THE LATEST: Trump DOJ’s Next Target: the Illinois Brick Indirect Purchaser Rule?
In the course of one week, two top level DOJ Antitrust officials in the Trump Administration separately spoke at panels and suggested the possibility of a sea change in federal antitrust law with respect to indirect purchaser lawsuits. The comments further reinforce the Administration’s active focus on antitrust issues.
- Makan Delrahim, DOJ’s Assistant Attorney General in charge of the Antitrust Division (the Division), spoke at a conference organized by the Antitrust Research Foundation on January 19, 2018, and is reported to have stated that the Division was looking into the possibility of pursuing civil damages on behalf of taxpayers in antitrust price-fixing suits.
- A few days later, on January 23, 2018, Andrew Finch, DOJ’s Principal Deputy Assistant Attorney General for Antitrust, spoke at a Heritage Foundation conference and reportedly stated that the Division was “looking at whether or not it might be worthwhile to revisit those rules and suggest the same to the Supreme Court,” referencing the landmark decision Illinois Brick Co. v. Illinois, which prohibits indirect purchasers from recovering antitrust damages under federal antitrust law.
WHAT THIS MEANS:
- The Supreme Court’s 1977 decision in Illinois Brick has long prohibited indirect purchasers from seeking recovery under federal antitrust laws, with narrow exceptions. Many states have passed so-called “Illinois Brick repealer” laws to permit indirect purchasers to seek recovery under state antitrust laws. This disparity has created a patchwork set of state laws through which large antitrust indirect purchaser and class action plaintiffs seek recovery.
- Hanover Shoe, a key companion case to Illinois Brick, prevents antitrust defendants from asserting the “pass-on defense,” i.e., the defense that a plaintiff passed on the overcharge to the next buyer in the chain of distribution. The net effect of Illinois Brick and Hanover Shoe is to concentrate all Clayton Act overcharge recovery in the hands of direct purchasers (with narrow exceptions), even when it results in a windfall to those direct purchasers.
- AAG Delrahim has previously stated his belief that it is time to repeal bothIllinois Brick and Hanover Shoe in order to eliminate this windfall and consolidate damages actions in a single forum.
- Thus, any move by the Division to repeal Illinois Brick should not be seen as an unvarnished benefit to antitrust plaintiffs. Rather, it improves the position of indirect purchasers who would now be able to recover under federal law, at the expense of direct purchasers who would likely have to cope with a pass-on defense, plus the associated discovery and summary judgment risk that such a defense entails.
- The change could make it easier for class action defendants to fully settle any indirect-purchaser claims, because they would be able negotiate with one multi-state class in federal court rather than many smaller actions.
- While still speculative, the possible changes being discussed by DOJ Antitrust officials could create further civil litigation uncertainty for private companies in industries where price fixing could be alleged. Though it would require an act of Congress or ruling of the Supreme Court, the end of the Illinois Brickindirect purchaser rule would open up Sherman Act defendants to treble damages in indirect purchaser suits brought by plaintiffs nationwide.
- The Trump Administration continues to present an aggressive and active approach to a spectrum of antitrust issues across the board. The recent comments of Messrs. Delrahim and Finch indicate that leadership is considering additional avenues of recovery for the Antitrust Division, and suggest that we can anticipate an uptick in DOJ antitrust civil suits during President Trump’s term in office.
- An active and up-to-date antitrust compliance system remains an important litigation mitigation measure for private companies that interact with competitors.