The Ninth Circuit has held that a putative class of nationwide consumers that brought damages claims under California law was erroneously certified. Until now, class actions asserting claims for plaintiffs across the country commonly were brought under California law using California's choice of law rules. Under this ruling, indirect purchaser classes will likely need to bring their claims under the laws of the state where the transactions occurred rather than simply bringing a nationwide class under one state's laws.
Further, in what may foretell a future ruling, the Ninth Circuit questioned the viability of multi-state indirect purchaser classes in general, given differences between state laws that allow indirect purchaser recovery.
On September 29, 2021, the U.S. Court of Appeals for the Ninth Circuit in Stromberg v. Qualcomm Inc. reversed the Northern District of California's certification of a nationwide class of consumers that brought claims under California's state antitrust laws. Instead, the Ninth Circuit concluded that consumers in states that bar indirect purchaser recovery could not circumvent these restrictions by applying California law nationwide. The Ninth Circuit remanded to the district court to determine whether a class solely containing purchases made in states that allow indirect purchaser claims could proceed.
Background and Procedural History
Qualcomm owns standards-essential patents (SEPs) relating to cellular communication standards, such as 3G CDMA or 4G LTE.1 Qualcomm licenses its cellular SEPs to Original Equipment Manufacturers (OEMs) that make complete cell phone devices and does not license those SEPs to component manufacturers.2 Qualcomm's royalty is typically 5 percent of the device's wholesale net selling price.3
In 2017, the FTC brought an enforcement action against Qualcomm, alleging violations of the FTC and Sherman Acts premised on Qualcomm's licensing practices, specifically, that: 1) Qualcomm's policy of not selling modem chips to OEMs who practiced but did not license Qualcomm's patents effectively required more than "fair, reasonable, and non-discriminatory" (FRAND) licensing rates as required for SEPs; 2) Qualcomm refused to license its patents to rival chip suppliers; and 3) Qualcomm entered an exclusive agreement with Apple that harmed competitors.4
Several putative consumer class actions then followed, alleging similar conduct.5 The consumer plaintiffs did not pay Qualcomm for patent licenses or for modem chips, making them indirect purchasers whose claims would have been barred under Illinois Brick, which limits federal antitrust recovery to the direct customers of the defendant.6 Thus, the putative class sought nationwide damages under California's Unfair Competition Law and Cartwright Act, which enable indirect purchasers to recover damages for antitrust violations.7 The proposed class would have encompassed virtually all consumers who purchased a 2G, 3G, or 4G phone since February 11, 2001, an estimated 232.8 to 250 million people.8
Qualcomm opposed class certification, arguing, among other grounds, that it would violate due process and California's choice of law rules to subject it to nationwide claims under California law. The district court disagreed, finding that California's choice of law rules merited applying its substantive laws to all purchases because California had the greatest interest in having its laws applied for every transaction.
In key part, the district court found that California had an interest in applying its laws because Qualcomm is based in California and "non-[Illinois Brick] repealer states [i.e., states that bar indirect purchaser recovery] have no interest in applying their laws here because non-repealer laws disadvantage resident consumers and are not intended to protect out-of-state businesses."9 Pursuant to these findings, the district court found that California had the strongest interest in regulating each transaction and certified a nationwide damages class under California law.10 Qualcomm filed for, and the Ninth Circuit agreed to hear, an interlocutory appeal under Rule 23(f).
After the class was certified, the Ninth Circuit concluded in the parallel FTC case that Qualcomm had not violated federal antitrust laws with respect to its patent-licensing practices.11 Qualcomm argued that under that decision, the private plaintiffs' case should also be dismissed.12
Ninth Circuit Decision
The Ninth Circuit concluded that the district court erred in its interpretation of California's choice of law rules and instead should have found that other states also have a compelling interest in applying their laws to claims by their consumers.
As a preliminary matter, the Ninth Circuit concluded that it would have been constitutional to apply California law nationwide because California had a "constitutionally sufficient aggregation of contacts" based on: 1) Qualcomm's residence in California; 2) numerous California class members; and 3) Qualcomm's relevant decision making and contracts in California. However, this only meant that California law could govern—not that it should.13
California applies a "governmental interest test" to decide which law should govern, essentially to determine which state has the greatest interest in having its laws apply to a given dispute.14 The district court misapplied this test when it concluded that non-repealer states had no interest in having their law applied to their residents.
While California certainly has an interest in regulating allegedly illegal activities, other states also have an interest in regulating transactions in their borders.15 Indeed, the non-repealer states have designed their antitrust laws "in a way those states think best promotes market competition," such as lowering risks of "duplicative recoveries" and "complicated antitrust litigation."16 The Ninth Circuit further noted that federalism principles dictate that states make these balancing decisions for their own citizens.
Additionally, California's interests were too attenuated for non-California purchasers. Indirect purchasers would have been harmed once they bought devices at allegedly elevated prices. This purchase (and resulting harm) would have occurred outside California for most non-California class members.17
In sum, the district court erred by simply concluding that "only California had an interest."18 Instead, other states had an interest in their antitrust laws and California's interests were attenuated. Therefore, the non-repealer states' laws should govern for purchases in their states, and California law did not allow consumers from these states to recover.
The Ninth Circuit next held that the district court erred by overlooking material differences even among states that allow indirect-purchaser damages. For example, Hawaii only allows recovery for compensatory damages by indirect purchasers and Illinois state law precludes class actions for indirect purchasers.19 The Ninth Circuit remanded to the district court to determine if a class of indirect consumers in repealer states should be certified or whether these differences were enough to defeat predominance under Rule 23(b)(3).20
Implications of this Decision
This case represented a novel attempt by plaintiffs to end run around Illinois Brick by bringing nationwide claims under a single repealer state's law. The Ninth Circuit's decision limits, even if it does not explicitly bar, these claims.
The Ninth Circuit's holding that non-repealer states have an interest in regulating transactions in their borders is likely to apply with similar force in every other case. It also seems likely that California's relative interest in this case is greater than other states' would be in future cases—California was the home state for the defendants and an allegedly harmed major direct purchaser (Apple), the allegedly relevant contracts were entered in California, and more putative class members were in California than any other state. But as California's interests were insufficient here to overcome the repealer states' interests, even given its strong connections to this matter, it seems unlikely another case will arise that warrants applying a single state's antitrust laws nationwide.
This decision also casts some doubts on the ability of an indirect class to pursue a single case premised on all repealer states' laws at once: "Even among the repealer states, the various state laws are hardly uniform. Thus, it is not clear that a single class of all repealer-state Plaintiffs could be certified under Rule 23(b)(3)."21 This statement represents some break from previous indirect purchaser cases where courts have often minimized differences between repealer state laws.22
It remains to be seen how courts will treat the distinctions between repealer statutes in deciding whether to certify an indirect purchaser class following the Ninth Circuit's concerns. If these concerns continue to materialize, attempting to certify a multi-state indirect purchaser class is likely to become an uphill battle.
For more information about the Ninth Circuit's decision or any related matter, please contact Kenneth O'Rourke, Jeffrey Bank, Nathan Mendelsohn, or a member of Wilson Sonsini's antitrust and competition practice.
[7] Id. at 12-13. Here, the parties did not identify any material differences between California’s Cartwright Act and Unfair Competition Law and federal antitrust laws besides the availability of indirect damages. Id. at 13.
[8] Id. Private plaintiffs also sought nationwide injunctive relief under federal antitrust laws, as injunctive relief is not subject to the indirect purchaser bar.
[10] Id. at 15. The district court also certified a nationwide injunctive relief class under the Sherman Act.
[11] Id.; FTC v. Qualcomm Inc., 969 F.3d 974 (9th Cir. 2020). In addition, the alleged exclusive agreement with Apple had already ended, making any possible injunctive relief claims moot.
[16] Id. at 27-28 (internal quotations omitted).
[20] Id. at 31-32. For the injunctive relief class, the Ninth Circuit remanded for redetermination considering the impact of the FTC v. Qualcomm decision. The Ninth Circuit noted that “[b]ecause Plaintiffs’ arguments in this case overlap with those brought in FTC v. Qualcomm, there would have to be some extraordinary difference for Plaintiffs’ claims here to not fail as a matter of law.” Id. at 34.
[22] See, e.g., United Food & Commer. Workers Unions & Emplrs. Midwest Health Bens. Fund v. Warner Chilcott Ltd. (In re Asacol Antitrust Litig.), 907 F.3d 42, 49-50 (1st Cir. 2018) (finding, under Article III standing principles, that differences in trebling requirements and intrastate commerce were not sufficient to bar class certification).
