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Just two months after office supply giant 3M’s petition to the U.S. Supreme Court was rejected and it learned that it was stuck with a $68 million antitrust verdict for monopolizing the market for transparent tape, a federal judge has certified a class action lawsuit brought by direct purchasers of 3M’s Scotch and Highland brand tapes. The lead plaintiff in Bradburn Parent/Teacher Store Inc. v. 3M lost its first petition for class certification when U.S. District Judge John R. Padova found in April 2004 that the proposed class suffered from potential conflicts. Now, in a 58-page decision, Padova has ruled that the plaintiff’s lawyers cured the conflict by narrowing the class. The Bradburn case stems from a previous antitrust suit against 3M in which a jury in October 1999 awarded $68 million to LePage’s Inc., a competing supplier of tape, which accused 3M of using illegal tactics to drive it out of business. Several years of hard-fought appeals followed in the LePage’s case. The verdict was initially overturned by the 3rd U.S. Circuit Court of Appeals, but the appellate court later reheard the case en banc and voted 7-3 to uphold the award. In late June 2004, the U.S. Supreme Court refused to hear the case. The Bradburn case was filed in late 2002 on behalf of a class of direct purchasers of tape who claim that 3M used illegal tactics to maintain its monopoly in the transparent tape market. Plaintiffs attorneys Robert S. Berry, J. Daniel Leftwich and Gregory Baruch of Berry & Leftwich in Washington, D.C., along with Charles M. Jones of Jones Osteen Jones & Arnold in Huntsville, Ga., initially sought certification of a broad class that would include anyone who directly purchased any transparent tape from 3M from October 1998 to the present. But 3M’s lawyers opposed certification, arguing that the class suffered from serious conflicts and that the lead plaintiff would have significantly different interests that would directly conflict with the interests of large-volume retailers. The 3M defense team — attorneys John G. Harkins Jr., Eleanor Illoway and David Engstrom of Harkins Cunningham in Philadelphia, along with Brent N. Rushforth, Kit A. Pierson, Martina M. Stewart and Paul Alexander of Heller Ehrman White & McAuliffe in Washington, D.C. — argued that Bradburn’s litigation strategy would significantly differ from the strategy that the large-volume retailers would prefer. Since the large-volume retailers purchased significant quantities of “private label” tape from competitors of 3M, the defense team argued, they would have an interest in pursuing a “lost profits” damages theory. At trial, LePage’s had argued that it landed significant contracts to provide retailers such as Staples and Kmart with private label tape, but lost those accounts when 3M abused its monopoly power by offering the large retailers “bundled rebates” that they could earn only if they purchased targeted amounts of several 3M products. The effect of the bundled rebate program, LePage’s said, was to force the retailers to drop LePage’s as a supplier. In the class action, 3M’s lawyers argued that, unlike the large retailers, the smaller class members such as Bradburn never purchased private label tape and therefore would be pursuing an “overcharge” theory of damages — seeking to recover the difference between the price of the 3M branded tape it purchased during the damages period and the price that such tape would have commanded absent 3M’s anti-competitive conduct. The differing damages theories — lost profits vs. overcharge — amount to a conflict that would exist as soon as the class was certified, the defense team argued. In his April 2004 decision, Padova agreed, finding that “the conflict between large-volume retailers and plaintiff is neither speculative nor hypothetical, but is rather apparent, imminent and on an issue at the heart of this litigation.” Many of the largest class members, Padova said, “may not benefit from plaintiff’s strategy of pursing an overcharge theory of damages, but rather may be harmed by plaintiff’s attempts to pursue this theory.” In a renewed motion for class certification, the plaintiff’s lawyers narrowed the class to cover only those who directly purchased 3M tape products and who had not purchased any “private label” tape from 3M or any of its competitors. In their brief, the plaintiffs argued that such a class would be free to pursue an overcharge theory of damages — seeking to recover the difference between the price that class members paid for transparent tape and the price that they would have paid “in a but-for world absent 3M’s anti-competitive conduct.” But 3M’s lawyers argued that the newly defined class still suffered from conflicts of interest. The proposed class, they said, includes purchasers of two types of transparent tape products from 3M — premium tape sold under the name “Scotch Magic,” and “second tier” brand tapes, sold under the name “Scotch” or “Highland.” The defense team argued that premium brand tape and second-tier tapes occupy different segments of the transparent tape market that would not have responded the same way to increased competition. An expert for the defense opined that prices for premium brand products do not always fall in response to competition from private label products and other low-cost substitutes. Instead, he said, companies such as 3M will respond to competition by cutting the price of its second-tier brands in response to competition, while maintaining the same price, or even raising the price, of the premium brand product. Second-tier brands, the expert said, are used as a “fighting brand” to provide an alternative to lower-priced products provided by competitors. But premium brands enjoy “brand-loyal purchasers” who are not likely to be “price sensitive,” the expert said. In 3M’s case, the expert said, the Highland brand tape was used as a fighting brand, but 3M generally did not respond to competitive threats by lowering the price of its premium Scotch Magic Tape. 3M’s lawyers argued that the market segmentation described by their expert showed that there was an “imminent and apparent conflict” between members of the proposed class. Class members who purchased mainly premium tape, they said, would have an incentive to reject the market segmentation theory and would instead argue that the prices of both premium and second-tier tapes would have fallen in a more competitive market in order to maximize the amount of their recovery. By contrast, they said, class members who mainly or only purchased second-tier tape would have an incentive to pursue the market segmentation theory, because, under such a theory, the price decrease in second-tier tapes would be larger if the market were segmented. But the plaintiff’s lawyers insisted that the conflict described by 3M was “illusory” since it was not clear that class members who purchased primarily second-tier transparent tape would be harmed by the pursuit of a one-market theory. An expert for the plaintiff’s side opined that the amount of overcharge damages based upon purchases of second-tier tape would be no different under a market-segmentation theory than it would be under a one-market theory. Instead, the plaintiff’s expert said, the price of second-tier tape would be lowered the same amount in response to competition regardless of whether 3M chose to lower the price of both premium brand tape and second-tier tape or chose only to lower the price of second-tier tape. Padova sided with the plaintiff’s team, finding that the defense expert “does not explain … why the amount of the price cut on 3M’s second-tier tape would necessarily vary inversely with the amount of the price cut made to 3M’s premium tape under a ‘one market’ theory.” As a result, Padova concluded that “the mere possibility that the price decrease in second-tier tape could be larger under a segmentation theory than under a one-market theory does not create an apparent and imminent conflict of interest between members of the proposed class.”

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