Formula for success: standing of indirect purchasers under the Florida Deceptive and Unfair Trade Practices Act.

• Author: Blechman, William J.

During the 1980s, the three dominant U.S. manufacturers of infant formula--Abbott Laboratories, Bristol-Myers Squibb Company, and American Home Products Corporation--raised their prices repeatedly, in lockstep, and at a rate far exceeding the rate of increase in the cost of the product's ingredients. The three manufacturers were sued in federal court for price-fixing under the Sherman Act by a nationwide class of retail grocery and drug stores which purchased infant formula directly from the defendants, and by several substantial retail grocery chains which chose to pursue similar claims outside the class.(1) Under the Supreme Court's decision in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), only "direct purchasers" like the retailers in the infant formula case have standing to sue an antitrust defendant for price-fixing under federal law, even when it is clear that those direct purchasers have passed on the economic effects of an unlawfully inflated price to consumers.

In Mack v. Bristol-Myers Squibb Co., 673 So. 2d 100 (Fla. 1st DCA 1996), the First District Court of Appeal accepted an argument that has been advanced repeatedly in recent years as a means of avoiding the sometimes harsh effect of Illinois Brick: while indirect purchasers may lack standing to sue for price-fixing under either federal or state(2) antitrust law, they can sue to recover damages for the same conduct under state deceptive and unfair trade practices laws. In Florida, the statute of choice for indirect purchasers is the Florida Deceptive and Unfair Trade Practices Act (DTPA), F.S. [sections] 501.201, et seq. The Mack case holds that consumers have standing to sue for price-fixing under DTPA despite their lack of standing to sue under either federal or state antitrust law.(3)

Faced with an indirect purchaser lawsuit for price-fixing under state unfair trade practices law, defendants typically have resorted to the argument that such a case is "really" or "in substance" an antitrust case and should be governed by the standing rules developed in antitrust law. What never has been satisfactorily explained is why a price-fixing case should be categorized as "really" an antitrust case when the conduct it challenges is a violation of both antitrust law and a broader body of consumer-protection law.(4) As the First DCA put it in Mack, the question before the appellate court was as follows:

[W]hether a consumer-purchaser's standing to sue for price-fixing under the Florida DTPA is governed (i) by the language of the Florida DTPA, which expressly authorizes a consumer to bring an action for damages for violation of DTPA, or (ii) by a policy adopted from Illinois Brick that would bar an indirect purchaser from bringing an action under the Florida DTPA based upon a claim which is in substance an antitrust action to encourage efficient private antitrust enforcement by direct purchasers and to avoid conflict between the Florida DTPA and the Florida Antitrust Act.

Mack, 673 So. 2d at 103.

For reasons discussed below, the First DCA chose to follow the language of DTPA rather than the judge-made standing rule of Illinois Brick.

Hanover Shoe and Illinois Brick

The status of indirect purchasers and the issue of "passing on" first came to the U.S. Supreme Court in Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968). In Hanover Shoe, the defendant was alleged to have monopolized the market for shoe manufacturing equipment through various anticompetitive acts. When sued by one of its customers, a shoe manufacturer, United Shoe Machinery defended itself by alleging that the plaintiff simply had passed on the illegally inflated price of the defendant's shoe machinery to the plaintiff's own customers and therefore had suffered no injury from the defendant's acts. The Supreme Court rejected this "passing on" defense, finding that recognition of such a defense would require "additional long and complicated proceedings" to determine how much of an illegal overcharge was absorbed by the direct purchaser and how much was passed on to indirect purchasers, and would dilute the economic incentive of direct purchasers to enforce the antitrust laws. Id. at 493-94. The Court recognized that the ultimate burden of anticompetitive conduct at the manufacturing level may be borne by consumers, each of whom has only a "tiny stake in a lawsuit and little interest in attempting a class action." Id. at 494. The Court concluded that the remedial purposes of the antitrust laws would best be served by adopting a presumption that monopolistic overcharges are borne entirely by the direct purchaser.

In Illinois Brick, the Court was faced with the offensive use of a "passing on" claim, and so could not justify the presumption recognized in Hanover Shoe based solely on a remedial or pro-enforcement view of the antitrust laws. The State of Illinois brought a civil antitrust action for...