Five years later, the Court decided Illinois Brick. There the
plaintiffs claimed that the antitrust defendants had charged
higher than competitive prices to middlemen, who had passed on
those cost increases to plaintiffs, who were the ultimate
consumers. Relying on Hawaii v. Standard Oil Co., the Court
refused to permit such claims by indirect purchasers. The Court
began by noting that, in Hanover Shoe, Inc. v. United Shoe
Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231
(1968), the Court had held those who sell goods at artificially
high prices in violation of the antitrust laws cannot defend an
action brought by a direct purchaser on the ground that the
direct purchaser passed on the overcharge to its customers. The
Court had rejected this defense first because it was unwilling
to complicate suits under § 4 with the difficulties inherent
in attempting to trace the effects of an overcharge on the
purchaser's prices, sales, costs and profits, and second
because it was unwilling to permit antitrust defendants to
retain the fruits of their illegality since indirect purchasers
might be less likely to sue for damages caused by overcharges.
Illinois Brick Co. v. Illinois, 431 U.S. 720, 724-25, 97 S.Ct.
2061, 2064, 52 L.Ed.2d 707 (1977). The Court then noted that
consistency required that the Court either abandon Hanover
Shoe, or permit antitrust defendants to use its rationale as a
defense to suits brought by indirect purchasers, since the same
difficulties are present whenever a "pass-on" theory is used,
be it by the plaintiff or the defendant. See 431 U.S. at
729-37, 97 S.Ct. at 2066-70. The Court concluded that it would
follow Hanover Shoe and not permit actions by indirect
purchasers, in light of the risk of duplicative recovery
created if both direct and indirect purchasers could sue, see
id. at 737-41, 97 S.Ct. at 2070-72, and the difficulties of
tracing overcharges through various levels in the distribution
chain, see id. at 741-47, 97 S.Ct. at 2072-75.
Thus, Illinois Brick represents an attempt to avoid the type
of antitrust claim likely to lead to unfair or unworkable
results. Where there is no danger of those results, the
rationale of Illinois Brick is plainly inapplicable. To
evaluate claims in light of Illinois Brick, it is essential to
examine the claim to determine whether it creates a risk of
duplicative recovery or the problems associated with tracing
the effects of an overcharge through the distribution chain.
Where these dangers are not present, Illinois Brick does not
operate as a bar to an antitrust claim. See Blue Shield of
Virginia v. McCready, ___ U.S. ___, 102 S.Ct. 2540, 2546, 73
L.Ed.2d 149 (1982); In re Mid-Atlantic Toyota Antitrust
Litigation, 516 F. Supp. 1287 (D.Md. 1981); McCarty Farms, Inc.
v. Burlington Northern, Inc., 91 F.R.D. 486, 490-91 (D.Mont.
1981); Zenith Radio Corp. v. Matsushita Electric Industrial
Co., 494 F. Supp. 1246, 1255-56 (E.D.Pa. 1980); In re Folding
Carton Antitrust Litigation, 88 F.R.D. 211, 218 (N.D.Ill.
1980); Dart Drug Corp. v. Corning Glass Works, 480 F. Supp. 1091,
1101 (D.Md. 1979); In re Uranium Antitrust Litigation,
473 F. Supp. 393, 403 (N.D.Ill. 1979).
Gulf acknowledges that the actual holding of Illinois Brick
is not applicable here, since TVA was a direct purchaser of
uranium, and the problems associated with the status of
indirect purchasers that the Court relied on in Illinois Brick
are not applicable here. However, Gulf asserts that claims
against nondefendants and nonmembers of the cartel pose the
same difficulties that concerned the Court in Illinois Brick,
and therefore should be barred under its rationale. In support
of its position, Gulf relies on Mid-West Paper Products Co. v.
Continental Group, Inc., 596 F.2d 573 (3d Cir. 1979). There,
the court held that an antitrust plaintiff may not recover
overcharges from members of a cartel incurred when the
plaintiff purchased goods from competitors of the cartel
members. In Mid-West, the plaintiff argued that the defendant
cartel members should be liable for the artificially high
prices charged by their competitors, since the existence of the
cartel created a "price umbrella" which enabled nonconspirators
to charge artificially high prices. Judge Adams, writing for a
court,*fn2 concluded that this theory posed the same problems
that were present in Illinois Brick. Specifically, he reasoned
that it would be practically impossible to determine the effect
of the cartel on the pricing policies of nonconspirators, given
the wide variety of factors which influence pricing policies.
See 596 F.2d at 584. Moreover, the court concluded that
Illinois Brick represents a judgment that the objectives of the
antitrust laws are fulfilled when the defendant is required to
disgorge the fruits of its illegalities. Once that occurs,
there is no need to go further and force antitrust defendants
to pay for overcharges of others such as nonconspirators. See
id. at 585-86. Finally, the court noted that permitting
recovery for nonconspirators' overcharges creates a risk of
ruinous recoveries, since it would create liability well in
excess of the antitrust defendants' ill-gotten gains. See id.
TVA's initial response to Gulf's Illinois Brick/Mid-West
Paper argument is to claim that its complaint alleges an
unlawful refusal to deal, rather than a simple case of price
fixing. TVA goes on to argue that Illinois Brick applies only
to price fixing cases, and not to boycott cases. Gulf joins the
issue by arguing that this is not a boycott case,*fn4 and from
there the parties proceed to engage in a semantic dispute over
whether TVA's claims should be characterized as relating to a
"boycott" or "price fixing."
In our judgment, the question of whether the complaint
alleges a "boycott" or "price fixing" is entirely irrelevant
to the issue at hand. Illinois Brick is not a case about
semantics. It addresses intensely practical concerns associated
with avoiding unfair or unworkable results in antitrust
litigation. If the underlying policy concerns which motivated
the result in Illinois Brick are applicable, then we believe
Illinois Brick should be applied, regardless of the label that
is attached to plaintiff's claims. See Reading Industries v.
Kennecott Copper Corp., 631 F.2d 10, 14 (2d Cir. 1980), cert.
denied, 452 U.S. 916, 101 S.Ct. 3051, 69 L.Ed.2d 420 (1981); In
re Beef Industry Antitrust Litigation, 600 F.2d 1148, 1157-60
(5th Cir. 1979), cert. denied, 449 U.S. 905, 101 S.Ct. 280, 66
L.Ed.2d 137 (1980); Mid-West Paper Products Co. v. Continental
Group, Inc., 596 F.2d 573, 578, 582-83 (3d Cir. 1979); Callahan
v. Scott Paper Co., 541 F. Supp. 550 (E.D.Pa. 1982).*fn5
First, we turn to Gulf's claim that Illinois Brick precludes
recovery for overcharges paid to cartel members not named as
defendants. This claim is puzzling since Gulf seems to concede
that it is liable for overcharges paid to its co-conspirators
who are named as defendants. Indeed this is the case; nothing
in Illinois Brick precludes liability for overcharges directly
paid to members of a price-fixing conspiracy. See,
e.g., Blue Shield of Virginia v. McCready, ___ U.S. ___, 102
S.Ct. 2540, 2546, 2550-51, 73 L.Ed.2d 149 (1982); Reiter v.
Sonotone Corp., 442 U.S. 330, 99 S.Ct. 2326, 60 L.Ed.2d 931
(1979); Illinois Brick Co. v. Illinois, 431 U.S. 720, 729, 97
S.Ct. 2061, 2066, 52 L.Ed.2d 707 (1977); Berkey Photo, Inc. v.
Eastman Kodak Co., 603 F.2d 263, 294 (2d Cir. 1979), cert.
denied, 444 U.S. 1093, 100 S.Ct. 1061, 62 L.Ed.2d 783 (1980);
In re Sugar Industry Antitrust Litigation, 579 F.2d 13 (3d Cir.
1978); Chatham Brass Co. v. Honeywell, Inc., 512 F. Supp. 108,
116 (S.D.N.Y. 1981); Go-Tane Service Stations, Inc. v. Ashland
Oil Co., 508 F. Supp. 200 (N.D.Ill. 1981); In re Coordinated
Pretrial Proceedings in Petroleum Antitrust Litigation,
497 F. Supp. 218, 225-26 (C.D.Cal. 1980); Vermont International
Petroleum Co. v. Amerada Hess Corp., 492 F. Supp. 429, 438-39
(N.D.N.Y. 1980); Reiter v. Sonotone Corp., 486 F. Supp. 115,
119-20 (D.Minn. 1980); Dart Drug Co. v. Corning Glass Works,
480 F. Supp. 1091, 1101 (D.Md. 1979); Hecht Co. v. Southern
Union Co., 474 F. Supp. 1022, 1027-28 (D.N.M. 1979); Florida
Power Corp. v. Granlund, 78 F.R.D. 441, 443-44 (M.D.Fla. 1978);
Gas-A-Tron of Arizona v. Shell Oil Co., 1977-2 Trade Cas. (CCH)
¶ 61,789 (D.Ariz. 1977). Apparently, Gulf attaches some
significance to whether the overcharge was paid to a cartel
member who is not named as a defendant, arguing that Illinois
Brick permits recovery for overcharges paid to conspiring
defendants but not to conspiring nondefendants. However, Gulf
never explains why anything should turn on this distinction,
and cites no authority for the distinction. None of the
policies underlying Illinois Brick are affected by whether or
not the overcharge is paid to a named defendant or a
non-defendant co-conspirator. To the contrary, it has long been
the law that an antitrust defendant is jointly and severally
liable for the acts of its co-conspirators, see e.g., In re
Uranium Antitrust Litigation, 617 F.2d 1248, 1257 (7th Cir.
1980); see also Havoco of America, Ltd. v. Shell Oil Co.,
626 F.2d 549, 554 (7th Cir. 1980). Under this rule of law, Gulf is
liable for any act of its co-conspirators in furtherance of the
alleged price fixing conspiracy, whether or not that
co-conspirator is named as a defendant. See Ambook Enterprises
v. Time, Inc., 612 F.2d 604, 620 (2d Cir. 1979); National
Wrestling Alliance v. Myers, 325 F.2d 768, 775 (8th Cir. 1963);
Walker Distributing Co. v. Lucky Lager Brewing Co., 323 F.2d 1,
8 (9th Cir. 1963); Northwestern Oil Co. v. Socony-Vacuum Oil
Co., 138 F.2d 967, 970 (7th Cir. 1943), cert. denied,
321 U.S. 792, 64 S.Ct. 790, 88 L.Ed. 1081 (1944); City of Atlanta v.
Chattanooga Foundry & Pipeworks, 127 F. 23, 25 (6th Cir. 1903),
aff'd, 203 U.S. 390, 27 S.Ct. 65, 51 L.Ed. 241 (1906); Chatham
Brass Co. v. Honeywell, Inc., 512 F. Supp. 108, 116 (S.D.N.Y.
1981); In re Coordinated Pretrial Proceedings in Petroleum
Products Antitrust Litigation, 497 F. Supp. 218, 225-26
(C.D.Cal. 1980); Reiter v. Sonotone Corp., 486 F. Supp. 115, 119
n. 3 (D.Minn. 1980); Evanston Motor Co. v. Mid-Southern Toyota
Distributors, Inc., 436 F. Supp. 1370, 1372 n. 1 (N.D.Ill.
1977); Wainwright v. Kraftco Corp., 58 F.R.D. 9, 11-12 (N.D.Ga.
1973); Washington v. American Pipe & Construction Co.,
280 F. Supp. 802, 804-05 (W.D.Wash. 1968); Rohlfing v. Cat's Paw
Rubber Co., 107 F. Supp. 549 (N.D.Ill. 1952); Martin v.
Chandler, 85 F. Supp. 131 (S.D.N.Y. 1949). Gulf has cited no
authority to the contrary.*fn6 We conclude that TVA may
maintain its claims for overcharges paid to nondefendant
Second, we turn to TVA's claims involving overcharges paid
to nondefendant nonconspirators. These are the types of claims
that were addressed by the Third Circuit in Mid-West Paper. If
we decide to follow Mid-West by concluding that the problems
posed by attempting to prove that the prices charged by
nonconspirators were inflated by the existence of the uranium
cartel are insurmountable, then these claims are barred.
Mid-West has received considerable attention from both courts
and commentators. A number of courts have found its reasoning
persuasive. See In re Coordinated Pretrial Proceedings in
Petroleum Products Antitrust Litigation, 497 F. Supp. 218,
227-28 (C.D.Cal. 1980); In re Folding Carton Antitrust
Litigation, 88 F.R.D. 211, 219-20 (N.D.Ill. 1980); Reading
Industries, Inc. v. Kennecutt Copper Corp., 477 F. Supp. 1150,
1158, 1160-61 (S.D.N.Y. 1979), aff'd, 631 F.2d 10 (2d Cir.
1980), cert. denied, 452 U.S. 916, 101 S.Ct. 3051, 69 L.Ed.2d
420 (1981);*fn8 Liang v. Hunt, 477 F. Supp. 891, 896-97
(N.D.Ill. 1979). However, Mid-West has not received universal
acceptance; a number of courts have rejected its reasoning. See
In re Beef Industry Antitrust Litigation, 600 F.2d 1148, 1166
n. 24 (5th Cir. 1979), cert. denied, 449 U.S. 905, 101 S.Ct.
280, 66 L.Ed.2d 137 (1980); In re Bristol Bay, Alaska, Salmon
Fisheries Antitrust Litigation, 530 F. Supp. 36 (W.D.Wash.
1981); Strax v. Commodity Exchange, Inc., 524 F. Supp. 936,
939-40 (S.D.N.Y. 1981); Pollock v. Citrus Associates of the New
York Cotton Exchange, 512 F. Supp. 711, 718-19 (S.D.N.Y. 1981);
Chatham Brass Co. v. Honeywell, Inc., 512 F. Supp. 108, 116
(S.D.N.Y. 1981); Illinois v. Ampress Brick Co., 67 F.R.D. 461,
468 (N.D.Ill. 1975), rev'd, 536 F.2d 1163 (7th Cir. 1976),
rev'd sub nom. Illinois Brick Co. v. Illinois, 431 U.S. 720, 97
S.Ct. 2061, 52 L.Ed.2d 707 (1977); Wall Products Co. v.
National Gypsum Co., 357 F. Supp. 832, 846 (N.D.Cal. 1973);
Washington v. American Pipe & Construction Co., 280 F. Supp. 802
(W.D.Wash. 1968). See also Mid-West Paper, 596 F.2d at 595-599
(Higginbotham, J., dissenting in part).*fn9 In light of this
split of authority, we must examine the question whether
Mid-West is a sound interpretation ofIllinois Brick.*fn10
As our earlier discussion of Illinois Brick indicates, a
major theme underlying that opinion is the unacceptable risk of
duplicative recovery created when both direct and indirect
purchasers are permitted to sue under the antitrust laws.
However, in this case, no risk of duplicative recovery exists.
If TVA cannot recover for the overcharges it has paid
nonconspirators, no one can. Far from eliminating a risk of
duplicative recovery, a denial of standing in this case,
assuming TVA can prove at trial that nonconspirators' prices
were affected by the existence of the cartel, "would also
result in the denial of compensation for injuries resulting
from unlawful conduct." Blue Shield of Virginia v. McCready,
___ U.S. ___, 102 S.Ct. 2540, 2546 n. 10, 73 L.Ed.2d 149
In Illinois Brick, the court stated that by permitting a
direct purchaser to recover the entire amount of overcharge,
without any consideration of passing-on, the law ensures that
defendants must pay for the full amount of damage they have
caused, rather than permitting recovery to be depleted by
litigation over pass-on issues. See 431 U.S. at 745-57, 97
S.Ct. at 2074-80. If standing is denied here, however, a
serious gap in antitrust enforcement would be created, in that
antitrust defendants would not be accountable for an entire
category of damages they have caused.
Denying standing to these plaintiffs leaves
uncompensated an entire class of direct
purchasers — the group Illinois Brick suggested
would often be most harmed by the overcharges.
Furthermore, the decision frustrates the
congressional goal of deterrence by failing to hold
the defendants accountable for a major portion of
damages proximately caused by the conspiracy.
Illinois Brick does not justify this result. The
issue in that case was not whether the defendants
should escape liability for a portion of the
damages caused by the conspiracy, but rather,
whether recovery should be apportioned among
classes of plaintiffs.
Case Comment, supra note 9, at 604 (footnote omitted).*fn11
In its most recent exposition in this area, the Supreme
Court, in referring to Illinois Brick and Hawaii v. Standard
Both cases focused on the risk of duplicative
recovery engendered by allowing every person
along a chain of distribution to claim damages
arising from a single transaction that violated
the antitrust laws.
Blue Shield of Virginia v. McCready, ___ U.S. ___, 102 S.Ct.
2540, 2546, 73 L.Ed.2d 149 (1982). Here there is no such
danger. In light of McCready, it is arguable that Illinois
Brick should never be read to bar an antitrust recovery in the
absence of a risk of duplicative recoveries. Whether or not
McCready erects such a blanket prohibition, the fact that
Mid-West, unlike Illinois Brick, creates a gap in antitrust
enforcement is a strong argument against concluding that
Illinois Brick justifies the rule of Mid-West.
Even if we assume that Illinois Brick could bar an antitrust
claim in the absence of a risk of duplicative recoveries, we
still find Mid-West's reasoning unpersuasive. Mid-West focused
on the problems associated with proving what the prices of
nonconspirators would have been but for the antitrust
violation. However, this calculation,
whatever the difficulties it poses, is no more problematic
than determining damages in any price-fixing case. In the most
pedestrian price-fixing case, the trier of fact must calculate
the price the defendants would have charged but for the
conspiracy, in order to determine the measure of damages
attributable to the conspiracy. See, e.g., II P. Areeda & D.
Turner, Antitrust Law ¶ 344a (1978). The difficulties of
determining the "competitive price" that the seller would have
charged in the absence of the conspiracy are not greater
whether the price was charged by a conspirator or not.
In each case, the price actually charged is
known. In each case, damages can only be assessed
by determining what the market price would have
been "but for" the price-fix. Of course in both
cases, it is possible that the seller would have
sold at a price above that of the market even
without the price-fix and presumably the
defendant would have an opportunity to present
evidence of this.
Mid-West, 596 F.2d at 599 (Higginbotham, J., dissenting in
part). See also Bristol Bay Salmon Fisheries, 530 F. Supp. at
39; In re Mid-Atlantic Toyota Antitrust Litigation, 516 F. Supp. 1287,
1295 (D.Md. 1981); Folding Carton, 88 F.R.D. at 219. Once
the "competitive" price of the nonconspirators is determined,
it is not only logical but essential to infer that any price
higher than that which the nonconspirators charged was the
result of the cartel, since in a non-cartelized market, a
seller can charge a higher than competitive price only at the
risk of losing market share and profits. See, e.g., R. Posner,
Antitrust Law 44-47 (1976); L. Sullivan, Handbook of the Law of
Antitrust § 110 at 318 (1977). In a cartelized market, the
price charged by nonconspirators will be a function of the
price charged by conspirators; nonconspirators will either
simply take the cartel's price as a given, or else act as
oligopolists and reduce their output in order to enable the
cartel to maintain its price structure.*fn12 In any event, the
prices charged by the nonconspirators are the result of the
existence of the cartel. See II P. Areeda & D. Turner, supra ¶
337e; Page, supra note 9, at 479-80 & n. 60; Case Comment,
supra note 9, at 605-06. See also Wall Products Co. v. National
Gypsum Co., 357 F. Supp. 832, 840 (N.D.Cal. 1973).
We conclude that the Mid-West court's concern with the
difficulties in proving whether the price charged by
nonconspirators is attributable to the existence of the cartel
is unwarranted. Determining the "competitive price" that would
have been charged by nonconspirators absent the price fixing is
no more difficult than making this calculation in the
run-of-the-mill antitrust case. Once it is established that
nonconspirators have charged more than competitive prices, the
inference that the cost increase was caused by the cartel is
inescapable. Granted there will be some uncertainty regarding
these calculations, but no more so than in any price fixing
case where it is uncertain what price the defendants would have
charged but for the antitrust violation. Thus, "[t]he most
elementary conceptions of justice and public policy require
that the wrongdoer shall bear the risk of the uncertainty which
his own wrong has created." Story Parchment Co. v. Paterson
Parchment Paper Co., 282 U.S. 555, 562, 51 S.Ct. 248, 250, 75
L.Ed. 544 (1931).*fn13
The other concerns expressed by the court in
Mid-West are more easily addressed.
The court adverted to the unfairness of requiring defendants
to do more than simply disgorge their unlawful profits, and
also have to pay for profits realized by nonconspirators.
However, the antitrust laws do not seek only to force
defendants to disgorge profits, but also to compensate
plaintiffs for injuries proximately caused by defendants'
antitrust violations, and nothing in Illinois Brick supports
denying direct purchasers any portion of those damages which
constitute compensation for the injuries to direct purchasers
such as TVA proximately resulting from unlawful conduct. See
Blue Shield of Virginia v. McCready, ___ U.S. ___, 102 S.Ct.
2540, 2546 n. 10, 73 L.Ed.2d 149 (1982). Indeed, the existence
of the treble damage remedy itself, as well as holding
defendants liable for overcharges paid to co-conspirators,
demonstrates that there is no congressional policy limiting
antitrust damages to the amount of profit realized by an
antitrust defendant as a result of its illegal activities.
Finally, the antitrust laws seek to deter, id. and Mid-West
results in underdeterrence, since it does not penalize
defendants for the full amount of overcharge caused by their
conduct; defendants will not internalize the full social costs
of their actions.
The Mid-West court also noted that permitting liability for
overcharges by nonconspirators would lead to potentially
"ruinous" liability. However, the question of what amount of
liability is "ruinous" is a classically legislative judgment.
Congress, in § 4 of the Clayton Act, has explicitly created an
action for treble damages for any person "injured in his
business or property by reason of anything forbidden in the
antitrust laws. . . ." Once it is established that TVA has been
injured because of the existence of the cartel, it is not for
this court to ignore the plain language of the statute because
it might create a "ruinous" liability. The answer to this
concern is found in the Court's opinion in Reiter v. Sonotone
Corp., 442 U.S. 330, 99 S.Ct. 2326, 60 L.Ed.2d 931 (1979),
which was issued shortly after Mid-West. In Reiter, the Court
held that consumers who paid artificially high prices for
hearing aids could bring a class action to recover the
overcharges under § 4. The Court wrote,
[R]espondents argue that the cost of defending
consumer class actions will have a potentially
ruinous effect on small business in particular
and will ultimately be paid by consumers in any
event. These are not unimportant policy
considerations, but they are policy
considerations more property addressed to
Congress than to this Court. However accurate
respondents' arguments may prove to be — and they
are not without substance — they cannot govern our
reading of the plain language of § 4.
442 U.S. at 344-45, 99 S.Ct. at 2333-34.
We conclude that none of TVA's claims are barred by
Illinois Brick.*fn14 Gulf's motion for partial summary
judgment is denied.
At the competitive price P(c), the market supply curve MC(c)
intersects the market demand curve D(m) at output Q(c). If
firms agree to restrict output, they must take account of the
output of nonconspiring firms (whose supply curve is given by
MC(f)) that will enter the market at the higher prices. By
subtracting these firms' output from the market demand at any
given price, the cartel can construct the demand curve that it
faces (AB) and the marginal revenue curve MR(c) drawn to AB.
It may then set its profit-maximizing output where MC(c)
intersects MR(c), yielding a price of P(1). At that price, the
nonconspirators will expand output to Q(f), where MC(f) equals
P(1). The total market output then is Q(f) Q(1), or Q(m).
The area X(1) represents the cost increase from the increased
production of the less efficient nonconspirators; the area
X(2) represents the welfare loss from the restriction of
market output from Q(c) to Q(m).
SOURCE: Page, Antitrust Damages and Economic Efficiency: An
Approach to Antitrust Injury, 47 U.Chi.L.Rev. 467, 479 n. 60