Illinois Brick Company v. Illinois

• Citation: 431 U.S. 720,97 S.Ct. 2061,52 L.Ed.2d 707
• Decision Date: 09 June 1977
• Docket Number: No. 76-404,76-404
• Parties: ILLINOIS BRICK COMPANY et al., Petitioners, v. State of ILLINOIS et al
• Court: United States Supreme Court

431 U.S. 720

97 S.Ct. 2061

52 L.Ed.2d 707

ILLINOIS BRICK COMPANY et al., Petitioners,

v State of ILLINOIS et al.

No. 76-404.

Argued March 23, 1977.

Decided June 9, 1977.

Rehearing Denied Oct. 3, 1977.

See 434 U.S. 881, 98 S.Ct. 243.

Syllabus

Respondents, the State of Illinois and 700 local governmental entities, brought this antitrust treble-damages action under § 4 of the Clayton Act alleging that petitioners, concrete block manufacturers (which sell to masonry contractors, which in turn sell to general contractors, from which respondents purchase the block in the form of masonry structures) had engaged in a price-fixing conspiracy in violation of § 1 of the Sherman Act. Petitioners, relying on Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231, moved for partial summary judgment against all plaintiffs that were indirect purchasers of block from petitioners, contending that only direct purchasers could sue for the alleged overcharge. The District Court granted the motion, but the Court of Appeals reversed, holding that indirect purchasers such as respondents could recover treble damages for an illegal overcharge if they could prove that the overcharge was passed on to them through the intermediate distribution channels. Hanover Shoe held that generally the illegally overcharged direct purchaser suing for treble damages, and not others in the chain of manufacture or distribution, is the party "injured in his business or property" within the meaning of § 4. Held:

1. If a pass-on theory may not be used defensively by an antitrust violator (defendant) against a direct purchaser (plaintiff) that theory may not be used offensively by an indirect purchaser (plaintiff) against an alleged violator (defendant). Therefore, unless Hanover Shoe is to be overruled or limited, it bars respondents' pass-on theory. Pp. 729-736.

(a) Allowing offensive but not defensive use of pass-on would create a serious risk of multiple liability for defendants, since even though an indirect purchaser had already recovered for all or part of an overcharge passed on to him, the direct purchaser would still automatically recover the full amount of the overcharge that the indirect purchaser had shown to be passed on, and, similarly, following an automatic recovery of the full overcharge by the direct purchaser, the indirect purchaser could sue to recover the same amount. Overlapping recoveries would certainly result from the two lawsuits unless the indirect purchaser is unable to establish any pass-on whatsoever. Pp. 730-731.

(b) The Court's perception in Hanover Shoe of the uncertainties and difficulties in analyzing price and output decisions "in the real economic world rather than an economist's hypothetical model," applies with equal force to the assertion of pass-on theories by plaintiffs as it does to such assertion by defendants. Pp. 731-733.

(c) Because Hanover Shoe would bar petitioners from using respondents' pass-on theory as a defense to a treble-damages suit by the direct purchasers (the masonry contractors), Hanover Shoe must be overruled (or narrowly limited), or it must be applied to bar respondents' attempt to use this pass-on theory offensively. Pp. 736-747.

2. Hanover Shoe was correctly decided and its construction of § 4 is adhered to. Pp. 736-747.

(a) Considerations of stare decisis weigh heavily in the area of statutory construction, where Congress is free to change this Court's interpretation of its legislation. Pp. 736-737.

(b) Whole new dimensions of complexity would be added to treble-damages suits, undermining their effectiveness, if the use of pass-on theories under § 4 were allowed. Even under the optimistic assumption that joinder of potential plaintiffs would deal satisfactorily with problems of multiple litigation and liability, § 4 actions would be transformed into massive multiparty litigations involving many distribution levels and including large classes of ultimate consumers remote from the defendant. The Court's concern in Hanover Shoe with the problems of "massive evidence and complicated theories" involved in attempting to establish a pass-on defense against a direct purchaser applies a fortiori to the attempt to trace the effect of the overcharge through each step in the distribution chain from the direct purchasers to the ultimate consumer. Pp. 737-744.

(c) Attempts to carve out exceptions to Hanover Shoe for particular types of markets would entail the very problems that Hanover Shoe sought to avoid. Pp. 744-745.

(d) The legislative purpose in creating a group of "private attorneys general" to enforce the antitrust laws under § 4, Hawaii v. Standard Oil Co. of California, 405 U.S. 251, 262, 92 S.Ct. 885, 891, 31 L.Ed.2d 184, is better served by holding direct purchasers to be injured to the full extent of the overcharge paid by them than by attempting to apportion the overcharge among all that may have absorbed a part of it. Pp. 745-747.

536 F.2d 1163, reversed and remanded.

Edward H. Hatton, Chicago, Ill., for petitioners.

Lee A. Freeman, Jr., Chicago, Ill., for respondents.

Donald I. Baker, Washington, D.C., for the United States, as amicus curiae, by special leave of Court.

[Amicus Curiae Information from page 722-724 intentionally omitted] Mr. Justice WHITE delivered the opinion of the Court.

Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968), involved an antitrust treble-damages action brought under § 4 of the Clayton Act ¹ against a manufacturer of shoe machinery by one of its customers, a manufacturer of shoes. In defense, the shoe machinery manufacturer sought to show that the plaintiff had not been injured in its business as required by § 4 because it had passed on the claimed illegal overcharge to those who bought shoes from it. Under the defendant's theory, the illegal overcharge was absorbed by the plaintiff's customers indirect purchasers of the defendant's shoe machinery who were the persons actually injured by the antitrust violation.

In Hanover Shoe this Court rejected as a matter of law this defense that indirect rather than direct purchasers were the parties injured by the antitrust violation. The Court held that except in certain limited circumstances,² a direct purchaser suing for treble damages under § 4 of the Clayton Act is injured within the meaning of § 4 by the full amount of the overcharge paid by it and that the antitrust defendant is not permitted to introduce evidence that indirect purchasers were in fact injured by the illegal overcharge. 392 U.S., at 494, 88 S.Ct., at 2232. The first reason for the Court's rejection of this offer of proof was an unwillingness to complicate treble-damages actions with attempts to trace the effects of the overcharge on the purchaser's prices, sales, costs, and profits, and of showing that these variables would have behaved differently without the overcharge. Id., at 492-493, 88 S.Ct., at 2231.³ A second reason for barring the pass-on defense was the Court's concern that unless direct purchasers were allowed to sue for the portion of the overcharge arguably passed on to indirect purchasers, antitrust violators "would retain the fruits of their illegality" because indirect purchasers "would have only a tiny stake in the lawsuit" and hence little incentive to sue. Id., at 494, 88 S.Ct., at 2232.

In this case we once again confront the question whether the overcharged direct purchaser should be deemed for purposes of § 4 to have suffered the full injury from the overcharge; but the issue is presented in the context of a suit in which the plaintiff, an indirect purchaser, seeks to show its injury by establishing pass-on by the direct purchaser and in which the antitrust defendants rely on Hanover Shoe's rejection of the pass-on theory. Having decided that in general a pass-on theory may not be used defensively by an antitrust violator against a direct purchaser plaintiff, we must now decide whether that theory may be used offensively by an indirect purchaser plaintiff against an alleged violator.

I

Petitioners manufacture and distribute concrete block in the Greater Chicago area. They sell the block primarily to masonry contractors, who submit bids to general contractors for the masonry portions of construction projects. The general contractors in turn submit bids for these projects to customers such as the respondents in this case, the State of Illinois and 700 local governmental entities in the Greater Chicago area, including counties, municipalities, housing authorities, and school districts. See 67 F.R.D. 461, 463 (ND Ill.1975); App. 16-48. Respondents are thus indirect purchasers of concrete block, which passes through two separate levels in the chain of distribution before reaching respondents. The block is purchased directly from petitioners by masonry contractors and used by them to build masonry structures; those structures are incorporated into entire buildings by general contractors and sold to respondents.

Respondent State of Illinois, on behalf of itself and respondent local governmental entities, brought this antitrust treble-damages action under § 4 of the Clayton Act, alleging that petitioners had engaged in a combination and conspiracy to fix the prices of concrete block in violation of § 1 of the Sherman Act.⁴ The complaint alleged that the amounts paid by respondents for concrete block were more than $3 million higher by reason of this price-fixing conspiracy. The only way in which the antitrust violation alleged could have injured respondents is if all or part of the overcharge was passed on by the masonry and general contractors to respondents, rather than being absorbed at the first two levels of distribution. See Illinois v. Ampress Brick Co., 536 F.2d 1163, 1164 (CA7 1976).⁵

(1) Petitioner manufacturers moved for partial summary judgment against all plaintiffs that were indirect purchasers of...