Opinion ID: 2584692
Heading Depth: 3
Heading Rank: 3

Heading: Broader Legislative Policy Considerations

Text: In divining the Legislature's intent, we consider as well overarching legislative goals evident from the Legislature's adoption and amendment of the Cartwright Act over the years. From its inception, the Cartwright Act has always been focused on the punishment of violators for the larger purpose of promoting free competition. (See Stats. 1907, ch. 530, p. 984 [the Cartwright Act is An act to define trust and to provide for criminal penalties and civil damages, and punishment of [entities connected with trusts], and to promote free competition in commerce and all classes of business in this state].) It is, like antitrust laws generally, about ``the protection of competition, not competitors. '' ( Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 186 [83 Cal.Rptr.2d 548, 973 P.2d 527].) Private damage awards are just a tool by which these procompetitive purposes are carried out: `The main purpose of the anti-trust laws is to protect the public from monopolies and restraints of trade, and the individual right of action for treble damages is incidental and subordinate to that main purpose.' ( Milton v. Hudson Sales Corp. (1957) 152 Cal.App.2d 418, 443 [313 P.2d 936]; see also Bruce's Juices v. Amer. Can Co. (1947) 330 U.S. 743, 751 [91 L.Ed. 1219, 67 S.Ct. 1015] [private damage remedies provide a strong and reliable motive for enforcement]; Cianci v. Superior Court (1985) 40 Cal.3d 903, 913 [221 Cal.Rptr. 575, 710 P.2d 375] [private treble damages are designed `to serve as well the high purpose of enforcing the antitrust laws'].) As the Cartwright Act's primary concern is with the elimination of restraints of trade and impairments of the free market, we can and should select the damages rule most consistent with that focus. The goal of deterring antitrust violations and concerns that a given private party may receive a windfall are not of equal weight. The Legislature's adoption of a double damages remedy (Stats. 1907, ch. 530, § 11, p. 987), later amended to treble damages (§ 16750, subd. (a)), demonstrates as much: double and treble damages may overcompensate injured plaintiffs, but they do so in order to maximize deterrence. These relative priorities offer useful guidance. In cases where no consumers have come forward and the choice is between allowing an antitrust violator to retain the full measure of profits from its violation or requiring their disgorgement to an innocent direct or intermediary purchaser who paid those monies and was forced to cope with the violation, the Legislature surely would prefer the latter, thereby maximizing deterrence and the probability of full disgorgement. [21] To allow defendants universally to assert a pass-on defense, even in cases such as this that present no risk of duplicative recovery, would hamper enforcement by reducing incentives to sue and police antitrust violations. As Hanover Shoe itself recognized, a universal pass-on defense would hamper enforcement in a second way. Allowing a pass-on defense would plunge parties and courts into minitrials attempting to trace every penny of an initial overcharge, as well as seeking to measure the further ramifications that an overcharge might have in the form of lost sales and other tertiary consequences. ( Hanover Shoe, supra, 392 U.S. at pp. 492-493.) `[T]he task of disentangling overlapping damages claims is not lightly to be imposed upon potential antitrust litigants, or upon the judicial system.' ( Kansas v. UtiliCorp United Inc., supra, 497 U.S. at p. 211.) While the Legislature when it enacted the Illinois Brick repealer statute imposed that task for the small universe of cases in which multiple levels of purchasers might sue, rejection of the Hanover Shoe rule would extend that burden to nearly every case. Accepting the rule, in contrast, streamlines antitrust trials, renders the process of proving antitrust damages less daunting, and ultimately enhances enforcement. Manufacturers raise one overarching policy concern of their own. They object that Pharmacies simply were not damaged by the alleged price-fixing conspiracy and the law should not countenance a rule that permits a windfall to undamaged plaintiffs. This objection misconceives both the nature of the Hanover Shoe rule in general and its potential application here. The Hanover Shoe court recognized that a purchaser forced by a monopoly or price-fixing cartel to pay higher prices might well be injured by that antitrust violation even in instances where it appeared the purchaser could pass on some or all of that overcharge downstream to others. ( Hanover Shoe, supra, 392 U.S. at p. 493, fn. 9 [The mere fact that a price rise followed an unlawful cost increase does not show that the sufferer of the cost increase was undamaged.]; see also Kansas v. UtiliCorp United Inc., supra, 497 U.S. at pp. 208-211.) A purchaser might lose profits or sales, and perhaps market share as well, vis-à-vis another purchaser/distributor not subject to the same overcharge. Recognizing the difficulty of proving the precise amount of other forms of injury, the Hanover Shoe court selected the amount of the initial overcharge as the measure of damages, not because the initial overpayment was the only injury, but because it was the most readily measured, and because measuring damages in this way would, in the long run, best serve the various goals of antitrust law. (See Hanover Shoe, at pp. 492-494; cf. 2A Areeda et al., Antitrust Law (3d ed. 2007) ¶ 395, p. 377 [[T]he most commonly used measure of damages, viz., the overcharge, is an ambiguous proxy for the actual damages suffered.].) Some or all of the injuries identified in Hanover Shoe, supra, 392 U.S. 481, and Kansas v. UtiliCorp United Inc., supra, 497 U.S. 199, are in play here. Evidence in the record indicates Pharmacies' contracts with third party payers were sometimes negotiable, and rates changed over time. Given an opportunity to do so, Pharmacies might have been able to prove lost profits on third party payer sales, that is, that in the absence of overcharges they could have negotiated reimbursement rates that would have increased the gap between their acquisition costs and reimbursement rates. Evidence in the record also indicated Pharmacies had seen fewer and fewer cash-paying customers over time and thus had unilateral pricing discretion for a smaller percentage of their sales. Given an opportunity to do so, Pharmacies might have been able to prove lost profits (because they could have maintained the same retail prices for cash-paying customers, while obtaining their drugs from wholesalers at a lower acquisition cost (see Kansas v. UtiliCorp United Inc ., at p. 209; Hanover Shoe, at p. 493, fn. 9)) or lost sales (due to cash-paying customers, who are sensitive to higher prices, filling fewer prescriptions than they would have if both acquisition costs and corresponding retail prices were lower). [22] Finally, Pharmacies alleged the value of their businesses as going concerns had declined due to lost sales, lost profits, and competition from foreign distributors not subject to Manufacturers' overcharges. As the cross-motions below focused on the pass-on defense, Pharmacies were not called on to bring forward evidence in support of this allegation. Of course, the rule of Hanover Shoe obviates the need for the parties and the trial court to develop and consider proof of these other forms of injury, not because they do not exist, but because, as noted, enforcement of the antitrust laws works better if the initial amount of the overcharge is chosen as a default measure of all the injuries a price-fixing conspiracy may engender for a given purchaser. [23] At its core, Manufacturers' argument is that the Cartwright Act should be read to go beyond the primary consequence of the price conspiracy (the overcharge) to consider the secondary consequence of the conspiracy (the pass-on), but that it should blind itself to the tertiary consequences (lost sales, lost profits, and so on). The Court of Appeal as well implicitly accepted Hanover Shoe 's focus on overcharges as the measure of damages and its corresponding disregard for tertiary consequences, but rejected that case insofar as it disregarded secondary consequences (the pass-on). But these two aspects of Hanover Shoe go hand in hand: Hanover Shoe found it acceptable to ignore tertiary consequences only because it also disregarded secondary consequences. Put differently, Hanover Shoe is not a case about what constitutes injury, but about how to measure damages. That a purchaser passes on an overcharge does not mean it lacks for injury or damages. The Hanover Shoe court disregarded all tertiary damages for measurement purposes because, and only because, it also disregarded the secondary pass-on for measurement purposes. Conversely, one cannot rationally admit evidence of a pass-on, under a theory of mitigation, while also excluding evidence that the pass-on in fact failed to mitigate fully the loss occasioned by the original overcharge. (See Hanover Shoe, supra, 392 U.S. at pp. 491-494; B.W.I. Custom Kitchen v. Owens-Illinois, Inc., supra, 191 Cal.App.3d at p. 1353.) [24] Instead, the choice in measuring damages is between a rule that for policy reasons considers only the overcharge (the Hanover Shoe rule) and one that considers all the consequences of the overcharge.