Illinois Brick Co. v. Illinois

Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) is a US Supreme Court case on US antitrust law which set out the "Illinois Brick doctrine". It prohibited indirect purchasers of goods or services from recovering antitrust damages from antitrust violators. Thus, if manufacturer A sells bricks to contractor B who builds a house and sells it to customer C, and A engages in a price-fixing conspiracy with other brick manufacturers, C cannot sue A and recover damages for the overcharges resulting from the antitrust violation.

Facts

A manufacturer sold bricks to a contractor, who built houses and sold them to consumers. The manufacturers had conspired to raise prices.

Judgment

The Supreme Court held that indirect victims of a price fixing conspiracy had no standing to sue for antitrust violations for raised prices. It held that if an indirect purchaser of overpriced goods could sue, then it would open the door to “multiple recovery”. An overcharge might be collected if more than one entity in the chain of distribution of the product could recover for the same violation.

Exceptions

Two exceptions to the direct purchaser rule are potentially recognized in various jurisdictions: the control exception and the preexisting cost-plus contract exception.

The control exception, noted in footnote 16 of the Illinois Brick opinion, states that in some situations an indirect purchaser might maintain an antitrust action where the direct purchases is owned or controlled by its customer. This exception is narrowly construed and limited to situations where the relationship involves a functional or economic unity between the direct and indirect purchaser such that there has been effectively one sale. See Jewish Hospital Association v. Stewart Mechanical Enterprise, Inc., 628 F.2d 971 (6th Cir. 1980).

The preexisting cost-plus contract exception states that an indirect purchaser may have standing where the all costs initially borne by the direct purchaser are passed on to the indirect purchaser pursuant to a preexisting cost-plus contract between the parties. In such situation, the overcharging is not absorbed by the direct purchaser but is instead passed on to the indirect purchaser. See Illinois v. Panhandle E. Pipe Line Co. 852 F.2d 891 (7th Cir 1988).

Significance

Many state antitrust laws reject the Illinois Brick doctrine. Thus, in California v. ARC America Corp.,[1] the Supreme Court rejected arguments that Illinois Brick preempted broader state antitrust laws such as that of California, which rejected the doctrine.

A 2007 Antitrust Modernization Commission Report proposed that Congress should abandon the Illinois Brick doctrine.[2] The proposal, if adopted, would weaken the federal right of action for direct purchasers by reviving as a defense the fact that the direct purchaser had passed on the overcharge instead of absorbing it, while creating a federal right of action for indirect purchasers. Federal rights of action under the proposal would not be exclusive, but state law claims would be subject to expanded federal jurisdiction to allow consolidation of all claims from a price fix in a single court for both discovery and trial. All recoveries in the consolidated actions would be limited to the initial overcharge, trebled.

See also

Notes

  1. ↑ Justia, 490 U.S. 93 (1989).
  2. ↑ The Antitrust Modernization Commission was created pursuant to the Antitrust Modernization Commission Act of 2002, Pub. L. No. 107-273, §§ 11051-60, 116 Stat. 1856. The Commission submitted its Report and Recommendations to Congress and the President on April 2, 2007. The Report and other documents relating to its work are found at its website—http://govinfo.library.unt.edu/amc/index.html.

External links

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