IN RE CAPACITORS ANTITRUST LITIGATION

Filing 2853

ORDER RE MOTION TO EXCLUDE DR. LESLIE M. MARX. Signed by Judge James Donato on 11/18/2021. (jdlc2, COURT STAFF) (Filed on 11/18/2021)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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IN RE CAPACITORS ANTITRUST
LITIGATION

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Case Nos. 14-3264 (Flextronics’ action);
17-3472; 17-7046; 17-7047; 18-2657;
19-1902

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ORDER RE MOTION TO EXCLUDE
DR. LESLIE M. MARX

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United States District Court
Northern District of California

MDL Case No. 17-md-02801-JD

MDL Dkt. No. 652

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Among the many constituent cases in this multi-district antitrust litigation are six actions

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brought by companies that opted out of the direct purchaser class to pursue claims on their own.

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In those direct action plaintiff (DAP) cases, defendants filed a Daubert motion to exclude the

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opinions of Dr. Leslie M. Marx, an economist retained jointly as a testifying expert witness by the

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DAPs. Dkt. No. 652.1 The Court held a concurrent expert proceeding, known informally as a

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“hot tub,” after which the parties filed supplemental briefs. Dkt. Nos. 1380, 1388, 1389. The

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request to exclude Dr. Marx is denied, with some limited exceptions.

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BACKGROUND

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The six DAP cases are: (1) Flextronics’ case in In re Capacitors Antitrust Litigation,

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No. 14-3264; (2) The AASI Beneficiaries Trust, by and through Kenneth A. Welt, Liquidating

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Trustee v. AVX Corp., No. 17-3472; (3) Avnet Inc. v. Hitachi Chemical Co. Ltd., No. 17-7046;

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(4) Benchmark Electronics Inc. v. AVX Corp., No. 17-7047; (5) Arrow Electronics, Inc. v. ELNA

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Co., Ltd., No. 18-2657; and (6) Jaco Electronics Inc. v. Nippon Chemi-Con Corp., No. 19-1902.

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All docket number references are to the MDL docket, Case No. 17-md-02801-JD, unless
otherwise specified.

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All are constituent cases in the MDL that are separate actions proceeding individually. Direct

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action plaintiffs Flextronics, AASI, Avnet, Benchmark, and Arrow jointly engaged Dr. Leslie M.

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Marx to “determine the extent, if any, to which they were overcharged as a result of a conspiracy

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among suppliers of aluminum, tantalum, and film capacitors.” Dkt. No. 772-7 (Marx Report) ¶ 8.2

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Dr. Marx performed an analysis utilizing multiple regressions, and concluded that “the prices of

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capacitors were elevated relative to non-collusive levels as a result of Cartel Participants’

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conduct.” Id. ¶ 16. She quantified “the extent of this elevation using an econometric model of

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overcharges,” and found that AASI, Arrow, Avnet, Benchmark, and Flextronics had all been

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subject to overcharges for their capacitor purchases during the relevant time period, in the range of

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16.4% to 18.9%. Id. ¶¶ 16-17.
Some of the defendants in the DAP cases jointly filed a motion to exclude Dr. Marx’s

United States District Court
Northern District of California

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opinion and testimony under Rules 104(a) and 702 of the Federal Rules of Evidence, and Daubert

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v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). Dkt. No. 652. Defendants say that

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Dr. Marx’s econometric model is unreliable and invalid, and so is inadmissible for any use in the

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litigations. Id. They ask that Dr. Marx be excluded completely. Id.
After the motion was fully briefed, defendants proposed that the Court defer a decision on

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it and pending summary judgment motions to hold a hot tub featuring DAPs’ expert, Dr. Marx,

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and defendants’ experts, Dr. Laila Haider and Dr. Stephen Prowse. Dkt. No. 1276. The Court had

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conducted a similar hot tub of the economists testifying in the DPP class action. Dkt. No. 957.

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The DAPs did not object, and the Court set a hot tub modelled on the prior one, Dkt. No. 1279,

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and directed the experts to prepare a joint statement of the top five areas of disagreement ranked in

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descending order of importance. Dkt. Nos. 1317, 1365. As is the Court’s practice, the statement

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was to be prepared directly by the experts themselves, without involvement of the attorneys. Dkt.

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No. 1365. This was done because, in the Court’s experience, hot tubs are most useful when the

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opposing experts work and communicate directly with each other, free of attorney filtering.

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Jaco did not engage Dr. Marx and was initially not a part of the Daubert motion briefing, but it
later joined in the concurrent expert proceeding and supplemental briefing. Dkt. Nos. 1382, 1389.
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The joint statement of Dr. Haider, Dr. Prowse, and Dr. Marx, listed just two topics of

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disagreement. Dkt. No. 1346. One was Dr. Marx’s use of a “specific type of price index, called a

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‘chained Fisher price index,’ as the dependent variable in her regression equations.” Id., Ex. 1.

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Dr. Prowse expressed the opinion that this is “not a peer-reviewed or otherwise accepted

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methodology in the economics community for calculating market-wide overcharges due to price-

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fixing.” Id. The other disagreement concerned the reliability of Dr. Marx’s regressions equations,

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specifically in connection with the outcomes generated when the starting month for the annual

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cartel indicator variable was changed. Id. Dr. Haider opined that a methodology cannot be valid

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“when a trivial change to the starting month yields starkly different and even absurd results.” Id.
The joint statement framed a lively discussion among the experts which was held before

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United States District Court
Northern District of California

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the Court for more than two hours via remote access video due to pandemic concerns. Dkt. Nos.

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1380, 1382. The experts presented slide shows, and engaged in an in-depth conversation and

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exchange of views moderated by the Court. Dkt. No. 1382. As the Court has found in similar

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proceedings, this interaction was immensely helpful in understanding each expert’s point of view

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and theory of the case, far more so than the often stultifying Q&A routine of traditional Daubert

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hearings. At the end of the experts’ discussion, the Court invited the attorneys to ask questions of

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the experts, and directed the parties to submit simultaneous, supplemental briefs, addressing the

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main issues that emerged from the hot tub. Id. at 71:8-81:22; Dkt. Nos. 1388, 1389. This order

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resolves the Daubert challenges as focused by the concurrent expert proceeding and the

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supplemental briefing.
DISCUSSION

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I.

LEGAL STANDARDS
Rule 702 of the Federal Rules of Evidence provides that:
A witness who is qualified as an expert by knowledge, skill,
experience, training, or education may testify in the form of an
opinion or otherwise if:

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(a) the expert’s scientific, technical, or other specialized knowledge
will help the trier of fact to understand the evidence or to
determine a fact in issue;

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(b) the testimony is based on sufficient facts or data;

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(c) the testimony is the product of reliable principles and methods;
and

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(d) the expert has reliably applied the principles and methods to the
facts of the case.

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The Court’s obligation under Rule 702 is to “ensure that any and all scientific testimony or

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evidence admitted is not only relevant, but reliable.” Daubert, 509 U.S. at 589. There is no

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“definitive checklist or test” for this determination, and the “inquiry envisioned by Rule 702 is . . .

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a flexible one.” Id. at 593-94. The determination is made with the understanding that “[v]igorous

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cross-examination, presentation of contrary evidence, and careful instruction on the burden of

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proof are the traditional and appropriate means of attacking shaky but admissible evidence.” Id. at

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United States District Court
Northern District of California

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596.
The Court’s “gatekeeping” duty for admissibility under Daubert “applies not only to

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testimony based on ‘scientific’ knowledge, but also to testimony based on ‘technical’ and ‘other

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specialized’ knowledge.” Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 141 (1999). “[T]he

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test of reliability is ‘flexible,’ and Daubert’s list of specific factors neither necessarily nor

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exclusively applies to all experts or in every case.” Id. The Court has “considerable leeway in

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deciding in a particular case how to go about determining whether particular expert testimony is

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reliable.” Id. at 152.

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Our circuit has identified “several non-exclusive factors that judges can consider when

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determining whether to admit expert testimony under Rule 702,” such as “whether the theory or

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technique employed by the expert is generally accepted in the scientific community; whether it’s

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been subjected to peer review and publication; whether it can be and has been tested; and whether

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the known or potential rate of error is acceptable.” Wendell v. GlaxoSmithKline LLC, 858 F.3d

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1227, 1232 (9th Cir. 2017) (quotations and citations omitted). The Court may “also consider

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whether experts are testifying ‘about matters growing naturally’ out of their own independent

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research, or if ‘they have developed their opinions expressly for purposes of testifying.’” Id.

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These factors are “illustrative, and they are not all applicable in each case”; the Daubert inquiry is

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“flexible,” and “Rule 702 should be applied with a ‘liberal thrust’ favoring admission.” Id.

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(quotations and citations omitted).
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II.

THE EXPERTS’ DISAGREEMENTS

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A.

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Before getting to the experts’ disagreements, a word about Dr. Marx is in order.

The Fisher Price Index

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Defendants did not challenge Dr. Marx’s qualifications, and for good reason. She holds a B.S. in

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mathematics from Duke University and a Ph.D. in economics from Northwestern University.

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Marx Report ¶ 1. Since 2002, she has been a Professor of Economics at the Fuqua School of

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Business at Duke University, and she is also a partner at Bates White Economic Consulting, a

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professional services firm. Id. ¶¶ 1-2. Among other relevant experience, she was the Chief

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Economist for the Federal Communications Commission from 2005 to 2006, and has co-taught
sessions on “Cartels” and “Agreement and Facilitation Practices” at the Antitrust Law &

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United States District Court
Northern District of California

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Economics Institute for Judges, which was co-sponsored by the ABA Section of Antitrust Law

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and the Law & Economics Center at George Mason University School of Law. Id. ¶¶ 2, 4.

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Dr. Marx has also taught “Advanced Merger Economics,” “Cartel Investigations,” “Proving

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Collusive Agreements,” and “Pleading and Proving Conspiracy” at the ABA Antitrust Section

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Masters Course. Id. ¶ 4. She is well qualified to provide expert opinions in the field of antitrust

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economics.

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The main disagreement at the hot tub was about Dr. Marx’s use of a chained Fisher price

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index as the dependent variable in her regression analysis. In defendants’ view, this was highly

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unorthodox, “not generally accepted in the professional economics community,” and not

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“subjected to peer review.” Dkt. No. 652 at 8. At the hot tub, Dr. Prowse said there is “no support

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for [using] a price index as a dependent variable in [a] regression designed to calculate

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overcharges in the economics literature.” Dkt. No. 1382 at 20:7-9. He opined that the only

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“accepted method for constructing the dependent variable when there may be thousands of

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transactions for heterogenous products in each month, which it the case here,” is “to use panel

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data.” Id. at 23:17-21; see also id. at 25:22-24 (“panel data is overwhelmingly recommended for

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use by professional economists in the peer-reviewed economic literature to estimate overcharges

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in price-fixing matters.”).

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The Daubert factors in play here are “whether the theory or technique employed by the

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expert is generally accepted in the scientific community,” and “whether it’s been subjected to peer

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review and publication.” Wendell, 858 F.3d at 1232. Additional relevant caveats are that “general

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acceptance” is not an “absolute prerequisite to admissibility,” and “peer review and publication”

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are also not “dispositive” considerations. Daubert, 509 U.S. at 588, 593-94.
Defendants have not demonstrated that Dr. Marx’s use of the Fisher price index as a

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dependent variable is so far beyond the pale as to warrant exclusion. As Dr. Marx stated at the hot

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tub, the “time series approach,” which includes using a price index as the dependent variable, is

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“put forward side-by-side with a panel regression approach in the ABA handbook.” Dkt.

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No. 1382 at 40:24-41:2; see also Dkt. No. 1389-4 (Proving Antitrust Damages: Legal and

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United States District Court
Northern District of California

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Economic Issues, 3rd ed. (Washington, DC: ABA Section of Antitrust Law, 2017)) at ECF p. 50

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(“Datasets can be composed of single observations over a period of time (a time series) or of a

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number of observations in [a] single time period (a cross section). In general, data sets consisting

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of both time series and cross-sectional observations are called cross-section time series data or

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panel data.”).

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DAPs proffered other sources that validate Dr. Marx’s approach as within the range of

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accepted methodology in the field. See, e.g., Dkt. No. 1389-3 (Regression Estimates of Damages

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in Price-Fixing Cases, Law and Contemporary Problems, Vol. 46; No. 4 (1983) by Finkelstein &

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Levenbach) at ECF pp. 22-25 (“The difficulty of constructing econometric models that satisfy

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theoretical requirements suggests that one might use more general methods that do not assume that

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the explanatory variables included in the equation have accounted for everything except random

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error. This point of view leads to various methods of time series analysis that have found

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widespread applications in recent years.”; “In the absence of a consensus, advocates of time series

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analysis argue that their methods should be preferred because of simplicity and directness.”); Dkt.

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No. 1389-9 (A Practical Guide to Price Index and Hedonic Techniques (Practical Econometrics)

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(2014) by Ana M. Aizcorbe) at ECF pp. 3-4 (potential application of price index and hedonic

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techniques includes determination of “how much prices deviated from this benchmark due to

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alleged anti-competitive practices”); Dkt. No. 1389-12 (Estimating Overcharges in Antitrust
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Cases Using a Reduced-Form Approach: Methods and Issues, Journal of Applied Economics, by

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James Neiderberg) at ECF p. 17 (“time-series data frequently are used in econometric analyses

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related to antitrust issues”); Dkt. No. 1389-14 (Quantifying Antitrust Damages: Towards Non-

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Binding Guidance for Courts (Study Prepared for the European Commission)) at ECF p. 7

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(“comparator-based approaches” include “time-series comparisons (analyzing prices before,

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during, and/or after an infringement)”).

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DAPs also established that defendants’ own experts have used a time series approach, and
in some cases, the Fisher price index itself, or have spoken of these approaches as being

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acceptable choices. See, e.g., Dkt. No. 1387-8 (Expert Report of Dr. Darrell Williams) at ECF

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pp. 6-12 (multiple graphs using Fisher price index); Dkt. No. 1387-10 (Deposition Transcript of

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United States District Court
Northern District of California

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Dr. Warren-Boulton) at ECF pp. 5-6 (“There are multiple indexes that you can form. Each one

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has particular advantages and disadvantages. The two most common are the Fisher linked price

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index and what’s called the hedonic price index. Both are used routinely by the government for

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things like the Consumer Price Index. Some in -- in antitrust cases people will use the Fisher

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index. Sometimes they’ll use a hedonic.”; “I don’t have a strong opinion as to which one is

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better.”).

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It may be that Dr. Prowse personally favors a panel data approach to a time series in his

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own work, see Dkt. No. 1382 at 23:21, but that does not detract from the validity of Dr. Marx’s

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method. There is more than one way to peel an onion, and the use of a different method is not

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automatically “junk science” or a “bogus” approach that warrants total exclusion. Wendell, 858

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F.3d at 1235-37. Based on the discussion at the hot tub and the parties’ briefing, the Court

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concludes that Dr. Marx’s analysis is sufficiently reliable and valid to be admissible under Rule

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702 and Daubert. Defendants will have ample opportunity at trial to test it through vigorous

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cross-examination, the presentation of counter-evidence, and instruction on the burden of proof.

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See Daubert, 509 U.S. at 596.

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B.

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The disagreement over Dr. Marx’s use of January as starting point for the annual cartel

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The January Start Date

indicator variable in her regression analysis also is not a ground for disqualification of her
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opinions. That is because Dr. Haider and Dr. Prowse ultimately pinned the starting month dispute

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to the price index method. When the Court asked, “what is the core problem in [Dr. Marx’s]

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methodology, in your view, that leads to this sensitivity for starting months,” Dr. Haider referred

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to the use of “time series econometrics.” Dkt. No. 1382 at 52:7-21; see also id. at 54:3-9 (“So it is

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-- just to sum up. She compresses it down to a single price line. And she said herself she chose a

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time series methodology because she thinks that’s the best way to go. Once she chose to go down

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that route and once she went down that route, there are certain statistical properties that the line

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may have.”). Dr. Prowse also identified “construction of Dr. Marx’s invalid Fisher price index on

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the left-hand side” as the main “core problem . . . generating this instability in Dr. Marx’s results

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month to month.” Id. at 69:16-21. Dr. Prowse added that, “if you take Dr. Marx’s model and all

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United States District Court
Northern District of California

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you do is change the dependent variable to be a panel data variable and use fixed effects, the

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instability that you see in the -- depending on which month you start, basically goes away.” Id. at

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69:25-70:2. In effect, the starting month dispute is a reprise of the disagreement over the use of

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the price index, and the Court declines to exclude Dr. Marx’s opinions for the same reasons.

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Dr. Haider and Dr. Prowse also opined that the starting month instability in Dr. Marx’s

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analysis was a function of her decision to use a lagged dependent variable. Dkt. No. 1382

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at 52:22-24; 69:21-22. In response, Dr. Marx established that this was consistent with the

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accepted literature, id. at 56:22-57:16, and that her model stood up when she removed this

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variable. Id. at 58:17-61:11. The experts’ discussion at the hot tub indicated that this issue was

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more a dispute about weight, and consequently appropriate for cross-examination at trial, than of

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admissibility. See In re Capacitors Antitrust Litigation (No. III), No. 17-md-02801-JD, 2018 WL

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5980139, at *6 (N.D. Cal. Nov. 14, 2018) (observations about whether expert properly included

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all variables in regression analysis is “grist for a good cross-examination at trial, but they do not

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play a material role in deciding whether [expert’s] work should be admitted under Rule 702”).

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Defendants have not shown that Dr. Marx’s inclusion of a lagged dependent variable is akin to

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anything like junk science.

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So too for defendants’ passing suggestion in a brief that Dr. Marx’s model “imposes an
artificial pattern on the monthly overcharges of each year,” such that “for any given year, the
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monthly overcharges will either always increase month to month, or always decrease month to

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month.” Dkt. No. 652 at 10-11. The experts did not identify this in their joint statement of

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disputed issues, and it was not discussed or even mentioned during the concurrent expert

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proceeding. Defendants did not develop the point otherwise in any way. It is not a basis for

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excluding Dr. Marx.

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III.

OTHER PROPOSED TESTIMONY

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Defendants ask that any testimony by Dr. Marx based on Section III of her report be

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excluded “because her AVX/KEMET testimony is unsupported by the evidence and her remaining

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testimony is outside the scope of her expertise and adds nothing to the record.” Dkt. No. 652 at
11-14. The parties agreed that this was a purely legal issue that should not be a part of the expert

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United States District Court
Northern District of California

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hot tub. Dkt. No. 1317 at 2.

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In Section III, Dr. Marx states that she “review[s] the information available concerning the

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existence and operation of the capacitors cartel. This review serves two purposes. First, it

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supports the reasonableness of the assumption given to me by counsel that there was a cartel

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among capacitor manufacturers. Second, it supports the conclusion that the cartel was effective in

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elevating prices above what they otherwise would have been.” Marx Report ¶ 44. Dr. Marx also

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noted in a “scope of charge” section that “[c]ounsel instructed me to assume the existence of a

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capacitors conspiracy and to assume that the participants in the conspiracy included” certain

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defendants and other non-parties. Id. ¶ 9.

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As a general proposition, the Court is not troubled by Dr. Marx’s summary of the

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background facts provided by counsel as the context of her econometric analysis. Her mention of

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strictly legal matters is a different matter. In a “summary of opinions,” Dr. Marx states: “The

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record in this matter, including guilty pleas, findings of government competition agencies

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worldwide, and contemporaneous documents, indicates that the Cartel Participants held hundreds

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of meetings and engaged in bi-lateral and multi-lateral communications over a period extending

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from at least as early as 1997 through early 2014. In these meetings and communications, the

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Cartel Participants exchanged competitively sensitive information and made statements regarding

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the legal risks of their conduct. Economically rational actors would not engage in such conduct
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without deriving benefits from it. Indeed, my review of the record indicates that the cartel

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included the collusive structures -- pricing, allocation, and monitoring and enforcement structures

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-- known in the literature to facilitate effective collusion. This supports the conclusion that the

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cartel was effective in elevating prices above what they otherwise would have been.” Marx

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Report ¶ 15.

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These comments are well outside Dr. Marx’s domain of antitrust economics. She will not

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be permitted to offer opinions along these lines at trial. Specifically, Dr. Marx may not testify

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about collusion, violations of antitrust law, or anticompetitive actions allegedly undertaken by

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defendants and non-parties in these cases. Those opinions are excluded under Rule 702, and

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United States District Court
Northern District of California

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because they would confuse and mislead the jury. FRE 402, 403.
IT IS SO ORDERED.
Dated: November 18, 2021

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JAMES DONATO
United States District Judge

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