HB 72-ANTITRUST ACTIONS & PENALTIES  3:26:02 PM CHAIR OLSON announced HOUSE BILL NO. 72, "An Act authorizing and relating to certain causes of action for relief for direct or indirect injuries sustained as a result of antitrust violations; repealing the provision limiting to the attorney general the recovery of monetary relief for injury directly or indirectly sustained as a result of an antitrust violation; and relating to criminal and civil penalties for antitrust violations." [A motion to adopt the proposed committee substitute (CS), Version M, for HB 72 was left pending.] 3:26:13 PM CLYDE (ED) SNIFFEN, JR., Senior Assistant Attorney General, Commercial/Fair Business Section, Civil Division (Anchorage), referred to a flowchart in members' packets. He explained that last week the committee heard HB 72. He offered to answer questions and discuss concepts. He related that the chart shows that the current statute with respect to antitrust violations. Price fixing happens when several suppliers conspire to fix the price of a component of a product. He recalled a current attorney general's case on price fixing between several manufacturers of Dynamic Random Access Memory (DRAM) known as computer memory chips. He briefly described that the path a computer memory chip product would take from the time it is imported until it was sold to a consumer. The chip would be manufactured, transferred to a distributor and wholesaler, placed in a product such as a computer, and subsequently sold to a store such as Best Buy. When a component such as a DRAM is artificially priced, the consumer pays slightly more for the product since a component of the product was "price fixed." 3:28:14 PM MR. SNIFFEN stated that when Alaskan consumers purchase such a product they are without a remedy since the consumer is not the direct purchaser of the computer memory chip. He highlighted that when consumers buy the product at Best Buy they purchase the computer and are not solely purchasing the chip. Thus, the computer purchase represents an indirect purchase of a "price fixed" product. The U.S. Supreme Court indicated that the consumer is not in direct line with the company that fixed prices so he/she does not have right to sue for damages. However, the U.S. Supreme Court has allowed states to adopt their own laws to provide a remedy for consumers to sue for indirect damages. In 2006, Alaska passed such a law. He reported that these laws are referred to as Illinois Brick repealers since the initial case that did not allow consumers to sue was a U.S. Supreme Court Case, Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). Currently, Alaska allows consumers to bring actions against the suppliers who engage in illegal conduct. He reiterated indirect purchasers are purchasers who buy a product that contains a price-fixed item. 3:29:40 PM MR. SNIFFEN related that in 2006, when Alaska's initial bill passed the legislature it limited any price-fixing lawsuits actions to the attorney general. The legislation could have allowed both the attorney general (AG) and private parties to bring action but it did not do so. At the time, a number of states decided that it would be appropriate for the AG to bring actions against the parties. However, one concern was that if private parties and the AG were both involved in class action lawsuits that it could complicate the process. In fact, Mr. Sniffen indicated that he had testified in favor of an AG only law. Since then, some issues have arisen with an AG only limitation. This bill would allow private parties and class action plaintiffs to bring cases against conspirators in this case for indirect damages. He referred to a map in members' packets that highlights which states have AG only laws and which ones allow for private indirect purchaser laws. He pointed out that a majority of states allow both the AG and private parties to sue. A number of states have brought action against the computer chip supplier and the states with an AG only law have had a difficult time. The class action plaintiffs cannot settle the case for all consumers since only the AG can do so in states with an AG only law, like Alaska. Changing the law to also allow private individuals to bring action would alleviate some of the issues, he said. He recalled that this bill contains a provision that would actually require anyone bringing a class action lawsuit for indirect damages to notify the AG's office. The AG's office would have a number of days to decide whether it would pursue any action. In the event that the AG's office declined to pursue the case the private parties could still pursue the case. He commented when the AG's office had multiple lawsuits simultaneously filed that conflicts could arise as to evidence and prosecution. He concluded that this bill would change the law to allow private parties to bring these types of actions as opposed to limiting it to the AG. 3:33:00 PM REPRESENTATIVE SADDLER asked whether the AG would relieve the private party or if it would work in conjunction with the AG in cases in which the private party notifies the AG. MR. SNIFFEN responded that the AG could determine to bring the action or may decide it would be an opportunity for a joint effort. The AG could also join the case simply to recover penalties but it could allow the class action case handle any penalties. 3:34:12 PM REPRESENTATIVE SADDLER asked whether fines could be assessed. MR. SNIFFEN answered that under current statute the state could assess penalties of up to $25,000 for every price-fixing violation. He mentioned another bill is pending this year that could strengthen the penalty provisions for antitrust violations. 3:34:40 PM CHAIR OLSON reported that the specified bill is moving in the other body. REPRESENTATIVE CHENAULT asked whether the work draft had been adopted. REPRESENTATIVE SADDLER removed his objection. Version M was before the committee. 3:36:02 PM CHAIR OLSON asked for clarification on the effect of HB 72 on foreign corporations. MR. SNIFFEN related his understanding that one issue has been whether the state could enforce price fixing cases against foreign corporations doing business in Alaska. He answered probably yes. Most foreign corporations have subsidiaries that operate in Alaska such as BP Alaska whose main corporation is domiciled in London. Many bigger companies have subsidiaries in Alaska that operate under an Alaska name and are most likely registered with the Department of Commerce, Community & Economic Development (DCCED) Division of Corporations, Business, and Professional Licensing. He added that the AG's office can prosecute foreign companies doing business in Alaska. 3:36:46 PM REPRESENTATIVE SADDLER reiterated he has removed objection to the work draft labeled 27-LS0381/M, Bannister, 3/22/11. Version M was before the committee. CHAIR OLSON asked for clarification on the repealers in proposed Section 14 of Version M. MR. SNIFFEN explained the sections being repealed refer to sections that limit the type of recovery to only the AG. The modifications to other sections would allow private parties or the AG to bring these actions, he said. 3:37:33 PM REPRESENTATIVE JOHNSON asked for an estimate of the number of cases that might be filed if this bill passed and whether it would be 1,000 or if it would be 1 case. MR. SNIFFEN predicted it would not be 1,000 but probably would be more than 1. He explained that in the past ten years the AG's office has had about a dozen multi-state cases that have implicated this statute in one way or another. The AG's office has been unable to pursue claims since it did not have the statutory authority early on. Now that it has statutory authority, the state can join other cases to recover damages. The computer chip case mentioned earlier is one case and two years ago the state took action against a pharmaceutical company, Warner Chilcott Corporation, for price-fixing a drug called Ovcon. At the time the state could have recovered additional damages had the changes contained in HB 72 been in place. He offered his belief that a number of patent challenges for generic drugs have implicated indirect purchaser damages. He recalled the state did not pursue a few other cases that this bill may or may not have affected. He offered his belief the the bill would assist the AG in cases with broader price fixing conduct in the U.S. which also affected Alaskans. He acknowledged that it really is hard to predict. 3:39:26 PM REPRESENTATIVE JOHNSON asked whether Alaska is currently prohibited from taking action in federal cases on class action suits. MR. SNIFFEN answered no. He agreed that Alaska could participate relating that federal anti-trust law gives all states the jurisdiction to enforce federal law in federal court. Federal law restricts the collection of indirect purchaser damages under the "Illinois Brick" rule previously mentioned. The federal law has not been repealed so the Alaska cannot pursue indirect damages in those cases. 3:39:58 PM REPRESENTATIVE JOHNSON asked whether the state is limited to indirect damages in state court. MR. SNIFFEN clarified the state could pursue state court claims in federal court, referred to as pendent jurisdiction claims, that follow along with federal court action. Pendent jurisdiction refers to the court's authority to adjudicate claims it could not otherwise hear. The state has had the authority to pursue pendent jurisdiction claims since 2006 when the price-fixing law passed. 3:40:26 PM REPRESENTATIVE JOHNSON asked for further clarification. He related his understanding that the state can bring action even though the federal law prohibits individuals from initiating claims. MR. SNIFFEN acknowledged that this is a little confusing. He referred to the DRAM computer chip case which was a case initiated in a California Federal District Court as previously mentioned. In that case Alaska and 30 other states joined in the lawsuit. When Alaska joined the lawsuit, it filed an amended complaint that included a section that contained all Alaskan claims. In that case, the conduct occurred prior to enactment of the Alaska "Illinois Brick" repealer statute. Therefore, Alaska was not allowed to join the federal lawsuit since it could not pursue damages on behalf of the consumers. He reported that prior to the state being precluded from participating in the federal antitrust case the state settled some claims on behalf of consumers and is still in the process of recovering those settlement amounts. However, all other states with "Illinois Brick" repealers were able to assert their claims. In those instances the federal court has been applying state law in federal court, he said. 3:41:47 PM REPRESENTATIVE JOHNSON related his understanding that Alaska needs this authority. MR. SNIFFEN responded that it would help in cases in which the state decided not to pursue claims and for global settlement in cases with private class action lawsuits that have joined in the case. Currently, the AG cannot settle those types of cases since only the AG can represent the individual, he said. Given that the AG often represents state agencies, the AG frequently leaves it to the class action lawsuits to represent individual consumers. He thought the authority would help in some cases, but would be curious to see if more consumers filed lawsuits if they were allowed to do so. 3:43:21 PM REPRESENTATIVE SADDLER referred to page 4 of Version M. He asked whether other states with the "Illinois Brick" provisions use statistical sampling as a means to recover aggregate damages. He also referred to the chart in members' packets titled "Explicit Indirect Purchaser Antitrust Claim Statutes" to the states listed in red. He further asked whether revocation of business charter or license provision in proposed Section 12 are common elements of those states with private indirect purchaser actions authorized. MR. SNIFFEN answered yes and no. He explained that the proposed Section 12 enforcement provision which authorize the forfeiture or suspension of a business license is unique in Alaska. The aggregate damages in proposed Section 10 are common in most repealers since it makes calculating damages a lot easier by using aggregate sampling. The state can take a certain number of sales and calculate the average harm to each consumer instead of having to determine how much each person paid for his/her computer, he said. 3:45:02 PM REPRESENTATIVE CHENAULT asked for the average cost for the state to intercede in these cases. MR. SNIFFEN answered that he was unsure. He agreed that it uses Department of Law's resources to intercede on behalf of state agencies in instances when the AG's office determines significant harm to the state has occurred. He considered the effort as effort to recover damages the state would not otherwise recover. He reiterated that he was unsure if it would cost less if private parties were involved. He thought the state may have decided to pursue cases anyway, but it is possible the state may allow the private parties to pursue the claim if the state thought it was an effective way to stop the conduct and still obtain recovery for consumers. 3:46:03 PM REPRESENTATIVE JOHNSON asked whether this bill would add to the case load of the court system. MR. SNIFFEN answered that it is hard to predict. He thought allowing private parties may add a few case but the number of cases would be fairly limited. REPRESENTATIVE JOHNSON asked whether people would be more or less likely to settle when fines are increased. MR. SNIFFEN responded that this bill does not address the penalty provisions. He agreed a balance exists in terms of litigation and settlement. Thus, exposure to penalties and fines could act as an incentive to either settle or litigate. He suggested the outcome depends on many things including the size of company, the issues, and the level of importance to set precedent for other cases. He related that in his experience states with stronger enforcement tools seem to settle more quickly and favorably. 3:48:09 PM CHAIR OLSON referred to page 4, to proposed Section 12 of Version M. He asked whether this sampling indicated would be similar to the federal Medicare reimbursement sampling. He recalled that the sampling may determine 3 of 100 billings are not accurate but the formula assumes the remaining billings are in line with sampling. MR. SNIFFEN answered yes, the process would be similar. 3:49:02 PM REPRESENTATIVE CHENAULT asked him to predict whether this bill might add to additional individual lawsuits. He recalled watching late night television advertising in which attorneys offered to represent clients who had suffered from exposure to various chemicals or products. He expressed concern that if HB 72 passed it could create burgeoning class-action lawsuits that might ensue at the state level and its impact on the court system. He referred to the zero fiscal note in members' packets and reiterated his concern of the costs to the court system. MR. SNIFFEN responded that he did not think HB 72 would increase the number of lawsuits the AG's office would file. He offered his belief that late night advertising by attorneys would happen anyway but currently these lawyers cannot represent Alaskans whereas under the bill they could do so. In further response to Representative Chenault, he said he was unsure if more lawsuits would be filed in Alaska. He thought it was more likely that the lawsuits would be filed elsewhere and the court would certify the class that includes Alaska's consumers. He suspected it would not substantially increase the number of cases. REPRESENTATIVE CHENAULT remarked that anytime the court system is involved it costs money. 3:52:55 PM REPRESENTATIVE JOHNSON expressed concern that price fixing may have happened with respect to gasoline costs in Alaska. He asked whether individual citizens could join in a lawsuit on a "witch hunt." He pointed out the state has three oil producers. He asked whether 20 people could file a lawsuit in which gas stations or refineries would be affected. MR. SNIFFEN answered yes. He agreed this could represent a risk since consumers buy gasoline. If one of the refineries was engaging in price-fixing conduct and had conspired with other refineries or suppliers to fix prices. He said the additional costs would be passed on through the distributors, the jobbers, and the retail stations to consumers. The consumers would be the recipient of the price-fixed product and as an indirect purchaser. He related that it would be difficult for consumers to pursue cases against the producers since they do not have direct dealings with them. He pointed out that the gas itself does not change. This bill would clearly remove any barrier and allow consumers in most cases to pursue price-fixing claims. 3:55:03 PM REPRESENTATIVE JOHNSON asked whether consumers could sue the State of Alaska (SOA) since it sells royalty oil to the North Pole refinery in the event of allegations of price fixing. MR. SNIFFEN answered that he was unsure since that issue would be more complicated to sort through. He said he did not think it would happen since the SOA enjoys immunity. Even so, the parties would not likely be successful if they did sue the state. He offered his belief that merely supplying the oil would not generate a cause of action so consumers would have to find some other problem. He reiterated that the state would likely have immunity. In response to Representative Johnson, reducing the cost of fuel to Fairbanks residents would not apply to this bill. This bill would merely allow for a private individual to bring claims in addition to the AG. 3:57:08 PM REPRESENTATIVE JOHNSON asked for further clarification on the scenario since he viewed the SOA selling royalty oil for less than fair value would represent grounds for a lawsuit. He added that his scenario would also include a Tesoro station buying from an independent oil refinery. He asked whether the state would be subject to numerous lawsuits filed by people who are inclined to think that price fixing is involved since Alaska only has one refinery. MR. SNIFFEN said he was unsure. He acknowledged that HB 72 would provide a cause of action that does not currently exist for any consumers who suffer indirect damages. Under the scenario, just given if an antitrust claim of indirect harm is made based on upstream activity, the AG would be the only party that could bring the claim. This bill would allow private individuals an opportunity to bring the claim if indirect damages resulted from upstream conduct. In further response to Representative Johnson, he answered that it would be a policy call to determine whether the bill created any undue risk. 3:58:57 PM CHAIR OLSON related that about a year and a half ago he contacted the AG's office with respect to a price gouging bill. The AG's office investigated the matter including examining activities of Tesoro Alaska Company (Tesoro) and Flint Hills Resources (Flint Hills) but did not find any issues. He further recalled the House Judiciary Standing Committee also reviewed Alaska's gasoline prices. During this time the committee did not have an antitrust bill before either committee, he stated. REPRESENTATIVE JOHNSON remarked on the level of confidence he has with Mr. Sniffen. He was concerned about expanding this beyond the AG's ability to file lawsuits. 4:00:33 PM REPRESENTATIVE SADDLER asked whether the SOA is immune to antitrust violations. MR. SNIFFEN answered that the answer is somewhat complicated. He stated that generally speaking state legislatures can authorize price fixing in some instances, which is fine. However, if the SOA acts like a competitor as a market participant, the SOA would be subject to antitrust laws. However, when the SOA actively engages and authorizes activity, that type of conduct falls under a doctrine which affords the state immunity. REPRESENTATIVE JOHNSON asked whether the SOA would be subject to antitrust issues as a result of tax credits given to Cook Inlet producers. MR. SNIFFEN answered not to his knowledge. He indicated he has not studied the issue but he did not think any antitrust issues were raised. REPRESENTATIVE JOHNSON asked for clarification, noting that one member, Representative Holmes, is shaking her head no. REPRESENTATIVE CHENAULT offered his belief that tax credits were not exclusively offered to any one company. He referred to Flint Hills and asked whether the royalty oil is sold at a premium rate. MR. SNIFFEN agreed the cost of the oil sold to Flint Hills Refinery has been at a premium rate and not a discount. In further response to Representative Chenault, he reiterated that royalty oil was sold at a premium rate. 4:03:32 PM REPRESENTATIVE JOHNSON asked for clarification on whether any issue would result if the SOA sold its royalty oil below that cost as result of policy decisions. REPRESENTATIVE CHENAULT asked to state for the public record that the Cook Inlet oil is sold at a premium and not at a discount. 4:04:10 PM REPRESENTATIVE SADDLER asked for the general value of direct and indirect damages in antitrust violations. MR. SNIFFEN answered that he did not have any exact splits or percentages. He stated that the federal courts pursue direct damages. He was unsure of the proportion of direct and indirect damages, noting that the indirect damages come primarily from states, which he thought were fairly significant. 4:05:21 PM REPRESENTATIVE MAX GRUENBERG, Alaska State Legislature, stated that he did not recall any "blue" states, or states with no express statute, authorized via case law on the chart in members' packets, titled "Explicit Indirect Purchaser Antitrust Claim Statutes." He pointed out that the map indicates 22 red states, 8 Brick states, 5 blue states and 15 gray states. The previous chart Mr. Sniffen referred to was a chart used for prior legislation that gave the AG the authority to take action. This bill would simply extend that authority to private individuals. He stated that HB 72 would not cause any new cause of action, but would allow a broader group of people to be able to bring the same cause of action. He offered his belief that this is particularly important because the Commercial/Fair Business Section or "consumer protection" section is fairly small. The result is that in many instances the cases the AG's office pursues involve national corporations. This bill would allow citizens in any of the "red" states, such as Nebraska or California to join the lawsuit. The legend for "red" states reads, "AG & Private Indirect Purchaser Actions Authorized." The other states' citizens would be added to any lawsuit filed but the respective state laws would apply. 4:08:25 PM REPRESENTATIVE GRUENBERG recapped the process. Generally these cases are filed in federal court based on diversity jurisdiction. This rule would apply in the event that certain thresholds were met to resolve disputes between the citizens of different states. Nevada's citizens would proceed under the Nevada law. Nebraska's citizens would join the lawsuit. This bill would allow the Alaskans to join in under Alaska's law. Currently, Alaska's citizens are precluded from doing so, he said. Since computer chips are sold by "Best Buy" all over the country, it seems unfair to Alaskans when people in the Lower 48 can sue and be made whole but Alaskans cannot. He offered his belief Alaska should protect its citizens and there isn't any reason not to do so. 4:09:55 PM REPRESENTATIVE GRUENBERG answered a question Representative Johnson previously asked with respect to the legislature determinations. He clarified when something is permitted under state law it is not illegal. The fact that the activity is permitted under the law also provides the SOA an absolute defense. The antitrust law protects against illegal collusion and allows parity but is not designed to create an impediment. He related his understanding this type of law represents a national trend. 4:11:36 PM REPRESENTATIVE GRUENBERG related a scenario in which two companies from another country are colluding. He recalled an earlier question as to whether the companies can be sued and the answer is yes, so long the action occurred in Alaska. He referred to Alaska Statutes AS 09 to a jurisdictional statute, which indicates that when the legal activity happens in Alaska or affects Alaskan consumers, that the state has jurisdiction to apply state law if the case is filed in Alaska. The statute allows Alaska law and the courts of Alaska to reach to the maximum extent constitutionally permissible. He recalled that California's civil code simply says it has jurisdiction to the maximum extent constitutionally permissible. He recalled that has been how Alaska's antitrust statute has also been interpreted. He further recalled a question arose with respect to collection of a judgment on a case filed in Nebraska. He offered his belief that the consumer would likely obtain a money judgment rather than an injunction. 4:13:41 PM REPRESENTATIVE GRUENBERG pointed out that the divesture of business licenses has specifically been modeled after Idaho's law. He said was not aware of any instance in which "we're inventing the wheel." He referred to two statutes in Alaska Statutes that applies. He explained that in AS 09.30.200-270, the Uniform Enforcement of Foreign Judgments Act would allow a party to register an Alaska judgment in another state and obtain a writ of execution. He further explained that this was designed to domesticate the judgment and is very simple. He related that virtually all states have adopted this uniform act. Secondly, of the action happens in a foreign country, the Uniform Foreign Money Judgments Recognition Act would apply. He offered his belief that this act would allow enforcement of a foreign money judgment from another country. [HB 72 was held over.]