In the

United States Court of Appeals

For the Seventh Circuit

No. 01-2925

Paper Systems Incorporated, Graphic Controls

Corp., and Victor Paper Roll Products, Inc.,

Plaintiffs-Appellants,

v.

Nippon Paper Industries Co., Ltd.,

Defendant-Appellee.

Appeal from the United States District Court

for the Eastern District of Wisconsin.

Nos. 96-C-959 et al.--Lynn Adelman, Judge.

Argued January 17, 2002--Decided February 6, 2002

 Before Flaum, Chief Judge, and Bauer and

Easterbrook, Circuit Judges.

 Easterbrook, Circuit Judge. Five

manufacturers of thermal facsimile paper-

-a product now obsolete--are accused in

this class action of conspiring to reduce

output and raise price in this business

from 1990 to 1992. The paper business has

a long history of cartelization; criminal

prosecutions and civil antitrust actions

are depressingly common. In 1995 the

Department of Justice brought a criminal

prosecution against the major producers

of thermal fax paper. Nippon Paper

Industries (known until recently as Jujo

Paper) was among the defendants. See

United States v. Nippon Paper Industries

Co., 109 F.3d 1 (1st Cir. 1997). Although

it was acquitted, see 62 F. Supp. 2d 173

(D. Mass. 1999), this does not foreclose

civil litigation, which employs a lower

burden of persuasion. Nippon Paper

prevailed in this action, too, and

without a trial, because the district

judge concluded that the direct-purchaser

rule of Illinois Brick Co. v. Illinois,

431 U.S. 720 (1977), and Kansas v.

Utilicorp United Inc., 497 U.S. 199

(1990), precludes recovery. 2000 U.S.

Dist. Lexis 4535 (E.D. Wis. Mar. 30,

2000). After the remaining defendants

settled, the plaintiffs appealed the

dismissal of their claim against Nippon
Paper.

 The five manufacturers use different

distribution systems. Kanzaki Specialty

Papers, Inc., and Appleton Papers, Inc.,

sell directly to firms such as

plaintiffs. (Our plaintiffs resold fax

paper to their own customers, but under

Hanover Shoe, Inc. v. United Shoe

Machinery Corp., 392 U.S. 481 (1968),

they are entitled to collect damages

without reduction to account for the

possibility that they passed the

overcharge on to their own customers. The

first buyer from a conspirator is the

right party to sue. In other words,

Hanover Shoe holds that there is no

passing-on defense, while Illinois Brick

and Utilicorp establish that indirect

purchasers cannot use a passing-on theory

offensively.) Two other manufacturers,

Oji Paper Co. and Mitsubishi Paper Mills

Ltd., sell exclusively to trading houses,

which resell to firms such as plaintiffs.

Oji sold only to Elof Hansson Paper &

Board, Inc., while Mitsubishi Paper sold

exclusively to Mitsubishi Corp. in Japan,

which resold exclusively to Mitsubishi

International Corp. in the United States.

The complaint alleges that Elof and the

two Mitsubishi trading firms are members

of the conspiracy, which makes plaintiffs

the first purchasers from outside the

conspiracy. The right to sue middlemen

that joined the conspiracy is sometimes

referred to as a co-conspirator

"exception" to Illinois Brick, but it

would be better to recognize that Hanover

Shoe and Illinois Brick allocate to the

first non-conspirator in the distribution

chain the right to collect 100% of the

damages. Perhaps if a conspirator defects

and sues its former comrade, that snitch

would come to own the right to damages,

but Elof and the Mitsubishi trading

houses did not change sides and align

themselves as plaintiffs. Thus our

plaintiffs are entitled to collect

damages from both the manufacturers and

their intermediaries if conspiracy and

overcharges can be established. See

Fontana Aviation, Inc. v. Cessna Aircraft

Co., 617 F.2d 478, 481 (7th Cir. 1980);

In re Brand Name Prescription Drugs

Antitrust Litigation, 123 F.3d 599, 604

(7th Cir. 1997); Phillip E. Areeda &

Herbert Hovenkamp, II Antitrust Law

para.para. 346f, 346h (rev. ed. 2000).

 Nippon Paper, the fifth manufacturer,
sold its output in Japan to Japan Pulp &

Paper Co. and Mitsui & Co., which resold

through subsidiaries around the world.

Neither Japan Pulp & Paper nor Mitsui is

alleged to have participated in the

conspiracy. As a result, Hanover Shoe and

Illinois Brick allocate to them any right

to collect overcharges attributable to

Nippon Paper’s sales. Neither of these

firms joined the suit or expressed any

interest in suing, so no damages may be

awarded to the three plaintiffs (or any

class member) on account of Nippon

Paper’s sales. The district court

understood this to mean that Nippon Paper

cannot be liable. Yet all that Hanover

Shoe and Illinois Brick establish is that

the direct purchasers (here, Japan Pulp &

Paper and Mitsui) own the right to

damages on account of particular sales.

Nothing in Illinois Brick displaces the

rule of joint and several liability,

under which each member of a conspiracy

is liable for all damages caused by the

conspiracy’s entire output. See Texas

Industries, Inc. v. Radcliff Materials,

Inc., 451 U.S. 630 (1981). Our three

plaintiffs, and members of their class,

hold rights to recover on account of

purchases directly from Kanzaki and

Appleton, and (through other

conspirators) from Oji and Mitsubishi. If

they can prove that there was indeed a

conspiracy, they may collect damages not

just firm-by-firm according to the

quantity each sold, but from all

conspirators for all sales. If Nippon

Paper was among those conspirators, then

it is responsible for the entire

overcharge of all five manufacturers--and

any direct purchaser from any conspirator

can collect its own portion of damages

(that is, the damages attributable to its

direct purchases) from any conspirator.

This makes it impossible to dismiss

Nippon Paper outright.

 Recognizing the normal effects of joint

and several liability, Nippon Paper

contends that Illinois Brick creates an

exception. If it is liable at all, it

insists, judges or juries will have to

trace the original overcharge through

several levels of distribution to

determine what damages it caused. The

difficulty of figuring out how much was

passed on, and how much swallowed by a

distributor, is one major reason that

Illinois Brick came out as it did. That’s

true enough, but it does not justify
abandonment of the joint-and-several-lia

bility norm. Every firm sells indirectly

in some respect. All products of this

industry went through multiple hands; the

plaintiffs are themselves distributors.

If the presence of any wholesaler or

retailer in the chain of distribution

creates complications too great to allow

joint liability, then the norm that every

conspirator is responsible for the acts

of every other would be overthrown.

 Illinois Brick and Hanover Shoe together

do three things. First, they concentrate

damages in the hands of the initial

purchasers, and thus improve deterrence.

Firms that deal directly with the

manufacturers are apt to know the most

about the industry’s behavior and thus

are in the best position to detect

cartels; allowing them to collect the

full overcharge, trebled, creates

powerful incentives to investigate and

file suit. See 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). The prospect of recovery

also acts like a cents-off coupon to the

initial buyer, which given competition at

the distribution stage is forced to pass

on this anticipated discount, and so

protects remote customers from the

effects of the cartel if deterrence

fails.

 Second, these cases prevent double

recoveries. Hanover Shoe allows the first

purchaser to recover the whole overcharge

even if some was passed on to its

customers. Had Illinois Brick allowed

indirect purchasers to recover for the

portion passed on to them, the total

recovery would have exceeded the treble

damages provided by the Sherman Act--

unless Hanover Shoe was overruled and the

take of the initial purchaser curtailed.

Here is where the third consideration

comes in. If Hanover Shoe was to be

modified to avoid duplicative recovery,

how would that be done? How much of any

overcharge is passed on depends on the

elasticities of supply and demand in the

chain of distribution, which are

exquisitely hard to pin down. The Supreme

Court concluded that the game is not

worth the candle--even, Utilicorp held,

in the simplified case of a utility

operating under rate regulation that is

designed to cause a complete pass-on.
Changes in market conditions after

regulators set rates meant that the

design might not be fulfilled. It is

better, the Court held in both Illinois

Brick and Utilicorp, to avoid these

complications and concentrate damages in

the hands of the initial purchasers so as

to maximize deterrence.

 Joint and several liability is another

vital instrument for maximizing

deterrence. See Lewis A. Kornhauser &

Richard L. Revesz, Sharing Damages Among

Multiple Tortfeasors, 98 Yale L.J. 831

(1989). Holding Nippon Paper jointly and

severally liable with the other four

manufacturers, for the conspiracy’s

entire sales, is compatible with Hanover

Shoe, Illinois Brick, and Utilicorp.

Certainly it does not undermine these

decisions, which are themselves designed

to improve deterrence. Nor does this suit

pose any risk of double recovery; sales

to Japan Pulp & Paper and Mitsui have

been carved out of the case, because

those entities own the right to recover

on account of their own purchases. The

difficulty of tracing overcharges through

the chain of distribution therefore is

unimportant; duplicative recovery has

been blocked at the outset. It remains

necessary to determine the amount of the

overcharge, and if this cannot be

established in any other way (for

example, by the conspirators’ own

agreement) then it is necessary to

determine the elasticities of supply and

demand. But this prospect is present in

every cartel case; it is not occasioned

solely by the presence of intermediaries.

The monopoly overcharge is the excess

price at the initial sale--here, from the

five manufacturers to their initial

customers. Calculations are complicated

by the fact that two of the five

(Appleton and Kanzaki) provide some

distribution services, and thus may

charge higher initial prices than do the

other three. But disaggregating these

expenses to impute a transfer price from

the manufacturing to the distribution arm

of the two vertically integrated firms

does not transgress Illinois Brick

because the process cannot lead to

multiple recovery.

 A simple example makes the point.

Suppose that five vertically integrated

manufacturers sell directly to consumers

at $12 per unit, and that this price is
an overcharge attributable to a cartel;

the competitive price would have been $10

per unit. Each manufacturer sells 100

units per year, so the total overcharge

is $1,000 ($2 on each of 500 units) and

treble damages under the Sherman Act are

$3,000. Given joint and several

liability, each of the five conspirators

is liable to pay the whole $3,000--though

no consumer can recover more than $6 per

unit purchased. Now suppose further that

one of the five manufacturers gets out of

the distribution business and sells its

output to a wholesaler for $10 per unit;

the wholesaler resells the product for

$12 per unit. It is hard to see why this

should change the total damages any

conspirator must pay under the antitrust

laws. According to Hanover Shoe and

Illinois Brick, it changes who may

collect damages (the wholesaler, as

direct purchaser, owns the right to

collect damages on 100 units each year)

but not how much each cartelist owes in

the aggregate. Yet Nippon Paper’s

position is that the use of a wholesaler

has a profound effect; it reduces that

manufacturer’s total exposure from $3,000

to $600 (treble the $2 overcharge on 100

units sold to the wholesaler)--and then

only if the wholesaler sues. This would

be economically identical to a system of

full contribution and indemnity among

antitrust offenders, with each firm

bearing liability only in proportion to

its market share. Texas Industries

rejected just such a proposal. Nothing in

Illinois Brick requires that the approach

disapproved by Texas Industries be

implemented under a different name. All

that Illinois Brick means is that, if one

direct purchaser wholesaler declines to

sue, then the total damages the five

example manufacturers owe jointly and

severally cannot exceed what is

recoverable by direct purchasers that do

litigate (in our example, for $2,400).

Every participant in the conspiracy

remains liable for damages on every sale

to every direct purchaser from any of the

manufacturers.

 If Nippon Paper participated in a cartel

of thermal fax paper (something that

remains to be determined) then it is

jointly and severally liable for the

cartel’s entire overcharge. That the

plaintiffs did not buy from Nippon Paper

directly, or at all, does not matter. As

long as Nippon Paper’s direct customers
hold the exclusive right to damages for

its own output, the holding and goals of

Illinois Brick have been satisfied. It

was improper to dismiss Nippon Paper as a

defendant while its status as a member of

the cartel remains to be determined.

Reversed and Remanded