This article is a very short and informal analysis of the effect of the Supreme Court’s decision in Illinois Brick Co. v Illinois 431 U.S. 720, from a practitioner’s point of view. Most class action antitrust cases involve allegations of price fixing or other anticompetitive conduct by manufacturers or party’s at the inception of the chain of distribution. Therefore, the effect of the Illinois Brick decision is to disenfranchise most consumers from pursuing antitrust claims in federal courts.
The language in the Sherman Act as amended by the Clayton Act provides that “any person injured in his business or property” may sue. The Clayton Act was specifically passed to provide a private right to sue to injured parties. In other words, the litigation should be pursued by those with the most at stake — participants in the market at issue. Before Illinois Brick, this included consumers who bore the brunt of unlawful overcharges.
In Illinois Brick, the Supreme Court decided that tracing damages through the chain of distribution was too difficult and therefore limited claims in federal court to direct purchasers only, with very few exceptions, i.e. buying groups that have a preexisting cost plus contract see, e.g. KANSAS v. UTILICORP UNITED INC. 497 U.S. 199 (1990). Technically, a number of courts have held consumers still have standing to bring suit, they just cannot collect in federal court for policy reasons. This is a classic right without remedy and is ironic in light of the goals of consumer welfare that underlines all antitrust law. It adds insult to injury.
In the modern economy, in most instances consumers do not purchase directly from the parties leveling the anticompetitive overcharge. Instead they deal with those parties only indirectly by buying goods through distributors, wholesalers, retailers and others in the distribution chain. These direct purchasers and intermediaries usually pass-on at least 100% of the anticompetitive overcharge to consumers or end-users, since it is embedded in their cost of goods. Sometimes direct purchasers and intermediaries are actually beneficiaries of the fix if the demand is relatively inelastic. Yet under Illinois Brick, only the direct purchasers, who have the least incentive to seek redress, have the ability to pursue claims in federal court under federal law.
Notably, a number of states allow indirect purchaser actions under state law and the U.S. Supreme Court has held that these statutes –Illinois Brick repealers–are not preempted by federal law. (California v. Arc America Corp. 490 U.S. 93 (1989)) However, this usually confines such cases to the specific state, which may significantly limit the damages that can be collected to the point where litigation is not economic as a practical matter).
For many years, Illinois Brick was believed to be limited to Section 1 cases. This was probably due to the fact that most Section 2 (monopolization) cases are pursued by competitors, such that the issue was rarely addressed. However, in a recent case, the Ninth Circuit extended the doctrine to all private Sherman Act cases. Courts were never receptive to merger cases brought by non-competitors.
The net result is that although federal antitrust law was designed to protect and benefit consumers and even post-Chicago jurisprudence measures everything by the consumer welfare standard (Brooke Group), consumers cannot pursue claims in federal court.
Daniel J. Mogin is a San Diego attorney specializing in antitrust and consumer protection matters.
Reprinted in part at http://www.competitivemarkets.com/membersarch/ocmmo26.htm