UK's CAT approves opt-out CPO in Qualcomm class action

The Competition Appeal Tribunal (“CAT”) has approved an opt-out Collective Proceedings Order (“CPO”) brought by the Consumer Association Which? against mobile chipmaker Qualcomm. The action is brought on behalf of UK consumers and contends that they paid higher prices for smartphones because Qualcomm abused its dominant position in markets for smartphone components.

The CAT dismissed Qualcomm’s objections to the CPO, continuing its more lenient approach to certification following the Supreme Court’s 2020 decision in Merricks v Mastercard (see our previous blogpost about the Merricks v Mastercard Supreme Court judgment). Which?’s case was that it could show that Qualcomm’s actions led to higher prices for consumers by modelling the impact that historic changes in component prices had on the prices that consumers paid. Qualcomm made a number of technical arguments about why the model was deficient, but the CAT said that all of these were matters which should be determined at trial.

In spite of budgeted legal costs amounting to 5% of the total estimated claim value, and the funder’s entitlement to 15-25% of damages, the tribunal also rejected a submission that the litigation was not suitable for a CPO because it would benefit lawyers and funders above class members. Qualcomm also made an unsuccessful attempt to insist that Which?’s After-the-Event (“ATE”) insurance was fortified with an additional endorsement.

Background

Which? is bringing a class action against the mobile chipmaker Qualcomm. The CAT has given Which? permission to bring the claim on behalf of all customers who bought 4G Apple or Samsung smartphones in the UK from October 2015 onwards.

Smartphones use LTE chipsets to connect to 4G networks. The claim against Qualcomm is based on an allegation that Qualcomm abused its dominant position in the markets for supplying LTE chipsets and licensing patents which are essential for those chipsets. Which? alleges that Qualcomm did this by:

• Bundling the chipsets it sold to smartphone manufactures with its patent licences (which meant that the manufacturers had to pay royalties to Qualcomm)
• Imposing anticompetitive terms when licensing patents horizontally, to its competitors

Which? claims that the terms imposed by Qualcomm meant that smartphone manufacturers and other chipset makers paid more royalties, which were passed on to consumers through higher prices or lower quality products.

CPO requirements

Before granting a CPO, the CAT had to be satisfied that:

• It was just and reasonable for Which? to act as the class representative
• The class members were identifiable
• The claims raised common issues
• The claims were suitable to be brought in collective proceedings

Qualcomm did not object to Which?’s fitness to act as class representative, or the identifiability of the class. However, Qualcomm did object to:

1. The way that Which? planned to show that UK consumers paid higher prices. Qualcomm said that the modelling had no basis in fact and, as such, the claims did not raise common issues and were not suitable for collective proceedings
2. The cost of collective proceedings, which Qualcomm said outweighed the benefits so that a CPO was unsuitable
3. The terms of the After-the-Event insurance that Which? would use to pay Qualcomm’s costs if the claim failed

The CAT rejected all of Qualcomm’s arguments and granted the CPO. More information about the tribunal’s reasoning is included in the sections below.

1. Which?’s methodology for showing that UK consumers paid higher prices

Which?'s economics expert proposed to use statistical modelling to estimate the effect of extra chipset royalty charges on purchasers of smartphones. The model would examine the impact that historic changes in the prices of other components had on the prices that customers paid. Which?’s expert would use the model to show the extent to which component costs were generally passed on to consumers.

Qualcomm criticised the methodology, arguing that it had no proper basis in fact without evidence as to how Apple, Samsung and mobile networks set prices. The CAT rejected Qualcomm’s submission and drew a distinction between this case, where Which?'s expert had proposed a model grounded in factual evidence, with a claim based on pure economic theory as in the Michael O'Higgins FX case (see our previous article about the Michael O’Higgins CPO judgment).

Qualcomm also made a number of criticisms of Which?'s expert's proposed model, as detailed in the bullets below. The CAT concluded that all of these were matters that would need to be determined at trial. At the CPO certification stage, the relevant threshold was the lenient Microsoft test which says that the methodology only needs to be "sufficiently credible and plausible to establish some basis in fact for the commonality requirement", which means offering “a realistic prospect of establishing loss on a class-wide basis”.

The CAT said that all of Qualcomm’s objections below were matters for trial:

• Whether the modelling was robust enough that causation can be inferred from correlations between prices
• Whether it was appropriate to use public data for component prices, or whether Apple and Samsung would have obtained private discounts
• How the relationship between product prices and component costs worked
• The impact that fixed costs such as R&D had on product prices
• To what extent different component cost changes were passed on at different rates
• Whether Apple and Samsung's choices of handset components would have changed in response to prices
• Whether Qualcomm's royalty rates were set by reference to component prices or product prices

The tribunal was not persuaded by Qualcomm’s arguments that Which? would not be willing to expand its model to include additional data, as necessary. Given the sums at stake, it was inconceivable that Which?’s funding would prevent it from seeking to obtain third party disclosure from Apple and Samsung if needed for the claims.

2. Cost-benefit of collective proceedings

In Gutmann v First MTR South Western Trains Ltd, the CAT had previously said that it will consider whether the CPO would actually benefit the class members, rather than just the lawyers and funders (see our previous article on the Gutmann CPO judgment). Qualcomm argued that the CPO in this case would mainly benefit lawyers and funders because the average damages were estimated at only £16-17 per person, which means that take up would be low.

However, the CAT rejected the assumption that £16-17 per claimant would be overlooked by class members, particularly considering the present cost of living challenges. It also said that Which? was experienced and well-placed to ensure that notifications were effective. The tribunal reasoned that, unlike in Gutmann which concerned train journeys, consumers would more likely remember and have documents to substantiate their old smartphone purchases.

The CAT concluded that the cost-benefit analysis was not a barrier to the CPO. In particular, it said:

• Total budgeted costs of 5% of the claim value were not disproportionate
• The litigation funder’s entitlement to 15-25% of damages was broadly comparable with other funding arrangements

3. ATE insurance fortification

To the extent that a CPO was certified, Qualcomm asked the tribunal to insist that Which? obtain an Anti-Avoidance Endorsement (“AAE”) to its ATE policy. The purpose of an AAE would be to ensure that Qualcomm would receive its costs if the claim failed, even if Which? had breached the policy.

Which?’s ATE policy contained exclusions for fraud or deliberate breach and Which?’s failure to cooperate with its legal representatives. Which? and its insurers offered to narrow some of the exclusions but resisted offering an AAE, which would cost £1.7m.

The CAT refused to order the AAE as a condition to certification. In doing so, it said that Which? was a long-established and reputable charity and the risk that it would act to engage any of the ATE conclusions was very minimal.

Another class action allowed to proceed to trial

The Qualcomm CPO is the sixth opt-out claim which the CAT has certified. Once again, the CAT refused to conduct a “mini-trial” at the CPO certification stage. The judgment’s discussion of Which?’s proposed pass-on methodology is striking for how much has been left to be determined at trial and the latitude that Which?’s economics expert has been given to refine his methodology in due course.

The analogies that the tribunal drew between Which?’s funding arrangements and others in the market appears to indicate that market-standards are beginning to form for these proceedings. The reluctance to impose a costly AAE endorsement on Which? also shows an inclination towards ensuing that claims are economically viable, which was recently a key consideration for the Court of Appeal in upholding the out-out CPO certified in the BT class action (see our previous blogpost on the BT v Le Patourel Court of Appeal judgment).