Recoveries for Violations of Federal and California Antitrust Statutes Should Not Be Apportioned
| Publication year | 2014 |
| Author | By Steve Williams and Elizabeth Tran |
By Steve Williams and Elizabeth Tran1
There is increased cartel behavior today, affecting more businesses and people, than at any time since the enactment of state antitrust laws and the Sherman Act. Private enforcement of the antitrust laws was established to protect the economy from collusion. It was for this reason that quasi-criminal fines were included as remedies available to private plaintiffs, such as double — and then treble — damages as well as attorneys' fees and costs.
The Sherman Act has been called a "charter of freedom"2 and the "Magna Carta of free enterprise"3 and described as a
[c]omprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions. But even were that premise open to question, the policy unequivocally laid down by the Act is competition.4
Congress passed the Sherman Act to protect consumers from inflated prices, foster free competition in the marketplace, and encourage efficient behavior by firms.5
Congress and the state legislatures that enacted the nation's antitrust laws intended private enforcement to be an important tool in preventing cartel behavior. Courts have interpreted the antitrust laws with a view to promoting that purpose.6 The primacy of the deterrent goals of the Sherman Act and the Cartwright Act (and other state antitrust laws) has been a constant since the enactment of those statutes.
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Congress provided for private remedies and penalties to enforce the Sherman Act because it recognized that government resources were limited and that compliance with the antitrust laws was critical to the economic health of the nation. It is for this reason that Congress provided broad remedies for private plaintiffs who would act as "private attorneys general." 7 The Supreme Court has stated that "[e]very violation of the antitrust laws is a blow to the free-enterprise system envisaged by Congress" and that the "system depends on strong competition for its health and vigor."8 Congress believed that providing remedies — including treble damages — to private plaintiffs would "open the doors of justice to every man"9 while furthering the Sherman Act's overarching goal of deterring collusion. The importance of private actions as a tool in the enforcement of the antitrust laws has been repeatedly recognized by the Supreme Court and invoked in its construal of the Sherman Act.10
The California State Legislature premised its decision to provide remedies to indirect purchasers on these same goals. The availability of remedies to indirect purchasers, in addition to those remedies available to direct purchasers under federal law, is necessary to effectuate that policy and to deter antitrust violations. Further, it has long been recognized that the states' power to regulate economic conduct and to protect consumers and competition is not limited by federal antitrust laws. For this reason, damages should not be apportioned between plaintiffs suing under federal and state laws. To do so would contravene the intent of Congress and the state legislatures, and would contradict the rulings of the United States Supreme Court and California Supreme Court in interpreting these statutes. Apportioning damages between claimants under federal and state antitrust laws would frustrate the goal of deterring antitrust violations and would embolden cartels to continue their behavior.
As discussed below, three cases unequivocally establish that the states may provide remedies for antitrust violations that are in addition to those provided by federal law, that those remedies cannot affect federal law, and that federal law does not limit the remedies provided by state law. Limiting the availability of the full range of remedies provided by both state and federal law by apportioning damages would contravene the intent of the respective sovereigns, violate fundamental principles of federalism, and frustrate the primary goal of state and federal antitrust laws of protecting competition and preventing collusive conduct at a time when such conduct is pervasive.
In Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481 (1968) ("Hanover Shoe") the Supreme Court held that an antitrust defendant could not assert as a defense that a (direct plaintiff did not suffer injury because it had passed on overcharges to its customers. The Court concluded that when a plaintiff shows that it paid an illegal overcharge and also shows the amount of the overcharge, it "has made out a prima facie case of injury and damage."11
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The Court identified two reasons why accepting the pass-on defense would frustrate the purposes of the Sherman Act. First, it would require courts to consider numerous complex factors and create a burden of proof on plaintiffs that "would normally prove insurmountable."12 In Clayworth, the California Supreme Court acknowledged the United States Supreme Court's concern that such a defense would depend on "massive and complex showings and rebuttals, potentially sidetracking every antitrust trial in a host of issues collateral to the central claim — whether the defendant had engaged in illegal anticompetitive conduct."13 The Court's second rationale was that accepting this defense would discourage private antitrust enforcement. If the pass-on defense were permitted, "those who violate the antitrust laws by price fixing or monopolizing would retain the fruits of their illegality because no one was available who would bring suit against them" seriously compromising the enforcement of the antitrust laws.14
In Ill. Brick Co. v. Ill., 431 U.S. 720 (1977) ("Illinois Brick"), a sharply divided Supreme Court held that indirect purchasers could not use a pass-on theory to sue for overcharges from antitrust violations. In Illinois Brick, the State of Illinois alleged that concrete block manufacturers had engaged in price fixing in violation of the Sherman Act. The resulting illegally increased prices had then been passed on to masonry contractors, who passed them on to general contractors, who then charged the State of Illinois higher prices to build buildings. The majority of the Court deemed the result necessary as a corollary to Hanover Shoe — i.e., it would be unfair to deny the pass-on defense to defendants being sued by direct purchasers, while allowing indirect plaintiffs to recover the overcharges that had been passed on to them.
The Court identified three primary rationales for its result. The first rationale was that permitting indirect purchaser claims under federal law would create a risk of double recovery in cases where both direct and indirect purchasers brought claims against the same defendants.15 The second rationale — similar to one of the underpinnings of Hanover Shoe — was that indirect purchaser claims would involve unmanageably complex issues as courts tried to trace overcharges through the chain of distribution of price-fixed products.16 The third rationale was that Hanover Shoe was correct in its judgment that the Sherman Act would "be more effectively enforced by concentrating the full recovery for the overcharge in the direct purchasers rather than allowing every plaintiff potentially affected by the overcharge to sue only for the amount it could show was absorbed by it."17 It is important to note that the limitations of Illinois Brick are not based on the text of the Clayton Act. The Clayton Act specifically authorizes "any person" to recover under the Sherman Act.18 Instead they were created by the Court for the policy reasons set forth in the opinion.
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The Illinois Brick dissenters asserted that the rationales of Hanover Shoe — in particular encouraging private enforcement of the antitrust laws — should have led the Court to permit indirect purchaser claims. It is implicit in the rationale of Hanover Shoe that direct purchaser plaintiffs might be overcompensated, but this result was preferable to the risk of weakened deterrence of antitrust violations and allowing antitrust violators to keep their ill-gotten gains.19 The dissent argued that permitting indirect purchaser claims under the Sherman and Clayton Acts would therefore further the same policies of deterrence that led to the result in Hanover Shoe.20
California, like many other states, responded to Illinois Brick almost immediately by amending its antitrust statute, the Cartwright Act, to prevent Illinois Brick from creating any limitations on the right to recover under state law. A.B. 3222 passed both houses of the California State Legislature unanimously. It rejected Illinois Brick as a matter of state law by providing that a suit under the Cartwright Act could be brought by any injured person, "regardless of whether such injured person dealt directly or indirectly with the defendant."21 As the California Supreme Court stated not long after this amendment, "California's 1978 amendment to section 16750 in effect incorporates into the Cartwright Act the view of the dissenting opinion in Illinois Brick (431 U.S. at p. 748) that indirect purchasers are persons 'injured' by illegal overcharges passed on to them in the chain of distribution."22 In addition to California, more than half of the states, by either...
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