Royal Printing Co. v. Kimberly Clark Corp.

• Decision Date: 28 April 1980
• Docket Number: KIMBERLY-CLARK,No. 77-3005,77-3005
• Citation: 621 F.2d 323
• Parties: 1980-2 Trade Cases 63,310 ROYAL PRINTING COMPANY and Haythornewhite Enterprises, Individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v.CORP., Crown Zellerbach Corp., Boise Cascade Corp., Scott Paper Corp., International Paper Co., Great Northern Nekoosa, Union Camp Corp., Weyerhaeuser Co., Westvaco Corp., and St. Regis Paper Co., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 323

621 F.2d 323

1980-2 Trade Cases 63,310

ROYAL PRINTING COMPANY and Haythornewhite Enterprises Individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. KIMBERLY-CLARK CORP., Crown Zellerbach Corp., Boise Cascade Corp., Scott Paper Corp., International Paper Co., Great Northern Nekoosa, Union Camp Corp., Weyerhaeuser Co. Westvaco Corp., and St. Regis Paper Co., Defendants-Appellees.

No. 77-3005.

United States Court of Appeals, Ninth Circuit.

April 28, 1980.

Susan Y. Illston, Cotchett, Hutchinson & Dyer, San Mateo, Cal., for plaintiffs-appellants.

Robert D. Raven, Kurt W. Melchior, San Francisco, Cal., John T. Anderson, Richard K. Decker, Chicago, Ill., H. Richard Wachtel, New York City, Robert B. Owen, Washington, D. C., Norman M. Heisman, Philadelphia, Pa., for defendants-appellees; Morrison & Foerster, James K. Haynes, Orrick, Herrington, Rowley & Sutcliffe, San Francisco, Cal., Howard T. Milman, Sullivan & Cromwell, New York City, John P. Borgwardt, Portland, Or., Max L. Gillam, Los Angeles, Cal., Marvin D. Morganstein, San Francisco, Cal., John Bates, San Francisco, Cal., Byron E. Kabot, New York City, J. Thomas Rosch, San Francisco, Cal., Lenard G. Weiss, San Francisco, Cal., John D. Swartz, E. Nobles Lowe, New York City, Richard J. Archer, San Francisco, Cal., on brief.

Appeal from the United States District Court for the Northern District of California.

Before BROWNING, CHOY and HUG, Circuit Judges.

CHOY, Circuit Judge:

Appellants Royal Printing Company and Haythornewhite Enterprises sued appellee paper manufacturers for price fixing and other violations of Sherman Act § 1, 15 U.S.C. § 1. After preliminary discovery the district court granted appellees' summary judgment motion on the ground that appellants were not "direct purchasers" from appellees and thus were barred from suing for treble damages under the Clayton Act by Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977). We affirm as to Haythornewhite and affirm in part and reverse in part as to Royal Printing.

I. Introduction

Appellees are ten of the nation's largest manufacturers of paper products. Appellants are relatively small retail businesses which buy paper products and resell them, along with other goods and services, to the public. (Royal is a printer; Haythornewhite operates grocery and liquor stores.)

The manufacturers sell their paper products at the wholesale level through their wholesaling divisions or wholly-owned subsidiaries, as well as through independent wholesalers. The divisions and subsidiaries wholesale the products of all manufacturers, not limiting themselves to in-house products. ¹

Appellants admit that they never bought paper products directly from any manufacturer, except that Royal Printing made purchases from Crown Zellerbach's wholesaling division. However, Royal Printing never bought any Crown Zellerbach products from the Crown Zellerbach division, only products of other appellee manufacturers.

The rest of appellants' purchases were made through wholesaling firms. Most of these purchases were made through independents not affiliated with any manufacturer. Royal Printing did buy some paper from Butler Paper Company, a subsidiary of a subsidiary of Great Northern Nekoosa, but it seems agreed that this paper was manufactured by other appellees and not by Great Northern Nekoosa. ²

Haythornewhite bought only from independent wholesalers.

During the pretrial proceedings the Supreme Court announced its Illinois Brick decision. On the basis of that case, the district court granted summary judgment in favor of the manufacturers on the ground that appellants were merely "indirect purchasers" of allegedly price-fixed goods.

II. Hanover Shoe and Illinois Brick

In Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 487-94, 88 S.Ct. 2224, 2228-32, 20 L.Ed.2d 1231 (1968), an antitrust defendant tried to disprove plaintiff's damages by showing that plaintiff (a "direct purchaser" of defendant's goods) had "passed on" to its customers, in the form of higher prices, the costs imposed upon it by the defendant's illegal conduct. The Supreme Court banned the use of this "defensive pass-on" theory in private antitrust suits under Clayton Act § 4, 15 U.S.C. § 15, because determining how much of plaintiff's damages had been passed on and how much had been "absorbed" (i.e., were actually borne by the plaintiff) "would often require additional long and complicated proceedings involving massive evidence and complicated theories." Id. at 493, 88 S.Ct. at 2231. ³ Thus, the Court permitted a direct purchaser to recover, trebled, an amount that exceeded its true damages.

In Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), the antitrust plaintiff was an "indirect purchaser"; it alleged that the defendant manufacturers had fixed a product's price and middlemen had passed on at least some of the overcharge to it. The Supreme Court banned the use of this "offensive pass-on" theory in cases where the defendant could not use defensive pass-on. Allowing offensive pass-on would introduce intolerable complexities of proof and economics and severely compromise the viability of the entire private-enforcement antitrust apparatus. Id. at 731-32, 737-45, 97 S.Ct. at 2067, 2070-74. Therefore, offensive pass-on cannot be used except where "(t)he effect of the overcharge is essentially determined in advance, without reference to the interaction of supply and demand that complicates the determination in the general case." Id. at 736, 97 S.Ct. at 2070.

The Illinois Brick Court also was concerned that allowing indirect purchasers to sue remote price-fixers would open the door to multiple liability for defendants. For if the indirect purchaser recovered, trebled, the full amount of the overcharge (or the portion of it that had in fact been passed on to him) from the price-fixer, the direct purchaser (the middleman) could also recover, trebled, the full amount of the overcharge. (The middleman could recover the full amount even if he passed it on to the indirect purchaser, because Hanover Shoe forbids the use of defensive pass-on.) The Court refused to countenance this possibility of multiple liability. Id. at 730-31, 97 S.Ct. at 2066-67. Therefore, it barred indirect purchasers' suits, and left the field of private antitrust enforcement to the direct purchasers.

III. Analysis

A. Introduction

The threat of private treble-damages suits is vital to the enforcement of the antitrust laws. See, e. g., Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 130-31, 89 S.Ct. 1562, 1580, 23 L.Ed.2d 129 (1969); Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 139, 88 S.Ct. 1981, 1984, 20 L.Ed.2d 982 (1968). It was the purpose of Hanover Shoe and Illinois Brick to increase the effectiveness and deterrent power of such suits. See 392 U.S. at 493-94, 88 S.Ct. at 2231-32; 431 U.S. at 732, 734-35, 737, 741, 745-46, 97 S.Ct. at 2067, 2068, 2069, 2070, 2072, 2074.

The role of "private attorneys general" in the antitrust field was restricted by Illinois Brick to direct purchasers, however, because of the twin rationales of danger of multiple liability and complexity of proof. Because Royal Printing's suit would involve neither that danger nor that complexity, we hold that Illinois Brick does not bar an indirect purchaser's suit where the direct purchaser is a division or subsidiary of a co-conspirator.

B. Multiple Liability/No Liability

There is little reason for the price-fixer to fear a direct purchaser's suit when the direct purchaser is a subsidiary or division of a co-conspirator. Even if the pricing decisions of such a subsidiary or division are necessarily determined by market forces, ⁴ its litigation decisions will usually be subject to parental control. The co-conspirator parent will forbid its subsidiary or division to bring a lawsuit that would only reveal the parent's own participation in the conspiracy. Allowing Royal Printing to sue under these circumstances will not pose the same risk of multiple liability held objectionable in Illinois Brick.

We recognize that there is, in fact, some small chance that such a subsidiary or division might wish to sue its parent's co-conspirators. ⁵ The parent might be under government pressure or discover that the conspiracy is not sufficiently profitable; and if a subsidiary has outside shareholders, a derivative suit might be a possibility. In such an event, multiple liability might lurk.

But because as a practical matter the chance of a direct-purchaser suit is so small, the correspondingly small risk of multiple recovery does not disturb us. ⁶ This is especially so when our only alternative is to effectively immunize the transactions here from private antitrust liability, thus thwarting a vital part of the antitrust enforcement scheme and the expressed purpose of Illinois Brick. ⁷

C. Suit for Entire Amount of Overcharge

Determining what portion of the illegal overcharge was "passed on" to Royal Printing and what part was absorbed by the middlemen would involve all the evidentiary and economic complexities that Illinois Brick clearly forbade. 431 U.S. at 731-32, 737-45, 97 S.Ct. at 2067, 2070-74. Thus Royal Printing cannot sue the appellees only for the portion of the overcharge that was passed on to it through the wholesaling subsidiary and division.

The only alternatives are to allow Royal Printing to sue the appellees for the entire amount of the overcharge to the wholesalers, or not to allow Royal Printing to sue the appellees at all.

Because, as we have already shown, as a practical matter the direct purchasers here will never sue, barring Royal Printing's suit would close off every avenue for private enforcement of the antitrust laws in such cases. This would be intolerable.

Allowing Royal Printing to sue for the full overcharge, on the other hand,...