University Recovery: Turning University Legal Departments Into Profit Centers

It is increasingly difficult for universities to rely on traditional funding sources. Public colleges and universities rely on states (and to lesser extent localities) for 53 percent of revenue used for instructional programs.¹ Forty-seven states spent less per student in the 2014-2015 school year than they did before the recession.² As result, public higher education institutions received 20 percent less state funding per student than they did in 2007-2008.³ Considerable evidence indicates that universities have reduced spending to compensate for lost funding – often in ways that reduce academic quality or offerings.⁴

These reductions highlight the need for alternative revenue sources. Budget cuts may tempt some legal departments to focus solely on their core functions – managing risks and defending against litigation. But this reduces them to mere bystanders to this crisis. Forward-thinking legal departments can become part of the solution, by generating significant revenue for their universities.

Recovering Overcharges on Price-Fixed Products

Antitrust and consumer protection cases can provide savvy legal departments with six or seven-figure recovery opportunities with minimal opportunity costs. Universities utilize many electronic, medical, and financial products – industries repeatedly subjected to anticompetitive conduct over the past decade.⁵ Competition laws provide generous recoveries to cartel victims, often three times the amount of the defendants' illegal overcharges.⁶

Purchasers of price-fixed products have three basic options: (1) allow a class action representative to litigate their case and submit a pro rata claim for any recovery that the class obtains from the defendants; (2) opt out of class action proceedings and file an individual lawsuit against the conspirators; or (3) do nothing. In many circumstances, the first two options provide significant recoveries.

Class action claims present low-risk opportunities to bolster university finances. Here, the class representative's law firm bears all costs in exchange for a percentage of the funds eventually recovered from the cartel. The class representative also bears the burden of all discovery and dispositive motions. Schools simply need to submit relevant purchase data after the class claims are resolved – a function that is frequently outsourced to recovery professionals for a small contingent fee. As result, class claims often provide meaningful recoveries with no upfront legal costs, zero risk of an adverse outcome, and minimal in-house legwork.

Despite the advantages described above, some recovery opportunities are too significant to outsource to class counsel. When cartels cause tens of millions of dollars in damages, universities often consider opting out of class settlements to pursue individual litigation. Favorable settlement leverage can result in opt-out plaintiffs recovering millions more than their pro rata share of a class action settlement. Opt-out representation can frequently be retained on a contingent basis with no upfront fees. But there are some downsides to opting-out. These cases often require significant fact and expert discovery, which delay settlements and require greater involvement by university personnel. Recovery professionals often help in-house legal teams determine whether enhanced recovery prospects justify these additional inconveniences.

University legal departments should implement standard procedures to identify antitrust recovery opportunities. At a minimum, every class action notice should be vetted by the legal department, the finance department, or an external recovery professional. These reviews ensure proper valuation of recovery opportunities prior to deadlines to file class or opt-out claims.

University legal departments should also partner with an outside law firm that monitors national antitrust and consumer protection opportunities. Defendants in cartel cases often have incomplete sales data, or are simply unaware of the ultimate victims of their conspiracy. As a result, universities should not expect to receive class action notices for each and every recovery opportunity. Regular check-ins with recovery professionals can prevent these opportunities from slipping through cracks.

Current Antitrust Recovery Opportunities

Many core university functions are adversely affected by price-fixing cartels. This has been particularly true for consumer electronics purchased for university students and staff.⁷ For example, eight global electronics manufacturers recently settled allegations that they fixed the prices of CRTs used in computer monitors and televisions from 1995 through 2007 for $576 million. As result, universities that purchased computer monitors and televisions should have significant claims.

Significant recovery opportunities are also available to university-affiliated hospitals and pharmacies. There is currently a $512 million settlement for healthcare providers that purchased Provigil between 2006 and 2012.⁸ Eight-figure settlement funds also exist for healthcare facilities that purchased Prograf,⁹ Nexium,¹⁰ and chemical reagents used in traditional blood testing.¹¹

There are even recovery opportunities for functions as simple as credit card payment processing. Visa and MasterCard recently settled allegations that they charged anticompetitive interchange fees to all persons, business, and other entities that accepted Visa or MasterCard payments in the United States from 2004 through 2012 for $5.4 billion.¹² Universities accepting these forms of payment can still submit overcharge claims to class action administrators.

These are just a few examples of antitrust recovery options available to university legal departments. Claim values usually vary based on purchase volumes and the suppliers utilized at a particular institution. Consultations with recovery professionals can help legal departments focus on the most promising opportunities.

Conclusion

Current higher education funding dynamics require universities to do more with less. Legal departments can help by implementing in-house processes to vet antitrust opportunities and partnering with law firms that provide these services on a contingent basis. As funding challenges continue, university legal departments should view revenue generation as an increasingly important function.

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¹ State Higher Education Finance FY, State Higher Education Executive Officers’ Association, 20 (April 29, 2014), http://www.sheeo.org/sites/default/files/publications/SHEF_FY13_04292014.pdf.

² Michael Mitchell & Michael Leachman, Years of Cuts Threaten to Put College Out of Reach for More Students, Center on Budget Policy Priorities, 1 (May 13, 2015), http://www.cbpp.org/research/state-budget-and-tax/years-of-cuts-threaten-to-put-college-out-of-reach-for-more-students.

³ Id.

⁴ Id. at 11-12.

⁵ See, e.g., In re TFT-LCD (Flat Panel) Antitrust Litig., Case No. 07-1827 (N.D. Cal.); In re Cathode Ray Tube (CRT) Antitrust Litig., Case No. 07-5944 (N.D. Cal); In re Dynamic Random Access Memory (DRAM) Antitrust Litig., Case No. 02-1486 (N.D. Cal.); In re Payment Card Interchange Fee & Merch. Disc. Litig., Case No. 05-1720 (E.D.N.Y); In re American Express Anti-Steering Rules Antitrust Litig., Case No. 04-05432 (E.D.N.Y.); In re Blood Reagents Antitrust Litig., Case No. 09-2081 (E.D. Pa.); In re Prograf Antitrust Litig., Case No. 11-02242 (D. Mass.); In re Nexium (Esomeprazole) Antitrust Litig., Case No. 12-02409 (D. Mass.); King Drug Co. of Florence, Inc. v. Cephalon, Inc., Case No. 06-1797 (E.D. Pa.).

⁶ Section 4 of the Clayton Act provides that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue … and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.” 15 U.S.C. 15(a).

⁷ See, e.g. In re TFT-LCD (Flat Panel) Antitrust Litig., Case No. 07-1827 (N.D. Cal.); In re Cathode Ray Tube (CRT) Antitrust Litig., Case No. 07-5944 (N.D. Cal); In re Dynamic Random Access Memory (DRAM) Antitrust Litig., Case No. 02-1486 (N.D. Cal.).

⁸ King Drug Co. of Florence, Inc. v. Cephalon, Inc., Case No. 06-1797 (E.D. Pa.).

⁹ In re Prograf Antitrust Litig., Case No. 11-02242 (D. Mass.).

¹⁰ In re Nexium (Esomeprazole) Antitrust Litig., Case No. 12-02409 (D. Mass.).

¹¹ In re Blood Reagents Antitrust Litig., Case No. 09-2081 (E.D. Pa.).

¹² In re Payment Card Interchange Fee & Merch. Disc. Litig., Case No. 05-1720 (E.D.N.Y).

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