Opinion ID: 2584692
Heading Depth: 2
Heading Rank: 2

Heading: The Cartwright Act and the Pass-on Defense

Text: (1) We begin with the language of the statute. If the text is sufficiently clear to offer conclusive evidence of the statute's meaning, we need look no further. ( Microsoft Corp. v. Franchise Tax Bd. (2006) 39 Cal.4th 750, 758 [47 Cal.Rptr.3d 216, 139 P.3d 1169].) If it is susceptible of multiple interpretations, however, we will divine the statute's meaning by turning to a variety of extrinsic sources, including the legislative history (e.g., Lexin v. Superior Court (2010) 47 Cal.4th 1050, 1080-1081 [103 Cal.Rptr.3d 767, 222 P.3d 214]), the nature of the overall statutory scheme (e.g., Tonya M. v. Superior Court (2007) 42 Cal.4th 836, 844-845 [69 Cal.Rptr.3d 96, 172 P.3d 402]), and consideration of the sorts of problems the Legislature was attempting to solve when it enacted the statute (e.g., Burris v. Superior Court (2005) 34 Cal.4th 1012, 1018 [22 Cal.Rptr.3d 876, 103 P.3d 276]). (2) Section 16750, subdivision (a) authorizes anyone injured in his or her business or property by actions forbidden under the Cartwright Act (§ 16700 et seq.) to recover three times the damages sustained. Aside from an increase in the multiplier, to treble damages from the original double damages, this language has been carried forward essentially without change from the original version of the act. [7] We reject at the outset Manufacturers' contention that the choice of the words damages sustained (§ 16750, subd. (a)) or damages by him sustained (Stats. 1907, ch. 530, § 11, p. 987) establishes a particular legislative intent on the question whether a pass-on defense should be available. The express text says only that a party must have been injured by a Cartwright Act violation and may recover the resulting damages sustained; it says nothing about how the injury or damages are to be quantified. In the antitrust context, one might measure the damages from a violation any number of ways: e.g., the excess amount a party paid the violator (the overcharge) (see Hanover Shoe, supra, 392 U.S. at pp. 487-490); the sales a party lost as a result of the overcharge (lost sales) (see Hanover Shoe, at p. 493; Kansas v. UtiliCorp United Inc. (1990) 497 U.S. 199, 224 [111 L.Ed.2d 169, 110 S.Ct. 2807] (dis. opn. of White, J.); B.W.I. Custom Kitchen v. Owens-Illinois, Inc., supra, 191 Cal.App.3d at p. 1353); the lost profit opportunity a party suffered due to increased costs (lost profits) (see Hanover Shoe, at p. 493 & fn. 9); or the impact on the value of a business as a going concern due to lost market share (see B.W.I. Custom Kitchen, at p. 1353). Put another way, one could in theory measure injury by considering only the primary consequences of a price conspiracy (the overcharge), as Hanover Shoe did; by considering only the primary and secondary consequences (the overcharge and pass-on), as Manufacturers argue; or by considering the primary, secondary, and tertiary consequences (as, for instance, B.W.I. Custom Kitchen, at p. 1353, theorized one might have to). The words of the statute themselves dictate no particular choice among these options, nor any particular conclusion as to whether a pass-on defense should be available. That the text of the Cartwright Act is ambiguous on this point is further illustrated by the fact the United States Supreme Court, interpreting the essentially identical language of the federal Clayton Act (15 U.S.C. § 12 et seq.), reached a conclusion diametrically opposite to that of the Court of Appeal in this case. Construing the Clayton Act's damages provision (damages by him sustained), [8] the Supreme Court concluded defensive use of a pass-on theory was prohibited ( Hanover Shoe, supra, 392 U.S. at pp. 489-494); construing the Cartwright Act's damages provision (damages sustained), [9] the Court of Appeal here concluded such use of a pass-on theory was permitted, indeed compelled. Nor is Hanover Shoe an anomaly; addressing a federal damages provision mirroring that of the Cartwright Act, the Supreme Court in Adams v. Mills, supra, 286 U.S. at pages 406-408, likewise rejected the defendants' pass-on theory. [10] This divergence illustrates not that either conclusion must be wrong, only that reasonable jurists mayfrom a text as opaque as damages sustainedarrive at widely differing conclusions, and that that text is thus susceptible of being read as supporting more than one rule for measuring damages. [11] The question we face is how to measure damages sustained, and nothing in the Cartwright Act's language, as enacted in 1907 or thereafter amended, resolves that question. Insofar as the text of the Cartwright Act is concerned, the question is an open one. We reject as well a second interpretive argument pressed by Manufacturers and adopted by the Court of Appeal: that at the beginning of the 20th century there was an existing, generally understood meaning for damages by him sustained, and we therefore should presume the Legislature intended that meaning when it used the phrase in the Cartwright Act. The general principle that we should assume the Legislature uses words in accordance with their commonly understood meaning is sound. In State of California ex rel. Van de Kamp v. Texaco, Inc. (1988) 46 Cal.3d 1147 [252 Cal.Rptr. 221, 762 P.2d 385], for example, we interpreted ambiguous provisions of the Cartwright Act by considering whether extant law established an accepted meaning for the chosen terms. Because our research disclosed an accepted understanding that a prohibition against a combination did not extend to mergers, we concluded the Legislature surely knew of and adopted that understanding when it passed the Cartwright Act. ( State of California ex rel. Van de Kamp v. Texaco, Inc ., at pp. 1160-1163.) That principle has no similar application here. We can discern no contemporaneous consensus with respect to the phrase damages by him sustained. The Cartwright Act was passed in 1907 as part of a wave of turn-of-the-century state and federal legislation intended to stem the power of monopolies and cartels. (Landry & Hornbeck, One Hundred Years in the Making: The Cartwright Act in Broad Outline (2008) 17, No. 2, J. of Antitrust and Unfair Competition Section of State Bar 7, 7-8; State of California ex rel. Van de Kamp v. Texaco, Inc., supra, 46 Cal.3d at pp. 1154-1156; see generally Limbaugh, Historic Origins of Anti-trust Legislation (1953) 18 Mo. L.Rev. 215.) It was based in part on other recently enacted state laws aimed at the same problems. ( State of California ex rel. Van de Kamp v. Texaco, Inc ., at pp. 1160-1162 & fn. 14; Hibner & Cooper, The Cartwright Act at 100A History of Complementary Antitrust EnforcementA Celebration (2008) 17, No. 2, J. of Antitrust and Unfair Competition Section of State Bar 81, 91-92.) The phrase damages sustained or damages by him sustained was routinely employed in the remedial provisions of the antitrust statutes of the time. [12] However, our review of out-of-state and federal decisions in the years preceding the Cartwright Act's 1907 adoption discloses nothing (never mind a consensus) speaking to how the damages by him sustained should be measured or allocated between direct and indirect purchasers who seek to sue for antitrust loss. Certainly the California cases relied on by Manufacturers and the Court of Appeal do not establish any consensus as to how damages were to be measured. In De Costa v. Mass. Mining Co. (1861) 17 Cal. 613, 617, a nuisance case, we explained that the damages for creating an unwanted ditch on another's property were confined to the injury sustained, the diminution in the value of the property in its present condition, rather than the full cost of remediation (filling in the ditch). In Utter v. Chapman (1869) 38 Cal. 659, 664-666, a breach of contract case, we explained that the plaintiff steamship operator could not automatically recover the full contract price for shipping grain the defendant failed to provide. The plaintiff had a duty to mitigate by finding substitute employment for his steamer, such as transporting grain for other parties, and, to the extent he was able to do so, his damages were thereby diminished. In Hicks v. Drew (1897) 117 Cal. 305, 314-315 [49 P. 189], a tort action for injury to real property, we indicated damages should be measured based on the net impact of the defendant's actions, offsetting any benefit to the plaintiff against any loss. These contract and tort cases are unhelpful on the question of how to measure the damages sustained in an antitrust case. They express in a variety of contexts the truism that damages are to compensate for actual loss, but this, again, begs the question before us: how to measure actual loss in the context of an intermediary purchaser antitrust action for price fixing. Notably as well, in 1907 an antitrust claim for civil money damages was a wholly new kind of claim, part of the dramatically enhanced sanctions imposed by the [Cartwright] Act. ( State of California ex rel. Van de Kamp v. Texaco, Inc., supra, 46 Cal.3d at p. 1167.) At common law, no such private claim existed; remedies for illegal agreements and restraints on trade were confined to proceedings to hold the agreements void and unenforceable and to revoke corporate privileges. ( Ibid. ) Thus, no reason exists to assume the Legislature intended to incorporate any particular existing method of measuring damages derived from statutory or common law precedent, including the common law contract and tort damage measures on which Manufacturers rely. [13] More generally, we consider it implausible that the Legislature had any specific intent on the question we face. Certainly nothing in what minimal legislative history has survived from the Cartwright Act's 1907 enactment sheds any direct light on the question. The economic theories that underlie an antitrust claim are sufficiently complex that we may safely surmise the fine points of whether enforcement by direct and indirect purchasers should be permitted or preferred, and what precise proof of passed-on costs, lost sales, and lost profits should become the grist of an antitrust trial, were not at the forefront of the Legislature's mind when enacting what was then a pioneering law. Certainly by its choice of the generic phrases damages by him sustained and injured in his business or property, the Legislature did not presume to resolve these complex questions. Two early Court of Appeal Cartwright Act cases relied on by Manufacturers do not lead us to a different conclusion. Krigbaum v. Sbarbaro (1913) 23 Cal.App. 427 [138 P. 364] is a case about antitrust causation, i.e., the notion that to have an antitrust claim one must establish a causal nexus between one's injury and the alleged unlawful restraint of trade. (See Associated General Contractors v. Carpenters (1983) 459 U.S. 519, 540-542 [74 L.Ed.2d 723, 103 S.Ct. 897]; Vinci v. Waste Management, Inc. (1995) 36 Cal.App.4th 1811, 1814 [43 Cal.Rptr.2d 337].) In Krigbaum, the plaintiff alleged the defendants had conspired to monopolize the market for vineyard-quality land, but his injury arose not from any restraints on trade accomplished by the alleged trust; rather, it arose from specific actions the defendants took to interfere with a particular real estate transaction he had brokered. ( Krigbaum, at pp. 433-434.) Because the plaintiff had not alleged causation, a demurrer to his Cartwright Act claim was properly sustained. ( Ibid. ) Krigbaum has nothing to say on the general topic that concerns us: when (as here) causation has been properly alleged, how are antitrust damages to be measured? Equally unilluminating is Overland P. Co. v. Union L. Co. (1922) 57 Cal.App. 366 [207 P. 412], another antitrust causation case. The plaintiff, a printing and publishing company, alleged the defendant printing trade association had agreed to limit bidding for certain printing jobs, thereby driving up prices. As the Court of Appeal there correctly explained, nothing about this arrangement caused the plaintiff injury; instead, the decision of the plaintiff's competitors not to bid for work reduced the competition for the plaintiff and likely benefited it. ( Id. at pp. 374-375.) Here, in contrast, Pharmacies are not Manufacturers' competitors but their indirect customers, and they have properly alleged that Manufacturers' price-fixing conspiracy caused them injury in the form of higher prices. As with Krigbaum v. Sbarbaro, supra, 23 Cal.App. 427, nothing in the Overland P. court's discussion speaks to how we should measure the damages of those plaintiffs who have alleged causation. (3) In the absence of textual guidance, we must turn elsewhere. We thus look to the Legislature's subsequent amendments to related parts of the Cartwright Act, and we consider as well the object which [the Cartwright Act] seeks to achieve and the evil which it seeks to prevent .... ( Judson Steel Corp. v. Workers' Comp. Appeals Bd. (1978) 22 Cal.3d 658, 669 [150 Cal.Rptr. 250, 586 P.2d 564]; see also Burris v. Superior Court, supra, 34 Cal.4th at p. 1018 [we must consider the human problems the Legislature sought to address in adopting [the statute] ...].) Consideration of these sources leads us to conclude the federal Hanover Shoe rule ( Hanover Shoe, supra, 392 U.S. at p. 494) is most consistent with legislative intent and applies equally to state claims under the Cartwright Act. Every indication available from the Legislature demonstrates that, given a choice, it would prefer an enforcement regime in which Hanover Shoe is the law. In particular, the Legislature's actions at two closely related points in time are telling: (1) in 1977, following Congress's passage of the Hart-Scott-Rodino amendments to the federal Clayton Act (15 U.S.C. § 12 et seq.); and (2) in 1978, in the immediate aftermath of the United States Supreme Court's decision in Illinois Brick, supra, 431 U.S. 720.

In 1976, Congress amended the Clayton Act (15 U.S.C. § 12 et seq.) by passing the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the Hart-Scott-Rodino Act). The Hart-Scott-Rodino Act authorized state attorneys general to file parens patriae suits [14] on behalf of injured consumers for violations of the Sherman Act (15 U.S.C. § 1 et seq.). (15 U.S.C. § 15c(a)(1).) Congress created the remedy out of concern that consumers, the indirect purchasers who typically bear the brunt of antitrust violations in the form of higher prices, had no existing effective redress because the small amounts of their injuries made individual suits impracticable, and consumer class actions had proven a disappointing vehicle for antitrust enforcement. (H.R.Rep. No. 94-499, 2d Sess. (1976), reprinted in 1976 U.S. Code Cong. & Admin. News, pp. 2573-2577.) The Hart-Scott-Rodino Act was designed to fill the remedial gap that sometimes result[ed] in the unjust enrichment of antitrust violators and undermine[d] the deterrent effect of the treble damage action. ( Id. at pp. 2573-2574.) The remedial provisions of the Hart-Scott-Rodino Act focused on achieving full disgorgement of all illegal antitrust profits, using fluid recovery and the cy prés doctrine if necessary, because [t]he only alternativeretention of the profits by the adjudicated wrongdoeris unconscionable and unacceptable. ( Id. at pp. 2585-2586; see also id. at p. 2585 [[T]he premise of § 4D [codified at 15 U.S.C. § 15d] is that defendants should be made to disgorge all measurable profits from an antitrust violation ....].) Notably, the Hart-Scott-Rodino Act originally contained no language to address the possibility that indirect purchasers might recover damages (through their respective attorneys general) when in some instances those same damages might already have been recovered by direct purchasers under the Hanover Shoe rule prohibiting a pass-on defense (see Hanover Shoe, supra, 392 U.S. at p. 494). The problem of potential double recovery under Hanover Shoe was solved by a Senate amendment excluding from parens patriae damage awards any amount that duplicates amounts which have been awarded for the same injury. (15 U.S.C. § 15c(a)(1); see Sen.Rep. No. 94-803, 2d Sess., p. 44 (1976).) As the Senate Report accompanying the amendment explained, the proviso was inserted to assure that defendants are not subjected to duplicative liability, particularly in a chain-of-distribution situation where it is claimed that middlemen absorbed all or part of the illegal overcharge, and to thereby eliminate any perceived tension between authorizing indirect purchaser suits and following Hanover Shoe. (Sen.Rep. No. 94-803, supra, at p. 44.) [15] Specifically, the amendment was intended to codify In re Western Liquid Asphalt Cases (9th Cir. 1973) 487 F.2d 191, a case that relied on the sufficiency of consolidation, interpleader, compulsory joinder, and the like, rather than a bar on indirect purchaser suits, to eliminate double recovery problems. ( Id. at p. 201.) Where the choice is between a windfall to intermediaries or letting guilty defendants go free, liability is imposed. (Sen.Rep. No. 94-803, supra, at p. 44, citing Hanover Shoe, supra, 392 U.S. at p. 494.) The Hart-Scott-Rodino Act was thus of a piece with Hanover Shoe. First, consistent with the policies spelled out by the United States Supreme Court, it reflected Congress's belief that it was better to overdeter antitrust violations than to underdeter them, as well as Congress's desire to create a remedial framework that maximized the likelihood violators would be required to fully disgorge price-fixing profits. (See H.R.Rep. No. 94-499, supra, reprinted in 1976 U.S. Code Cong. & Admin. News, pp. 2573-2586.) Second, the Hart-Scott-Rodino Act expressly contemplated that antitrust violators might be sued by both direct and indirect purchasers, and that rather than limiting direct purchaser recoveriesby repudiating Hanover Shoe or limiting indirect purchaser suits, the problem of duplicative recoveries could be addressed by allowing damages already paid to be offset against subsequent damages claims. (See 15 U.S.C. § 15c(a)(1).)
The Legislature moved quickly to incorporate the remedial framework of the Hart-Scott-Rodino Act into the Cartwright Act, enacting a statute that precisely tracked the federal act and authorized the Attorney General to sue for Cartwright Act violations on behalf of consumers. (§ 16760, added by Stats. 1977, ch. 543, § 1, p. 1747.) [16] Notably for our purposes, the Legislature adopted as well the Hart-Scott-Rodino Act's damages provision. (Compare § 16760, subd. (a)(1) [any award must exclude damages which duplicate[] amounts which have been awarded for the same injury] with 15 U.S.C. § 15c(a)(1) [same].) As we have discussed, that provision was specifically designed to account for duplicative damage awards resulting from allowing indirect purchasers to recover damages when, under the Hanover Shoe no pass-on defense rule ( Hanover Shoe, supra, 392 U.S. at p. 494), direct purchasers might already have been awarded those same damages. Section 16760, subdivision (a)(1), in parallel with the corresponding provision in the Hart-Scott-Rodino Act, thus took as its premise that under the Cartwright Act direct purchasers could themselves recover overcharges that might in theory have been passed on to indirect purchasers, that is, the Hanover Shoe rule. Evidently, then, the Legislature presumed that such a rule would apply to the Cartwright Act as well. (4) Two additional factors suggest the Legislature took as a given the application of Hanover Shoe 's no pass-on defense rule to the Cartwright Act. First, we may presume that when the Legislature borrows a federal statute and enacts it into state law, it has considered and is aware of the legislative history behind that enactment. ( People v. Butler (1996) 43 Cal.App.4th 1224, 1244 [51 Cal.Rptr.2d 150]; see also American Civil Liberties Union Foundation v. Deukmejian (1982) 32 Cal.3d 440, 447 [186 Cal.Rptr. 235, 651 P.2d 822] [the legislative history of a federal statute may be used to interpret a state statute based on it].) Second, Assembly Bill No. 1162's (1977-1978 Reg. Sess.) legislative history indicates members of the Legislature were in fact aware of the legislative history behind, and the import of, the various portions of the Hart-Scott-Rodino Act they incorporated into state law. The Assembly Judiciary Committee's materials for Assembly Bill No. 1162 include by way of explanation for the bill and its purpose excerpts from the Hart-Scott-Rodino Act's legislative history, including remarks from Representative Rodino describing at length how the no-duplicative-recovery provision of title 15 United States Code section 15c(a)(1) was adopted to accommodate the effects of applying the Hanover Shoe rule. (See Assem. Com. on Judiciary, Worksheet on Assem. Bill No. 1162 (1977-1978 Reg. Sess.) as introduced Mar. 29, 1977 [attachments excerpting Sept. 16, 1976 remarks of Rep. Rodino].) Manufacturers argue it would be absurd to conclude the Legislature that passed Assembly Bill No. 1162 (1977-1978 Reg. Sess.), strengthening consumer antitrust protections, also approved the Hanover Shoe rule, which might in a hypothetical case impair consumer recoveries. Manufacturers posit a scenario in which an intermediary purchaser (such as Pharmacies here) sues first, recovers the full measure of any overcharge under Hanover Shoe, and leaves nothing for the ultimate consumers (because § 16760's duplicative-liability language would exclude the previous recovery from an antitrust defendant's future liability). We have no difficulty reconciling Assembly Bill No. 1162's (1977-1978 Reg. Sess.) consumer-protecting provisions with tacit approval of the Hanover Shoe rule. In the abstract, both rules are intended to achieve the same goal: maximum deterrence and disgorgement. If the Hanover Shoe rule enhances enforcement and deters to some degree future antitrust violations, consumers benefit. As for the specific hypothetical, it posits a scenario in which an antitrust suit is filed, a full award is made against the defendants, and the case becomes final, all before the four-year statute of limitations expires and before the Attorney General has any opportunity to file suit. The Legislature could easily have assumed that this would be a rare scenario indeed, and that the short statute of limitations (at least in comparison with the time it takes to resolve an antitrust case), combined with the availability of devices such as joinder, interpleader, and case consolidation, would make such a scenario the exception rather than the rule. (See Union Carbide Corp. v. Superior Court (1984) 36 Cal.3d 15, 24 [201 Cal.Rptr. 580, 679 P.2d 14] [noting that where suits are pending at the same time, consolidation can be employed, and the practical likelihood of sequential suits is `remote' because `[t]he extended nature of antitrust actions, often involving years of discovery, combines with the short four-year statute of limitations to make it impractical for potential plaintiffs to sit on their rights until after entry of judgment in the earlier suit'].) [17] In short, the Legislature decided to include in its new parens patriae statute a protection against the occasional potential for double recovery that arises when indirect purchasers can sue but direct purchasers are not subject to a pass-on defense, a provision created under the specific belief that Hanover Shoe would apply. From this, we may infer the Legislature approved application of Hanover Shoe to the Cartwright Act.

Nine years after Hanover Shoe, supra, 392 U.S. 481, the United States Supreme Court was pressed to decide whether the bar on defensive use of a pass-on theory (the claim a direct purchaser could not sue because it had passed on any overcharge) should be extended to the offensive use of a pass-on theory (the claim by an indirect purchaser that it, too, had suffered antitrust injury because overcharges had been passed on to it by the direct purchaser and perhaps additional intermediary indirect purchasers). In Illinois Brick, supra, 431 U.S. 720, a sharply divided court concluded that just as defendants could not raise a pass-on theory as a defense, so indirect purchasers could not use a pass-on theory to sue for overcharges arising from antitrust violations. Plaintiff the State of Illinois sued concrete block manufacturers for price fixing in violation of the Sherman Act (15 U.S.C. § 1 et seq.), alleging that the manufacturers had illegally increased prices and those increases were passed on to masonry contractors, who passed them on to general contractors, who charged more in their bids to build buildings for the State of Illinois and other government entities. ( Illinois Brick, supra, 431 U.S. at pp. 726-727.) Again writing for the majority, Justice White explained that the availability of a pass-on defense should be symmetric. First, allowing offensive but not defensive pass-on claims would create a risk of double recovery in those cases where both direct and indirect purchasers sued, with a defendant paying the entirety of any overcharge to the direct purchaser and some additional amount to the indirect purchaser. ( Id. at pp. 730-731.) Second, the uncertainties involved in tracing overcharges and the risk of overcomplicating antitrust trials extended equally to offensive pass-on cases as to defensive pass-on cases. ( Id. at pp. 731-732.) Third, Hanover Shoe rest[ed] on the judgment that the antitrust laws will be more effectively enforced by concentrating the full recovery for the overcharge in the direct purchasers rather than by allowing every plaintiff potentially affected by the overcharge to sue only for the amount it could show was absorbed by it. ( Illinois Brick, at p. 735.) Because no exception applied that would have allowed defensive use of a pass-on theoryand because Hanover Shoe was still sound law and should not be overruledIllinois could not use a pass-on theory offensively and, as an indirect purchaser, could recover nothing. The dissenters agreed fully that Hanover Shoe was good law, but concluded the same considerations that animated it dictated a rule allowing indirect purchaser suits. (See Illinois Brick, supra, 431 U.S. at pp. 749-750 (dis. opn. of Brennan, J.).) In Hanover Shoe, the court had chosen to run the risk of overcompensating a plaintiff rather than underdeterring antitrust violations and allowing antitrust violators to retain their ill-gotten gains. In an offensive pass-on case, there was no danger that recognizing pass-on charges would allow a defendant to escape liability; rather, allowing a pass-on claim would advance the goal of preventing wrongdoers from escaping punishment. ( Illinois Brick, at pp. 752-753.) The dissenters asserted that `[t]he attempt to transform a rejection of a defense because it unduly hampers antitrust enforcement into a reason for a complete refusal to entertain the claims of a certain class of plaintiffs seems an ingenious attempt to turn the decision [in Hanover Shoe ] and its underlying rationale on its head.' ( Id. at pp. 753-754.) The majority's concerns about double recovery, the dissenters argued, could be addressed fully through procedural devices (joinder, interpleader, and the like) in instances where double recovery was a risk, without resort to the majority's blanket ban on indirect purchaser suits. ( Id. at pp. 761-764.)
Illinois Brick, supra, 431 U.S. 720, evoked an immediate legislative response. Within months of the decision, Assembly Bill No. 3222 (1977-1978 Reg. Sess.) was introduced to prevent Illinois Brick from having any effect on judicial interpretation of the Cartwright Act. [18] This Illinois Brick repealer bill passed both houses unanimously and wrote into the Cartwright Act a repudiation of Illinois Brick 's ban on indirect purchaser suits, allowing suit by any injured person regardless of whether such injured person dealt directly or indirectly with the defendant. (§ 16750, subd. (a), added by Stats. 1978, ch. 536, § 1, p. 1693; see Union Carbide Corp. v. Superior Court, supra, 36 Cal.3d at pp. 19-20 [explaining that § 16750 was amended to repudiate the Illinois Brick bar against indirect purchaser recovery].) [19] Reviewing the legislative history behind this enactment, we find indications the Legislature fully embraced the Illinois Brick dissent, includingcritically for our purposesits view that Hanover Shoe, supra, 392 U.S. 481, was a sound rule of law. Passage of the Illinois Brick repealer statute was driven by the fear that indirect purchasers might be stripped of their standing to sue under the Cartwright Act because, under the reasoning of the Illinois Brick majority, application of the Hanover Shoe rule under the Cartwright Act could be interpreted as dictating that outcome. Rejecting that reasoning, the Assembly Judiciary Committee's summary of Assembly Bill No. 3222 (1977-1978 Reg. Sess.) cited with approval Illinois Brick 's vigorous dissent. (Assem. Com. on Judiciary, Analysis of Assem. Bill No. 3222 (1977-1978 Reg. Sess.) as introduced Mar. 27, 1978, p. 1.) It spelled out the dissent's critique of the majority's bar on indirect purchaser suits and indicated that as the dissent noted ... the implementation problems cited by the majority [20] could be addressed by the application of existing procedural requirements, e.g., mandatory joinder of the direct purchaser, interpleader, parens patriae. (Assem. Com. on Judiciary, Analysis of Assem. Bill No. 3222 (1977-1978 Reg. Sess.) as introduced Mar. 27, 1978, pp. 1-2.) The Judiciary Committee's analysis thus accepted that allowing indirect purchaser suits would require courts to reconcile the existence of such suits with the Hanover Shoe no pass-on defense rule, and cited with approval the Illinois Brick dissent's proposed methods for reconciliation. Nowhere in this or any other committee report did the Legislature suggest reconciliation could or should instead occur by repudiating Hanover Shoe under the Cartwright Act. Rather, the existence of the Hanover Shoe rule was taken as a given; the relevant debate was whether indirect purchaser suits could be accommodated in a world where Hanover Shoe was the law. The Legislature, like the Illinois Brick dissent, apparently preferred procedural devices to a blanket ban on indirect purchaser suits and passed Assembly Bill No. 3222 (1977-1978 Reg. Sess.) to clarify that that preference was part of existing Cartwright Act law. (See Assem. Com. on Judiciary, Analysis of Assem. Bill No. 3222 (1977-1978 Reg. Sess.) as introduced Mar. 27, 1978, p. 2 [measure is declarative of existing law].) As with the passage of Assembly Bill No. 1162 (1977-1978 Reg. Sess.) the previous year, the Legislature's adoption of this amendment indicates acceptance of Hanover Shoe, supra, 392 U.S. 481.
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.
(5) The inferences we draw from the Legislature's actions and responses to developments in federal antitrust law, as well as its actions in enacting and amending the Cartwright Act over the years, all point in the same direction: For state antitrust purposes, the Hanover Shoe rule should apply even as indirect purchasers are allowed to sue. We therefore conclude, under the Cartwright Act as under federal law, that a pass-on defense generally may not be asserted. Instead, in an antitrust price-fixing case, the presumptive measure of damages is the amount of the overcharge paid by the plaintiff. While a pass-on defense is generally precluded, a few instances remain in which it will still be available. First, Hanover Shoe recognized an exception for cost-plus contracts ( Hanover Shoe, supra, 392 U.S. at p. 494) and, given the Legislature's endorsement of Hanover Shoe, that exception would apply to the Cartwright Act as well. Second, in light of the Illinois Brick repealer statute (§ 16750, subd. (a)), cases may arise where application of the Hanover Shoe rule raises the prospect of duplicative recovery. In instances where multiple levels of purchasers have sued, or where a risk remains they may sue, trial courts and parties have at their disposal and may employ joinder, interpleader, consolidation, and like procedural devices to bring all claimants before the court. In such cases, if damages must be allocated among the various levels of injured purchasers, the bar on consideration of pass-on evidence must necessarily be lifted; the defendants may assert a pass-on defense as needed to avoid duplication in the recovery of damages. (6) We need not address in detail the scope of these two exceptions, for neither applies here. Manufacturers have not sought to establish that any cost-plus contract exception would apply. Nor does it appear any wholesaler, consumer, or parens patriae suits have been filed that might pose a risk of duplicative recovery, and the statute of limitations for the period at issue has long since expired. Accordingly, the trial court erred in granting summary judgment for Manufacturers on the basis of a pass-on defense.