Mac Musings

$600 Million LCD Antitrust Settlement Should Benefit End Users

Daniel Knight - 2009.03.12 -

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What's wrong with this picture?

The US Department of Justice has charged LG, Sharp, Hitachi, and Chunghwa of Taiwan with price fixing of LCD screens from 2001 through 2006. Specific charges include LCDs sold to Dell (for notebooks and monitors), to Motorola (for Razrs), and Apple (for Pods).

As reported by Wired, the US government is taking in over $600 million in settlements from these four companies. That's what antitrust laws are all about, and it's always nice to see the government step in when laws have been violated.

What appears to be missing is any form of restitution or any indication that the Department of Justice is going to distribute any of this money to the companies that bought the LCDs or to the consumers who purchased devises with them. In short, these LCD producers get a slap on the wrist (the global market for LCDs is worth $70 billion), the federal government gets to pocket some money, and none of the other parties get one red cent.

There's something wrong with a system where companies are fined for unfair business practices and the settlement goes into government coffers with no benefit to the individuals or companies impacted by price fixing. Let's hope that Dell, Motorola, and Apple can at least use these antitrust settlements as grounds to sue LG, Sharp, Hitachi, and Chunghwa of Taiwan to recover some of the inflated prices they paid for LCDs.

There's also something wrong with a system where companies are sued for unfair business practices and a huge portion of the settlement is consumed by legal fees. Worse yet, in many cases the members of a class-action suit don't ever receive a cash settlement. Instead, they may be offered a coupon for a discount on a future purchase - a coupon that doesn't cost the company a thing if it isn't used before it expires and drives customers back into its arms because the coupon requires the consumer come back to the company that was sued for its business practices.

Monitor Size

Keith Long purchased a "14 inch" Packard Bell computer monitor in 1993, but when he measured the visible area of the monitor's CRT, it was closer to 13 inches. Ever since the invention of television, TVs and monitors had been sold by the diagonal size of the cathode ray tube. Anyone who thought about it had to realize that part of the CRT was hidden by the bezel that held it in place.

The State of California had already sued computer companies over this issue, and California public schools benefited from that $1.5 million settlement. However, there was no compensation for consumers, which is what Long sued for.

Long brought a class-action suit against about 30 companies selling computer monitors in the US. The final settlement entitled consumers to a $13 rebate coupon for their next computer purchase - or $6 in cash at the end of the 3-year rebate period. In theory, every computer monitor sold between May 1, 1991 and May 1, 1995 was covered - potentially 40 million monitors.

But it wasn't as simple as that: To get the rebate, you had to buy the same brand of computer system or monitor as the one covered by the settlement, it had to cost at least $250, and it had to be purchased between Sept. 8, 1997 and Sept. 8, 2000.

If your business purchased more than 10 monitors covered by the settlement, it could obtain a $13 rebate for the first 10 - after that, it could get a $13 rebate for every two additional displays. And even then, there was a cap of 100 rebates, a further insult to large organizations that had purchased hundreds of computer systems or displays. Not all class members were treated equally.

The $6 cash settlement option was only available to consumers who did not purchase their computer systems or monitors for business use and didn't buy a replacement during the rebate period. They had a 6-month window from Sept. 9, 2000 through March 9, 2001 to complete the rebate form they had received three years earlier and request a cash settlement.

The end result of this lawsuit: From that point forward, computer monitors have been sold by the viewable size of the display, not the full size of the CRT. The law firm of Kronick, Moskovitz, Tidemann, and Girard received $5.8 million in fees plus $250,000 for expenses.

Of a potential 40 million monitors covered, who knows how many businesses and consumers were aware of the settlement, had the necessary paperwork (receipts from 2-6 years prior to the settlement) to apply for the rebate coupon, and then either purchased the same brand of equipment within three years after the settlement or remembered to apply for the $6 cash settlement after those three years.

The entire settlement was designed in such a way that a large class was theoretically covered, the law firm would reap huge rewards, and the cost to monitor makers (outside of legal costs) was minimal because of restrictions on the settlement.

Kodak Instant Cameras

I worked in a camera shop when Kodak entered the "instant picture" field in 1976. Polaroid immediately sued Kodak for appropriating its technology and finally won an injunction against Kodak in 1986. Polaroid eventually received $925 million from Kodak. A class-action suit was settled in 1988 at a cost of $150 million to Kodak. Owners of Kodak Instant Cameras - 16.5 million had been produced - were entitled to cash and coupons worth $50 to $70. There was no proof-of-purchase requirement; anyone who had a Kodak Instant Camera could mail in its nameplate to become a member of the class, creating a real market for them in thrift stores and at garage sales.

The firm of Baskin, Server, Berke & Weinstein filed for $6 million in fees, and $8 million was earmarked for administrative and advertising costs related to the settlement program. $100 million of the settlement was to go out as cash, another $42 million was earmarked for rebate coupons. If I recall correctly, these were specific rebates for Kodak film, Kodak disk cameras, Kodak slide projectors, and other Kodak products.

What of the hapless Kodak Instant customer who went Polaroid? The cash was nice, but the coupons would do no good at all. And who knows how many or few of those 16.5 million cameras were claimed.

iPod Battery Settlement Program

Apple is no stranger to class-action lawsuits. It was one of the plaintiffs in the monitor size settlement, and more recently there was the iPod Battery Settlement. In that case, people sued Apple because over time the rechargeable batteries in iPods eventually wear out, taking less and less of a charge, claiming that this was a result of a "defective" battery. The class included owners of the first 2 million full-sized iPods sold in the US at an estimated cost to Apple of $15 million.

Once again, users had to submit documentation proving purchase of a covered iPod and attest that battery life had dropped below 4-5 hours during the first two years of ownership. If they had already replaced the battery, Apple would refund half the cost of replacement. For the rest, Apple offered a $50 credit at the Apple Store, which expired in 12 months, or $25 cash.

Apple paid legal fees of $2,768,000 to Girard Gibbs & De Bartholomeo in the US. Apple also paid Can$97,500 plus GST (yes, in Canada they even tax legal settlements) in legal fees for the Canadian iPod Battery Settlement. Again, nobody seems to know how many members of the class submitted claims.

It's One Big Mess

It's a good thing when the Department of Justice or a State Attorney General steps in against unlawful business practices. Price fixing, constraint of trade, collusion, and the like are good for business but bad for customers - which is why they're illegal.

Class-action lawsuits could be a good thing, but in so many cases the lawyers are the prime beneficiaries. The settling companies too often use rebate coupons as part of the settlement to (a) reduce their true costs and (b) force members of the class to purchase their product to use those rebates. And the consumer is maybe left with a few buck and some almost worthless coupons if they have retained the documentation necessary to even submit a claim - and know about the settlement.

How to Fix the Mess

The first problem is the duplication of effort when the government and a private law firm are covering the same territory. If the government rules that Kodak, monitor makers, or LCD suppliers are violating antitrust or other laws, that should be sufficient grounds for the government to not just fine the offending firms but also to determine how things should be settled with consumers. After all, it is the place of government to see that justice is done, and there's more to justice than just fining lawbreakers.

Let's take the current LCD price fixing case as an example. If the Department of Justice can determine that this collusion increased display costs by 10%, just to pick a number, and that LG sold $1 billion in displays to Dell, Motorola, and Apple, it could assess LC for double damages in addition to the antitrust fine. It would use this money to set up a settlement program for end users based on what Dell, Apple, and Motorola paid for specific screens.

In the case of Dell, which has sold exclusively by mail order until recently, there should be records for every purchase. Everyone who bought Notebook X-15 which contained a $150 LCD should be eligible for for a cash settlement equal to say 80% of the settlement figure. This would leave 20% to cover the cost of the running the settlement program and advertising it.

Assuming a 10% overcharge and an assessment of double damages, the settlement program would send a check for $24 to any individual or business for every X-15 notebook it purchased. This would be automatic with no need for anyone to file a claim.

In the case of the Motorola Razr, most sales were through telcos and tied to service contracts, so in the vast majority of cases, it should be easy to identify end users. Let's say the LCDs in the Razr cost Motorola $30. Justice would hypothetically assess LC $6 and rebate $4.80 to the end user.

The case with iPods would be more difficult, as not all iPods are purchased directly from Apple and many iPod owners don't file registration cards. The first step would be to have Apple compile its sales and registration information for submission to the Department of Justice Settlement Program. Major resellers - online retailers, Best Buy, etc. - would also be asked to provide their information for purchases covered by the settlement.

If these records contain serial number information, checks would be sent out automatically. If these records don't include serial numbers, the settlement program would send out a settlement form requesting that information, as it's the only way to prevent double-dipping. And because some iPods are bought without the customer ever supplying contact information, iPod retailers would be required to post signs and have settlement forms available. The settlement program would also be required to advertise online, in print, and in broadcast media to reach as many users as possible.

We Win

In all cases, consumers would receive a real check - not a coupon, not a rebate form that requires a new purchase - that might expire in 120 days. The Department of Justice Settlement Program would handle all funds, so it would retain money for expired checks in addition to the 20% is uses to administer and promote the settlement program.

This could create quite a few jobs.

No law firm would receive multiple millions of dollars based on work already done by the government. Nobody would be allowed to issue rebates on future purchases instead of offering a cash settlement. Nobody would be able to set up a settlement program that benefits from the number of class members who don't file a claim. And the government would be involved in seeing that lawbreakers are prosecuted while those who suffered from their predation are compensated.

That's what government should be doing for us.