Antitrust Standing

“Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefore… without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of the suit, including a reasonable attorney’s fee” Clayton Act, Section 4

Antitrust standing is the status of being an eligible party to pursue a private antitrust suit

• A person may sue, does this exclude a business or group of people?
• A person may sue only if they are injured, how is injury defined?
• Damage must be done to the person’s business or property, isn’t this a bit vague?

Although the terms are somewhat ambiguous, Supreme Court cases help establish precedent

• Precedent is a prior reported opinion of the court, which establishes legal rule in the future on the same legal question decided in the prior judgement

Who is a person?

Anyone considered a person by the Clayton Act has standing:

• A literal human being
• Corporations, partnerships, or other businesses
• Municipalities
• States and foreign governments

What constitutes a business or property?

Section 4 of the Clayton Act gives standing to any person whose business or property has been hurt by an antitrust violation

• Lost profits to a firm
• A customer who was overcharged
  • “… a consumer not engaged in a ‘business’ enterprise, but rather acquiring goods or services for personal use, is injured in ‘property’ when the price of those goods or services is artificially inflated by reason of the anticompetitive conduct complained of.”
• Anyone who was directly affected by antitrust violations

Directly affected

• Consider Melanie’s Music Shop, a local piano retailer that was forced to close due to another firm, Trey’s Viola Emporium, violating antitrust laws.
  • Melanie lost profit due to the violation
  • The employees of Melanie’s Music Shop lost their jobs
  • The landlord of Melanie’s building lost its tenant
  • The city can no longer collect tax revenue from Melanie’s Music Shop
• Who has antitrust standing and can file a suit against Trey’s Viola Emporium for damages?
  • All of these “persons” have experienced some damage from the antitrust violation; however, only the company, Melanie’s Music Shop, is considered to be directly affected by the antitrust violation

What is antitrust injury?

Brunswick Corp. v. Pueblo Bowl-o-Mat, Inc. (1977)

• The Supreme Court case of Brunswick Corp. v. Pueblo Bowl-o-Mat, Inc. helped establish the precedent for the definition of antitrust injury
  • In the 1950’s, bowling grew in popularity and Brunswick was the primary supplier of bowling lanes, automatic pinsetters, and most other bowling-related equipment.
  • Many of the bowling alleys bought the equipment on credit; however, when the popularity of bowling started declining in the 1960’s, Brunswick faced an increase in defaults.
  • To recoup some of their losses, Brunswick bought and operated some of the failing bowling alleys.
• Pueblo Bowl-o-Mat wasn’t very stoked about this strategy…
  • They filed suit claiming that Brunswick’s acquisitions of failing bowling alleys was an illegal merger that “might substantially lessen competition or tend to create a monopoly”
  • Pueblo asserted that this damaged their profits by keeping failing alleys in business, who would have otherwise closed
• Pueblo believed Brunswick should be liable to pay treble damages
  • Treble damages is a common term for threefold the damages (i.e. three times the amount of damages)
  • Penalty may reflect under-enforcement risk
• The Supreme Court rejected the Clayton Act claim for lack of antitrust activity
  • Although Pueblo was harmed by the acquisition, it wasn’t a harm the antitrust laws were meant to protect – the injury isn’t antitrust injury
• The acquisition actually increased competition
• Thus, a plaintiff cannot recover damages under the antitrust laws for an action that actually increases rather than decreases competition, even if the plaintiff is harmed
  • The court ruled “the injury should reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation”

The Requirement of Direct Injury

• The Supreme Court requires that a plaintiff must be directly injured as a result of two separate cases
  • Hanover Shoe v. United Shoe Machinery (1968)
  • Illinois Brick Co. v. Illinois (1977)
• The intent of requiring direct injury is purely for the simplicity of proving damages
  • This helps facilitate damage estimation and makes enforcing antitrust laws more practicable

A difficult example

• Consider the Amino Acid Lysine antitrust litigation (1996)
  • Lysine is a common animal-feed additive and a cartel existed that fixed prices
  • The directly affected parties were the producers of animal feeds, who were charged illegally high prices
  • These high prices meant that farmers paid more for feed
  • Farmers had to increase the price of their cattle, causing meatpackers to charge more from retail grocers
  • Consumers had to pay higher prices for packaged meat
• How would we distinguish direct vs. indirect injuries?

Hanover Shoe v. United Shoe Machinery (1968)

Hanover Shoe created shoes using machinery leased from United Shoe Machinery

• Hanover claimed United’s machine rental policies were an illegal monopoly instrument
  • Hanover believed they were entitled to damages equal to the difference of the charged rental price and the price they would have paid if they had bought the machine
  • United claimed they owed Hanover nothing, since all of the added cost was passed onto consumers
• The Supreme Court sided with Hanover and made United pay full damages
• This set precedent that the passing-on defense is not valid for antitrust standing in an antitrust case

Illinois Brick Co. v. Illinois (1977)

“If a pass-on theory may not be used defensively by an antitrust violator (defendant) against a direct purchaser (plaintiff), that theory may not be used offensively by an indirect purchaser (plaintiff) against an alleged violator (defendant). Therefore, unless Hanover Shoe is to be overruled or limited, it bars respondents’ pass-on theory. (https://supreme.justia.com/cases/federal/us/431/720/)”

• The Brick case can be thought of as a converse of the Hanover Shoe case, as it forbids the use of the passing-on argument as an offensive tactic regarding antitrust standing
  • Brick was one of eleven primary firms that manufactured concrete blocks that were used in construction in the city of Chicago
  • Contractors bought the bricks, while the state of Illinois hired contractors to build projects
• The state of Illinois wanted to sue Brick (and the 10 other firms) for the indirect damage it incurred (it wanted to prove that some of the illegal overcharges had been passed onto them)
• The Supreme Court refused to allow Illinois to sue, claiming it was inconsistent with the Hanover Shoe case and undermines the effectiveness of future antitrust suits

“permitting the use of pass-on theories under Section 4 essentially would transform treble-damage actions into massive efforts to apportion the recovery among all potential plaintiffs that could have absorbed part of the overcharge. However, appleaing this attempt to allocate the overcharge might seem in theory, it would add whole new dimensions of complexity to treble-damage suits and seriously undermine their effectiveness.”

Returning to the lysine example…

• Recall from the lysine example that a cartel fixed prices, which set off a chain reaction of price increases that ended in consumers paying higher prices for meat.
  • The Illinois Brick rule set a precedent that consumers (and the grocery store, for that matter) couldn’t file suit against the lysine cartel for their increased prices
  • The Hanover Shoe decision set a precedent that the feed manufacturers had standing even though they “passed down” the increased costs.

Apple Inc. v. Pepper et al. (2019)

iPhone users argued Apple’s 30% commission on app sales increased prices for iPhone software above competitive levels

• Apple argued consumers did not have antitrust standing since apple was providing a marketplace and that only the app developers had antitrust standing
• Eventually, the plaintiffs were given antitrust standing because they purchased apps directly from Apple
• “Apple could still win the case. Court didn’t say they lose, it said consumers have the right to bring this case” Kevin Arguit, chair of the antitrust practice at Kasowitz Benson Torres
• The Supreme Court did not rule on the antitrust factors but affirmed customers’ right to sue. It remanded the class action case to continue in lower courts.

The cost-plus contract exception

• The Supreme Court allows those who were indirectly injured to sue under the cost-plus contract exception
• This precedent comes from Kansas v. Utilicorp (1990)
  • Suppose a company overcharges a retailer for a product
  • Suppose the retailer had preexisting, fixed-quantity, cost-plus contract with consumers to charge them the cost of the product, plus some predetermined markup
  • Under this type of contract, the consumer has standing for antitrust injury, even though they were injured indirectly
  • The requirements for cost-plus antitrust cases are strict, thus it is rarely used

In pari delicto

The in pari delicto (in equal fault) defense says the plaintiff has no right to sue, as they were knowingly involved in the illegal activity with the defendant

• The Supreme Court does not like this defense
• To use it, the defendant must prove the plaintiff was an equal part of the illegal activity
• Anything less than an equal participant is not sufficient evidence