyer?
At first blush, it may seem that a contractual damage allocation of the type included in some of the settlement agreements, with specific dates, contract numbers and locations, ought to settle the imputation question. On further analysis, however, it becomes clear that the parties to the Suit I settlement have strong strategic incentives to engage in a sham allocation of the damages. Plaintiff, of course, wishes to maximize its return over the entire portfolio of suits. The settling Suit I defendant is completely indifferent as to how the remaining defendants deal with damages in the cases they will litigate. The fact that plaintiff (still in the game) and settling Suit I defendant (exiting the game) have different incentives sets the stage for plaintiff to try to game the system. The gaming possibility arises when the probabilities of recovery in the various suits, and on the contracts involved in each of them, differ.
Assume, for example, that there are five contracts, A through E, for which there is some evidence of bid rigging. However, the strength of the evidence for each contract varies significantly: contracts A and B have a 95 percent probability of liability; but C has a 50 percent, and D and E each have a 5 percent chance of success. A deal has been struck in which the defendant in Suit I pays $500,000 in exchange for a general release from all subsequent suits similar in form to that described above. At this point, the settling defendant would be essentially indifferent as to how the damages were allocated among these contracts, given that the plaintiff grants a general release of liability on all of them. The defendant cares only about the total settlement amount paid and the consequent general release; it has no reason to care about any contractual recitations that purport to allocate the total sum among individual contracts.
By contrast, and because of the setoff doctrine, the plaintiff would strongly prefer an allocation of, say, only $10,000 apiece to contracts A through C, with the remaining $470,000 divided between the weakest claims, D and E. Indeed, as soon as the plaintiff has collected the full $500,000 potential judgments for D and E, it would be well advised to drop those contracts from the damages claims brought to trial and argue that the settlement amounts allocated to the dropped claims cannot be deducted as offsets to any final judgment in the case as ultimately tried. In fact, this is exactly the tactic employed by the plaintiff in the real cases that inspired the Sunshina hypothetical employed here.
A discerning reader will note that the intercase and intracase setoff problems are in fact the same problem in slightly different fact contexts. The important commonality is that the setoff doctrine in antitrust law hinges on the attribution of settlement payments to a particular legal claim. When this attribution is done in a simplistic, formalistic way, it provides plaintiffs with strategic incentives enabling artificially enhanced recoveries. However, attribution done in the right way, in the sense of recognizing the underlying economic realities, presents a forbidding practical problem.
Settling parties have good reason to agree to sham allocations because this enables the plaintiff to circumvent the setoff doctrine to plaintiff's advantage and at no cost to defendants. There is nothing in the law that militates against such a can't-lose strategy for plaintiffs. Under the present formulation of the setoff doctrine, the underlying imputation problem is virtually unsolvable. The case law is sparse, and very unclear even as to whether the court or a jury would make such an imputation. Reformulating the setoff doctrine as a pro rata cancellation of the settler's "share" of the liability would be a large step toward simplifying the imputation problem, as well as solving the whipsaw phenomenon described in the last section. This point is discussed next, in section V.
Finally, the discussion here should not be viewed as arcane and merely theoretical. The Sunshina hypothetical is based on the real behavior of the State of Florida during a series of highway bid rigging cases in the 1980s. As the behavioral theory laid out here would predict, the plaintiff started out with a long list of "damages contracts," collected very substantial settlement payments, and ultimately went to trial on only a relative handful of contracts. In the analogue of Suit III, the plaintiff argued that no setoffs should be allowed either for settlements of Suits I and II or for contracts that had been dropped from the originally pleaded damages claim in Suit III.
V. NORMATIVE ARGUMENTS FOR THE NO-CONTRIBUTION/SETOFF RULE
Section III above described the rather strange--and probably not widely understood--behavioral incentives that are created by the no-contribution rule. Our perspective was principally one of identifying behavioral effects. In this section, we turn to some of the policy and normative arguments militating either for or against the desirability of the identified effects.
A. Whipsaw effect
Is the whipsaw effect desirable or not? The most common argument against it is that it is unfair: "Most arguments for a right of contribution in antitrust rest on the lack of fairness or justice in any rule that forces one guilty party to pay for the offenses of another party who is equally guilty." (26) It allows crafty defendants who understand how the game works to settle out first, leaving other defendants holding more of the bag.
Several counterarguments have been raised, some of them economic. Most prominently, Easterbrook, Landes and Posner argue that if defendants understand the game, their total losses from settlement seriatim will exceed their unlawful profits (particularly as those profits will be trebled in plausible damage calculations). Total damages paid in settlements will be $.26 in a weak case whose expected value to plaintiff is only $.10 (table 1), or $.82 in a moderate-strength case whose expected value is only $.50 (table 2). The no-contribution rule apparently makes collusion unprofitable ex ante, and so deters section I violations. (27)
The argument is at best incomplete. It ignores the fact, as shown in tables 1 and 2, that the no-contribution/setoff rule results in overcompensation of plaintiffs--even beyond the statutorily-mandated double punitive damages. Plaintiffs already seek $1 in trebled damages. With the whipsaw effect created by the special damages rules of antitrust, a treble-damage case based on $.33 in claimed damages is worth much more than the expected value of $1 in the event of litigation ($.33 in table 1, $.50 in table 2).
The deterrence argument for the special antitrust damages rules in effect ignores the problem of encouraging meritless litigation. The problem of supracompensatory awards in tort has been discussed generally. (28) Supracompensatory awards create "eager plaintiffs," those whose claims are of dubious merit. The problem is general in tort law, but is especially familiar in antitrust, where the problem of over-eager plaintiffs has been recognized for some time.
Indeed, much antitrust jurisprudence of the past generation has focused precisely on reducing private plaintiffs' incentives to bring nonmeritorious actions. (29) Advocating special (supra-supra-compensatory) rules for antitrust seems all the more curious when there is little factual support for the proposition that antitrust law systematically deters economically deleterious acts in the first place. There is no empirical evidence that antitrust on the whole has had more benefits than costs. To the contrary, economists" own appraisals of particular antitrust cases have concluded that en gros antitrust has been a force for economic evil, not good. A survey by economist Paul Rubin of economists' evaluations of antitrust cases concluded that a majority of the cases were misguided. Rubin concludes, "it is highly unlikely that the net effect of actual antitrust policy is to deter inefficient behavior. The economics profession has not judged that antitrust policy as reflected in actual cases is searching for economic efficiency.... Factors other than a search for efficiency must be driving antitrust policy." (30)
The deterrence argument for the no-contribution/setoff rule thus commits a fundamental statistical error. It assumes all antitrust cases that are brought are the "right ones," and therefore that any remedial rule that increases the number of cases must be a good thing, for reasons of deterrence. This assumes, erroneously, that in antitrust only one sort of error is relevant: Type II error, the error committed when guilty defendants are not brought to justice.
But antitrust, like every other system of law (or human behavior, for that matter), also entails the possibility of Type I error, the error of assessing liability against those who in fact are not economically culpable. The economics profession itself has concluded that antitrust has in fact committed a considerable amount of Type I error, so that antitrust itself has induced the filing of meritless actions. (31) If so, blind advocacy of an antitrust damages rule that increases the incentive to file antitrust actions requires more justification than mere invocation of greater "deterrence." And surely, even those who are unconcerned about "fairness" to guilty antitrust conspirators must recognize the unfairness that antitrust's special rules create in motivating suits against innocent parties.
B. An alternative: pro rata cancellation of claims (claim reduction)
It is difficult to believe that, in fashioning antitrust's special recovery rules, judges and justices intended to create the situation that has arisen. It is senseless, for example, to create incentives to bring cases whose merits are meager (i.e., there is only a small probability of prevailing in court) but whose settlement value is artificially enhanced to be greater than the value of more meritorious cases. Likewise, it is problematic that antitrust's special rules motivate plaintiffs to maximize the number of defendants named in the suit just to increase the value of the case. (32)
There is a fix to the problem created: claim reduction. Whenever a defendant could have been named in a suit, but instead settled with the plaintiff, that defendant's share of the liability in the case as litigated would be treated as cancelled, reducing plaintiff's possible recovery in court by the pro rata share of any damages that would have arisen from successful litigation by plaintiff. (33) Suppose that, as in tables 1 and 3, plaintiff has only a ten percent chance of recovering $1 claimed in damages, and that there are ten defendants, A through J. Suppose, next, that defendant A then settles in this weak-strength case for $.01, when--because the defendants would be jointly liable--the $1 in damages claimed would be divided among ten defendants. If A's pro rata potential liability ($.10) is deducted from the damages now available to plaintiff, should plaintiff litigate, the remaining nine defendants face a ten percent chance of damages totaling $.90. The collective expected damages are now $.09, or $.01 apiece. Should B then settle for B's pro rata share of expected damages in the event of litigation, B will pay the same $.01 ($.09/9) as A, but thereby would reduce the total amount available in court by another $.10. The remaining eight defendants now face total expected damages of $.08 in the event of litigation, or $.01 each, the amount that the next settler, C, will offer). (34)
Table 4 summarizes how claim reduction would work. The second column shows that as each of ten defendants settles, the amount of plaintiff's claim is reduced by one-tenth. The amount of settlement paid by each defendant does not affect the claim reduction shown in the second column. For illustrative purposes only, nonetheless, column (3) assumes that, at each stage, a settling defendant pays the expected value of its pro rata liability when the defendant stays in the case all the way to final judgment. Thus, the third column shows how, under claim reduction, the cumulative value of the settlement payments would might be the expected value of the case undistorted by the no-contribution rules. More importantly, however, the entries in column (2) are completely independent of how much or little is shown as paid in column (3); the remaining liability is determined only by the fraction of the potential defendants who have settled, i.e., is a function only how many of the defendants shown the entries in column (1) settle.
A regime of claim reduction has several implications for the no-contribution recovery rule underlying tables 1 and 2. First, there can be no whipsaw effect from claim reduction, since all defendants would be motivated to pay the same amount, regardless of order of settlement. Second, claim reduction removes the artificial incentive for plaintiffs to bring suits of little merit, because the total amount of all settlements just equals the expected value of the suit if litigated. In the weak case summarized in table 4, for example, a plaintiff would only get $.10 for settling its claim for $1--just, that is, the expected value of the case. Likewise, there is no incentive for plaintiffs to "pad" their complaints with additional defendants, because the number of defendants does not affect the overall value of the case, only the amount that each settling defendant will pay individually. (35)
C. The multiple-suit stratagems
It is easier, using a claim-reduction formula, to resolve issues that arise with multiple defendants in a single case than it is to deal with the gaming possibilities available to plaintiffs when multiple suits are a possible strategy. Nonetheless, a few points are worth noting.
First, bringing multiple suits is not costless to plaintiffs. They lose the advantage of the whipsaw effect that would be available if all possible defendants were named. In the Sunshina example, for instance, plaintiff's earlier settlements reduced the whipsaw leverage it might have had in Suit III.
At the same time, as the tables above show, the returns to adding defendants diminish as more defendants are added. Once there are more than a handful of defendants, particularly in a strong case, the whipsaw advantages of adding even more defendants are slight. But, as the Sunshina episode indicates, tactical use of multiple suits to avoid antitrust's setoff rule in a single case can increase total recoveries overall, even if at the end only a few defendants remain in the last suit(s). (In Sunshina, only a few defendants remained in Suit III.) As rational maximizers, plaintiffs presumably consider the pluses and minuses of the different strategies available to them, trading off the whipsaw effect in a single suit for the ability to work around the setoff rule by bringing multiple suits.
Still, a second point is worth emphasizing: in a perfect world courts would not countenance the multiple-suit stratagem in the first place. Multiple suits not only allow plaintiffs to game the system, but increase the costs of litigation and of firms' attempting to plan their economic activities. But, in the imperfect real world, it is unclear how the ability of plaintiffs to game the system when there are multiple contracts, in many places and at different times, can be reduced.
As explained above, the recovery rules governing antitrust do indeed mean that more can be better. Holding constant the likelihood of recovery and the amount at stake, naming more defendants increases the likelihood of multiple defendants settling (the whipsaw effect) in a particular case. Having more defendants also increases the total amount that plaintiffs are paid by the settlers collectively. And, perhaps most important, the whipsaw effect and the value of adding defendants are most valuable to plaintiffs when the merits of the case are weak. Some of these effects are admittedly mitigated when plaintiffs choose to bring several different lawsuits against multiple defendants. But that possibility has its own associated costs, allowing plaintiffs to recover even more through multiple suits than they could recover in a single action based on essentially the same facts.
This article is not based on normative arguments. It illustrates, positively, the effects of the contribution and setoff rules in the case of multiple defendants in a single case, and of multiple defendants in multiple, related cases. Many of these positive effects of antitrust's recovery rules have gone unappreciated heretofore in the relevant literature. Most of the arguments concerning the no-contribution/no-settlement rules in antitrust have been normative. Even economists considering the issues have approached antitrust's special remedial rules from a normative standpoint, discussing the rules' implications for economic efficiency and optimal deterrence. Nonetheless, understanding the positive effects of antitrust's recovery rules may well lead to reconsideration of the supposed normative desirability of the no-contribution / setoff rules.
AUTHORS' NOTE: Jonathan Eide of the Northwestern University Law School provided very helpful research assistance.
(1) MULTIPLICATION (Alley Music Corp.-Trio Music Co./BMI 1961). The song, written and performed by Bobby Darin, reached #30 on the Billboard charts in January 1962.
(2) Most of the existing analyses focus normatively on the deterrent and (relatedly) efficiency effects of alternative rules concerning contribution. See, e.g., Frank H. Easterbrook, William M. Landes & Richard A. Posner, Contribution Among Antitrust Defendants: A Legal and Economic Analysis, 23 J. L. & ECON. 331 (1980); A. Mitchell Polinsky & Steven Shavell, Contribution and Claim Reduction Among Antitrust Defendants: An Economic Analysis, 33 STAN. L. REV. 447 (1981); Timothy James Stanley, Analysis of the Rules of Contribution and No Contribution for Joint and Several Liability in Conspiracy Cases, 35 SANTA CLARA L. REV. 1 (1994). Our approach, as will be seen, is different from that of earlier analysts in that it is mostly positive. To avoid tedium, we link our work to that of our predecessors--whose many insights are hereby acknowledged--only sometimes, not slavishly.
(3) See generally William M. Landes & Richard A. Posner, Joint and Multiple Tortfeasors: An Economic Analysis, 9 J. LEGAL STUD. 517 (1980).
(4) This tort law rule has become "ordinary" only within the past generation or so. Until relatively recently, Anglo-American tort law did not recognize a general rule of contribution among joint tortfeasors. See Easterbrook et al., supra note 2.
(5) Texas Industries, Inc. v. Radcliff Material, Inc., 451 U.S. 630 (1981).
(6) HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY 677 (1999).
(7) On the setoff doctrine, see Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 502 (1964). The doctrine was specifically applied to the antitrust context in Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 348 (1971).
(8) Explicitly, .10 x $1.00 = $.10 and .50 x $1.00 = $.50. These expected values might be expected to influence settlement offers, given the assumption of defendants' risk neutrality and a naive view of the dynamics of the process. Both assumptions are relaxed below.
(9) Alternatively, the 1/nth share may be construed either as a pro rata payment of the judgment by each of the remaining n defendants or even as a probability of being chosen by the plaintiff as the sole payor of the judgment. We can conceive of other, more complicated expectations about how any judgment will actually be paid, but modeling such assumptions adds little or nothing to the insights derivable.
(10) For example, consider the three-tortfeasor column of table 1. The first settler will pay .10(1/3) = .033. The second settler will pay half the liability remaining after the settlement or .10[(1-.033)/2] = .048. The third settler bears all of the remaining liability after the two setoffs: .10 [1-.033-.048] = .092.
(11) See text accompanying table 3 infra.
(12) Stanley, supra note 2, refers to the rush motivated by a no-contribution rule as creating a "prisoner's dilemma type situation." Technically, this is not a classic prisoner's dilemma, in that one defendant, the first to settle, is no worse off when an optimal (cooperative) strategy of a group refusal to settle is not agreed to or not honored. However, because a plaintiff gains from having a first settler to begin the settling process (in table 1, converting a suit with an expected value of $.10 if litigated but $.26 if settled seriatim), a plaintiff has an incentive to lower the minimum acceptable settlement to a level below that which defendants expect from acting collectively. Thereafter, the rush among the remaining defendants to settle would begin.
(13) Easterbrook et al., supra note 2, at 356-58 and Polinsky & Shavell, supra note 2, at 457-58, for example, note the incentive to settle earlier rather than later created by a no-contribution rule. See also HOVENKAMP, supra note 6. Stanley, supra note 2, notes that the increasing specter for nonsettlers of incurring litigation costs also impels defendants to settle.
(14) This point assumes that plaintiff is contemplating only one antitrust suit. As noted in the next section, however, there may be other reasons not to include all possible defendants in one action.
(15) See, e.g., Polinsky & Shavell, supra note 2, at 450.
(16) Nonetheless, we spend relatively little space on risk aversion, for several reasons. First, it is unclear what risk aversion really means in the antitrust context under consideration here. In civil cases in which damages may ultimately be owed, the obligation falls on the defendant firms. As inanimate entities, firms have no risk preferences. Moreover, their shareholders can reduce their firms' risks themselves by holding an appropriately diversified portfolio. Finally, and perhaps of greatest significance, prior analyses of contribution rules in antitrust, while discussing attitudes toward risk, reach no strong conclusions about its theoretical or practical importance in any evaluation of antitrust's recovery rules. Polinsky & Shavell refer repeatedly to what "might" happen if risk aversion rather than risk neutrality is assumed. Polinsky & Shavell, supra note 2, at 453. This may well be because, as discussed here in the comparison of tables I and 3, changes in risk are frequently accompanied by changes in amounts defendants likely will owe.
(17) Perloff, Rubinfeld & Ruud find empirically that "risk aversion plays an important (qualitative and quantitative) role in explaining why cases settle instead of going to trial." Jeffrey M. Perloff, Daniel L. Rubinfeld & Paul Ruud, Anitrust Settlements and Trial Outcomes, 30 REV. ECON. & STAT. 401, 408 (1996). Surveying the theoretical literature, Kaplow & Shavell agree that "settlement is fostered ... by risk aversion." Louis Kaplow & Steven Shavell, Economic Analysis of Law, in HANDBOOK OF PUBLIC ECONOMICS 1727 (Alan J. Auerbach and Martin Feldstein eds., 2002).
(18) Although in a technical sense there is sometimes more than one plaintiff in an antitrust suit, there is only a single plaintiff in the sense most relevant to a settlement negotiation. Each plaintiff, even in a nominally multiplaintiff suit has complete discretion to settle its own "share" of the damages claim. And the flip side of that coin is that each plaintiff has exclusive control, i.e., a monopoly position, with respect to settlement of its own segment of the damages claim.
(19) Stanley, supra note 2, at 21-22, 88.
(20) See Kathryn E. Spier, "Tied to the Mast": Most-Favored-Nation Clauses in Settlement Contracts, 32 J. LEGAL STUD. 91 (2003). Spier notes that most-favored-nation clauses have been imposed in several states (for example, in class-action litigation). But that solution is achieved legislatively, i.e., at no transaction cost to litigants.
(21) The standard theoretical analysis of contribution in the economic literature "does not include a description of rational bargaining between the parties." Kaplow & Shavell, supra note 17, at 1727.
(22) These same two effects would also be observed were one to work with a relatively strong case like that in table 2, but again modelling defendants as bidding a premium to settle earlier.
(23) Compare, United States v. Beachner Constr. Co., 729 F.2d 1278 (10th Cir. 1984) with Sargent v. United States, 785 F.2d 1123 (3rd Cir. 1986).
(24) See, e.g., Beachner Constr., 729 F.2d 1278; City of Tuscaloosa v. Harcros Chemicals, Inc., 877 F. Supp. 1504 (N.D. Ala. 1995), aff'd in part, 158 F.3d 548 (11th Cir. 1998); Ohio v. Louis Trauth Dairy, 925 F. Supp. 1247 (S.D. Ohio 1996).
(25) Splitting of the suits by the plaintiff could also be a means of hindering defendants' ability to maintain joint opposition in litigation.
(26) HOVENKAMP, supra note 6, at 678. "[T]he strongest challenge to the traditional [no-contribution] approach is its allegedly unfair effect on non-settling defendants." Easterbrook et al., supra note 2, at 331. Easterbrook et al. disagree that a no-contribution rule is unfair, because, they say, antitrust offenses are intentional and so lack of fairness to an intentional wrongdoer "does not make a strong appeal to our moral sense." Id. at 339. However, as civil antitrust law shifts increasingly to use of the rule of reason, it is not always clear that defendants intend to violate the law.
(27) Easterbrook et al., supra note 2, at 364-65.
(28) David D. Haddock, Fred S. McChesney & Menahem Spiegel, An Ordinary Economic Rationale for Extraordinary Legal Sanctions, 78 CAL L. REV. 1 (1990).
(29) See, e.g., Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986); Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).
(30) Paul Rubin, What Do Economists Think About Antitrust? A Random Walk Down Pennsylvania Avenue, in THE CAUSES AND CONSEQUENCES OF ANTITRUST: THE PUBLIC CHOICE PERSPECTIVE (Fred S. McChesney & William F. Shughart II eds., 1995).
(31) See, e.g., Rubin, supra note 30; William Baumol & Janusz Ordover, Use of Antitrust to Subvert Competition, 28 J.L. & ECON. 247 (1985).
(32) It is no defense to say that those who should not have been included as defendants can always seek dismissal in court. That process is costly, which means that plaintiffs can still insist on some sum to remove from the case the defendant who should not have been named.
(33) It is unclear whether the Supreme Court's ruling against contribution among antitrust defendants would extend to claim reduction, a point the Court did not explicitly consider. The two are of course not the same: issues of contribution arise only after litigation, while claim reduction applies prior to litigation (if any litigation actually ever occurs). If the Court's ruling concerning contribution does not extend to claim reduction, the possibility of claim reduction should be subject to state law rules concerning claim reduction among joint tortfeasors in tort law. See generally Landes & Posner, supra note 3. At least prior to the Supreme Court's consideration of contribution, some federal district courts allowed claim reduction in antitrust cases.
(34) Table 4 assumes, as did previous tables, that a plaintiff and the multiple defendants have roughly equivalent estimates of the probability of plaintiff's success in court. Were this assumption not to hold, settlement itself becomes unlikely in the first place. See generally George L. Priest & Benjamin Klein, The Selection of Disputes for Litigation, 13 J. LEGAL STUD. 1 (1984).
(35) Interestingly, therefore, a claim-reduction rule creates an incentive for defendants to argue that a conspiracy should be construed in as wide a sense as possible, enlarging the number of defendants and so reducing their individual settlements. But of course, the defendants would have to prove the wider conspiracy and cannot effect it merely by choice, as plaintiffs can do under the current rule.
BY CHARLES J. GOETZ, * RICHARD S. HIGGINS ** AND FRED S. MCCHESNEY ***
* Professor of Law Emeritus, University of Virginia.
** Senior Vice President, Competition Policy Associates, Washington, D.C.
*** Class of 1967 James B. Haddad Professor, Northwestern University Law School; Professor, Department of Management & Science, Kellogg School of Management.
Table 1 "Weak"-Strength Case With $1 Damages 10% Probability of Establishing Liability Number of Coconspirator Defendants Settler # 1 2 3 4 5 1 0.100 0.050 0.033 0.025 0.020 2 0.095 0.048 0.033 0.025 3 0.092 0.047 0.032 4 0.090 0.046 5 0.088 6 7 8 9 10 Sum: 0.100 0.145 0.174 0.194 0.210 Sum/Eval: 1.000 1.450 1.735 1.942 2.103 Number of Coconspirator Defendants Settler # 6 7 8 9 10 1 0.017 0.014 0.013 0.011 0.010 2 0.020 0.016 0.014 0.012 0.011 3 0.024 0.019 0.016 0.014 0.012 4 0.031 0.024 0.019 0.016 0.014 5 0.045 0.031 0.023 0.019 0.016 6 0.086 0.045 0.030 0.023 0.019 7 0.085 0.044 0.030 0.023 8 0.084 0.044 0.030 9 0.083 0.043 10 0.082 Sum: 0.223 0.235 0.244 0.253 0.260 Sum/Eval: 2.234 2.345 2.441 2.525 2.600 Table 2 "Moderate"-Strength Case With $1 Damages 50% Probability of Establishing Liability Number of Coconspirator Defendants Settler # 1 2 3 4 5 1 0.500 0.250 .167 0.125 0.100 2 0.375 0.250 .167 0.125 3 0.313 0.182 0.131 4 0.273 0.164 5 0.246 6 7 8 9 10 Sum: 0.500 0.625 0.688 0.727 0.754 Sum/Eval: 1.000 1.250 1.375 1.453 1.508 Number of Coconspirator Defendants Settler # 6 7 8 9 10 1 0.083 .071 0.063 0.056 0.050 2 .100 0.083 .071 0.063 0.056 3 0.103 0.085 0.073 0.063 0.056 4 0.120 0.096 0.080 0.069 0.060 5 0.150 0.112 0.090 0.075 0.065 6 0.226 0.140 0.105 0.085 0.072 7 0.226 0.140 0.105 0.085 8 0.196 0.124 0.094 9 0.196 0.124 10 0.176 Sum: 0.774 0.791 0.804 0.815 0.824 Sum/Eval: 1.549 1.581 1.607 1.629 1.648 Table 3 "Weak"-Strength Case With $1 Damages No. of Defendants: 10 Settlement Premium: 30 percent Plaintiff's Probability of Success in Litigation: .10 Previous Damages Settler Settler # Nonsettlers Offset Remaining Pays 1 10 0.000 1.000 0.013 2 9 0.013 0.987 0.014 3 8 0.027 0.973 0.016 4 7 0.043 0.957 0.018 5 6 0.061 0.939 0.020 6 5 0.081 0.919 0.024 7 4 0.105 0.895 0.029 8 3 0.134 0.866 0.038 9 2 0.172 0.828 0.054 10 1 0.226 0.774 0.077 Sum: 0.303 Sum/Eval.: 3.030 Table 4 Claim Reduction in "Weak"-Strength Case with $1 Damages Ten Defendants ([DELTA]) Facing 10 Percent Probability of Collective Liability (1) (2) (3) Cumulative Payments Total Plaintiff Claim by All [DELTA]'s [DELTA]'s Settling Remaining at Litigation Settling None $1.00 $0 A .90 .01 A + B .80 .02 A + B + C .70 .03 ... ... A through I .10 .09 A through J 0 .10
|Printer friendly Cite/link Email Feedback|
|Title Annotation:||Antitrust Damages Symposium|
|Author:||Goetz, Charles J.; Higgins, Richard S.; McChesney, Fred S.|
|Date:||Sep 22, 2006|
|Previous Article:||Economics of cost pass through and damages in indirect purchaser antitrust cases.|
|Next Article:||Coupon settlements: compensation and deterrence.|