with maintaining effective enforcement of the antitrust laws; allowing defensive use of the pass-on doctrine would have hindered this effort by complicating the proceedings. 392 U.S. at 494. Illinois Brick misses the point entirely in phrasing the issue in terms of equal treatment of plaintiffs and defendants: The goal is effective enforcement of the antitrust laws. The irony of employing a rationale intended to further this goal in order to preclude suit by an injured party and thereby measurably diminish the efficacy of the antitrust laws is obvious. As a matter of experience in the federal courts, moreover, proof of damage to indirect purchasers is not an insurmountable task. Essentially, damage to indirect purchasers is proven by proving prices paid at different levels in the chain of distribution. In Perkins v. Standard Oil Co., 395 U.S. 642 (1969), the Supreme Court upheld a treble-damage jury award based on evidence which traced the price from the defendant through two middlemen to a competitor of the plaintiff. Similarly, in In re Western Liquid Asphalt Cases, 487 F.2d 191 (9th Cir. 1973), cert. denied, 415 U.S. 919 (1974), the Ninth Circuit utilized depositions and affidavits in concluding that the amount of damages, that is, the prices paid at the different levels in the chain of distribution, could be proved with the requisite certainty. The evidence before the Court presented no difficulty in comprehension nor would its use unduly complicate the proceedings. The deposition of Francis A. Lulay, a paving contractor, reflects the typical means by which the overcharge was passed on to the state and local governments: "Q. Do you ever add on to that cost of that asphalt "A. We add a percentage on to everything. "Q. What's the purpose of that? "A. Profit." Deposition of Francis A. Lulay at 20, In re Western Liquid Asphalt Cases, No. 50173 RES (N.D. Cal.) The affidavit of a contractor explained the manner in which the ultimate contract price was determined: "1 Each public road construction contract is composed of separate items of work Each item of work typically is composed of certain material and labor costs. Certan items may also involve equipment costs. "2. The company uses a work sheet to compute the lowest costs to complete each item of work set forth in the contract. The company, in making its computation, ascertains in regard to each item, the actual cost, to the extent applicable, of the material, labor and equipment involved. The cost of those items of work to be covered by a subcontract, such as paving, is ascertained by obtaining bids from one or more subcontractors. "5. The total bid price is arrived at by adding thereto additional amounts for overhead, contingencies and profit. These amounts vary from job to job."-487 F.2d, at 195 n.4. Evidence such as this demonstrates beyond dispute that the overcharge was passed on by the middleman to the indirect purchaser. An indirect purchaser should be afforded the opportunity to present evidence of this sort and certainly should not have the courthouse doors slammed in his face as the Supreme Court has done in Illinois Brick. In the Master Key Litigation, similar testimony was elicited from a contractor regarding his pricing policy to his customers: "Q. Now, in fact, if there were an overcharge on the hardware as a result of a conspiracy among the manufacturers of the hardware, wouldn't that overcharge have been borne by the owner rather than the contractor? "A. If it were charged on the bid that we got and we used, it would be passed on to the owner, yes sir. "Q. That is, if it was a cost to you, you would pass that overcharge on to the owner? "A. Whatever cost we had, we would pass over to the owner, yes sir."-Testimony of Roscoe Smith, in In re Master Key Antitrust Litigation, 1973-2 Trade Cas. ¶ 74,680 (D. Conn. 1973) (Transcript of Trial Testimony at 2782-2783.) Again, evidence of this sort presents no insuperabel problems of proof and certainly is no basis for denying the indirect purchaser's right to recover. As to the burden of proof issue, we believe that the “injury in fact" language of H.R. 8359 may place the burden upon the plaintiff to prove that damages were passed to him, and not to others. We consider this to be unjustified, and recommend that Congress make clear that plaintiffs need only prove what was passed to them. Since most actions are consolidated and thus all levels of plaintiffs are appearing before one court, it is unnecessary to allow the defendant to offer as a defense that damages were passed to others. The bifurcated approach eliminates the possibility of multiple liability, making such a defense superfluous. III. THE PURELY THEORETICAL POSSIBILITY OF MULTIPLE RECOVERY SHOULD NOT BE A JUSTIFICATION FOR DENYING THE INDIRECT PURCHASER THE RIGHT OF RECOVERY One of the Court's concerns in Illinois Brick was that Hanover Shoe v. United Shoe Machinery Corp., 392 U.S. 481 (1968), a decision denying the right of a defendant to claim that a direct purchaser plaintiff had passed on any illegal overcharge and thus was not injured within the meaning of the antitrust laws, required that indirect purchasers not be allowed to recover their damages. The Court believed that indirect purchaser recovery in conjunction with Hanover Shoe's denial of the pass-on defense would inevitably lead to multiple liability being visited on antitrust defendants. Much the same position has been espoused by Milton Handler in a series of articles. See Handler and Blechman, Antitrust and the Consumer Interest: The Fallacy of Parens Patriae and a Suggested New Approach, 85 Yale L.J. 626 (1976): Handler, Antitrust-Myth and Reality in an Inflationary Era, 50 N.Y.U. L. Rev. 211 (1975). The problem of multiple liability raised by the Court and Professor Handler is highly speculative in nature. It seems improbable that a modern federal court of equity would not have at its disposal devices to prevent such an occurrence. And, indeed, between 1968, the year of the Hanover Shoe decision, and 1977, when Illinois Brick came down, there has been no reported case in which a defendant has claimed that he was the victim of multiple liability. This is not surprising in view of the various procedures available to the federal courts under the Federal Rules of Civil Procedure and Judicial Code enabling them to avoid just such a result. When direct and indirect purchasers are presenting their claims before a single court, the possibility of multiple liability is nonexistent. In this case, the total liability of the defendant is determined (in a price-fixing case, for example, by multiplying the number of sales by the overcharge involved in each sale) and then this sum is apportioned among the various classes of plaintiffs according to their respective injuries. Cases decided after Hanover Shoe and before Illinois Brick, cases which the Court in Illinois Brick would have us believe would result in multiple liability, have utilized this bifurcated approach with none of the untoward results predicted by the Court. See, e.g., Pfizer, Inc. v. Lord, 449 F.2d 119, 120 (2d Cir. 1971); In re Antibiotic Antitrust Actions, 333 F. Supp. 281, 288-89 (S.D.N.Y. 1971). It is difficult to know on what the Court based its argument concerning multiple liability; certainly experience has shown that the federal courts are fully able to avoid the problem. Multiple liability could theoretically arise if claims for the same damages were allowed to proceed in separate forums; this appears to be the situation most worrisome to the Illinois Brick majority and to Professor Handler. However, modern procedural devices providing for joinder of claims and parties and consolidation of actions, along with practical considerations, make this possibility again highly unlikely. Defendants facing multiple liability by reason of claims being brought in more than one court have a strong incentive in seeking their consolidation. A procedure that has been utilized with success is consolidation under 28 U.S.C. § 1407 (1970). See, eg., In re Sta-Power Industries, Inc. Securities & Antitrust Litigation, 404 F. Supp. 476 (J.P.M.L. 1975) ; In re Caesar's Palace Securities Litigation, 385 F. Supp. 1256 (J.P.M.L. 1974); In re Kauffman Mutual Fund Actions, 337 F. Supp. 1337 (J.P.M.L. 1972). The requisites for transfer to a single forum under 28 Supp. 125 (J.P.M.L. 1974); In re Kauffman Mutual Fund Actos, 337 F. Supp. to recover for the same overcharge. The liability vel non of the defendant and the amount of the overcharge will present common questions of fact; the threat of multiple liability will satisfy the requirement that transfer to a single forum "will promote the just and efficient conduct of such actions." 28 U.S.C. § 1407 (a). It should also be noted that actions transferred to a single district for pretrial purposes under § 1407(a) may also be transferred to a single district for trial pursuant to 28 U.S.C. § 1404 (a) (1970). See, e.g., Pfizer Inc. v. Lord, 447 F. 2d 122 (2d Cir 1971): In re Master Key Antitrust Litigation, 1975-1 Trade Cas. ¶ 60,377 (D. Conn. 1975). However, in order to expedite transfer for trial purposes it is urged that Congress amend § 1407 in order that this section be available for both trial and pre-trial transfer. Such an amendment would further reduce the possibility of multiple liability in both proprietary and parens patriae actions. After direct and indirect purchasers have been brought to the same forum via transfer, consolidation of their actions is available under Rule 42 of the Federal Rules of Civil Procedure. If it happens that, for example, the indirect purchaser has brought suit while a direct purchaser has not, a situation in which, of course, 28 U.S.C. § 1407 and Rule 42 are not available, joinder of the direct purchaser may be compelled under Rule 19 of the Federal Rules of Civil Procedure. A procedure similar to this is statutory interpleader, 28 U.S.C. § 1335, by which a defendant can avoid multiple liability by bringing all potential plaintiffs before the same court and, after the total liability of the defendant is determined, require the various plaintiffs to litigate inter se to apportion the total recovery. Compulsory joinder under Rule 19 and statutory interpleader make it unlikely that suits will be brought after judgment has been rendered in an earlier suit based on the same violation. In addition, the short four year statute of limitations of the Clayton Act, 15 U.S.C. § 15b in conjunction with the protracted nature of antitrust actions, creates in potential plaintiffs a strong incentive to not wait until judgment has been entered in an earlier suit-such procrastination may result in their action being barred. And, on the practical side, indirect purchasers, oftentimes individual consumers, will find it advisable to join in direct purchasers' suits in order to avail themselves of the greater financial resources of direct purchasers, who are normally businesses. Thus, suits after an earlier judgment concerning the same violation are not apt to occur, and, in fact, no reported decision has presented this problem. The problem of inconsistent judgments, only possible if suits are brought after an earlier judgment, is therefore unlikely to appear. This office favors adding to the legislation any procedural devices which will reduce the possibility of multiple liability. An excellent suggestion is to grant authority to the judicial panel on multidistrict litigation to consolidate antitrust cases for trial where there might be a risk of inconsistent judgment. In addition, 28 U.S.C. § 1407 should be amended in order to allow transfer to a single district for both trial and pre-trial purposes, as already discussed. In sum, multiple liability cannot occur once direct and indirect purchasers are before the same court. There are numerous procedures available for insuring that these parties appear in one forum. And suits brought after an earlier judgment probably will not be, and indeed have not been, a problem. Thus, the highly speculative nature of multiple liability does not amount to the type of compelling consideration necessary to justify abrogation of the policies embodied in Section 4 of the Clayton Act. In conclusion, we wish to express our strong support of H.R. 8359. It would be advisable in our estimation, however, if the bill included language allowing indirect purchasers to recover their consequential damages, e.g., lost profits, in addition to pass-on damages. Also, the issue of standing should clearly be addressed in order to avoid confusion as to the effect of the proposed legislation on the right of indirect purchasers to prove and recover their damages. APPENDIX "A" State of Illinois v. Brunswick Corp., 32 F.R.D. 453 (N.D. Ill. 1963) (folding gymnasium bleachers purchased by schools). State of Illinois v. Sperry Rand Corp., No. 65 C 1549 (N.D. Ill. 1966) (metal library shelving purchased by schools and universities). State of West Virginia v. Chas. Pfizer & Co., 440 F.2d 1079 (2d Cir.), cert. denied, 404 U.S. 871 (1971) (tetracycline purchased by public hospitals and welfare recipients). State of Illinois v. Harper & Row Publishers, Inc., 301 F. Supp. 484 (N.D. Ill. 1969) (library editions of children's books purchased by schools and libraries). In re Master Key Antitrust Litigation, 528 F.2d 5 (2d Cir. 1975) (contract hardware installed in schools, hospitals and other public buildings). Commonwealth of Pennsylvania v. Ciba Corp., No. 70 C 2495 (N.D. Ill.) (diuretic drugs purchased by public hospitals). City of Philadelphia v. American Oil Co., 53 F.R.D. 45 (D. N.J. 1971) (gasoline purchased by public agencies). In re Gypsum Cases, No. 46414 (N.D. Cal.) (gypsum wallboard used in construction of schools, hospitals and other public buildings). Armco Steel Corp. v. State of North Dakota, 376 F.2d 206 (8th Cir. 1967) (metal State of Washington v. American Pipe & Construction Co., 274 F. Supp. 961 (W.D. In re Western Liquid Asphalt Cases, 487 F.2d. 191 (9th Cir. 1972), cert. denied, State of Minnesota v. United States Steel Corp., 44 F.R.D. 559 (D. Minn. 1968) Philadelphia Electric Co. v. Anaconda American Brass Co., 43 F.R.D. 452 (E.D. APPENDIX "B" State of Texas v. U.S. Steel Corp., 546 F. 2d 626 (5th Cir. 1977) (steel reinforcing bars used in public construction). In re Toilet Seat Antitrust Litigation, 1977-1 Trade Cas. ¶ 61,299 (E.D. Mich. 1977). State of Ohio v. Richter Concrete Corp., 69 F.R.D. 604 (S.D. Ohio 1975). State of Louisiana v. Armco Steel Corp., Civil Action No. 75-317 (E.D. La.) (In re Rebar Steel Antitrust Investigation). State of Oregon v. Chervon Chemical Co., No. 76-718 (D. Ore. 1976) (fertilizer). State of Washington v. Bethlehem Steel Corp., No. C-76–727 (W.D. Wash. 1976) (rebars). Mr. REED. Thank you, Mr. Chairman. I would like to address my oral remarks to some points raised by the committee members this morning, and specifically the question presented by Chairman Rodino about whether the overruling of Illinois Brick will involve courts in complicated damage issues that will bog down the process of courts, and also the question which has been under discussion by Mr. Hill about the need for immediacy. I think there are two cases in which the State of Arizona is involved that most clearly demonstrate that actions of this sort, actions to recover damages on behalf of indirect purchasers, such as consumers, can work. They can work in a simplified and direct manner. They can avoid any prospect of double recovery. These cases also demonstrate, I think, the need for prompt and immediate response by Congress to the Supreme Court decision in Illinois Brick. The two cases to which I am referring are two cases brought by the State of Arizona back in 1974. One was a price-fixing case against the major bakery companies in Arizona and another case brought a few months later was a price-fixing case against the major milk companies, the bottlers, in Arizona. These cases charged that the bakeries and the milk bottlers fixed prices of the bakery products in one instance and dairy products in the other, that they were resold by grocery stores to consumers, and the consumers bore the brunt of any overcharge. The bakery case proceeded more swiftly than the dairy case. It went more quickly and as a result, we were able last year to obtain a $6 million recovery against the bakery companies. This was money in a lawsuit in which both grocery stores and consumers were plaintiffs. It was one recovery from defendants which grocery stores and consumers were to share. So simply by working together in one lawsuit, we were able to avoid the problem of double recovery. Then came the question of analyzing the damages which consumers bore, and despite the many problems and red herrings that are often raised by the complexity of cases such as this, we found it a relatively simple and direct task to analyze damages and distribute money to consumers. It was a simple matter from defendants' records to determine a wholesale price index of bakery products over the years the price-fixing conspiracy was in effect. It was also a simple matter to compute from the records of grocery stores a retail price index of bakery products in question. From those data we could determine the amount of the overcharge the consumers bore. The economic analysis we did earlier in the case showed that the consumers bore 83.3 percent of the overcharge. The next problem we had to address was how to distribute this money to consumers. We were able to determine through an opinion analysis how much bakery products various-sized households consumed over the years in question. A household of one person in the year 1969, for example, we determined, consumed approximately $49 worth of bakery products, and a household of six people for the entire damage period consumed approximately $969. On the basis of these analyses, we proceeded to mail claim forms to each of the households in the State of Arizona. We mailed claim forms to 700,000 households in Arizona, and we received back answers. The people indicated to us that they had in fact purchased bakery products at retail grocery stores, that they purchased them for certain of these years, 1969, 1970, or 1971, and they also indicated how many people were in the households for those years. On the basis of that and the studies we were able to do, we were able to determine with precision the amount of damages each of these households was able to recover. As a result of this process, we were able to mail 2 months ago checks totaling $2.5 million to a quarter of a million households in the State of Arizona, representing 600,000 consumers in Arizona. Those consumers, receiving checks of up to $20 per household, received back the amount of money that they were overcharged by reason of the price-fixing conspiracy. And interestingly, the amount of money they received through this formula turned out to be to the decimal point the same 83 percent that we analyzed going in. And the grocery stores ended up with the other 17 percent. Mr. SEIBERLING. Was this brought under State antitrust law? Mr. REED. No, it was a Federal antitrust action, Mr. Chairman, brought under rule 23. It was a class action with the State attorney general as a class representative on behalf of consumers. At the time the action was initiated, the parens legislation had not yet been enacted so we proceeded under rule 23. If Illinois Brick is overturned, we have a number of other cases we hope to be able to bring both under rule 23 and the new parens legislation. I'd like to point out to the committee the need for immediacy. As I indicated, our bakery products case and our dairy products case were filed at approximately the same time. The dairy products case antedated the bakery products case by 2 or 3 months. For some reason it has proceeded a little more slowly. We are not in a position in that case to begin mailing money to consumers. But along comes Illinois |