Opinion ID: 3015125
Heading Depth: 3
Heading Rank: 1

Heading: May Plaintiffs recover lost profits

Text: d am ag es cau sed b y their lost opportunities to purchase and resell Dentsply’s competitors’ products? Plaintiffs argue that, even if they do not have standing to recover damages for overcharges they paid to dealers for Dentsply’s teeth, they have standing to recover lost profits damages caused by their lost opportunities to purchase and resell 22 products of Dentsply’s competitors.5 Plaintiffs allege that, as a result of Dentsply’s exclusive-dealing, its competitors are denied adequate access to a necessary means of distribution—the dealers. Thus Dentsply’s competitors’ products are not available. Plaintiffs are theoretically correct that, “but for [Dentsply’s] exclusion of more efficient rivals, purchasers would have shifted at least some of their business to the rivals.” ABA Section of Antitrust Law, Proving Antitrust Damages: Legal and Economic Issues 194 (1996). When antitrust violators cause prices to increase through monopolization, a price-fixing conspiracy, or exclusionary conduct, the harm they cause members of the distribution chain comes in two ways: (1) overcharges paid for goods actually purchased;6 and (2) lost profits resulting from the lost 5 If Dentsply’s exclusionary conduct enabled it to raise its prices, thereby reducing (at least in theory) the demand for its own products, Plaintiffs might also have claimed lost profits damages caused by their lost opportunities to purchase and resell Dentsply’s products. However, we would reject such a claim for the same reasons we reject Plaintiffs’ claim for lost profits damages caused by their lost opportunities to purchase and resell Dentsply’s competitors’ products. 6 Members of the distribution chain usually mitigate this harm by passing on some of the overcharge to their buyers. However, much of this harm is not actually avoided, but rather takes the form of the second type of harm—lost profits from the 23 opportunity to buy and resell a greater volume of goods. Jeffrey L. Harrison, The Lost Profits Measure of Damages in Price Enhancement Cases, 64 Minn. L. Rev. 751, 753, 770-772 (1980) (“[T]he gross overcharge measure [of damages] ignores the impact that the enhanced price has had on the volume of the final good eventually produced.”); see also ABA Section of Antitrust Law, supra, at 195 (“It is the fundamental law of demand that as the price of a product increases the amount purchased decreases. A collusive price increase, therefore, will result in a reduction of the quantity of the good purchased.”). Thus, as some scholars see it, when antitrust plaintiffs lost opportunity to buy and resell a greater volume of goods. This is because, as members of the distribution chain pass on the overcharge (i.e., raise their prices), their volume of sales theoretically decreases. Like the second type of harm, the overcharge paid minus the overcharge passed on for goods actually purchased and resold are a form of “lost profits.” The overcharge paid minus the overcharge passed on for goods actually purchased and resold is one component of the loss an antitrust violation causes to the bottom line (i.e., the profits) of members of the distribution chain. However, because Illinois Brick precludes indirect purchasers from recovering overcharge damages, Plaintiffs do not seek in their lost profits claim the component of their lost profits that includes the overcharge paid minus the overcharge passed on for teeth they actually purchased and resold. 24 claim that anticompetitive behavior caused prices to increase, two measures of damages could theoretically be used: (1) the overcharge (i.e., the difference between the price paid for goods actually purchased and the price that would have been paid absent the illegal conduct), or (2) lost profits (i.e., the overcharge paid minus the overcharge passed on for goods actually purchased and resold, plus lost profits from the lost opportunity to buy and resell a greater volume of goods). See Phillip E. Areeda, Herbert Hovenkamp & Roger D. Blair, Antitrust Law ¶ 394, at 521 (2d ed. 2000).7 A court might potentially use a lost profits measure of damages, as “[t]he Supreme Court has not explicitly held that any particular measure of damages is required or precluded.” ABA Section of Antitrust Law, supra, at 184 (citing Thomsen v. Cayser, 243 U.S. 66 (1917)); see also Illinois Brick, 431 U.S. at 733 n.13, 743 n.27 (observing that even if the “pass-on [defense] were permitted . . . [and] the defendant show[ed] that as a result of the overcharge the direct purchaser increased its price by the full amount of the overcharge, the direct purchaser m[ight] still claim injury from a reduction in the volume of its sales caused by its higher prices”). 7 We note that Professor Areeda, who gained recognition for his scholarly work in antitrust law, is deceased, and that the treatise is now the responsibility principally of Professor Hovenkamp. 25 However, the standard method of measuring damages in price enhancement cases is overcharge, not lost profits. See ABA Section of Antitrust Law, supra, at 172 (“The typical measure of damages is the difference between the actual price and the presumed competitive price multiplied by the quantity purchased. This was the calculation that the Supreme Court approved in Chattanooga Foundry [& Pipe Works v. Atlanta, 203 U.S. 390, 396 (1906)].”); id. at 193-94 (Where “a group of suppliers conspires to drive a more efficient competitor out of the market or, equivalently, prevent a more efficient supplier from entering the market,” the excluded supplier (competitor) “would have a claim for antitrust damages based on lost profits” and “purchasers from the conspirators would also have antitrust claims because they pay higher prices as a result of the exclusionary practice.” The purchasers’ damages would be based on the overcharge they paid measured by “the difference between the price actually paid and the price that would have been paid absent collusion, multiplied by the quantity.”); Areeda, supra, ¶ 394b, at 529 (observing that “[i]n spite of the (arguably) theoretical superiority of lost profits as a measure of damages in a price-enhancement case, nearly all plaintiffs claim damages on the basis of an overcharge calculation”); Harrison, supra, at 755-56 (“[W]hen the specific activity at issue [is] price enhancement, courts consistently allow[] recoveries based on the gross overcharge instead of lost profits.” (footnote omitted)). Lost profits damages are disfavored, at least in part because they are more difficult to prove than overcharge 26 damages. See ABA Section of Antitrust Law, supra, at 171 (“The overcharge measure has the virtues of conceptual simplicity . . . and relative ease of calculation.”); Roger D. Blair & William H. Page, “Speculative” Antitrust Damages, 70 Wash. L. Rev. 423, 433-34 (1995) (“Overcharge damages . . . were recognized by the Supreme Court [in Chattanooga Foundry] primarily because of the difficulty of proving lost profits in price-fixing cases. Rather than require the complex netting associated with lost profits, and thus practically deny recovery, the Court permitted plaintiffs to prove damages by showing a price enhancement.”); Harrison, supra, at 756 (“The advantage to plaintiffs of using a gross overcharge measure is that it is less speculative and therefore easier to prove than lost profits.”). Furthermore, overcharge damages, unlike lost profits, may induce antitrust plaintiffs to make arguments that will protect rather than injure consumers. See Frank H. Easterbrook, Treble What?, 55 Antitrust L.J. 95, 96-97, 100-01 (1986). Judge Easterbrook argues that the overcharge to consumers, not lost profits, “should be the basis of all [antitrust] damages.” Id. at 101. He reasons that [t]he lure of damages for lost profits induces firms to make arguments that will injure rather than protect consumers. Profits get lost primarily from hard competition or from the elimination of monopoly. . . . The more competitive the market, the more profits are ‘lost.’ . . . [Because] it is hard 27 to tell competition apart from exclusion, [] we must be wary of remedies that give the victims of hard competition a strong incentive to sue. Id. at 100-01. But most importantly, Plaintiffs may not recover lost profits damages because they are indirect purchasers. The District Court concluded that “[t]he intermediate dental dealers suffer the direct harm from any lost opportunity to sell a greater volume of Dentsply products or to sell competitive product lines and profit therefrom. Any harm suffered by plaintiffs remains indirect.” Dist Ct. Mem. Op. at 24 n.9 (Dec. 19, 2001). We agree. Even commentators who advocate for indirect purchaser standing and a lost profits measure of damages admit that their position is currently precluded by Supreme Court case law. As Professor Harrison concedes in his article arguing for indirect purchaser standing and a lost profits measure of damages, “[t]he Illinois Brick decision seems absolutely to foreclose the possibility of indirect-purchaser standing in price enhancement suits,” even if the indirect purchaser plaintiffs seek lost profits as opposed to overcharge damages. See Harrison, supra, at 777; see also Illinois Brick, 431 U.S. at 746 (“[I]n elevating direct purchasers to a preferred position as private attorneys general, [our case law] denies recovery to those indirect purchasers who may have been actually injured by antitrust violations.”). 28 Harrison also acknowledges that the legal precedents and policy arguments relied on by the [Hanover Shoe] Court in rejecting the pass-on defense do not support even the theoretical appropriateness of the lost profits measure. In addition, the Court hinted that it was actually rejecting the very notion that damages should be apportioned among various layers of buyers and sellers. . . . [T]o the extent that the apportionment process has been rejected by the Court, it would be inappropriate to infer that the lost profits measure has received even implicit approval. Id. at 764-65 (footnotes omitted) (citing Hanover Shoe, 392 U.S. at 489-90 & n.8, 494, 498). Similarly, while Professors Areeda, Hovenkamp and Blair argue that “the correct solution is to permit damages actions based on lost profits to all intermediaries,” they concede that their position “is at variance with the case law.” Areeda, supra, ¶ 346a, at 359-60. Finally, the ABA’s Antitrust Section recognizes that “if a cartel sells to an intermediate purchaser who resells to another, both purchasers are likely to lose profits as a result of the price fix,” but concedes that “[u]nder the Illinois Brick rule, the second intermediate purchaser, or the indirect purchaser from the cartel, cannot recover damages.” ABA Section of Antitrust Law, supra, at 183-84. 29 If we were to hold that indirect purchaser plaintiffs could recover lost profits from their decreased volume of purchases and resales, we would be implying that (1) past indirect purchaser plaintiffs who have been denied standing based on Illinois Brick could have recovered if only they had framed their claim as one for lost profits rather than for overcharge damages, and (2) that the Illinois Brick Court—which was concerned with simplifying and controlling the costs of antitrust litigation and with conserving judicial resources—really meant that indirect purchasers do have standing to sue, but for lost profits rather than overcharge damages. We find both of these propositions untenable. For all of these reasons, we hold that Plaintiffs do not have statutory standing to recover lost profits damages caused by their lost opportunities to purchase and resell Dentsply’s competitors’ products.