Antitrust Arbitration and Illinois Brick

• Author: Mark A. Lemley & Christopher R. Leslie
• Position: William H. Neukom Professor of Law, Stanford Law School; Partner, Durie Tangri LLP/Chancellor's Professor of Law, University of California Irvine School of Law
• Pages: 2115-2133

2115

Antitrust Arbitration and Illinois Brick

Mark A. Lemley & Christopher R. Leslie

ABSTRACT: For nearly 40 years, since the Supreme Court decision in

Illinois Brick, federal antitrust law has prevented indirect purchasers from

complaining of overcharges caused by antitrust violations. The Court

reasoned that direct purchasers are the best and most motivated antitrust

plaintiffs. But in its 2013 Italian Colors decision, the Court made it

extremely difficult for direct purchasers to bring an antitrust claim in federal

court. In doing so, it undermined the policy rationale for Illinois Brick,

paving the way for courts to reconsider the ban on antitrust enforcement by

indirect purchasers.

I. INTRODUCTION ........................................................................... 2116

II. ILLINOIS BRICK: ITS HOLDING AND RATIONALE ........................... 2117

III. ANTITRUST ARBITRATION AT THE DAWN OF ILLINOIS BRICK ....... 2121

IV. THE EVOLUTION OF ANTITRUST ARBITRATION IN THE POST-ILLINOIS

BRICK ERA ................................................................................... 2122

V. ITALIAN COLORS UNDERMINES THE RATIONALE OF ILLINOIS

BRICK ........................................................................................... 2128

VI. IMPLICATIONS FOR ANTITRUST LAW ........................................... 2131

 William H. Neukom Professor of Law, Stanford Law School; Partner, Durie Tangri LLP.

 Chancellor’s Professor of Law, University of California Irvine School of Law.

We thank Josh Davis, Christopher Drahozal, Jordan Elias, Rose Hagan, Scott Hemphill,

Herbert Hovenkamp, Doug Melamed, Barak Orbach, Tony Reese, and participants at a

symposium at the University of Iowa College of Law for comments on a prior draft.

© 2015 Mark A. Lemley & Christopher R. Leslie.

2116 IOWA LAW REVIEW [Vol. 100:2115

I. INTRODUCTION

The proper role of private enforcement in antitrust law has long been

debated. One of the most significant judicial reforms of antitrust law

associated with the Chicago School was the Supreme Court’s decision to limit

standing to direct purchasers in Illinois Brick Co. v. Illinois.1 Although that

decision has proven controversial, the Illinois Brick doctrine has endured as a

principle of federal antitrust law for nearly 40 years.

Whatever the merits of the Illinois Brick decision in 1977, subsequent

developments have undermined its rationale. In particular, the Supreme

Court’s 2013 decision in American Express Co. v. Italian Colors Restaurant2

undercuts the fundamental premises of the Illinois Brick doctrine. The Illinois

Brick majority assumed that direct purchasers were the most motivated and

the best situated to enforce antitrust laws that resulted in supracompetitive

prices. But Italian Colors makes it very difficult for direct purchasers to enforce

antitrust laws in a wide variety of circumstances, because the decision allows

potential antitrust defendants to use arbitration clauses in standard-form

contracts to ban antitrust class actions and require individual arbitration of

antitrust disputes. The result is to deprive overcharged direct purchasers of

the tools antitrust law offers for effective enforcement—class action status, a

lengthy statute of limitations, treble damages, and, if successful, attorneys’

fees.3 Without effective opportunities for enforcement by direct purchasers,

the rationale for excluding indirect purchasers from bringing antitrust claims

collapses.

Antitrust law is common law and is often based on policy arguments. The

decision in Illinois Brick is no exception. The Court based its reasoning on its

assessment of the ability of direct purchasers to enforce antitrust laws

effectively. After Italian Colors, that is no longer the case. Old doctrines must

give way in light of legal developments (including later judicial opinions) that

change the underlying environments and undermine the original policy

arguments upon which the old common law is based. By eliminating most

antitrust enforcement by direct purchasers, Italian Colors has paved the way

for reconsideration of Illinois Brick.4

1. Ill. Brick Co. v. Illinois, 431 U.S. 720, 737 (1977).

2. Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304 (2013).

3. 15 U.S.C. § 15a (2012).

4. It is possible that the Court didn’t actually mean what it said, and that it just wanted to

reduce or eliminate private enforcement altogether, as some have suggested doing . See, e.g.,

William Breit & Kenneth G. Elzinga, Antitrust Enforcement and Economic Efficiency: The Un easy Case

for Treble Damages, 17 J.L. & ECON. 329 (1974). If you do not think there is a role for private

enforcement, you might view Italian Colors as a further step towards its elimination and therefore

a good thing, no matter how disingenuous. We start from the premise that at least some private

antitrust enforcement is desirable.