Opinion ID: 3015125
Heading Depth: 4
Heading Rank: 1

Heading: Why we adopt a “limited”

Text: general co-conspirator exception. If there is a general co-conspirator exception, why do we limit it? To begin, we examine whether Illinois Brick’s policy justifications suggest we should adopt (1) a general coconspirator exception that would permit indirect purchaser standing when the middlemen conspired with the manufacturers even if the middlemen were not barred by the complete involvement defense from suing their former co- conspirator—the manufacturer (the “unlimited exception”), or (2) an exception that would permit indirect purchaser standing 451, 467-69 (1992)). Thus, there is already a mechanism in place for courts to dismiss before trial claims of a conspiracy that would make no economic sense. 38 only if the middlemen were barred by the complete involvement defense from suing the manufacturer (the “limited exception”).13 Illinois Brick’s first policy concern—the risk of duplicative liability—cuts against the unlimited exception, but in favor of the limited exception. For example, imagine the dealers had already sued and recovered overcharges from Dentsply for the exclusive-dealing conspiracy. If there was an unlimited exception, presumably nothing would stop the labs from then suing Dentsply to recover the duplicative portion of the overcharge that the dealers had passed on to them. Even under the conditions of this case (with the labs suing first and the dealers joined), duplicative recovery is a possibility. If the labs prove Dentsply engaged in an exclusive-dealing conspiracy with the dealers, the dealers could potentially sue Dentsply for duplicative damages the conspiracy caused them. See Link, 788 13 The Seventh Circuit is the only Court of Appeals to engage head-on the general co-conspirator exception, and it has adopted it. See Paper Systems, 281 F.3d at 631-32 (“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.”); Prescription Drugs,123 F.3d at 604; Fontana Aviation, 617 F.2d at 481. However, we do not discern an explanation by the Court why it did so or an explicit delineation of the exception’s scope (i.e., whether it is unlimited or limited). 39 F.2d at 932 n.12 (analyzing an alleged conspiracy analogous to our case and noting that, even if the dealers were joined and were co-conspirators, they could still potentially sue the manufacturer for overcharges caused by the exclusive-dealing conspiracy). However, under the limited exception, the risk of duplicative liability is alleviated because that exception is only applicable if the middlemen are barred from recovery. Illinois Brick’s second policy concern—avoiding the need to ascertain the portion of an overcharge that was passed on—cuts against both exceptions. Unlike vertical conspiracies involving RPM, other vertical conspiracies are designed to distort the wholesale market for a particular good. For example, assume that Dentsply and its dealers only engaged in an exclusive-dealing conspiracy. The effect of that conspiracy would be to deny Dentsply’s competitors access to its authorized dealers. The absence of competition for these dealers’ business would allow Dentsply to charge its dealers a supra-competitive price at wholesale. This overcharge would then be passed on (at least in part) to the dealers’ customers, the dental laboratories. The damages that the laboratories could recover from Dentsply would thus be the treble portion of the overcharge that the dealers passed on to them.14 Thus both exceptions, which apply 14 Because Section 4 of the Clayton Act provides for damages of treble the amount a plaintiff is injured, presumably indirect purchaser plaintiffs would only be permitted to recover treble the amount of the manufacturer’s overcharge that the 40 direct purchasers passed on to them and would not be able to recover the portion of the manufacturer’s overcharge that the direct purchasers absorbed because the indirect purchasers would not have been injured by that portion. See 15 U.S.C. § 15(a) (Section 4 of the Clayton Act provides that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws . . . shall recover threefold the damages by him sustained.”) (emphasis added). But see Paper Systems, 281 F.3d at 631-32 (“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.”) (emphasis added); cf. Hanover Shoe, 392 U.S. at 494 (holding that an antitrust defendant could not argue that a plaintiff who had purchased a product directly from the defendant was not injured because it had passed on the illegal overcharge to its own customers, thus creating a regime under which plaintiffs can arguably recover more than “threefold the damages by him sustained”). Of course, if under the limited exception (where direct purchasers are barred from recovering) indirect purchaser plaintiffs were allowed to recover the entire overcharge that the manufacturers imposed on the direct purchasers (even though the direct purchasers absorbed some of that overcharge and did not pass on that absorbed portion to the indirect purchasers), then the portion of the overcharge that was passed on from the direct purchasers to the indirect purchasers would not need to be ascertained and Illinois Brick’s second policy justification would cut in favor of the 41 to conspiracies that attack the wholesale market, potentially create the problems of apportionment that underlie Illinois Brick.15 Illinois Brick’s third policy concern—risk of inefficient enforcement of the antitrust laws because the ultimate recovery for the dealers would be diluted, thereby decreasing the dealers’ incentive to sue—cuts against the unlimited exception, but in limited exception. 15 Technically speaking, there would be no need to “apportion” damages between direct and indirect purchasers under the limited exception. This is because, as we have explained, the limited exception would only permit indirect purchaser standing in circumstances where the direct purchaser would be barred from bringing suit against the manufacturer. As such, there would be no need to apportion any damages to the direct purchasing middleman. Nevertheless, even under the limited exception, the finder of fact would be required to ascertain the amount of the overcharge that had been passed on by the middleman. After all, an antitrust plaintiff (whether he be a direct or an indirect purchaser) is only entitled to recover “threefold the damages by him sustained.” 15 U.S.C. § 15(a) (emphasis added). Therefore, to the extent that the middleman retained (i.e. did not pass on to the indirect purchaser) a portion of any overcharge imposed upon him, the damages actually sustained by the indirect purchaser would be reduced by that amount. 42 favor of the limited exception. Under the unlimited exception, when middlemen were not completely involved, their recovery would be diluted and their incentive to sue would decrease (assuming that, rather than the middlemen being permitted to recover the entire overcharge, it was apportioned among the middlemen and the indirect purchasers). However, under the limited exception, when middlemen were not completely involved, their recovery would not be diluted and their incentive to sue would not decrease. As the indirect purchasers would not have standing in this instance, no recovery by them could dilute the middlemen’s recovery. Thus, all three of the Illinois Brick policy justifications argue against adopting the unlimited exception, while the first and the third favor adopting the limited exception and only the second (the desire to avoid ascertaining the portion of an overcharge that was passed on) cuts against it. Further, while it is true that adopting the limited exception creates the need to ascertain the portion of an overcharge that was passed on, we think the alternative, adopting no general co-conspirator exception, is less desirable. Cf. In re Lower Lake Erie Iron Ore Antitrust Litig., 998 F.2d 1144, 1169 (3d Cir. 1993) (“[W]hile complex apportionment problems are implicated here, we do not hold that litigation must be avoided solely because it might be difficult to ascertain damages. Injured parties cannot be penalized and left without recourse because measurement of their damages is difficult.”). The Illinois Brick Court was concerned with promoting “the longstanding policy of 43 encouraging vigorous private enforcement of the antitrust laws.” 431 U.S. at 745. We are unwilling to hold that if initial sellers and “completely involved” direct purchasers conspire, then no plaintiff outside the conspiracy may sue the initial seller for damages.