Circuit Split Cracks the Foundation of the Indirect Purchaser Rule: The Co-Conspirator Exception’s Circuit Split Exposes Need to Overturn Illinois Brick but Keep Hanover Shoe

By Stephen Kerstein (Temple University)

Illinois Brick v. Illinois’s indirect purchaser rule must be overturned, but the rule’s defensive counterpart—Hanover Shoe v. United Shoe Machinery’s pass-on defense prohibition—must remain good law. The current circuit split regarding the scope of the indirect purchaser rule’s co-conspirator exception has exposed a crack in the reasoning behind the indirect purchaser rule that cannot be ignored.

In any vertical antitrust conspiracy, members of the first non-conspiring level of the distribution chain are the party directly injured by the conspiracy and are therefore the direct purchasers of all of the conspirators. Under the Supreme Court’s 2019 holding in Apple v. Pepper this means they must, regardless of what type of vertical conspiracy exists, have standing to collect damages from all the conspirators under Section 4 of the Clayton Antitrust Act. Therefore, the price-fixing-only interpretation of the co-conspirator exception is meritless.

The alternative, all-vertical-conspiracies interpretation of the co-conspirator exception, requires extensive use of pass-on analysis. The indirect purchaser rule was the Supreme Court’s attempt to best balance competing antitrust principles. The Court believed that eliminating pass-on analysis, as well as compulsory joinder, was necessary to effectively deter would-be antitrust violators. The Court sacrificed compensation for victims in favor of deterrence and avoiding duplicative liability. In light of the practical realities posed by the all-vertical-conspiracies interpretation of the co-conspirator exception, the balance struck by the Illinois Brick majority must be reevaluated.

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