The Problem:

When working people are harmed by monopolies or cartels charging unfairly high prices, they should have an opportunity to challenge the illegal behavior that caused that harm. Unfortunately, the “Indirect Purchaser” doctrine of antitrust law is a barrier to relief for those consumers, who are often considered “indirect purchasers” in the supply chain. The doctrine is associated with the Supreme Court’s 1977 decision in Illinois Brick v. Illinois, and limits recovery (and the ability to bring enforcement actions in the first place) to only those parties who first purchased from an abusive corporation.[1]

For example, if a cartel of tire manufacturers coordinates illegally to increase the price of tires to automobile manufacturers, the end-buyer of the car itself is prohibited from seeking relief — even if the automobile manufacturer successfully recovers the increased cost they paid for tires via a higher price to the purchaser of the car. Particularly if consolidation occurs at multiple points in the vertical supply chain, the situation is such that the consumer has little or no alternative for avoiding those increased costs.

Because direct purchasers are often able to recoup excess costs by passing on higher prices to the end consumer, direct purchasers are not incentivized to bring enforcement actions. If only direct purchasers are permitted to sue for damages, then the final consumers who were ultimately harmed by a violation of antitrust laws — the indirect purchasers — will remain uncompensated.

The Solution:

In the years following the Illinois Brick case, a number of states passed laws — often referred to as “Illinois BrickRepealers” — that allow consumers at all stages of the supply chain to pursue relief under state antitrust laws. Following a preemption challenge, the Supreme Court ultimately confirmed the right of states to pass these important consumer protection laws, but stopped short of overturning their earlier precedent to make it the law of the land.[2]

Approximately 28 states (and the District of Columbia) have adopted some form of Illinois Brick Repealer law, allowing for indirect purchasers to pursue relief in court.[3] Absent legislation, courts have also allowed indirect purchasers to seek relief in approximately seven more states.[4]

Even among states that have already adopted laws that allow for indirect purchaser standing, there remains significant variability among those statutes, despite agreed-upon best practices. State actors seeking to bolster antitrust laws, including in any of the ways set forth in this toolkit, can and should include amendments that codify best practices and allow for indirect purchaser standing.

Model Legislation:

Jurisdictions should consider passing so-called Illinois Brick Repealers, or strengthen their existing indirect purchaser standing laws, to:

• Allow indirect purchasers (e.g., corporations and people who buy a product somewhere down the supply chain, for example, through a middleman) to bring cases alleging violations of state antitrust or unfair competition laws.
• Refrain from restricting indirect purchaser standing only to specific categories of products.
• In addition to recovery of reasonable attorneys’ fees, allow for the award of treble damages, and reject claims that this could lead to duplicative or redundant relief — it will not![5]
• Prevent damages paid to direct purchasers from offsetting damages to indirect purchasers.
• Allow corporations and natural individuals to bring causes of action.[6]

The Pushback:

The most common criticism of the current system of multiple enforcers and multiple remedies is that it could lead to duplicative payouts. If both direct purchasers and indirect purchasers can pursue treble damages, and those damages are on top of disgorgement, criminal fines, and other penalties sought through state action, penalties could theoretically be sixfold or even tenfold the actual damages caused by the unlawful conduct.

Even though most of the antitrust community concedes that treble damages achieve optimal deterrence, the reality is that treble damages are rarely awarded. This is true even in situations where multiple enforcement authorities have standing. More often, when cases proceed beyond initial pleadings, the settlements reached are far below treble damages. A separate theory of antitrust damages contends that damages should greatly exceed their harms, because not all antitrust violations are detected.[7]

In short, the danger of more than treble damages only exists in theory. Any reassessment of antitrust damages should establish a floor and increase the theoretical ceiling if optimal deterrence is to be achieved.[8]

Example Law: Kansas Stat. Ann. §50-161; 10 Maine Rev. Stat. §1104; California Bus. & Prof. Code §16750

Notes:

[1] Illinois Brick v. Illinois, 431 U.S. 720 (1977).

[2] California v. ARC America Corp., 490 U.S. 93 (1989).

[3] The following 28 jurisdictions have adopted some version of indirect purchaser standing: Alabama, Alaska, Arkansas, California, Colorado, Connecticut, District of Columbia, Hawaii, Idaho, Illinois, Kansas, Maine, Maryland, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Mexico, New York, North Dakota, Oregon, Rhode Island, South Dakota, Utah, Vermont, Washington, and Wisconsin.

[4] Courts have acknowledged indirect purchaser standing in the following states: Arizona, Florida, Iowa, Massachusetts, New Hampshire, North Carolina, and Tennessee.

[5] Lande, Robert H. “Multiple Enforcers and Multiple Remedies: Why Antitrust Damage Levels Should be Raised.” 16 Loy. Consumer L. Review 329, 2004.

[6] For a thorough survey of Illinois Brick Repealers and an analysis of best practices, see Lande, Robert H., “New Options for State Indirect Purchaser Legislation: Protecting the Real Victims of Antitrust Violations.” 61 Ala. L. Rev. 447, 2010.

[7] See Lande, supra note 29.

[8] Id.