KANSAS AND MISSOURI, ETC., PETITIONERS V. UTILICORP UNITED INC.

   No. 88-2109

   In The Supreme Court Of The United States

   October Term, 1989

   On Writ Of Certiorari To The United States Court Of Appeals For The
Tenth Circuit

   Brief For The United States As Amicus Curiae Supporting Respondent

            TABLE OF CONTENTS
   Question Presented
   Interest of the United States
   Statement
   Summary of argument
   Argument:
      A direct purchaser that suffers injury (and only
      the direct purchaser) is entitled to recover the
      full measure of antitrust damages even if it
      passed on an overcharge to its customers
      A. The possible "cost-plus" exception would only
         permit an indirect purchaser to sue when it is
         easy to prove that the direct purchaser was not
         injured at all by the overcharge
         1. Hanover Shoe and Illinois Brick do not permit
            indirect purchasers to sue for antitrust
            damages where the direct purchaser suffered
            injury
         2. The rule that a direct purchaser may recover
            the entire overcharge if the overcharge
            injured it (and conversely, that an
            indirect purchaser may not recover in that
            situation) is of long standing and represents
            sound antitrust policy
      B. No exception to the Hanover Shoe/Illinois
         Brick rule barring recovery by indirect purchasers
         should be created for the circumstances
         of this case
         1. A "regulatory/contractual 100% pass-through"
            exception should not be created
         2. A "100% pass-through" exception limited to
            cases in which direct purchasers have a
            written legal obligation to pass through any
            overcharge should not be created
   Conclusion

                          QUESTION PRESENTED

   Whether the Court should recognize an exception to the pass-on rule
of Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481
(1968), and Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) --
that only an overcharged direct purchaser, and not a subsequent
indirect purchaser, is entitled to recover antitrust damages -- where
the direct purchaser is required by regulation to pass on the full
amount of any illegal overcharge to the indirect purchaser, or where
the pass on is easily proven.

                     INTEREST OF THE UNITED STATES

   The United States and the Federal Trade Commission has primary
responsibility for enforcing the federal antitrust laws.  This case
presents the question whether the Clayton Act, which has been
construed to provide that only a direct purchaser may recover damages
for an unlawful overcharge, nevertheless permits indirect purchasers
to recover damages if the injured direct purchaser passes the
overcharge on to them.  The Court's resolution of that question may
affect both federal antitrust enforcement and the extent to which
private enforcement of the federal antitrust laws achieves its
intended purposes;  as a result, the United States and the Federal
Trade Commission have a significant interest in its correct
resolution.  The Court previously recognized that interest when, at
the petition stage, it requested the views of the United States.

                               STATEMENT

   1. Respondent is a public utility.  It and another utility (Kansas
Power & Light Company) purchased natural gas from a pipeline company
for their own use and for delivery to their customers.  The utilities,
along with other purchasers of natural gas from the pipeline, sued the
pipeline and five natural gas producing entities under Section 4 of
the Clayton Act, 15 U.S.C. 15.  The utilities alleged that the
pipeline and the producers had conspired to inflate prices in
violation of the Sherman Act.  They sought as damages both the amount
of the overcharge and lost profits attributable to the decrease in the
quantity of natural gas demanded by the utilities' customers as a
result of the higher prices.

   Petitioners Kansas and Missouri subsequently brought parens patriae
actions against the same pipeline-producer defendants on behalf of
residential consumers in those States who had purchased natural gas
from the utilities.  /1/ These actions were consolidated with the
utilities' suit.

   2. Defendants answered that the utilities lacked standing to bring
an antitrust suit.  According to the pipeline-producers, the utilities
had passed on any illegal price increase to their customers.  This
pass on was assertedly required by state regulations and tariffs filed
with state utility commissions.  Pet. 4.

   The utilities moved for partial summary judgment with respect to
this defense, and the district court granted their motions.  It noted
that in Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S.
481 (1968), this Court held that a direct purchaser is damaged within
the meaning of Section 4 of the Clayton Act, 15 U.S.C. 15, to the full
extent of an overcharge even if the entire overcharge is passed on to
customers.  Pet. App. A25-A27.  The district court further observed
that although Hanover Shoe involved the defensive use of a pass-on
theory, this Court later held in Illinois Brick Co. v. Illinois, 431
U.S. 720 (1977), that offensive use of the pass-on theory by indirect
purchasers seeking to prove damages is also barred.  Pet. App. A27.

   The district court acknowledged that the extent to which the
utilities in this case passed on the allegedly illegal overcharge was
a disputed factual issue;  however, the court concluded that the
pass-on defense would be barred even "if the facts establish that the
rate systems governing the utilities permitted a total pass-through of
any price increase." Pet. App. A33.  Although this Court had suggested
that the pass-on rule might not apply when an overcharged buyer has a
pre-existing "cost-plus" contract for a fixed quantity, Illinois
Brick, 431 U.S. at 736;  see Hanover Shoe, 392 U.S. at 494, the
district court held this possible exception inapplicable because
"consumer demand for natural gas is governed neither by a
fixed-quantity contract nor by anything resembling its 'functional
equivalent.'" Pet. App. A34.  Recognizing that the utilities' motions
"were, in reality, motions to dismiss the States of Kansas and
Missouri in their parens patriae capacity," the district court
dismissed petitioners' parens patriae claims.  Pet. App. A38.

   In its ruling, the district court relied on Illinois ex rel.
Hartigan v. Panhandle Eastern Pipe Line Co., 839 F.2d 1206 (1988),
where a panel of the Seventh Circuit had on "almost identical facts"
rejected a similar pass-on contention.  Pet. App. A36.  After the
district court rendered its decision, the Seventh Circuit granted
rehearing en banc in Panhandle Eastern.  In response, the district
court certified to the Tenth Circuit the following question for
interlocutory appeal:

         In a private antitrust action under 15 U.S.C. Section 15
      involving claims of price fixing against the producers of
      natural gas, is a State a proper plaintiff as parens patriae for
      its citizens who paid inflated prices for natural gas, when the
      lawsuit already includes as plaintiffs those public utilities
      who paid the inflated prices upon direct purchase from the
      producers and who subsequently passed on most or all of the
      price increase to the citizens of the State?

Pet. App. A41.

   3. The court of appeals answered the certified question in the
negative.  In its view, the reasoning of Hanover Shoe and Illinois
Brick requires that the cost-plus exception -- if there is one /2/ --
be limited to cases involving a pre-existing contract for a fixed
quantity.  Pet. App. A8.  In the absence of a fixed quantity
provision, the court reasoned, the utilities would presumably suffer
injury from the decreased demand for natural gas resulting from the
higher price even if they passed on the entire overcharge.  Pet. App.
A12-A13.  Consequently, it would still be necessary to apportion
damages between the direct and indirect purchasers, were the latter
permitted to recover.  Pet. App. A14.  The court of appeals therefore
concluded that even if there were "a perfect and provable pass-on of
the allegedly illegal overcharge" in this case, ibid., the cost-plus
exception would not apply.

   In the meantime, the en banc Seventh Circuit had reached a contrary
conclusion in Illinois ex rel. Hartigan v. Panhandle Eastern Pipe Line
Co., 852 F.2d 891 (reprinted at Pet. App. A43-A65), cert. denied, 109
S.Ct. 543 (1988).  The Tenth Circuit, however, expressly declined "to
apply the law as enunciated in Panhandle Eastern." Pet. App. A13.

                          SUMMARY OF ARGUMENT

   In Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481
(1968), and Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), this
Court held that an injured direct purchaser -- and not a subsequent
indirect purchaser -- is entitled to recover the full measure of
antitrust damages.  That rule applies even if the injured direct
purchaser passed on the full amount of the illegal overcharge to the
indirect purchaser.

   A. The Court did recognize that an exception might exist where the
direct purchaser suffered no antitrust injury whatsoever, and that
fact was easily proven.  Such an exception might apply when the direct
purchaser has a pre-existing cost-plus contract with a customer (the
indirect purchaser) for a fixed quantity.  But any such exception has
no application here.  The residential utility customers (on whose
behalf the States sued as parens patriae) were under no obligation to
maintain purchases of a fixed quantity of natural gas at the allegedly
inflated price.  Hence, respondent presumably lost profits from
reduction in demand for natural gas as a result of the higher price.

   Decisions of this Court and lower federal courts since 1906 have
held that an injured direct purchaser is entitled to recover an
overcharge (so that, conversely, an indirect purchaser is entitled to
no recovery) as long as the direct purchaser suffered injury under
Section 4.  That rule applied regardless of whether the direct
purchaser passed on the overcharge to its customer, the indirect
purchaser.  This rule greatly simplified antitrust litigation and
facilitated enforcement of the antitrust laws.  Hanover Shoe simply
extended the rule by barring complicated and usually futile attempts
to prove that the direct purchaser was not injured, thus further
simplifying litigation and facilitating enforcement.

   B. No exception to the rule barring indirect purchaser suits should
be created for cases in which 100% of an overcharge is passed through
to an indirect purchaser.  Considerations of stare decisis,
administrability, and antitrust policy impose a heavy burden on those
who urge creation of an exception to the rule of Hanover Shoe and
Illinois Brick.  That burden cannot be satisfied here.  A "100%
pass-through" exception would be difficult to prove, the addition of
new parties would complicate litigation, and such an exception would
dilute incentives to sue by jeopardizing compensation for those
directly injured by an illegal overcharge.  Limiting a "100%"
pass-through" exception to regulated industries, or to circumstances
in which the pass on is presumed to occur as a matter of law, does not
sufficiently increase the benefits or reduce the costs of the
exception.

                               ARGUMENT

   A DIRECT PURCHASER THAT SUFFERS INJURY (AND ONLY THE DIRECT
PURCHASER) IS ENTITLED TO RECOVER THE FULL MEASURE OF ANTITRUST
DAMAGES EVEN IF IT PASSED ON AN OVERCHARGE TO ITS CUSTOMERS

   The Hanover Shoe/Illinois Brick rule holds that an indirect
purchaser cannot recover antitrust damages for an illegal overcharge
passed through to it by an injured direct purchaser.  Instead, only
the direct purchaser can recover.  Any possible exception to that rule
-- for pre-existing cost-plus contracts for a fixed quantity -- does
not apply in this case, because that exception is limited to the
situation where it is simple to show that the direct purchaser was not
injured at all by the overcharge.  Proof of even a 100% pass on here
would not establish lack of injury to the direct purchaser because, as
petitioners concede, Br. 14-15, the direct purchasers (the utilities)
may nevertheless have lost profits (by virtue of lost sales) and thus
been injured.  In addition, no applicable new exception can be
justified consistent with Illinois Brick.

   A. The Possible "Cost-Plus" Exception Would Only Permit An Indirect
Purchaser To Sue When It Is Easy To Prove That The Direct Purchaser
Was Not Injured At All By The Overcharge

   At least since the first decade of this century, the antitrust laws
have provided that a direct purchaser who pays a price unlawfully
elevated by an antitrust violator and is injured in his business or
property is entitled to recover as damages the difference between the
price paid and the price which would have prevailed but for the
violation.  The "cost-plus exception" hinted at by this Court in
Hanover Shoe and Illinois Brick is not an exception to this rule at
all.  Rather, the "exception" would, in certain circumstances, simply
permit proof that a direct purchaser has not in fact been injured.
Here, there is no claim that the direct purchaser was not injured.

   1. Hanover Shoe And Illinois Brick Do Not Permit Indirect
Purchasers To Sue For Antitrust Injury Damages Where The Direct
Purchaser Suffered Injury

   Hanover Shoe rejected the pass-on defense to a suit by a direct
purchaser except (perhaps) where it is "easy to prove" that the direct
purchaser "has not been damaged" in his business or property under the
antitrust laws.  392 U.S. at 494.  Illinois Brick held that if a
pass-on theory may not be used defensively by a defendant against a
direct purchaser, it may not be used offensively by an indirect
purchaser to sue the defendant.  431 U.S. at 728.  Because
petitioners' offer to prove that respondent passed through 100% of any
overcharge to indirect purchasers fails to establish that respondent
has "not been damaged" as required by Hanover Shoe (in the defensive
context), and because defensive and offensive uses of the pass-on
theory are to be treated equally according to Illinois Brick,
petitioners' attempt to use the pass-on theory offensively here is
foreclosed by Hanover Shoe and Illinois Brick.

   a. In Hanover Shoe, plaintiff Hanover -- a shoe manufacturer --
alleged that defendant United -- a manufacturer of shoe machinery --
unlawfully refused to sell its machinery and only leased it, so that
the cost to Hanover was higher than it otherwise would have been.
Hanover sought to recover the overcharge as damages.  For its part,
United contended that Hanover was not injured and was therefore not
entitled to recover under Section 4 of the Clayton Act, because any
excess cost of leasing as opposed to purchasing "was not absorbed by
Hanover but was transferred to its customers." Pet. Br. at 62, United
Shoe Machinery Corp. v. Hanover Shoe, Inc., No. 463 (1967 Term)
(consolidated with Hanover Shoe).

   This Court squarely rejected United's contention.  The Hanover Shoe
Court held that "when a buyer shows that the price paid by him for
materials purchased for use in his business is illegally high and also
shows the amount of the overcharge, he has made out a prima facie case
of injury and damage within the meaning of Section 4." 392 U.S. at
489.  Moreover, "the buyer is equally entitled to damages if he raises
the price for his own product," because by charging an unlawfully high
price, the seller "takes from the buyer more than the law allows" and
"(a)t whatever price the buyer sells, * * * his profits would be
greater were his costs lower." Ibid.  The Court thus rejected the
defense to a suit by a direct purchaser that the full overcharge was
passed through to its customers, the indirect purchasers.  Id. at
492-494.

   What is more, the Court refused as a general matter to entertain
offers of proof that the direct purchaser suffered "no loss" at all
from the overcharge.  United had proposed to prove that 100% of the
overcharge was passed through to indirect purchasers and that Hanover
had suffered no lost profits from a "decline in sales" because "the
demand for (its) products (w)as so inelastic" that a price increase in
the full amount of the overcharge would not cause "a consequent
decline in sales." 392 U.S. at 492.  But the Court concluded that "in
the real economic world rather than an economist's hypothetical
model," id. at 493, the task "would normally prove insurmountable"
because numerous factors influence pricing policies, the effect on
sales of a change in price is difficult to determine, and the behavior
of unit costs given a change in sales volume cannot reliably be
measured, id. at 492-493.  Rather than permit defendants needlessly to
complicate antitrust litigation by attempting to prove that the
plaintiff had suffered no injury, the Court generally barred the
pass-on defense.  /3/

   The Court did, however, suggest that in exceptional circumstances
the pass-on defense "might" be permitted and the overcharged direct
purchaser's prima facie claim of injury rebutted "when an overcharged
buyer has a pre-existing 'cost-plus' contract, thus making it easy to
prove that he has not been damaged." 392 U.S. at 494.  Because the
Court had earlier in its opinion recognized that an overcharged
plaintiff would be injured despite a complete pass on of the
overcharge if its sales declined as a result of charging higher
prices, id. at 493, a fixed quantity qualification was implicit in its
references to a "'cost-plus' contract," since only then would it to be
"easy to prove" that the plaintiff had not been injured.  /4/ The
Court made this limitation explicit in Illinois Brick, /5/ noting that
with a cost-plus contract, "the purchaser is insulated from any
decrease in its sales as a result of attempting to pass on the
overcharge, because its customer is committed to buying a fixed
quantity regardless of price." 431 U.S. at 736.  /6/

   b. The Tenth Circuit correctly interpreted the possible
"'cost-plus' contract" exception as "requiring a pre-existing
cost-plus contract for a fixed quantity," Pet. App. A8, which is not
present in this case.  And it correctly perceived that, in the absence
of a contract for a fixed quantity, there remained "the issue of
decreased residential demand caused by the higher price," Pet. App.
A12-A13, even if, as alleged, the utilities passed on the entire
overcharge to their customers.  Thus, a perfect pass on alone would
not establish, as defendants had asserted, that the "plaintiffs had
not been injured in their business or property," Pet. App. A4 -- the
plaintiff utilities may well have lost profits because of declining
volume resulting from a higher price.  The indirect purchaser rule,
therefore, provides that the utilities, as direct purchasers, may sue
for the entire amount of the overcharge, and concomitantly that the
indirect purchasers may not sue.

   The Seventh Circuit in Panhandle Eastern reached a contrary
conclusion only by overlooking the predicate of the cost-plus
exception suggested in Hanover Shoe and Illinois Brick:  that the
direct purchaser not be injured at all as a result of an overcharge.
Indeed, the Seventh Circuit conceded that the direct purchaser in
Panhandle would have lost sales to residential customers as a result
of the higher prices;  in consequence, the direct purchaser would have
suffered injury and could sue for damages.  Pet. App. A54-A55.  /7/
The Seventh Circuit apparently believed that a cost-plus exception was
justified where there is no need to apportion the incidence of an
overcharge between a direct purchaser and indirect purchasers -- i.e.,
to determine the proportion of the overcharge borne by each class of
purchasers.  Pet. App. A50-A51, A55, A58.  It concluded that other
arrangements that may ensure a perfect pass on of the overcharge serve
the same function as a pre-existing cost-plus contract for a fixed
quantity, and therefore fall within the scope of the exception.  /8/

   Whatever the relevance of ease of apportionment to the decision
whether to create other exceptions to the indirect purchaser rule, it
is not the reason this Court articulated as a possible justification
for a cost-plus exception.  Indeed, the Court's opinion in Hanover
Shoe did not mention the problem of apportioning the amount of the
overcharge paid.  And in Illinois Brick, this Court considered the
apportionment problem in the context of whether it should "cut back or
abandon the Hanover Shoe rule." 431 U.S. at 736;  see id. at 740-742.
/9/ The Court suggested the possible cost-plus exception because a
particular kind of contract made it easy to prove that the direct
purchaser had not been damaged at all.  The Hanover Shoe Court never
even contemplated permitting both direct and indirect purchasers to
sue, with a resulting need to apportion damages or restrict an injured
direct purchaser to recovering his lost profits from diminished sales
volume.

   Thus, the Seventh Circuit's conclusion that the indirect purchaser
rule, as formulated by this Court, can be interpreted to bar recovery
of the overcharge by an injured direct purchaser is simply wrong.
Whether or not there is an exception to the indirect purchaser rule
for pre-existing cost-plus contracts for a fixed quantity, the Tenth
Circuit correctly held that such an exception, as this Court has
articulated its scope, /10/ was not applicable here.

   2. The Rule That A Direct Purchaser May Recover The Entire
Overcharge If The Overcharge Injured It (And Conversely, That An
Indirect Purchaser May Not Recover In That Situation) Is Of Long
Standing And Represents Sound Antitrust Policy

   Hanover Shoe and Illinois Brick were not sui generis.  To the
contrary, they represented the culmination of a line of decisions by
the Supreme Court and lower federal courts which had repeatedly held
that injured direct purchasers were entitled to recover the entire
overcharge.  Hanover Shoe, 392 U.S. at 489-492 & n.7.  The decisions
antedating Hanover Shoe and Illinois Brick confirm that the rationale
underlying the cost-plus/fixed-quantity contract exception is that
such a contract made it "easy to prove" that the direct purchaser "has
not been damaged" at all by the unlawful overcharge.  Hanover Shoe,
392 U.S. at 494.  Accordingly, the pass-on defense succeeded in those
earlier cases only when the direct purchaser suffered no injury or
failed to prove injury.

   The rejection of the pass-on theory in cases presaging Hanover Shoe
and Illinois Brick accords with considerations of sound antitrust
policy.  Those decisions allowed injured direct purchasers (and,
assuming mutuality of offensive and defensive use of the pass-on
theory, only direct purchasers) to elect to recover illegal
overcharges rather than having to prove lost profits, which would have
been necessary if the pass-on defense were allowed.  /11/ Given the
opportunity to recover the overcharge, direct purchasers could be
expected to (and did in fact) seek that measure of damages, because
the overcharge invariably equalled or exceeded any lost profits, /12/
and because such damages were relatively simple to prove.  /13/ By
allowing direct purchasers to recover the entire overcharge, the
decisions anticipating Hanover Shoe and Illinois Brick provided direct
purchasers with ample incentive to sue, thereby encouraging
enforcement of the antitrust laws and enhancing their deterrent
effect.

   a. This Court first stated the fundamental principle that injured
direct purchasers are entitled to recover the overcharge in 1906, in
Chattanooga Foundry & Pipe Works v. City of Atlanta, 203 U.S. 390
(1906).  The City of Atlanta, which operated "a system of waterworks,
and furnished water to consumers, charging for same precisely as would
a private corporation engaged in like business," City of Atlanta v.
Chattanooga Foundry & Pipeworks, 127 F. 23, 25 (6th Cir. 1903), aff'd,
203 U.S. 390 (1906), bought pipe for the waterworks at prices inflated
by a price-fixing conspiracy and then sued "to recover back, as
damages, the sum of money unlawfully demanded and paid," City of
Atlanta v. Chattanooga Foundry & Pipe Co., 101 F. 900, 907 (E.D. Tenn.
1900) -- in other words, the amount of the overcharge.

   Although Atlanta presumably recouped some or all of the overcharge
it paid by increasing what it charged consumers, the appropriate
measure of damages appears not to have been questioned at trial or on
appeal.  Nevertheless, on appeal of a verdict awarding Atlanta "the
difference between the price paid and the market or fair price that
the city would have had to pay under natural conditions had the
combination been out of the way," 203 U.S. at 396, both the court of
appeals and this Court had occasion to discuss injury and damages.
The court of appeals noted that if the effect of a price-fixing
conspiracy were to restrain interstate commerce "by reason of its
tendency to affect the volume of such trade, then the effect upon the
business of one who has paid the enhanced price * * * must be to
correspondingly affect the volume or profit of that business." Since
the excessive price results from the unlawful combination, the buyer
"is entitled to recover the damages thus sustained," for the statute
provides "compensatory relief to such persons as shall sustain an
injury in some * * * business whose volume or profit has been
diminished." 127 F. at 27.  Justice Holmes for this Court said that
Atlanta "was injured in its property, at least, if not in its business
of furnishing water, by being led to pay more than the worth of the
pipe.  A person whose property is diminished by payment of money
wrongfully induced is injured in his property." 203 U.S. at 396.

   In 1918, Justice Holmes further explained the reasons for
permitting the victim of an overcharge to recover the amount of the
overcharge without inquiry into whether it had been passed on to the
victim's customers.  Southern Pac. Co. v. Darnell-Taenzer Lumber Co.,
245 U.S. 531 (1918).  In Darnell-Taenzer, the Interstate Commerce
Commission had found that the defendant railroad had charged an
excessive rate and ordered reparation of the excess.  When the
railroad did not pay, a company which had paid the overcharge to the
railroad sued to recover it.  The railroad, in perhaps the first
reported use of the so-called "pass-on defense," claimed that the
plaintiff was not entitled to recover because it had passed on the
overcharge to its customers.  Rejecting that defense, Justice Holmes
explained:

      The general tendency of the law, in regard to damages at least,
      is not to go beyond the first step.  As it does not attribute
      remote consequences to a defendant so it holds him liable if
      proximately the plaintiff has suffered a loss.  The plaintiffs
      suffered losses to the amount of the verdict when they paid.
      Their claim accrued at once in the theory of the law and it does
      not inquire into later events.

Id. at 533-534.  Moreover, Justice Holmes pointed to another reason
not to inquire into the ultimate economic effect of the overcharge on
the plaintiff, one which assumed greater significance in Hanover Shoe
and Illinois Brick -- "the endlessness and futility of the effort to
follow every transaction to its ultimate result." Id. at 534.

   b. Because the amount of lost profits attributable to an overcharge
can be difficult to prove /14/ and is invariably no more than the
overcharge itself, victims of overcharges have generally sued for the
amount of the overcharge rather than for their lost profits, and
courts have expressly approved that election.  Thus, in Straus v.
Victor Talking Mach. Co., 297 F. 791 (2d Cir. 1924), plaintiffs did
not "sue() for damages due to loss of profits.  Their position is that
they were entitled to buy goods in a free market," id. at 802-803, but
instead were compelled to buy phonograph records at a higher price for
resale to their customers, and they sued for the overcharge.  The
court held that plaintiffs "were not forced to sue for damages for
loss of profits, and thus run the risk of no recovery" because of
difficulty of proof, id. at 803, and, citing, inter alia, Chattanooga
Foundry and Darnell-Taenzer, affirmed the award of the overcharge as
damages.  /15/

   Despite clear precedent supporting an injured direct purchaser's
recovery of the full amount of an overcharge, defendants continued to
offer the pass-on defense, with occasional success.  But where the
defense was successful, it was because the court concluded that the
plaintiff had not been injured or had failed to prove injury.  The
lower courts, despite the fact of overcharge, addressed whether the
direct purchaser suffered injury.  For example, in the "oil jobber"
cases, brought in the wake of the government's successful prosecution
for price fixing in the oil industry, United States v. Socony-Vacuum
Oil Co., Inc., 310 U.S. 150 (1940), oil jobbers sought, without
success, recovery for damages they allegedly suffered as a result of
the price fixing conspiracy.  After some jobbers' claims for damages
on decreased margins failed when no such decline could be shown, see,
e.g., Twin Ports Oil Co. v. Pure Oil Co., 119 F.2d 747, 750 (8th
Cir.), cert. denied, 314 U.S. 644 (1941), /16/ other jobber plaintiffs
sought instead to recover the amount of the overcharge on the gasoline
they bought.  These latter jobbers contended that they were entitled
"to recover without proof that they suffered any pecuniary loss in
their business or property," and "even though their margins or profits
on the gasoline were not lessened by reason of the conspiracy." Clark
Oil Co. v. Phillips Petroleum Co., 56 F. Supp. 569, 570-571 (D. Minn.
1944), aff'd, 148 F.2d 580 (8th Cir.), cert. denied, 326 U.S. 734
(1945).  The district court in Clark Oil noted that plaintiffs had
"allege(d) and claim(ed) no injury to their business or property," 56
F. Supp. at 575, and granted summary judgment for defendants;  the
court of appeals affirmed.  /17/

   Pass-on defenses were rejected in a series of cases arising out of
a price fixing conspiracy in the electrical equipment industry,
largely on the authority of Chattanooga and Darnell-Taenzer.  See,
e.g., Commonwealth Edison Co. v. Allis-Chalmers Mfg., 335 F.2d 203
(7th Cir. 1964).  Judge Feinberg's opinion in Atlantic City Elec. Co.
v. General Elec. Co., 226 F. Supp. 59 (S.D.N.Y. 1964), is particularly
enlightening.  In a suit brought by an electric utility to recover the
overcharge on the purchase of electrical equipment at prices allegedly
inflated by price fixing, the court refused to require discovery into
plaintiffs' rate bases and rates of return on the ground that evidence
that plaintiffs had passed on the increased costs on to their
customers was irrelevant.  Judge Feinberg began by noting that a party
suing for antitrust damages had traditionally been permitted to
recover loss of profits, increased costs of business transacted, or
decrease in value of investment;  that these categories of injury were
not necessarily mutually exclusive;  and that recovery could be had
for all three, given appropriate evidence.  Id. at 61.  He then
observed that "as a practical matter, recognition of the passing-on
doctrine is tantamount to a repudiation of the 'increased costs'
measure of damages and a limitation of the extent of recovery
primarily to lost profits." /18/ Id. at 61-62.  Judge Feinberg found
support for the distinction between lost profits and the amount of the
overcharge, and for an antitrust plaintiff's right to recover the
amount of the overcharge, in Straus, Chattanooga, Darnell-Taenzer, and
other cases.  Id. at 62-67.  /19/

   The pass-on theory has barred recovery of the overcharge by a
direct purchaser only when he has suffered no injury to his business
or property, thus confirming that the possible cost-plus exception to
this Court's general rejection of the pass-on theory in Hanover Shoe
and Illinois Brick extends only to the case where it is "easy to
prove" that the direct purchaser "has not been damaged." Hanover Shoe,
392 U.S. at 494.  /20/ History equally demonstrates the wisdom of
allowing direct purchasers to sue for the overcharge rather than
attempting to establish the far more difficult measure of damages from
lost profits.  By permitting direct purchasers to recover the
overcharge, disallowance of pass-on theories has encouraged
enforcement of the antitrust laws and enhanced their deterrent effect.

   B. No Exception To The Hanover Shoe/Illinois Brick Rule Barring
Recovery By Indirect Purchasers Should Be Created For The
Circumstances Of This Case

   The Court has not previously suggested the existence of an
exception to the indirect purchaser rule that would apply in this
case, where the direct purchaser's injury is undisputed.  We
nonetheless consider whether antitrust policy suggests that the rule
of Hanover Shoe and Illinois Brick be cut back to accommodate recovery
of an overcharge by indirect purchasers where regulation (or
pre-existing contract) /21/ provides for complete pass on of the
overcharge, even though neither contract nor regulation insulates the
direct purchaser from injury.

   Illinois Brick, in which the Court refused to cut back on the
Hanover Shoe rule, provides the framework for evaluation of any
proposed exception to that rule.  First, Illinois Brick indicates that
proponents of an exception must shoulder a heavy burden of
justification, because "considerations of stare decisis weigh heavily
in the area of statutory construction, where Congress is free to
change this Court's interpretation of its legislation." 431 U.S. at
736.  The burden of precedent would seem even heavier since Illinois
Brick, for in that case the Court rejected "attempts to carve out
exceptions to the Hanover Shoe rule for particular types of markets."
431 U.S. at 744.  That is precisely what would have to be done here.
Second, any exception should be limited to narrowly defined
circumstances and specifically justified by policy considerations
clearly distinguishing those circumstances, so that the exception does
not "substantially erode the Hanover Shoe rule without justification."
Ibid.  Third, any potential exception should be evaluated in light of
the antitrust policy objectives of deterring antitrust violations and
compensating victims, and the deterrence objective should be
considered in light of incentives to sue and limiting the complexity
of litigation.  /22/

   1. A "Regulatory/Contractual 100% Pass-Through" Exception Should
Not Be Created

   In our view, an exception to the indirect purchaser rule which
would apply when the injured direct purchaser in fact passed on 100%
of the overcharge, pursuant to contract or regulatory requirement,
cannot be justified.  Any attempt to prove that there had in fact been
a perfect pass through of the overcharge would "entail the very
problems that the Hanover Shoe rule was meant to avoid." Illinois
Brick, 431 U.S. at 745.  Despite a contract or regulatory requirement
providing for pass through, proving a perfect pass through can be
difficult, as recognized by both the Tenth Circuit in this case /23/
and the Seventh Circuit in Panhandle Eastern.  /24/

   Moreover, the complexity of litigation would be increased by an
increase in the number of parties involved.  Direct purchasers who
passed on the entire overcharge would presumably still seek to recover
their lost profits attributable to declining volume, as the utilities
do here, /25/ and they would also presumably seek to prove -- if
appropriate -- that they did not pass on all of the overcharge.
Indirect purchasers, generally more numerous than direct purchasers,
may participate in the proceedings in various ways.  If States choose
to bring parens patriae actions, as here, natural persons may be
represented by one or more state attorneys general, but they may also
sue by class action or individually.  Persons other than natural
persons may not be represented by state attorneys general acting
parens patriae and presumably would seek to recover either
individually or through class actions.  /26/

   Proliferation of parties, and in particular of indirect purchaser
parties, runs precisely the risks of insufficient incentive to sue and
inadequate compensation of injured purchasers to which this Court
referred in Illinois Brick, 431 U.S. at 745-747.  /27/ And if even the
possibility of recovery by indirect purchasers depends on proving
perfect pass on, "(t)his additional uncertainty would further reduce
the incentive to sue" and "could seriously impair" the efficacy of
treble damage actions.  Id. at 745.  The prospect of protracted
litigation over which party may sue to recover the overcharge would
make all parties less inclined to bring suit.

   The special circumstances of regulation do not alter the analysis
of incentives or compensation so as to justify permitting the attempt
to prove a perfect pass through here.  In response to the concern
about increasing the number of parties to antitrust litigation, the
Seventh Circuit hypothesized that "(t)he public utility commission may
force the utility to pass on to the consumers any and all damages that
the utility recovers, and if it does utilities will have no incentive
to sue because they will have nothing to gain from suit." Illinois ex
rel. Hartigan v. Panhandle Eastern Pipe Line Co., 852 F.2d at 895.
But there are at least two problems with this hypothesis.  First, it
seems unlikely that a public utility commission would require dollar
for dollar pass through to consumers of three times the amount of the
overcharge the utility passed on, or dollar for dollar pass through of
three times the amount of the utility's lost profits on volumes it did
not sell to consumers (assuming the utility could recover that as
well).  Thus the utility would most likely have the not insignificant
incentive of recovering twice the overcharge, and possibly the
additional incentive of recovering three times its lost profits.
Second, a public utility commission capable of requiring a utility to
pass through its entire antitrust recovery to its customers would also
seem capable of motivating a regulated utility to bring suit.  /28/

   In sum, an exception to the indirect purchaser rule permitting suit
by indirect purchasers who can prove complete pass through of an
overcharge even though the direct purchaser is injured risks
introducing nearly all the litigation complexity and diminution of
incentives to sue which concerned this Court in Illinois Brick,
without clearly offsetting benefits in terms of compensation or other
relevant criteria.  /29/

   2. A "100% Pass-Through" Exception Limited To Cases In Which Direct
Purchasers Have A Written Legal Obligation To Pass Through Any
Overcharge Should Not Be Created

   A less exacting exception to the indirect purchaser rule which
would dispense with the need to prove perfect pass through of an
overcharge presents a closer question under the Illinois Brick
criteria.  Indirect purchasers could be presumed as a matter of law to
have borne 100% of the overcharge if the direct purchaser is subject
to a written, legally binding obligation /30/ to pass on the entire
amount of an overcharge.  In such cases, only the indirect purchasers
would have the right to recover the overcharge from the antitrust
violator.  Although the presumption is bound to be incorrect in some
cases, it is likely to be correct, or nearly so, in the vast majority
of cases.

   Reliance on this presumption would avoid the complex task of
proving the extent of pass through, substituting for it the far more
judicially manageable task of proving the meaning of writings.
Moreover, the meaning of the writings may often be sufficiently clear
to remove uncertainty about, and litigation over, which parties have
the right to sue to recover the overcharge.  Thus, the efficacy of
private antitrust enforcement would not suffer to the extent it would
were proof of the extent of pass on necessary.  Whatever benefits
might result from permitting indirect purchaser suits in these limited
circumstances would be available without complex and protracted
litigation over who may bring suit.

   The benefits of such an exception, however, are neither obvious nor
compelling, and there remain costs to be considered.  To be sure,
permitting indirect purchasers to bring suit where the overcharge has
been passed on to them may increase the extent to which these indirect
purchasers are compensated for their injuries.  /31/ But the Court was
plainly aware of this possibility when it barred suit by indirect
purchasers in Illinois Brick.  See 431 U.S. at 746-747.  Moreover, in
the regulatory context, pass through of portions of the direct
purchaser's antitrust recovery may compensate indirect purchasers at
least as well.  See p. 25 & note 28, supra.  And while indirect
purchasers might have adequate incentive to sue despite their small
individual stakes, /32/ we have already noted that the direct
purchaser's incentive to sue is unlikely to vanish even if regulation
requires pass through of the recovered overcharge.  /33/

   The costs of such an exception could be significant.  Even if there
is no increase in complexity related to proving a legal obligation to
pass on the entire overcharge, there remain additional sources of
litigation complexity.  First, there is the increase in the number and
diversity of status of plaintiffs, which would be no less under a rule
which turns on legal obligation to pass on than under a rule which
turns on proof of pass on.  Second, the direct purchaser barred from
recovering the overcharge presumably would, as under the other
proposed exception, attempt to prove lost profits, a complex
undertaking.  Third, there may be substantial complexities associated
with proving the individual damages of indirect purchasers.  /34/

   This proposed exception to the indirect purchaser rule also does
not clearly single out circumstances that justify the exception from
other, related circumstances.  Indeed, the Seventh Circuit refused to
say whether the exception it carved out would apply to other cost-plus
contracts as well as to regulated contracts and cost-plus requirements
contracts.  Pet. App. A59.  Moreover, as we have noted (note 29,
supra), most of petitioners' arguments would apply with only
marginally reduced force where regulation requires a pass through of
any fixed percentage.

   The issue before this Court is not whether it should abandon the
indirect purchaser rule.  It is whether the circumstances petitioners
identify present a sufficiently compelling justification for carving
out an exception to the principles of antitrust damage recovery this
Court has endorsed and consistently followed since 1906.  We submit
that the justifications offered are not sufficiently compelling to
embark on such an enterprise.

                              CONCLUSION

   The judgment of the Tenth Circuit should be affirmed.

   Respectfully submitted.

   KENNETH W. STARR

      Solicitor General

   JAMES F. RILL

      Assistant Attorney General

   JOHN G. ROBERTS, JR.

      Deputy Solicitor General

   MICHAEL BOUDIN

      Deputy Assistant Attorney General

   STEPHEN J. MARZEN

      Assistant to the Solicitor General

   CATHERINE G. O'SULLIVAN

   DAVID SEIDMAN

      Attorneys

   JAY C. SHAFFER

      Acting General Counsel Federal Trade Commission

   APRIL 1990

   /1/ The residential consumers on whose behalf petitioners sued
include customers of other utilities but exclude the utilities'
customers in other States.  Petitioners did not sue on behalf of the
utilities' customers who are not natural persons.

   Petitioners also sued in a representative capacity on behalf of
governmental entities that purchased natural gas from the pipeline.
This aspect of the case is not at issue here.

   /2/ The court noted that this Court had not said that a
pre-existing cost-plus contract for a fixed quantity "would constitute
an exception but rather that it 'might be.'" Pet. App. A8.

   /3/ The Court briefly discussed additional policy considerations
supporting its holding, 392 U.S. at 494, which we address below.

   /4/ Recognition of this possible exception is not compelled by the
reasoning of Hanover Shoe.  The cases on which the Court relied, see
Point A.2, infra, appear to hold that payment of the overcharge as
such is injury.  Moreover, a direct purchaser may be damaged despite
the existence of a cost-plus, fixed quantity contract -- for example,
if there is imperfect compliance with the contract.

   /5/ In Illinois Brick the Court also suggested another possible
exception:  "where the direct purchaser is owned or controlled by its
customer." 431 U.S. at 736 n.16.  In such cases, the direct and
indirect purchasers are in reality but a single entity, and no reason
in law or antitrust policy suggests that one rather than the other
should be allowed to recover damages for the injury.  Cf. Copperweld
Corp. v. Independence Tube Corp., 467 U.S. 752, 771-774 (1984).

   /6/ Hanover Shoe addressed the pass-on defense.  Illinois Brick
held that "whatever rule is to be adopted regarding pass-on in
antitrust damage actions, it must apply equally to plaintiffs and
defendants," 431 U.S. at 728, and declined to overrule or limit the
rule of Hanover Shoe.

   /7/ The contention of amici Forty-Six States that "(a) regulatory
scheme that provides for automatic pass-through of fuel price
increases operates identically to a fixed-quantity cost-plus
contract," Forty-Six States Amici Br. 14, is incorrect:  such a
contract -- unlike the regulatory scheme -- prevents loss of sales
that would otherwise follow the increase in price.  Amici tacitly
recognize this difference when they present an alternative argument in
the event that "residential customers reduce consumption in response
to higher rates." Id. at 15.  Similarly, petitioners expressly
recognize "(t)he fact that the utilities may have lost sales." Pet.
Br. 14.

   /8/ According to the Seventh Circuit, other arrangements serving
this function include, at a minimum, not just regulatory provisions
such as those at issue here, but also requirements contracts with
cost-plus provisions.  Pet. App. A57, A59.

   /9/ The Court's two brief discussions of the cost-plus exception in
Illinois Brick, 431 U.S. at 724 n.2, 736, occurred prior to its
introduction of apportionment concerns, see id. at 737.  Illinois had
contended that "(t)he masonry and general contractors are nothing more
than conduits between defendants and plaintiffs.  The contractors
absorb none of the illegal overcharges, but recover it (and more) from
the State of Illinois and its public agencies." Resp. Br. at 21,
Illinois Brick Co. v. Illinois, supra.  If that were true, there would
have been no need to apportion the overcharge in that case even if
Illinois had been permitted to sue for the overcharge.

   /10/ The Court's brief mention of the cost-plus exception in
California v. Arc America Corp., 109 S.Ct. 1661, 1663 n.2, 1666 n.6
(1989), does not indicate any change in the underlying rationale or
scope of that exception.  The Court specifically referred to footnote
12 of Illinois Brick, which in turn quotes the portion of Hanover Shoe
making clear that the cost-plus exception has to do with proof that
the direct purchaser "'has not been damaged,'" 431 U.S. at 732 n.12
(quoting 392 U.S. at 494).

   /11/ This Court recognizes the distinction between overcharge and
lost profits measures of damages, and suggested in Hanover Shoe that
where the plaintiff could not prove an overcharge, "establishing
damages might require a showing of loss of profits to the buyer." 392
U.S. at 494.

   /12/ If the direct purchaser absorbs the entire overcharge, its
lost profits equal the amount of the overcharge.  If instead the
direct purchaser chooses to pass on some or all of the overcharge, it
presumably does so because that action leads to a smaller decrease in
profits.  Thus, the amount of the overcharge should always equal or
exceed lost profits.

   /13/ The aggregate overcharge is equal to the overcharge per unit
multiplied by the number of units bought.  The only difficult quantity
in the calculation is the per unit overcharge, but that computation
must be made to quantify lost profits as well:  a prerequisite to
determining reduction in quantity demanded from higher prices is an
estimate of how much higher that price was.  See note 14, infra
(difficulty of proving lost profits measure of damages).

   /14/ See, e.g., Central Coal & Coke Co. v. Hartman, 111 F. 96 (8th
Cir. 1901) (no recovery because lost profits held too speculative).
See generally Harrison, The Lost Profits Measure of Damages in Price
Enhancement Cases, 64 Minn. L. Rev. 751, 754-755 (1980) (difficulty of
proving lost profits probably retarded development of private
antitrust action).

   /15/ The court thus rejected defendant's argument that evidence
tending to show that a claimed loss was only a temporary loss "which
the plaintiff in the course of his business has actually recoupped
(sic) or could reasonably have recouped, is obviously evidence that is
directly relevant to the issue whether the plaintiff has actually and
ultimately been 'injured in his business or property.'" Brief on
Behalf of Defendant Victor Talking Mach. Co. at 140-141 as quoted in
Atlantic City Elec. Co. v. General Elec. Co., 226 F. Supp. 59, 62 n.11
(S.D.N.Y. 1964).

   /16/ The court in Twin Ports also distinguished such cases as
Darnell-Taenzer on various grounds, but primarily to establish that
plaintiff was required to show pecuniary injury.  119 F.2d at 750-751.
 Its holding rested on plaintiffs' "failure to show * * * damages * *
* as a result of the illegal combination." Id. at 751.  Similarly, in
Northwestern Oil Co. v. Socony-Vacuum Oil Co., 138 F.2d 967, 971 (7th
Cir.), cert. denied 321 U.S. 792 (1943), the court distinguished the
Darnell-Taenzer line of cases, held that a showing of pecuniary loss
was required, and denied recovery on the ground that plaintiff had
"wholly failed to prove any loss to its property or business."

   /17/ See also Wolfe v. National Lead Co., 225 F.2d 427, 433-434
(9th Cir.), cert. denied, 350 U.S. 915 (1955);  Miller Motors v. Ford
Motor Co., 252 F.2d 441, 448 (4th Cir. 1958).  In Wolfe, the court
concluded there was no evidence that prices were fixed at higher than
competitive levels or that plaintiffs had been damaged by paying
higher prices, so that there was no proof of injury.  In Miller, the
court found both that the charge had been passed on and that any
decline in volume was conjectural.

   /18/ If the overcharge paid is reduced by the amount of the
overcharge passed on, the result is a measure of lost profits on
business actually transacted, assuming other factors affecting profits
are unchanged.

   /19/ Judge Feinberg also sought to distinguish the oil jobber cases
on various grounds.  For example, he noted that the oil jobbers were
able to recover their increased costs quickly, while electric
utilities could not and would be "deprived for a long period of time
of capital which they could have used for other purposes." 226 F.
Supp. at 69.  This suggests that, assuming complete pass on of the
overcharge and ignoring lost profits from declining volume, the oil
jobbers in fact had not been injured, while the electric utility was
injured.

   Ultimately, however, Judge Feinberg concluded that if the oil
jobber cases could not be distinguished, they were "inconsistent with
what appears to be more compelling authority." 226 F. Supp. at 70.
Finally, Judge Feinberg concluded that recognition of a pass-on
defense was not required as a matter of public policy.  Id. at 70-71.

   /20/ The varying approaches of the lower courts to the pass-on
theory prior to Hanover Shoe turned on their treatment of evidence of
the direct purchaser's injury.  Hanover Shoe resolved the question
dividing the lower courts by presuming injury from the overcharge and
permitting the presumption to be rebutted, if at all, only by a simple
evidentiary showing that the direct purchaser had not been injured at
all.

   /21/ Although petitioners address only regulatory pass through,
they present no basis for distinguishing regulatory pass through from
pass through pursuant to contracts the Seventh Circuit concluded had
similar effects and should be treated similarly.  See note 8, supra.

   /22/ The policy objective of avoiding multiple liability also
figures prominently in Illinois Brick.  431 U.S. at 730-731.  However,
the Court in Illinois Brick saw this objective as relevant to whether
offensive and defensive use of pass-on theories should be treated
symmetrically.  The Court held that they should be, and that holding
is not at issue here.  Consequently, multiple liability is merely a
"residual possibility," 431 U.S. at 737 n.18, which, although it
"justifies bringing potential and actual claimants together in one
action if possible," ibid., has little bearing on the policy choices
this case presents.

   /23/ "Any allocation of illegal overcharges to the residential
consumers may require tracing the sale from the wellhead through each
level of distribution in order to establish the amount of illegal gas
costs actually paid by the consumers in each state, probably resulting
in exactly that which the Supreme Court prohibited, i.e., adding new
dimensions of complexity to antitrust suits." Pet. App. A12.

   /24/ "(W)e can never be absolutely certain that regulation has
resulted in a 100 percent pass through;  for all we know, (the direct
purchaser) would have sought a rate increase but for the gas
overcharge, and by forbearing to do so in effect absorbed part of the
overcharge." Pet. App. A59.  The Seventh Circuit found doubts on this
score "too small to warrant" barring suit by indirect purchasers,
ibid., although this Court had pointed to just such doubts in Hanover
Shoe.  See 392 U.S. at 493 & n.9 ("the nearly insuperable difficulty
of demonstrating that the particular plaintiff (a direct purchaser)
could not or would not have raised his prices absent the overcharge").

   /25/ We see no basis for preventing recovery of these lost profits
by direct purchasers who are not permitted to recover the amount of
the overcharge.  Neither petitioners nor amici suggest any such
limitation, the Tenth and Seventh Circuits appear to have assumed
direct purchasers would still be able to sue for those lost profits,
and permitting recovery by direct purchasers of their lost profits
would seem consistent with this Court's analysis in Hanover Shoe of
proof of damages where the purchaser cannot show a differential
between the lawful price and the price unlawfully charged, 392 U.S. at
494.  As Judge Feinberg perceived, permitting a pass-on defense
amounts to requiring a direct purchaser to sue for lost profits,
Atlantic City Elec., 226 F. Supp. at 61-62, and some other principle
would be required to deprive the direct purchaser of even lost profits
damages.  Proving the extent to which volume declined as a result of a
price increase is likely to entail analysis of the same elasticities
that troubled this Court in Illinois Brick.  431 U.S. at 742 ("a
serious problem of measuring the relevant elasticities -- the
percentage change in the quantities of the passer's product demanded
and supplied in response to a one percent change in price").  The
difficulty of proving lost profits is, of course, one of the reasons
for the indirect purchaser rule in the first place.  See Point A.2,
supra.  The difficulty is less likely to arise if only the direct
purchaser may recover the amount of the overcharge.  Even if the
direct purchaser is legally entitled to recover both the overcharge
and lost profits from declining volume (assuming any overlap is
eliminated), the difficulty of proving those lost profits appears
generally to lead plaintiffs to conclude the game is not worth the
candle, where the trebled amount of the overcharge is more readily
available.

   /26/ In Panhandle Eastern, the court concluded that indirect
purchasers other than residential consumers could not maintain damage
actions, because the overcharge had not been passed through perfectly
to them;  the utility therefore was permitted to sue for the
overcharge with respect to those consumers.  In this case, we are
aware of no basis for distinguishing between residential consumers and
other consumers, or between natural person consumers and other
consumers, with respect to passing on.  We note that only the
utilities in this case, as direct purchasers, have sued to recover the
overcharge passed on to those customers who are not natural persons.
It appears, therefore, that if the right to sue for the overcharge in
this case belongs to indirect purchasers, the good news is that this
litigation will not be complicated by the presence of these customers
-- but the bad news is that the defendants will escape liability for
the overcharge passed on to customers who are not natural persons.

   /27/ We do not question the assertions of amici Forty-Six States
concerning the power and efficacy of the parens patriae weapon or the
capabilities of state attorneys general and their staffs.  Forty-Six
States Amici Br. 18-22.  We disagree, however, with the argument
advanced by petitioners, Br. 23-27, and amici National Conference of
State Legislatures et al., Br. 5-21, that Section 4C of the Clayton
Act, 15 U.S.C. 15c, authorizes state attorneys general to bring parens
patriae actions on behalf of indirect purchasers who are natural
persons.  That argument is foreclosed by Illinois Brick.

   In Illinois Brick, the United States as amicus curiae contended
that Section 4 of the Clayton Act should be construed to allow
indirect purchasers to recover illegal overcharges passed through to
them by direct purchasers.  The United States reasoned that (1)
Section 4C incorporated the same definition of injury as Section 4;
(2) Section 4C allows indirect purchasers to recover overcharges
passed through by direct purchasers (as shown in the legislative
history of Section 4C and the policy considerations underlying that
provision);  therefore (3) Section 4 should likewise be construed to
authorize indirect purchaser suits.  U.S. Amicus Br. at 14-15 & n.12.
See 431 U.S. at 756-758 (Brennan, J., dissenting).

   The Court agreed that Section 4C and Section 4 share the same
definition of injury, but disagreed that Section 4 authorized indirect
purchaser suits.  431 U.S. at 734 n.14.  The Court accordingly
rejected (albeit implicitly) the United States' submission that
Section 4C should be construed to authorize indirect purchaser suits.
431 U.S. at 733-734 n.14.  Although petitioners and amici concede, as
they must, that Section 4 does not authorize indirect purchaser suits,
Pet. Br. 23;  National Conf. of State Legislatures et al., Amici Br.
6-7 & n.4, 17, their insistence that Section 4C nevertheless does
authorize such suits simply disregards the Court's holding that
Section 4C incorporated the definition of injury in Section 4.
"Congress made clear, however, that (Section 4C) * * * simply created
a new procedural device -- parens patriae actions by States on behalf
of their citizens -- to enforce existing rights of recovery under
Section 4.  The House Report * * * stated that the parens patriae
provision 'creates no new substantive liability';  the relevant
language of the newly enacted Section 4C(a) of the Clayton Act tracks
that of existing Section 4, showing that it was intended only as 'an
alternative means . . . for the vindication of existing substantive
claims.' H.R. Rep. No. 94-99, supra, at 9 ((1975)).  'The
establishment of an alternative remedy does not increase any
defendant's liability.' Ibid.  * * * (Section 4C) did not create a
right of recovery for consumers where one did not already exist (under
Section 4)." 431 U.S. at 734 n.14.

   In any event, the Court need not construe Section 4C in this case
because the argument was neither pressed nor passed on by the courts
below.  Tellingly, petitioners do not contend that they pressed their
view of Section 4C below, and amici's contention that they did ignores
the court of appeals' correct observation that "(t)he parties have not
argued that this law (Section 4C) eliminates the basic rule that only
a direct purchaser may sue." Pet. App. A7 n.1.  Amici quote the
succeeding sentence for the proposition that the court of appeals
decided the issue, National Conf. of State Legislatures, et al. Amici
Br. 5 n.2, but the court of appeals' clearly "assume(d) that (Section
4C) comes into play when the individual consumers are the direct
purchasers," id. at 6 n.3 (quoting Pet. App. A7 n.1), because neither
petitioners nor amici suggested any contrary interpretation.

   /28/ A public utility commission might treat costs attributable to
a suspected antitrust violation as costs imprudently incurred if the
utility does not bring suit.

   As to this case, the district court observed that "any recovery by
the utilities * * * will be passed on in substantial part to the
consumers." Pet. App. A36.  We also note that the parens patriae
statute does not require that amounts recovered be distributed to
those on whose behalf suit was brought, see 15 U.S.C. 15e, as this
Court observed in Illinois Brick, 431 U.S. at 747 n.31.

   /29/ If such an exception were justified, there would also be a
strong case for an exception permitting suit where the pass on is less
than 100%, but the amount can easily be proved.  It is not obvious
that it is intrinsically more difficult to prove a 95% pass through
than to prove a 100% pass through, and the differential incentive
effects may not be significant.  Once the principle that a direct
purchaser who is injured may sue for the entire overcharge is
abandoned and indirect purchasers permitted to sue if they can prove
some particular portion of the overcharge was passed on, there is no
obvious stopping point short of complete abandonment of the indirect
purchaser rule.

   /30/ Such an obligation could arise in many ways, including
statute, regulation, contract, and filed tariff.  The presumption, of
course, would not apply if the direct purchaser is excused from the
legally binding obligation by some official legislative or regulatory
action or by other written modification of the obligation.

   /31/ Because the exception considered here does not depend on proof
of actual pass on, direct purchasers would not be compensated for the
portion of the overcharge they absorbed.  To some, this prospect may
be no more troubling than undercompensation of indirect purchasers as
a result of the indirect purchaser rule (although perhaps harder to
rationalize), but the failure to compensate injured direct purchasers
fully does counterbalance the increased compensation of indirect
purchasers under the rule here considered.

   /32/ Petitioners assert that the parens patriae mechanism remedies
the Court's concern about the consequences of the small stake of the
individual indirect purchaser for antitrust enforcement, Br. 20, but
the parens patriae mechanism cannot remedy that concern with respect
to indirect purchasers who are not natural persons and whom state
attorneys general may not represent parens patriae.

   /33/ Parties to contracts which pass through overcharges are free
to provide for whatever treatment of the direct purchaser's antitrust
recoveries they desire.  They therefore may structure their contracts
to provide adequate incentive for the direct purchaser to sue and
compensation for the indirect purchaser.

   /34/ As petitioners correctly observe, Br. 14 n.9, "aggregate"
proof of damages may obviate this problem in parens patriae actions.
However, only natural persons may be represented by state attorneys
general parens patriae, and an alternative approach to damages may be
necessary for other indirect purchasers.  Moreover, the problem of
proof may be difficult if the direct purchaser, although obligated to
pass on the entire overcharge, is not obligated to pass on to each
indirect purchaser in proportion to the amount purchased.  The basis
on which individual damages would then be determined is unclear.