Judgment-sharing Agreements

Antitrust law condemns price-fixing cartels and seeks to encourage private suits against the conspirators by automatically trebling antitrust damages and by providing for joint and several liability. Because the Supreme Court has held that there is no right to contribution among antitrust violators, this creates the risk of a single defendant being saddled with damages significantly greater than three times the amount of the harm associated with that firm’s own market share. Firms engaged in—or accused of—price fixing often try to ameliorate this risk by entering into judgment-sharing agreements, which essentially create a right to contribution through contract. Despite their ubiquity, judgment-sharing agreements have received almost no scholarly attention. Courts and commentators uniformly praise them as a reasonable way for firms to manage risk and eliminate the perceived unfairness of joint and several liability without a right to contribution. Copyright © 2009 by Christopher R. Leslie. † Professor of Law and Freehling Scholar, Chicago-Kent College of Law. J.D., University of California Berkeley, Boalt Hall School of Law, 1993; M.P.P., Harvard University, Kennedy School of Government, 1988; B.A., UCLA, 1986. The author thanks Herb Hovenkamp, Mark Lemley, Steve Marks, Michael Meurer, and Tony Reese for comments on earlier drafts, as well as the participants in Boston University School of Law’s Colloquium on Law & Economics and the participants in Chicago-Kent’s Faculty Workshop. LESLIE IN FINAL FOR WESTLAW AND LEXIS.DOC 2/19/2009 11:23:57 AM 748 DUKE LAW JOURNAL [Vol. 58:747 This Article shows how judgment-sharing agreements can undermine antitrust deterrence and stabilize price-fixing cartels. Using both economic theory and empirical evidence, the Article explains how judgment-sharing agreements may reduce settlement values, lead to the suppression of incriminating evidence, reduce the likelihood of success of meritorious price-fixing suits, and make price fixing costbeneficial. The Article then argues that fairness arguments in favor of judgment-sharing agreements (and contribution more generally) are misguided and easily disproved, and in any event outweighed by the potential anticompetitive effects of such agreements. Finally, the Article advocates a more informed antitrust treatment of judgmentsharing agreements that takes into account their potential use for anticompetitive purposes. TABLE OF CONTENTS Introduction .............................................................................................749 I. The Development of Judgment-Sharing Agreements....................751 A. The High Stakes of Price-Fixing Litigation ............................752 B. Judgment-Sharing Agreements................................................754 II. The Case for Judgment-Sharing Agreements................................757 A. Benefits for Signatories .............................................................758 B. Benefits for Antitrust Enforcement: Deterrence and Overdeterrence .......................................................................764 III. The Case against Judgment-Sharing Agreements .......................768 A. Judgment-Sharing Agreements Distort the Settlement Process .....................................................................................768 B. Judgment-Sharing Agreements Can Help Conceal a Cartel........................................................................................774 C. Judgment-Sharing Agreements as a Solution to the Prisoner’s Dilemma ................................................................779 1. The Prisoner’s Dilemma........................................................779 2. Cartels and the Prisoner’s Dilemma ....................................781 IV. Balancing the Unfairness and Deterrence Considerations.........785 A. Challenging the Unfairness Critique of the NoContribution Regime .............................................................785 B. Judgment-Sharing Agreements Undermine Deterrence of Price Fixing .........................................................................795 C. Low Risk of Overdeterrence ....................................................803 D. Balancing Deterrence and Unfairness.....................................805 V. How Antitrust Law Should Address Judgment-Sharing Agreements ...................................................................................806 LESLIE IN FINAL FOR WESTLAW AND LEXIS.DOC 2/19/2009 11:23:57 AM 2009] JUDGMENT-SHARING AGREEMENTS 749 A. A Call for Greater Transparency.............................................806 B. Judgment-Sharing Agreements as Unenforceable Contracts..................................................................................811 C. Judgment-Sharing Agreements as Unreasonable Restraints of Trade.................................................................813 1. Per Se Rule .............................................................................814 2. Rule of Reason.......................................................................815 D. Judgment-Sharing Agreements as a Plus Factor....................818 E. Noerr-Pennington Issues...........................................................823 Conclusion................................................................................................824