Learning from the American Experience in Indirect Purchaser Litigation
Abstract
Under U.S. antitrust law, a defendant cannot defeat a direct purchaser’s claim for damages from an illegal overcharge by proving that the plaintiff “passed on” the overcharge to indirect purchasers, Hanover Shoe (1968), and the indirect purchasers cannot sue for any passed-on overcharge that they paid. Illinois Brick (1977). The federal antitrust laws, the Supreme Court explained, “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.” Deterrence, in other words, is more important than compensation. Many states, however, have enacted “Illinois Brick repealer” statutes for actions under state antitrust law or have interpreted their existing antitrust or consumer protection statutes to allow indirect purchaser suits. The primary rationale for these statutes is that Illinois Brick confers a windfall on direct purchasers but fails to compensate indirect purchasers, especially consumers, who are the putative beneficiaries of antitrust policy.
But twenty years of experience has shown that indirect purchaser class actions do not provide significant compensation for consumers, for two related reasons. First, it is difficult to certify indirect purchaser class actions under appropriate standards, because plaintiffs often cannot, by any sort of common proof, establish that remote indirect purchasers, especially consumers, suffered “impact” from the overcharge—a prerequisite of class treatment. Second, even if indirect purchaser actions go forward under appropriately lax standards, they provide no significant compensation to consumers, because it is impractical to distribute the settlement amount to such a large number of class members. Thus, courts often resort to “cy pres” distributions of the settlement fund to various causes that do not further the goal of compensation.
For many years, it was common for direct purchasers to sue in federal court for the full overcharge from an antitrust violation, while indirect purchaser classes sued in many different state courts for passed on overcharges from the same violation. This multiplicity of actions was costly and produced inconsistent results. In 2005, Congress enacted the Class Action Fairness Act, which allows most of state law actions to be heard in federal court. Now, state indirect purchaser class actions are often consolidated with federal direct purchaser class actions in the same federal district court, which applies federal standards of pleading and class certification. This development has reduced the costs of indirect purchaser litigation, but many questions remain. Antitrust policy would still be better served by a uniform Illinois Brick standard for all antitrust overcharge claims. European and Asian jurisdictions should learn from American missteps.