Private civil antitrust enforcement in the United States may be on the verge of its biggest change since 1968. That year in Hanover Shoe v. United Shoe Machinery, 392 U.S. 481 (1968), the U.S. Supreme Court ruled that an antitrust defendant could not assert as a defense that the plaintiff passed on overcharges to its customers. In 1977 in Illinois Brick v. Illinois, 431 U.S. 720 (1977) , the Supreme Court ruled that because Hanover Shoe prevented a defendant from asserting a “pass on” defense, a plaintiff who did not purchase directly from a defendant but who alleged that an illegal overcharge was passed on could not sue that defendant. After Illinois Brick, states began providing damage remedies to indirect purchasers either through legislative action or through judicial interpretation. In California v. ARC America, 490 U.S. 93 (1989), the Supreme Court ruled that these state laws were not pre-empted even if they imposed penalties on antitrust violators that were cumulative of remedies provided to direct purchasers under federal law. Since the Class Action Fairness Act (CAFA) was enacted in 2006, antitrust actions on behalf of all plaintiffs, federal and state, are typically presided over by a single federal judge appointed by the Judicial Panel on Multidistrict Litigation.

‘Hanover Shoe’ and ‘Illinois Brick’

In Hanover Shoe, the U.S. Supreme Court held that the defense of “pass-on”—that is, that a plaintiff had recouped some or all of the overcharges resulting from an antitrust violation by passing them on to its own purchasers—was not available in a claim for damages brought under the Sherman and Clayton acts. The plaintiff alleged that defendant had monopolized the shoe machinery industry, and that one part of its monopoly was its practice of leasing shoe machinery equipment instead of selling it. The plaintiff alleged that it was damaged by the difference between what it paid to rent shoe machinery equipment and what it would have paid had the defendant been willing to sell the equipment. The defendant argued that it should be permitted to prove that the plaintiff had not suffered injury if it had charged higher prices to its customers as a result of defendant’s violation. The Supreme Court, after noting that established law long has held that the simple fact of overcharge was sufficient to demonstrate antitrust injury, rejected defendants’ argument. The court noted that a variety of factors would influence the pricing behavior of an antitrust plaintiff and that, because “establishing the applicability of the passing-on defense would require a convincing showing of each of these virtually unascertainable figures, the task would prove virtually insurmountable.” Thus, permitting the defense would not only lead to long and complicated proceedings involving massive evidence and complicated theories, but also give rise to claims by ultimate purchasers who had little economic incentive to bring claims against the defendants. As a result, “those who violate the antitrust laws by price-fixing or monopolizing would retain the fruits of their illegality because no one was available who would bring suit against them. Treble-damage actions, the importance of which the court has many times emphasized, would be substantially reduced in effectiveness.”