Reiter v. Sonotone Corp.

• Decision Date: 27 February 1980
• Docket Number: No. 4-75-Civ. 206.,4-75-Civ. 206.
• Citation: 486 F. Supp. 115
• Parties: Kathleen R. REITER, Individually and as representative of the class of all personal users of hearing aids located in the United States, Plaintiffs, v. SONOTONE CORPORATION, a New York Corporation; Beltone Electronics Corporation, an Illinois Corporation; Dahlberg Electronics, Inc., a Minnesota Corporation; Textron Incorporated, a Delaware Corporation, and Radioear Corporation, a Delaware Corporation, Defendants.
• Court: U.S. District Court — District of Minnesota

486 F. Supp. 115

Kathleen R. REITER, Individually and as representative of the class of all personal users of hearing aids located in the United States, Plaintiffs, v. SONOTONE CORPORATION, a New York Corporation; Beltone Electronics Corporation, an Illinois Corporation; Dahlberg Electronics, Inc., a Minnesota Corporation; Textron Incorporated, a Delaware Corporation, and Radioear Corporation, a Delaware Corporation, Defendants.

No. 4-75-Civ. 206.

United States District Court, D. Minnesota, Fourth Division.

February 27, 1980.

COPYRIGHT MATERIAL OMITTED

John E. Thomas, St. Paul, Minn., for plaintiffs.

James H. Levy, St. Paul, Minn., Julian R. Wilheim, Chicago, Ill., Fred L. Woodworth, Dykema, Gossett, Spencer, Goodnow & Trigg, Detroit, Mich., for Beltone Electronics.

Eugene M. Warlich, Doherty, Rumble & Butler, St. Paul, Minn., for Radioear Corp.

Elliot S. Kaplan and Deborah Palmer, Robins, Davis & Lyons, Minneapolis, Minn., for Textron, Inc.

John Palmer, Levitt, Palmer, Bowman, Bearmon & Rotman, Minneapolis, Minn., for Dahlberg Electronics Corp.

MEMORANDUM ORDER

LARSON, Senior District Judge.

In this antitrust action plaintiff Kathleen R. Reiter alleges that the defendants have committed various antitrust violations under sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1-2, and section 3 of the Clayton Act, 15 U.S.C. § 14. She seeks treble damages and injunctive relief under Clayton Act §§ 4, 16, 15 U.S.C. §§ 15, 26. In her complaint plaintiff requests certification of a class consisting of all persons in the United States who have purchased hearing aids manufactured by any of the five defendants. All defendants, except Sonotone Corporation which has not appeared in any prior proceeding in this case, move for summary judgment.

In a prior motion defendants challenged plaintiff's standing to sue under section 4. This Court ruled that a party's business or property is injured under the terms of section 4 if he or she has been forced to pay more for a hearing aid than would have been paid if no violation of the antitrust laws had occurred. See D.C., 435 F.Supp. 933 (1977). This decision subsequently was upheld by the United States Supreme Court in Reiter v. Sonotone Corp., 442 U.S. 330, 99 S.Ct. 2326, 60 L.Ed.2d 931 (1979), r'vsg 579 F.2d 1077 (8th Cir. 1978). In the present summary judgment motion, defendants claim that this action is barred by the Supreme Court's decision in Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707, rehearing denied, 434 U.S. 881, 98 S.Ct. 243, 54 L.Ed.2d 164 (1977).

In Illinois Brick the Supreme Court held that indirect purchasers would not be allowed to prove damages under section 4 of the Clayton Act by establishing that the overcharge of the direct purchaser had been passed on to them. See 431 U.S. at 729, 735, 97 S.Ct. at 2066, 2069. With certain exceptions, only the "overcharged direct purchaser, and not others in the chain of manufacture or distribution" may sue for treble damages under section 4. Id.

The result reached by the Supreme Court in Illinois Brick followed in the wake of a prior case, Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968). In Hanover Shoe the Supreme Court had held that an antitrust defendant could not assert as a defense to a claim for treble damages under section 4 that the plaintiff, a direct purchaser, had "passed on" the overcharge to a buyer further down in the chain of distribution. See id. at 494, 88 S.Ct. at 2232. The Court's reasoning for this holding was twofold. First, the Court was concerned with the complex economic proof that would be required to prove the amount of the overcharge, if any, that was passed on:

"A wide range of factors influence a company's pricing policies. Normally the impact of a single change in the relevant conditions cannot be measured after the fact; indeed a businessman may be unable to state whether, had one fact been different (a single supply less expensive, general economic conditions more buoyant, or the labor market tighter, for example), he would have chosen a different price. Equally difficult to determine, in the real economic world rather than an economist's hypothetical model, is what effect a change in a company's price will have on its total sales. Finally, costs per unit for a different volume of total sales are hard to estimate. Even if it could be shown that the buyer raised his price in response to, and in the amount of, the overcharge and that his margin of profit and total sales had not thereafter declined, there would remain the nearly insuperable difficulty of demonstrating that the particular plaintiff could not or would not have raised his prices absent the overcharge or maintained the higher price had the overcharge been discontinued. Since establishing the applicability of the passing-on defense would require a convincing showing of each of these virtually unascertainable figures, the task would normally prove insurmountable." Id. at 493, 88 S.Ct. at 2231.

Thus, in the Supreme Court's view, additional long and complicated proceedings involving massive evidence and complicated theories would be required to trace the effects of the overcharge on prices, sales, costs, and profits, as well as to show that these variables would have behaved differently in absence of the overcharge.

The Court's second concern arose out of the first. Because purchasers further down the chain of distribution would have less at stake, they would be less inclined to sue to recover the portion of the overcharge that they had paid. Thus, recognizing the pass-on defense would allow those who violated the antitrust laws by price fixing or monopolizing to retain the fruits of their illegality. See id. at 494, 88 S.Ct. at 2232.

In determining that equal application of the pass-on rule to both plaintiffs and defendants was necessary, the Illinois Brick Court echoed the concerns it had expressed almost ten years earlier in Hanover Shoe. Furthermore, the Court suggested that if offensive as well as defensive pass on wasn't prohibited, antitrust defendants would face a serious risk of multiple liability. If, for example, an indirect purchaser recovered part of the overcharge by asserting that a part of the overcharge had been passed on to him or her, the direct purchaser could still recover the full amount of the overcharge since the defendant under the Hanover Shoe doctrine would not be allowed to assert pass on of the overcharge as a defense. In the Supreme Court's view, different treatment of the pass-on concept would substantially increase the possibility of subjecting a defendant to inconsistent adjudications.¹ See id., 431 U.S. at 730, 97 S.Ct. at 2066. Therefore, unless plaintiff can establish that she is a direct purchaser, she must fall into an exception to Illinois Brick or defendants' summary judgment motion must be granted.

In the complaint plaintiff alleges that (1) the defendants and certain unnamed co-conspirators restricted the territories, customers and brands of hearing aids offered by their retail dealers, (2) used the customer lists of their retail dealers for their own purposes, (3) prohibited unauthorized retailers from dealing in or repairing their hearing aids, and (4) conspired among themselves and with their retail dealers to fix the retail prices of the hearing aids. See 99 S.Ct. at 2329 n. 1. Plaintiff suggests that the fourth claim, being the only claim for monetary relief, is a retail price maintenance claim and as such does not fall within the scope of the Illinois Brick prohibitions. Additionally, plaintiff claims that the availability of injunctive relief under section 16 of the Clayton Act was not affected by the Illinois Brick decision and that the remaining claims, therefore, also may stand.² Because this Court agrees with plaintiff on both grounds, defendants' motion for summary judgment must be denied.

In Illinois Brick the Supreme Court explicitly declined to abandon the Hanover Shoe presumption that "the overcharged direct purchaser" is the party injured in its business or property within the meaning of section 4. See 431 U.S. at 729, 97 S.Ct. at 2066. Thus, in order for the plaintiff's damage claim to survive this summary judgment motion, plaintiff must be both a direct purchaser and have paid an overcharge.

Plaintiff claims that the defendants and their retailers have engaged in resale price maintenance — fixing the price at which retailers may resell hearing aids in the retail market. The chain of distribution is quite simple. The defendant hearing aid manufacturers sell their hearing aids to retailers throughout the United States, who in turn resell the hearing aids to individual purchasers, including the plaintiff. In a competitive market, in which no antitrust violations have occurred or are occurring, the retailers in this distribution chain would be competing among themselves to sell the hearing aids to the public. When the manufacturers and the retailers conspire to fix the prices of the hearing aids, as plaintiff suggests has occurred here, such competition is foreclosed and the market is no longer competitive. Such price fixing activity by manufacturers and retailers is a per se violation of section 1 of the Sherman Act. See Albrecht v. Herald Co., 390 U.S. 145, 88 S.Ct. 869, 19 L.Ed.2d 998 (1961); Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911).

If a conspiracy to maintain resale prices has occurred and prices in the hearing aid industry have in fact been fixed at a level higher than would have occurred absent the illegal restraint, the purchaser has been overcharged. In this Court's opinion, this overcharge is incurred by the purchaser directly, because he or she has purchased the overpriced hearing aid from a member of the price-fixing conspiracy.³ The manufacturer has not engaged in a practice that charges the retailer an...