Reexamining the Role of Illinois Brick in Modern Antitrust Standing Analysis

George Washington Law Review

Volumn 68, Issue 1, 1999, Pages 1-41

  Blair, Roger D ^a   Harrison, Jeffrey L ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

EID: 0033265044     PISSN: 00168076     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (320)

1. 431 U.S. 720 (1977).
2. As a matter of substantive antitrust law, Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36 (1977), is the best known case having this effect. Procedurally, private antitrust enforcement has been tightened most notably by Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986).
3. See Illinois Brick, 431 U.S. at 720. This description narrowly states the holding. Because the case actually involved price fixing, this statement is technically accurate, but it is probably also true that Illinois Brick bars recovery to any indirect plaintiff that seeks a measure of damages equal to a price overcharge. For example, Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968), which prohibited a defense that plaintiffs had passed on a portion of the overcharge that they were claiming as damages, was a monopolization case.
4. See Illinois Brick, 431 U.S. at 745.
5. See id. at 746.
6. See id. at 736.
7. See id.
8. See id. at 735.
9. Although Illinois Brick is ultimately about "standing" in a general sense, the Supreme Court, since that decision, has developed the concept of "antitrust standing." See infra text accompanying notes 136-153.
10. See, e.g., Robert G. Harris & Lawrence A. Sullivan, Passing On the Monopoly Overcharge: A Comprehensive Policy Analysis, 128 U. PA. L. REV. 269 (1979); William M. Landes & Richard A. Posner, The Economics of Passing On: A Reply to Harris and Sullivan, 128 U. PA. L. REV. 1274 (1980); William M. Landes & Richard A. Posner, Should Indirect Purchasers Have Standing to Sue Under the Antitrust Laws? An Economic Analysis of the Rule of Illinois Brick, 46 U. CHI. L. REV. 602 (1979).
11. See, e.g., Robert G. Harris & Lawrence A. Sullivan, Passing On the Monopoly Overcharge: A Comprehensive Policy Analysis, 128 U. PA. L. REV. 269 (1979); William M. Landes & Richard A. Posner, The Economics of Passing On: A Reply to Harris and Sullivan, 128 U. PA. L. REV. 1274 (1980); William M. Landes & Richard A. Posner, Should Indirect Purchasers Have Standing to Sue Under the Antitrust Laws? An Economic Analysis of the Rule of Illinois Brick, 46 U. CHI. L. REV. 602 (1979).
12. See, e.g., Robert G. Harris & Lawrence A. Sullivan, Passing On the Monopoly Overcharge: A Comprehensive Policy Analysis, 128 U. PA. L. REV. 269 (1979); William M. Landes & Richard A. Posner, The Economics of Passing On: A Reply to Harris and Sullivan, 128 U. PA. L. REV. 1274 (1980); William M. Landes & Richard A. Posner, Should Indirect Purchasers Have Standing to Sue Under the Antitrust Laws? An Economic Analysis of the Rule of Illinois Brick, 46 U. CHI. L. REV. 602 (1979).
13. See Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481, 488 (1968).
14. See Kansas v. Utilicorp United, Inc., 497 U.S. 199, 207 (1990); Reiter v. Sonotone Corp., 442 U.S. 330, 331 (1979).
15. See, e.g., Lucas Automotive Eng'g, Inc. v. Bridgestone/Firestone, Inc., 140 F.3d 1228, 1234 (9th Cir. 1998); Campos v. Ticketmaster Corp., 140 F.3d 1166, 1169 (8th Cir. 1998); In re Lower Lake Erie Iron Ore Antitrust Litig., 998 F.2d 1144, 1164 (3d Cir. 1993); Jewish Hosp. Ass'n v. Stewart Mechanical Enters., Inc., 628 F.2d 971, 973 (6th Cir. 1980).
16. See, e.g., Utilicorp, 497 U.S. at 207 (refusing to create an exception to the indirect purchaser rule to enable a customer of a public utitlity to sue the utility's suppliers).
17. See, e.g., Campos, 140 F.3d at 1169 (applying the test for an alleged violation of section 4 of the Clayton Act).
18. See infra text accompanying notes 136-153.
19. Under a fully developed theory of antitrust standing, it may be possible that some indirect purchasers would be entitled to damages while others would not.
20. See California v. ARC Am. Corp., 490 U.S. 93, 105-06 (1989) (holding that state indirect purchaser statutes are not pre-empted by federal law). See generally Jay N. Fastow & David S. Machlowitz, The Rise of the States on Antitrust Enforcement, 10 ACCA Docket 60 (1992); Report, Report of the Indirect Purchaser Task Force, 63 ANTITRUST L.J. 993 (1995); Report, Report of the American Bar Association Section of Antitrust Law Task Force to Review the Supreme Court's Decision in California v. ARC America Corp., 59 ANTITRUST L.J. 273 (1990).
21. See California v. ARC Am. Corp., 490 U.S. 93, 105-06 (1989) (holding that state indirect purchaser statutes are not pre-empted by federal law). See generally Jay N. Fastow & David S. Machlowitz, The Rise of the States on Antitrust Enforcement, 10 ACCA Docket 60 (1992); Report, Report of the Indirect Purchaser Task Force, 63 ANTITRUST L.J. 993 (1995); Report, Report of the American Bar Association Section of Antitrust Law Task Force to Review the Supreme Court's Decision in California v. ARC America Corp., 59 ANTITRUST L.J. 273 (1990).
22. See California v. ARC Am. Corp., 490 U.S. 93, 105-06 (1989) (holding that state indirect purchaser statutes are not pre-empted by federal law). See generally Jay N. Fastow & David S. Machlowitz, The Rise of the States on Antitrust Enforcement, 10 ACCA Docket 60 (1992); Report, Report of the Indirect Purchaser Task Force, 63 ANTITRUST L.J. 993 (1995); Report, Report of the American Bar Association Section of Antitrust Law Task Force to Review the Supreme Court's Decision in California v. ARC America Corp., 59 ANTITRUST L.J. 273 (1990).
23. For example, price fixing could also be characterized as a boycott, thus escaping Illinois Brick's limitation on price-fixing suits by indirect purchasers. See In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d 599, 606 (7th Cir. 1997).
24. See infra text accompanying notes 154-211.
25. See infra text accompanying notes 167-170.
26. 15 U.S.C. § 15(a) (1994).
27. See Central Coal & Coke Co. v. Hartman, 111 F. 96, 98 (8th Cir. 1901).
28. Id. at 96.
29. See id. at 97. The plaintiff could have described the conduct of the defendants as either price fixing or a group boycott - or both. Although not an indirect purchaser, if the plaintiff had been, these options might have created an avenue for avoiding Illinois Brick. See infra text accompanying notes 122-125.
30. Central Coal, 111 F. at 98. Although cited as an example of the difficulties of recovering lost profits, it is not clear that the plaintiff presented enough evidence to survive even a less exacting standard.
31. 273 U.S. 359, 379 (1927). Five years earlier in Keogh v. Chicago & Northwestern Railway Co., 260 U.S. 156 (1922), the Supreme Court also considered the standard to be applied in a lost profits case involving antitrust laws and reasoned that recovery could be allowed if damages were based on "facts from which their existence is logically and legally inferable." Keogh, 260 U.S. at 158.
32. See Eastman Kodak Co., 273 U.S. at 368.
33. See id. at 368-69.
34. See id. at 369.
35. See id.
36. See id. at 376.
37. See id. at 376-78. For a modern analysis of speculative damages, see Roger D. Blair & William H. Page, "Speculative" Antitrust Damages, 70 WASH. L. REV. 423 (1995).
38. See Eastman Kodak Co., 273 U.S. at 379 (quoting Eastman Kodak Co. v. Southern Photo Materials Co., 295 F. 98, 102 (5th Cir. 1923), aff'd, 273 U.S. 359 (1927)).
39. Id. For this proposition, the Court cites Hetzel v. Baltimore & Ohio Railroad, 169 U.S. 26, 39 (1898). Whether that case stands for the proposition attributed to it by the Southern Photo Court is not obvious. The Southern Photo Court describes the problem of permitting the wrong-doer to escape when he or she has rendered the determination of damages more difficult. Hetzel, on the other hand, suggests merely that "it does not come with very good grace [for a wrongdoer] to insist upon the most specific and certain proof . . . ." Hetzel, 169 U.S. at 38-39.
40. 327 U.S. 251 (1946); see also Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 123 (1969) (holding that the fact finder may award treble damages based on a reasonable inference).
41. See Bigelow, 327 U.S. at 257-58.
42. See id. The yardstick and "before and after" methodologies remain mainstays of antitrust damage calculation. See Roger D. Blair & Amanda Kay Esquibel, Yardstick Damages in Lost Profit Cases: An Econometric Approach, 72 DENV. U. L. REV. 113 (1994); Jeffrey L. Harrison, The Lost "Profits" Measure of Damages in Price Enhancement Cases, 64 MINN. L. REV. 751, 779-80 (1980).
43. See id. The yardstick and "before and after" methodologies remain mainstays of antitrust damage calculation. See Roger D. Blair & Amanda Kay Esquibel, Yardstick Damages in Lost Profit Cases: An Econometric Approach, 72 DENV. U. L. REV. 113 (1994); Jeffrey L. Harrison, The Lost "Profits" Measure of Damages in Price Enhancement Cases, 64 MINN. L. REV. 751, 779-80 (1980).
44. These factors would include differences in competition, differences in the costs of operation, changes in demand, changes in business conditions, and other determinants of financial success.
45. Bigelow, 327 U.S. at 264.
46. 203 U.S. 390 (1906).
47. See id. at 391.
48. Id. at 396.
49. Id.
50. This is discussed more fully in footnote 48 and Section IV.B., infra.
51. A party paying a higher price for an input or a good has, in theory, three options. First, it can maintain the same resale price. If so, the party will experience a decreased profit on each unit sold. If the party chooses to continue to sell the same quantity, the lost profit and overcharge are the same, but this is an unlikely strategy. Second, the party can attempt to pass the full price increase on to its customers. As prices rise, customers will demand fewer units, and the profit that was made on those units will be lost. Third, if the party is a seller it can, and typically does, raise the price, but not by the full amount of the overcharge. The seller, therefore, loses some profit on the units it continues to sell, and it also loses profits on sales lost as a result of the price increase.
52. It is worthwhile to note that this analysis presupposes the typical model of price fixing by sellers. Price fixing by buyers is also commonplace - for example, bid rigging at auctions - in which case, the measure would be in terms of an "undercharge." For a detailed analysis of monopsony, see ROGER D. BLAIR & JEFFREY L. HARRISON, MONOPSONY: ANTITRUST LAW AND ECONOMICS (1994).
53. The overcharge to the victim is equal to the quantity purchased multiplied by the difference between the price paid and the price that would have been paid in the absence of the price fixing. This is not equal to the net benefit to the price-fixing firms. Basic economic theory indicates that an increase in price will result in fewer units being sold. Thus, although the pricefixing firms receive the overcharge, it is offset to some degree by the loss in revenue from sales forgone.
54. 245 U.S. 531 (1918).
55. See id. at 533.
56. Id.
57. Id. at 534. Precisely where the duty to mitigate damages would fall into this formulation is not clear. See Amanda Kay Esquibel, The Rule of Avoidable Consequences in Antitrust Cases: A Law and Economics Approach, 26 HOFSTRA L. REV. 891, 911 (1998).
58. 297 F. 791 (2d Cir. 1924).
59. See E. THOMAS SULLIVAN & JEFFREY L. HARRISON, UNDERSTANDING ANTITRUST AND ITS ECONOMIC IMPLICATIONS 222-30 (3d ed. 1998).
60. Macy's bought and sold primarily phonograph records.
61. See Straus, 297 F. at 794. The purpose of the change was to enable Victor to control the resale price of its products. This was a result of Dr. Miles Medical Co. v. John D. Park & Sons, 220 U.S. 373 (1911), which held that fixing minimum resale prices was unlawful.
62. See Straus, 297 F. at 795.
63. See id. at 800-01.
64. Id. at 802.
65. See id.
66. See id. at 803.
67. Southern Pac. Co. v. Darnell-Taenzer Lumber Co., 245 U.S. 531 (1918).
68. See Straus, 297 F. at 803.
69. Id. The court quoted Justice Holmes for the proposition that "'[t]he general tendency of the law, in regard to damages at least, is not to go beyond the first step.'" Id. (quoting Darnell-Taenzer Lumber Co., 245 U.S. at 533).
70. See Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 264 (1946); Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 562 (1931).
71. See J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557 (1981).
72. 392 U.S. 481 (1968).
73. See United States v. United Shoe Mach. Corp., 110 F. Supp. 295, 297 (D. Mass. 1953), aff'd per curiam, 347 U.S. 521 (1954). See generally SULLIVAN & HARRISON, supra note 54, at 290-91. For a critical analysis of the Court's reasoning, see John Shepard Wiley, Jr. et al., The Leasing Monopolist, 37 UCLA L. REV. 693 (1990), and Scott E. Masten & Edward A. Snyder, United States versus United Shoe Machinery Corporation: On the Merits, 36 J.L. & ECON. 33 (1993). For a supportive analysis, consult Joseph F. Brodley & Ching-to Albert Ma, Contract Penalties, Monopolizing Strategies, and Antitrust Policy, 45 STAN. L. REV. 1161 (1993).
74. See United States v. United Shoe Mach. Corp., 110 F. Supp. 295, 297 (D. Mass. 1953), aff'd per curiam, 347 U.S. 521 (1954). See generally SULLIVAN & HARRISON, supra note 54, at 290-91. For a critical analysis of the Court's reasoning, see John Shepard Wiley, Jr. et al., The Leasing Monopolist, 37 UCLA L. REV. 693 (1990), and Scott E. Masten & Edward A. Snyder, United States versus United Shoe Machinery Corporation: On the Merits, 36 J.L. & ECON. 33 (1993). For a supportive analysis, consult Joseph F. Brodley & Ching-to Albert Ma, Contract Penalties, Monopolizing Strategies, and Antitrust Policy, 45 STAN. L. REV. 1161 (1993).
75. See United States v. United Shoe Mach. Corp., 110 F. Supp. 295, 297 (D. Mass. 1953), aff'd per curiam, 347 U.S. 521 (1954). See generally SULLIVAN & HARRISON, supra note 54, at 290-91. For a critical analysis of the Court's reasoning, see John Shepard Wiley, Jr. et al., The Leasing Monopolist, 37 UCLA L. REV. 693 (1990), and Scott E. Masten & Edward A. Snyder, United States versus United Shoe Machinery Corporation: On the Merits, 36 J.L. & ECON. 33 (1993). For a supportive analysis, consult Joseph F. Brodley & Ching-to Albert Ma, Contract Penalties, Monopolizing Strategies, and Antitrust Policy, 45 STAN. L. REV. 1161 (1993).
76. See Hanover Shoe, 392 U.S. at 483-84.
77. See id. at 487.
78. See id. at 487-88.
79. See id. at 488. The Court did carve out an exception for instances in which the overcharged buyer resold under a preexisting cost-plus contract. See id. at 494; see also Herbert Hovenkamp, The Indirect-Purchaser Rule and Cost-Plus Sales, 103 HARV. L. REV. 1717 (1990). A further exception is suggested in Illinois Brick for instances in which "the direct purchaser is owned or controlled by its customer." Illinois Brick Co. v. Illinois, 431 U.S. 720, 736 n.16 (1977).
80. See Hanover Shoe, 392 U.S. at 493.
81. See id. at 494. Interestingly, it is not entirely clear that the Hanover Shoe Court understood the difference between the overcharge measure of damages and lost profits. For example, at one point Justice White, for the Court, reasons that [i]f in the face of the overcharge the buyer does nothing and absorbs the loss, he is entitled to treble damages . . . . The reason is that he has paid more than he should and his property has been illegally diminished, for had the price paid been lower his profits would have been higher. Id. at 489. Similarly, "[a]s long as the seller continues to charge the illegal price, he takes from the buyer more than the law allows. At whatever price the buyer sells, the price he pays the seller remains illegally high, and his profits would be greater were his costs lower." Id. Perhaps the reasoning of the Court was that even if the buyer passes on the overcharge, there will be a lower profit. As a matter of economic theory, that is almost always the case. Furthermore, if profits are lower, the damage requirement of section 4 is arguably fulfilled. The measure of damages, however, is the overcharge. The problem with this analysis is that section 4 specifically calls for "threefold the damages . . . sustained." 15 U.S.C. § 15(a) (1994) (emphasis added).
82. See Illinois Brick, 431 U.S. at 726.
83. See id. at 726-27.
84. See id. At the time, there was a division among the circuit courts on this issue. Compare Mangano v. American Radiator & Standard Sanitary Corp., 438 F.2d 1187 (3d Cir. 1971), with In re Western Liquid Asphalt Cases, 487 F.2d 191 (9th Cir. 1973).
85. See Illinois Brick, 431 U.S. at 736.
86. See id. at 730.
87. See id. at 731-33.
88. See id. at 735. In a fashion similar to that in Hanover Shoe, the Court recognized the cost-plus exception to the rule. See id. at 736. In addition, it recognized that the exception "might" apply when "the direct purchaser is owned or controlled by its customer." Id. at 736 n.16. For a thorough discussion of the "control exception," see Dee-K Enterprises, Inc. v. Heveafil Sdn. Bhd., 982 F. Supp. 1138, 1152-53 (E.D. Va. 1997). See also In re Wyoming Tight Sands Antitrust Cases, 866 F.2d 1286, 1293 (10th Cir. 1989).
89. Illinois Brick, 431 U.S. at 737.
90. See id. The Court conceded that use of the theory by both defendants and plaintiffs would reduce the likelihood of multiple liability assuming that inconsistent judgments were not made. See id. at 737 n.18.
91. See id. at 741.
92. See id. at 743-45.
93. See id. at 744-45.
94. Id. at 745.
95. See id. at 746.
96. See id.
97. See id. at 746-47.
98. As explained in note 48, supra, the overcharge may overstate the actual gain to the defendant.
99. See infra Part III.A.
100. See infra Part III.B.
101. See infra Part III.C.
102. See infra Part III.D.
103. 490 U.S. 93 (1989). For an interesting analysis of ARC America's implications, see Ronald W. Davis, Indirect Purchaser Litigation: ARC America's Chickens Come Home to Roost on the Illinois Brick Wall, 65 ANTITRUST L.J. 375, 394-406 (1997).
104. See ARC Am., 490 U.S. at 97-98.
105. See id. at 98.
106. See id. at 100. The actual litigation was precipitated by a dispute over whether the states, as indirect purchasers, had a right to part of a settlement fund. But the district court and the Ninth Circuit held that indirect purchaser plaintiffs, under Hanover Shoe and Illinois Brick, did not have a right to a share of the funds. See In re Cement & Concrete Antitrust Litig., 817 F.2d 1435, 1445 (1987).
107. This was a case in which there was no express preemption by Congress. See ARC Am., 440 U.S. at 100-01.
108. Id. at 100. In this instance, the issue concerned an area traditionally left to state regulation, and therefore, according to the Court, those arguing for preemption would be required to overcome the presumption against preemption. See id. at 101.
109. See id. at 103.
110. See id.
111. See id.
112. See id. at 104.
113. See id. The Court also rejected an argument that the presence of indirect purchasers would mean that direct purchasers would be offered less in settlements and, therefore, were less likely to bring actions. See id. at 105.
114. See id. at 105.
115. Id. at 105.
116. Illinois Brick Co. v. Illinois, 431 U.S. 720, 730 (1977). This is not to say that the threat of multiple liability was ever all that great or that the Court's position on it in Hanover Shoe and Illinois Brick was well-founded.
117. See William M. Landes & Richard A. Posner, Market Power in Antitrust Cases, 94 HARV. L. REV. 937 (1981).
118. For a discussion of the determinants of market power, see Landes & Posner, supra note 110.
119. The best example of this is "attempt to monopolize" under section 2 of the Sherman Act. To be guilty of an attempt, the firm must pose a dangerous probability of becoming an actual monopoly. Dangerous probability will often be related to market share, but the market share that is consistent with the creation of a dangerous probability may change with the aggressiveness of the defendant's actions. See SULLIVAN & HARRISON, supra note 54, at 318-22.
120. According to a 1990 study, fourteen states and the District of Columbia have enacted indirect purchaser legislation. See ARC American Task Force, Report of the American Bar Association Section of Antitrust Law Task Force to Review the Supreme Court's Decision in California v. ARC America Corp., 59 ANTITRUST L.J. 273, 278 (1990). For a discussion in the context of class actions, see William H. Page, The Limits of Indirect Purchaser Suits: Class Certification in the Shadow of Illinois Brick, 67 ANTITRUST L.J. 1 (1999).
121. According to a 1990 study, fourteen states and the District of Columbia have enacted indirect purchaser legislation. See ARC American Task Force, Report of the American Bar Association Section of Antitrust Law Task Force to Review the Supreme Court's Decision in California v. ARC America Corp., 59 ANTITRUST L.J. 273, 278 (1990). For a discussion in the context of class actions, see William H. Page, The Limits of Indirect Purchaser Suits: Class Certification in the Shadow of Illinois Brick, 67 ANTITRUST L.J. 1 (1999).
122. 497 U.S. 199 (1990). For additional reading on the use of indirect purchasers, see Robert Elkin & Robert J. Bluhm, Indirect Purchaser Standing in Antitrust Actions: Duplicative Liability in the Energy Industry, 11 ENERGY L.J. 185 (1990); Louise Weinberg, The Federal-State Conflict of Laws: 'Actual' Conflicts, 70 TEX. L. REV. 1743 (1992); and Lee J. Potter, Case Note, Kansas and Missouri v. Utilicorp United Inc.: The Supreme Court Applies the Illinois Brick Rule to Regulated Utilities, 69 N.C. L. REV. 1041 (1991).
123. 497 U.S. 199 (1990). For additional reading on the use of indirect purchasers, see Robert Elkin & Robert J. Bluhm, Indirect Purchaser Standing in Antitrust Actions: Duplicative Liability in the Energy Industry, 11 ENERGY L.J. 185 (1990); Louise Weinberg, The Federal-State Conflict of Laws: 'Actual' Conflicts, 70 TEX. L. REV. 1743 (1992); and Lee J. Potter, Case Note, Kansas and Missouri v. Utilicorp United Inc.: The Supreme Court Applies the Illinois Brick Rule to Regulated Utilities, 69 N.C. L. REV. 1041 (1991).
124. 497 U.S. 199 (1990). For additional reading on the use of indirect purchasers, see Robert Elkin & Robert J. Bluhm, Indirect Purchaser Standing in Antitrust Actions: Duplicative Liability in the Energy Industry, 11 ENERGY L.J. 185 (1990); Louise Weinberg, The Federal-State Conflict of Laws: 'Actual' Conflicts, 70 TEX. L. REV. 1743 (1992); and Lee J. Potter, Case Note, Kansas and Missouri v. Utilicorp United Inc.: The Supreme Court Applies the Illinois Brick Rule to Regulated Utilities, 69 N.C. L. REV. 1041 (1991).
125. See Illinois Brick Co. v. Illinois, 431 U.S. 720, 732 n.12 (1977). The reason for such an exception is clear: the overcharge is fully passed on to the indirect purchaser under the terms of the contract. There would be no apportioning problem and no danger of duplicative recovery. See also Jean W. Burns, The Paradox of Antitrust and Lanham Act Standing, 42 UCLA L. REV. 47, 63 (1994); Michael S. Jacobs, Lessons From the Pharmaceutical Antitrust Litigation: Indirect Purchasers, Antitrust Standing, and Antitrust Federalism, 42 ST. LOUIS U. L.J. 59, 66 (1998).
126. See Illinois Brick Co. v. Illinois, 431 U.S. 720, 732 n.12 (1977). The reason for such an exception is clear: the overcharge is fully passed on to the indirect purchaser under the terms of the contract. There would be no apportioning problem and no danger of duplicative recovery. See also Jean W. Burns, The Paradox of Antitrust and Lanham Act Standing, 42 UCLA L. REV. 47, 63 (1994); Michael S. Jacobs, Lessons From the Pharmaceutical Antitrust Litigation: Indirect Purchasers, Antitrust Standing, and Antitrust Federalism, 42 ST. LOUIS U. L.J. 59, 66 (1998).
127. See Jacobs, supra note 115, at 69-70; James S. Helfrich, Note, Limiting a Regulated Pass-On Exception to Illinois Brick, 62 ST. JOHN'S L. REV. 647, 649 (1988). The control exception makes sense because the direct purchaser is not independent and, therefore, not likely to pursue any antitrust remedy.
128. The suit was brought by the States of Kansas and Missouri as parens patriae. See Utilicorp, 497 U.S. at 204.
129. See id.
130. See id. at 207.
131. See id. at 205.
132. See id.
133. See id.
134. See id. at 206. The Court granted certiorari in order to resolve a dispute on the issue of indirect purchaser standing between the Tenth Circuit, from which this case arose, see In re Wyoming Tight Sands Antitrust Cases, 866 F.2d 1286 (10th Cir. 1989), and the Seventh Circuit, see Illinois ex rel. Hartigan v. Panhandle E. Pipe Line Co., 852 F.2d. 891 (7th Cir. 1988) (en banc). See Utilicorp, 497 U.S. at 206.
135. See Utilicorp, 497 U.S. at 217.
136. See id. at 209.
137. See id. at 208.
138. See id. at 209.
139. See id.
140. See id.
141. See id. at 210.
142. See id. at 212.
143. See id. at 211-12. This raises a rather obvious question: Why would the utility bother suing if it could not retain any of the award?
144. See id. at 214. This is somewhat curious reasoning because the overcharge already had been passed on to the consumers.
145. See id. at 215. The dissenting opinion, written by Justice White, took issue with virtually every aspect of the majority's reasoning. For example, Justice White wrote that it seemed "fanciful" to think the utility was not charging rates as high as the state would allow. Id. at 222 (White, J., dissenting). Therefore, the rate increase could be traced directly and fully to the overcharge. See id. (White, J., dissenting). The dissent also noted that the "difficult" apportioning problem identified by the majority was a common exercise in other types of antitrust actions. See id. at 223 (White, J., dissenting).
146. In this respect, it reminds one of the "rational relationship" test found in equal protection analysis.
147. 457 U.S. 465 (1982).
148. 459 U.S. 519 (1983).
149. The Court previously had addressed the issue in a more general context in Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150 (1970), and concluded that a plaintiff had standing if there was injury in fact and the interest to be protected is "arguably within the zone of interests to be protected or regulated by the statute or constitutional guarantee in question." Camp, 397 U.S. at 153. For a good survey of antitrust standing decisions prior to 1980, see Comment, Standing to Sue in Antitrust Cases: The Offensive Use of Passing-On, 123 U. PA. L. REV. 976 (1975).
150. McCready, 457 U.S. at 472.
151. Id. at 476.
152. This was, in fact, a question that had been addressed by lower courts for years.
153. The facts of McCready are found in the text accompanying notes 248-249, infra.
154. See Associated Gen. Contractors, Inc. v. California State Council, Inc., 459 U.S. 519, 540 (1983). In a separate but related line of cases, the Court had developed the notion of "antitrust injury." In effect, the injured party must complain of the type of injury that the antitrust laws were designed to protect against. See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). See generally Roger D. Blair & Jeffrey L. Harrison, Rethinking Antitrust Injury, 42 VAND. L. REV. 1539 (1989); Page, supra note 113.
155. See Associated Gen. Contractors, Inc. v. California State Council, Inc., 459 U.S. at 540.
156. See id. at 542. This issue could be put in terms of whether a violation would go undetected should a specific plaintiff be denied standing.
157. See id. at 543-44. The Court cited Illinois Brick as supporting the last of these factors. See id. at 545.
158. It may be important in this regard to distinguish between antitrust injury, which is now part of an antitrust standing analysis, and being an indirect purchaser. Plaintiffs who fail the standing test because they have not suffered an antitrust injury have not incurred the types of harm that the antitrust laws were designed to prevent. Even if they have suffered antitrust injury and have cleared the other hurdles as well, as indirect purchasers they are still disqualified.
159. See Illinois Brick Co. v. Illinois, 431 U.S. 720, 745 (1977).
160. It seems likely that indirect purchasers would satisfy the antitrust injury part of the test as the overcharge eventually passed on to them, which is certainly the type of harm the antitrust laws were designed to prevent.
161. At least one court has suggested that Illinois Brick-type plaintiffs may still be eligible for a recovery if they recharacterize the offense as something other than price fixing. See In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d 599, 606 (7th Cir. 1997).
162. See Illinois Brick, 431 U.S. at 746 (noting that purchasers might be concerned about "disrupting relations with a supplier").
163. See supra discussion accompanying notes 67-91.
164. For a case that views AGC as controlling the application of Illinois Brick, see In re Lower Lake Erie Iron Ore Antitrust Litigation, 998 F.2d 1144, 1164 (3d Cir. 1993).
165. See Lucas Automotive Eng'g, Inc. v. Bridgestone/Firestone, Inc., 140 F.3d 1228 (9th Cir. 1998); Campos v. Ticketmaster Corp., 140 F.3d 1166 (8th Cir. 1998); Sports Racing Servs., Inc. v. Sport Car Club of America, Inc., 131 F.3d 874 (10th Cir. 1997); In re Brand Name Prescription Drugs Litig., 123 F.3d 599 (7th Cir. 1997); In re Lower Lake Erie Iron Ore Antitrust Litig., 998 F.2d 1144 (3d Cir. 1993).
166. 140 F.3d at 1228.
167. See id. at 1231.
168. See id. at 1232-33. Specifically, the court reasoned that the plaintiff failed the "antitrust injury" element of the standing analysis. See id. at 1233.
169. See id. at 1233.
170. See id.
171. See id. ("The indirect purchaser rule serves to avoid the complications of apportioning overcharges between direct and indirect purchasers and to eliminate multiple recoveries.").
172. See id. at 1234.
173. See id. at 1234-35. As a competitor, however, the plaintiff did not have standing to bring an action for divestiture.
174. 123 F.3d 599 (7th Cir. 1997).
175. See id. at 602-03. In the class action, the retailers pursued this as a price-fixing claim for damages. See id. Another theory was a violation of the Robinson-Patman Act, which would have obviated the need for an Illinois Brick analysis. See id. at 604.
176. See id. at 604.
177. See id. at 605-06.
178. See id. at 616.
179. Id. at 606 (internal citations omitted).
180. Estimating lost profits any other way would be very difficult because many variables would have to be considered.
181. See discussion infra Section 4.B.
182. In the brand name prescription drug industry, manufacturers often negotiate directly with indirect purchasers, who then purchase the drug from wholesalers. Wholesalers then get "charge backs" from manufacturers for sales made at manufacturer negotiated prices. See BNPD, 123 F.3d at 607.
183. See Lucas Automotive Eng'g, Inc. v. Bridgestone/Firestone, Inc., 140 F.3d 1228, 1233 (9th Cir. 1998) (citing Illinois Brick Co. v. Illinois, 431 U.S. 720, 728-29 (1977)).
184. See Illinois Brick, 431 U.S. at 737.
185. See id. at 746.
186. 140 F.3d 1166 (8th Cir. 1998).
187. See id. at 1168.
188. See id.
189. See id. at 1169.
190. Id. (emphasis added).
191. See id. at 1171. In other words, the monopolist (Ticketmaster) sold its services to the direct purchaser (the venue) which then hosted the event for the indirect purchasers (the concert goers). As an economic matter, this makes no sense because the class alleged overcharges on Ticketmaster's services - not on the tickets. How Ticketmaster acquired the power to impose overcharges on services ought to be irrelevant.
192. See id.
193. See id. at 1172.
194. See id.
195. See id.
196. Id. at 1171 (quoting Note, Beyond Economic Theory: A Model for Analyzing the Antitrust Implications of Exclusive Dealing Arrangements, 45 DUKE L.J. 1009, 1015 (1996)).
197. See id. at 1169.
198. The lower court had applied a standing analysis and held that plaintiffs did not have standing even if they were direct purchasers. Arguably, this decision is incorrect. Clearly, plaintiffs suffered antitrust injury - price of service exceeded a "but for" price. In addition, they were not "remote" victims, and the damage calculations were no more complex than many others.
199. 998 F.2d 1144 (3d Cir. 1993).
200. See id. at 1152-53.
201. See id. at 1154.
202. See id.
203. See id. at 1171.
204. Id. at 1168.
205. See id.
206. See id.
207. See id.
208. See id. at 1169. The Third Circuit made an effort to explain Lower Lake Erie in McCarthy v. Recordex Service, Inc., 80 F.3d 842 (3d Cir. 1996) (holding that even though hospital patients are "indirect purchasers," they have standing to seek injunctive relief against a copy service with exclusive rights to photocopy patients' medical records).
209. 131 F.3d 874 (10th Cir. 1997).
210. See id. at 878.
211. See id.
212. See id.
213. See id. at 879.
214. Id.
215. See id. The market subject to monopolization consisted of a specific type of racing car and parts. See id.
216. See id. at 884.
217. See id. at 886-87.
218. See id. at 887.
219. Judge Posner suggested that the indirect purchasers could have used a different theory of liability as long as they did not ultimately base damages on an overcharge theory. See In re Brand Name Prescription Litigation, 123 F.3d 599, 606 (7th Cir. 1997). In SRS, however, the damage calculation was not part of the court's analysis. See SRS, 131 F.3d at 890.
220. See SRS, 131 F.3d at 884.
221. See id. at 889.
222. See id.
223. See Illinois Brick Co. v. Illinois, 431 U.S. 720, 728 (1977).
224. See id. at 736.
225. See id. at 729.
226. See Associated Gen. Contractors, Inc. v. California State Council, Inc., 459 U.S. 519, 540 (1983) (considering the "chain of causation between the Union's injury and the alleged restraint in the market for construction subcontracts").
227. See id. at 542; Illinois Brick, 431 U.S. at 746.
228. In BNPD, Judge Posner suggested that the plaintiffs could recharacterize their price-fixing claim as a group boycott to circumvent Illinois Brick, see In re Brand Name Prescription Litigation, 123 F.3d 599, 606 (7th Cir. 1997), while the court in SRS denied the monopolization claim under Illinois Brick, but allowed the tying claim, see Sports Racing Servs., Inc. v. Sport Car Club of America, Inc., 131 F.3d 874, 890 (10th Cir. 1997).
229. Clearly, in cases of purchases by municipalities, the proper damages measure would still be the overcharge.
230. Some indirect purchasers would have a choice of federal or state court just as antitrust plaintiffs do, for the most part, today. They would not, however, be able to recover in both state and federal court for the same damages.
231. See AGC, 459 U.S. at 544.
232. See id. at 520-21.
233. See id. at 539. According to the Court, "the Union was neither a consumer nor a competitor in the market in which trade was restrained." Id.
234. Id. at 539 n.40.
235. See id. at 544-45.
236. See id. at 543-44.
237. Id. at 542.
238. See supra text accompanying notes 22-66.
239. For an argument in favor of estimating overcharges for indirect purchasers, see Harris & Sullivan, supra note 10; Elmer J. Schaefer, Passing-on Theory in Antitrust Treble Damage Actions: An Economic and Legal Analysis, 16 WM. & MARY L. REV. 883, 885-86 (1975).
240. See supra text accompanying notes 163-168.
241. For example, in all cases involving exclusion (or foreclosure), the damage is lost profit on lost sales. This follows because the lost profits due to exclusion involve the following computation: price but for the exclusion times the quantity that would have been sold less the incremental costs of making those sales.
242. 451 U.S. 557 (1981).
243. 15 U.S.C. § 13(a) (1994); see J. Truett Payne, 451 U.S. at 559-60. The case involved secondary line price discrimination. Secondary line price discrimination involves injury to competition between and among different customers of the discriminating firm.
244. See J. Truett Payne, 451 U.S. at 560.
245. See id. at 561-62.
246. See id. at 562.
247. See id. at 564-65.
248. The one consistent feature of these decisions - and several others of their era - is decreasing the level of private antitrust enforcement.
249. Damage calculations are speculative due to a failure of proof. See Blair & Page, supra note 33, at 426.
250. See Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 124 (1969); Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 264 (1946).
251. See Illinois Brick Co. v. Illinois, 431 U.S. 720, 730 (1977).
252. See id. at 729.
253. See infra text accompanying notes 269-274.
254. See supra note 48.
255. There is also a possibility of incomplete recovery. For example, suppose cement manufacturers collude on the price charged to ready-mix concrete companies. The ready-mix dealers sue and recover a portion of the overcharge. The masonry contractor absorbs part of the overcharge and also sues. The homeowner who buys the concrete sidewalk may be deemed too remote and denied standing. In that case, the full overcharge will not be recovered. This, of course, will weaken the deterrent effect of the private enforcement provision.
256. The device of interpleader would seem to be useful as a means of avoiding this problem. This possibility is discussed by the Illinois Brick Court and rejected primarily due to practical problems. See Illinois Brick, 431 U.S. at 738 & n.19.
257. See Associated Gen. Contractors, Inc. v. California State Council, Inc., 459 U.S. 519, 542 (1983).
258. 457 U.S. 465 (1982).
259. See id. at 467-68.
260. See id. at 468.
261. See id. at 469-70.
262. See id. at 485.
263. To the extent that Blue Cross previously agreed on the reimbursements to be paid providers for various services, Blue Cross actually is buying the services for its subscribers.
264. See Associated Gen. Contractors, Inc. v. California State Council, Inc., 459 U.S. 519, 539 (1983).
265. See id. at 542.
266. A third possible group was Blue Cross, which may have found that the psychiatrists demanded exclusivity to be included on the list of providers.
267. See AGC, 459 U.S. at 541.
268. See Blue Shield v. McCready, 457 U.S. 465, 480 (1982).
269. Of course, what is passed on in McCready is a lower quality product, but this should not alter the analysis.
270. See AGC, 459 U.S. at 539.
271. Remotely affected indirect purchasers, as explained below, may fail the AGC test.
272. There would continue to be, however, difficult standing decisions in a great variety of other cases.
273. One should not overstate the increase, however, because a number of states already permit indirect purchaser actions.
274. For an excellent analysis of state indirect purchaser suits, see Page, supra note 113.
275. 15 U.S.C. § 15(a) (1994).
276. In most circumstances, there are welfare losses - that is, damages - suffered by consumers who are priced out of the market. These damages would be extraordinarily difficult to measure and typically are not cognizable. See ROGER D. BLAIR & DAVID L. KASERMAN, ANTITRUST ECONOMICS 78 (1985).
277. For an analysis of lost profits, see Harrison, supra note 38.
278. 15 U.S.C. § 15(a).
279. More technically, both average cost and marginal cost will increase by the amount of the overcharge.
280. 2. One can see by inspecting Figure 1 that the lost profit exceeds the overcharge, which is what we claimed in the text. (Graphic Presented)
281. 1. But there is no lost profit because the new price fully covers the increased costs. All of the overcharge was passed on to the customers of the overcharged producers. (Graphic Presented)
282. If demand is highly elastic, we will observe results similar to those in Figure 1. If demand is highly inelastic, we will get results similar to those in Figure 2. It is highly improbable that the demand elasticity will be such that the overcharge will precisely equal the lost profit.
283. See supra note 48.
284. Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 563 (1931).
285. Id. at 562.
286. Bigelow v. RKO Radio Picture, Inc., 327 U.S. 251, 264 (1946).
287. See Home Placement Servs., Inc. v. Providence Journal Co., 819 F.2d 1199, 1205 (1st Cir. 1987) (finding that lost profit damages are inappropriate where the plaintiff has introduced no evidence tending to establish comparability between its own business and other companies engaged in similar business pursuits).
288. See id. at 1208-09 (explaining that triers of fact must have sufficient evidence to make reasonable inferences, and may not speculate on appropriate damage awards).
289. For an extended examination of speculative damages, see Blair & Page, supra note 33.
290. See United States v. Andreas, 39 F. Supp. 2d 1048, 1054 n.1 (N.D. III. 1998).
291. See id.
292. The problem is even more complicated when restaurants buy the meat and prepare it for consumers.
293. Obviously, in light of ARC America, complete consistency is impossible.
294. One area in which there is relative clarity concerns actions for
295. See supra text accompanying notes 154-207.
296. See supra text accompanying notes 155-211.
297. See supra text accompanying notes 155-162.
298. Lucas Automotive Eng'g, Inc. v. Bridgestone/Firestone, Inc., 140 F.3d 1228, 1233 (9th Cir. 1998).
299. See In re Brand Name Prescription Litigation, 123 F.3d 599, 606 (7th Cir. 1997).
300. See id.; Sports Racing Servs., Inc. v. Sports Car Club of Am., Inc., 131 F.3d 874, 890 (10th Cir. 1997).
301. See Campos v. Ticketmaster Corp., 140 F.3d 1166, 1169-71 (8th Cir. 1998).
302. Id. at 1169.
303. In re Lower Lake Erie Iron Ore Antitrust Litig., 998 F.2d 1144, 1168 (3d Cir. 1993).
304. See id. at 1164-71.
305. Although to some extent they are.
306. One possibility that is related to the proposal discussed in the previous section is to interpret Illinois Brick as prohibiting indirect purchasers from asking for damages equal to a passed-on overcharge. This proposal results in the desired consistency, however, only if both direct and indirect purchasers are limited to lost profits. Otherwise, there is a possibility of multiple liability. As noted earlier, the passed-on overcharge would still be in order for consumers.
307. See supra text accompanying notes 198-211.
308. See supra text accompanying notes 188-197.
309. See supra text accompanying notes 163-174.
310. See supra text accompanying notes 155-162, 175-187.
311. See, e.g., In re Brand Name Prescription Litigation, 123 F.3d 599 (7th Cir. 1997).
312. See supra text accompanying notes 155-162.
313. See discussion supra notes 247-263.
314. See Illinois Brick Co. v. Illinois, 431 U.S. 720, 745 (1977).
315. In BNPD, the direct purchasers were wholesalers that acted primarily as conduits for the major drug producers. See BNPD, 123 F.3d at 603.
316. See discussion supra note 81.
317. Even those plaintiffs qualifying for an exception would have to pass the AGC tests to have antitrust standing. An issue left open would be whether a purchaser from the direct victim of a tying arrangement would fit within the exception. For example, a buyer of shoes from a shoemaker who is a direct victim of at tying arrangement may pay more than he or she would in the absence of tying. Whether or not Illinois Brick would bar this type of plaintiff is irrelevant because the suit almost certainly would be barred by AGC.
318. A possible way to this outcome would be to apply the "control" exception of Illinois Brick to instances in which the direct purchaser is simply a conduit for the tied product.
319. Interestingly, Hanover Shoe, the case leading to Illinois Brick, dealt with monopolization, many aspects of which involved the use of leverage.
320. Monopolization and tying both rely on the "use" of market power. Compare United States v. Griffith, 334 U.S. 100, 106-07 (1948) (concluding that the use of monopoly power, even if lawfully acquired, in unfair competitive practices, is unlawful), with Jefferson Parish Hosp. Dist. v. Hyde, 466 U.S. 2 (1984) (explaining that the existence of tied products requires an examination of how its use affects the markets and is not per se illegal).