recovery, the bill will be utterly meaningless. In any event, most courts have recognized this fact." And the Illinois Brick opinion also flatly reverses the considered rulings of no less than seven U.S. Courts of Appeal, which in recent years had upheld the rights of indirect purchasers to recover treble damages from price fixers. Worse, it is a clear departure from the many past Supreme Court opinions which had squarely ruled that a broad and liberal construction of this fundamental remedial statute was mandated by the vital public interest in maintaining the vigor of our free enterprise system. I expect the Subcommittee will act expeditiously on this remedial legislation, so that we can restore the effective enforcement of our antitrust laws. [From the Congressional Record, July 19, 1977] A BILL TO RESTORE EFFECTIVE ENFORCEMENT OF THE ANTITRUST LAWS Mr. RODINO. Mr. Speaker, as I indicated yesterday, Senator Kennedy and I have introduced identical bills to overrule the Illinois Brick decision, and to once again make the antitrust laws fully responsive to injuries suffered by businesses and consumers as a result of antitrust violations. I should like to insert for the Record, an article appearing in the July 18, 1977, Wall Street Journal at page 12, by Mr. Stan Crock. As Mr. Crock points out, while the Supreme Court has been rather tough on those who have committed violent crimes, defendants accused of antitrust and securities laws violations have "fared remarkably well before the Court." Mr. Crock notes that the Court has emasculated one of the biggest deterrents to white-collar crimes-the private civil damages suit. This article points up quite clearly that the Illinois Brick decision must be overruled. The text of the article follows : SUPREME COURT IS TOUGH ON ONLY CERTAIN MISCREANTS (By Stan Crock) WASHINGTON.-The current Supreme Court has a reputation for being tough with miscreants. Some miscreants, anyway. The court won its reputation mainly from cases involving violent crimes in which it whittled down procedural safeguards that protected defendants and upheld such deterrents as capital punishment. But some other types of defendants have fared remarkably well before the court; specifically, those accused of violating the antitrust and securities laws. In cases involving those white collar crimes, the court has moved in the opposite direction by emasculating one of the biggest deterrents to such crimes, the private civil damages suit. Two cases decided as the court wrapped up its term last month bring the divergent trends into sharp relief. In one, the court upheld the death sentence of a Florida man under a law passed after he committed the crime. In the face of a constitutional bar against retroactive laws, the court went to great lengths to sustain the deterrent in that case. Deterrence in the antitrust area, in contrast, didn't fare so well the previous week when the court ruled that only those who buy directly from price-fixers can sue them for triple damages under a provision that allows such suits by "any person who shall be injured. . . by reason of anything forbidden in the antitrust laws. . . ." In that case, the state of Illinois tried unsuccessfully to recover damages from concrete block manufacturers whose price-fixing raised the construction costs of some state buildings. The decision means that indirect consumers of products with fixed prices no longer can sue for damages. The ruling may pose serious enforcement problems because the direct buyer is unlikely to sue; buyers don't want to anger their suppliers with lawsuits, and they can pass on their extra costs anyway. It is "absolutely vital that this decision be thrown out immediately," says C. Ray Marvin, Washington counsel for the National Association of Attorneys General, who is working on legislation to nullify it. John Shenefield, acting assistant attorney general in charge of the Justice Department's antitrust division, calls the decision a "disheartening development." Triple damages suits, he says, are a "very effective" deterrent. The Supreme Court action was only one of more than half a dozen similar rulings in the white collar area. For example, the court ruled in another antitrust case that most restrictions manufacturers put on the resale of their products by retailers are violations of the law only if they are proved unreasonable. In the securities area, the court has ruled that the loser in a tender offer fight can't recover damages from the winner even if the winner violated securities laws. And in a separate case, the court said a breach of the antifraud provision governing buying and selling of securities doesn't give rise to damages if the breach is merely due to negligence. The decisions cutting back on the availability of private damages actions as an enforcement tool are significant setbacks, according to Harvey Pitt, general counsel of the Securities and Exchange Commission, because the commission "cannot police all violations of the securities laws." Despite the fact that the decisions in white collar cases seem to cripple enforcement and decisions in cases involving violent crimes back law enforcement, it would be too simplistic to say that the court winks at the former and is twofisted with the latter. For example, some decisions have upheld the protections of defendants accused of violent crimes. The court has refused to overrule the famous Miranda decision which protects a defendant's right against self-incrimination. And while the court has shown some solicitude for white collar defendants, it has cited other reasons for its rulings in such cases; the fact that the court is bound by the wording of statutes, a desire to prevent federal courts from being inundated with similar cases and a concern that its ruling could spur enormously complicated lawsuits. For example, in the Illinois brick case, the court voiced concern that "massive evidence and complicated theories" would be involved in cases brought by indirect purchasers trying to prove how much extra they paid for an item whose price was fixed. But the impact of the decisions is the same regardless of the motivationcivil damages suits no longer will serve as a potent deterrent and aid to law enforcement at a time when other deterrents are being reinforced. Congress has beefed up the penalties for antitrust violations and the Justice Department has stiffened its sentencing recommendations for those violations. Statistics bear out the importance of the private suits as an adjunct to government enforcement. In the fiscal year ending in June 1976, 1,504 private antitrust suits were filed in the federal courts, while the Justice Department filed 51 civil and 19 criminal suits. The same year the SEC sought 158 injunctions and referred 116 criminal cases to the Justice Department for prosecution while 2,230 private civil suits involving securities, commodities and the exchanges were filed in federal court. An exact figure for the number of securities cases isn't available, but they probably were a substantial portion of the 2,230 cases. The court's white collar rulings are ironic because if deterrence works anywhere, it works in this area, where the economic crimes are based on cost-benefit analysis and aren't done in the heat of passion. There may be another irony: The rulings have been viewed as pro-business when they in fact may not be in the long run. The Justice Department's Mr. Shenefield, for example, notes that as many businessmen as consumers use the antitrust laws to sue violators. And the securities decisions also may hurt business, says Mr. Pitt of the SEC. "If investors get the feeling that their remedies are limited," he says, "they may find themselves less receptive to investments in the securities market." "The question," he adds, "is whether we've gotten to that point." JULY 21, 1977. OPENING STATEMENT OF SENATOR EDWARD M. KENNEDY, SUBCOMMITTEE ON ANTITRUST AND MONOPOLY, HEARING ON "AN ACT TO RESTORE EFFECTIVE ENFORCEMENT OF THE ANTITRUST LAWS" The Senate Subcommittee on Antitrust and Monopoly will focus today and tomorrow on S. 1874, "a Bill to Restore Effective Enforcement of the Antitrust Laws". This bill will restore to consumers the right to recover damages for antitrust violations which injure them. Consumers have always been the intended beneficiaries of the antitrust laws. The purpose of the antitrust laws, emphasized by both Congress and the courts, has always been to provide consumers with better products and lower prices to prevent suppliers singly or in combination from raising prices at the expense of individual citizens. It is conservatively estimated that price fixing and other antitrust violations cost American consumers more than $150 billion a year. This cost is too often borne by persons who can least afford it. The exhorbitant high prices charged consumers as a result of antitrust violations do more than frustrate the economic goal of better products and lower prices; they frustrate as well basic human goals of fair and equitable treatment that are a fundamental part of the fabric that holds our society together. Consequently, both courts and Congress have long recognized that consumers must be able to recover for antitrust violations that injure them-because the threat of such suits deters antitrust violations; and because fundamental fairness requires that those who are injured by antitrust violations should be compensated. It is ironic, then, that on June 9 of this year, the Supreme Court in its Ilinois Brick decision held that most consumers were barred from recovering damages for antitrust violations. In Illinois Brick the Court held that only those parties who purchased directly from an antitrust violator could recover damages. Thus, if a group of manufacturers over-charge customers as a result of a price fixing conspiracy, only the direct purchasers (usually wholesalers and other middlemen) can recover. In reality, of course, a middleman is often able to pass on his increased cost to ultimate consumers who are the real parties injured. But the Illinois Brick majority opinion says that these injured consumers cannot recover. In so deciding the majority opinion was contrary to the vigorous dissent of three Supreme Court Justices, contrary to rule previously adopted by four Federal Court of Appeals, and contrary to the legislative history of the Sherman Act and other antitrust legislation. At the time both of the Sherman Act in 1890 and of the Hart-Scott-Rodino Bill enacted just last year, Congress clearly expressed its intent that consumers, whether "direct" or "indirect" purchasers, were entitled to recover damages for antitrust violations.1 The majority decision in Illinois Brick directly conflicts with the intent of the the Parens Patriae Section of the Hart-Scott-Rodino Bill. The clear purpose of the Parens Patriae amendment was to enable state attorneys general to act on behalf of ultimate consumers whose individual interests might be too small to justify reporate individual lawsuits. Although the Illinois Brick decision did not deal directly with the Parens Patriae Section, the majority opinion's restriction on consumer actions is flatly inconsistent with the whole purpose and spirit of the Hart-Scott-Rodino Bill. Moreover, in a footnote the Supreme Court interprets parens patriae actions as simply a new, procedural device to enforce existing damage claims. This interpretation together with the majority's opinion that most consumers have no existing damage claim decision effectively frustrates the clear legislative intent of Congress. The majority opinion justifies its result in part by arguing that it is compelled by stare decisis to follow the earlier Hanover Shoe case. In Hanover Shoe, the Supreme Court held that the first or "direct" purchaser could recover the entire amount of an overcharge even if most or all of the overcharge were passed on to consumers. In Illinois Brick the Supreme Court said that since first purchasers could under Hanover Shoe recover everything the consumer can recover nothing. The result is that the first purchaser may get a huge undeserved windfall and the real injured party may go entirely uncompensated. 1 Senator Sherman in the debates on the Sherman Act emphasized, consumers could sue in federal courts even where the products like sugar, oil and molasses were ones where the consumer did not deal directly with the trusts. Likewise in part of the floor debate. Senator Hiscock noted that "the middlemen will never commence these actions. I mean the parties who in the first instance purchase of the combinations. the people who are to suffer the damages are those who are distributed all over this broad land, the consumers of the article . . . and they have the right to follow this combination or a party to it wherever he is domiciled and recover damages. Likewise just last year Congressman Rodino, cosponsor of the Hart-Scott-Rodino Act said. "First, if this bill means anything, it means that the State may recover damages for purchasers of price-fixed bread, potato chips, and the like. To argue that consumers must be direct purchasers from the price fixer is to deny recovery in these cases-for the consumer rarely if ever buys potato chips directly from the manufacturer, or bread directly from the bakery. In these cases, the manufactuer invariably sells through wholesalers and retailers grocery stores, drug stores, and the like-and if the intervening presence of such a middleman is to prevent recovery, the bill will be utterly meaningless." In addition, enforcement of the antitrust laws may be impaired because ultimate consumers, who often will have the most incentive to sue are barred unless they happen to be direct purchasers. While many middlemen do sue, many times the first purchaser will not want to sue, or not be in a position to sue. In such cases, unless the ultimate consumer is able to sue, private enforcement of the antitrust laws is effectively precluded. By depriving injured consumers of compensation while granting windfall profits to middlemen, and by impairing the effective enforcement of the antitrust laws, the majority opinion in Illinois Brick raises the serious problems that it is the purpose of these hearings to conclude and to solve. The majority opinion itself in Illinois Brick recognizes some of those problems, but says that stare decisis requires that if Hanover Shoe and Illinois Brick are to be over-ruled, Congress should do it. The bill that is the subject of these hearings does just that. KOHN, SAVETT, MARION & GRAF, P.C., Mr. THOMAS RUNGE, Counsel, House Judiciary Committee, DEAR MR. RUNGE: In accordance with your request, at the conclusion of my testimony today before the Senate Antitrust Subcommittee, I suggest the following for consideration as possible amendments to Section 4 of the Clayton Act: I. Renumber the present paragraph 4, as 4 (1), and add: "4 (2). In addition to any other remedy provided herein, any person who claims to have been affected, directly or indirectly, with or without any direct business relationship or privity between the claimant and any defendant, as a result of anything forbidden in the antitrust laws, may bring suit in any district court in the United States in which a defendant resides, or is found, or has an agent, without respect to the amount in controversy, to compel the said defendant to pay into the registry of the Clerk of Court, for subsequent equitable distribution as may be ordered by the district court to persons, including governmental entities, filing claims therein, an amount equal to the total overcharges or underpayments by said defendant or defendants resulting from such violation, trebled, together with the costs of suit, including a reasonable attorneys' fee, but reduced by the amount of any actual payment theretofore made by said defendant to a plaintiff who has brought suit under Sections 4 (1), 4A or 4C." The amendment may possibly : (1) retain the certainty now existing under the Illinois Brick case for the benefit of the first purchaser; (2) avoid any unanticipated effect on other aspects of antitrust case law; and (3) enable the law to move toward making defendants disgorge the total fruits of their conspiracy, regardless of the ability of a particular claimant or group of claimants to show his particular portion of the total damages. II Another suggestion would be to amend Paragraph 4 to read as follows: "Any person, including without limitation, indirect purchasers from or sellers to defendants who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee." III I think it might also be a good idea to look at the Uniform Commercial Code and the case law in other areas relating to the elimination of privity as a prerequisite for recovery. I will be happy, of course, to discuss these or any other suggestions with your Committee or the Senate Committee at your convenience. Sincerely yours, 99-065-78-31 HAROLD E. KOHN. CONGRESS OF THE UNITED STATES, HOUSE OF REPRESENTATIVES, Hon. PETER W. RODINO, Chairman, Subcommittee on Monopolies and Commercial Law, DEAR MR. CHAIRMAN: The recent Supreme Court decision Illinois Brick v. Illinois has prompted a good deal of interest in the Attorney General's Office in my state. Our Assistant Attorney General has indicated to me his support of attempts to amend Section Four of the Clayton Act allowing indirect purchasers to recover damages for antitrust violations. In light of anticipated hearings on the matter, I am remitting to you a copy of the Assistant Attorney General's letter for your benefit. With warmest regards, I remain Sincerely, JAMES A. BURKE, THE COMMONWEALTH OF MASSACHUSETTS, Re Illinois Brick v. Illinois. DEAR CONGRESSMAN BURKE : As the assistant attorney general charged with the line responsibility for enforcing the antitrust laws within the Commonwealth of Massachusetts and as an individual interested in antitrust matters, I urge you to take action to prevent a potentially grave injury to the general economy of this Nation, as well as to the citizens of this Commonwealth and the United States. The Supreme Court's recent decision in Illinois Brick Company v. Illinois (US Sup. Ct. No. 76-404, 6/9/77), upsets the traditional methods of enforcing the antitrust laws and leaves the price fixer free to perpetrate economic crime without fear of reprisal. By limiting the right of recovery in antitrust actions to the first purchaser from the antitrust violator, the Supreme Court has eroded the backbone of antitrust enforcement-the concept of the private attorney general. A middleman, sub-contractor or retailer who has to rely on good relations with his suppliers to earn a living, can ill-afford to antagonize those suppliers by filing antitrust suits against them. The fear of economic reprisal will have a terribly coercive impact on a middleman's decision in choosing whether or not to sue his supplier for antitrust violations. In my own experience in private practice, I have found the middleman's fear to be very real and a primary reason why such people do not often sue for antitrust violations. The Supreme Court's decision also severely limits the effectiveness of the new federal parens patriae legislation. There are not many industries left wherein a manufacturer sells directly to the consumer. Parens patriae will be limited to small, local conspiracies on the retail level, leaving price fixers on the national level unaccountable for their illegal acts. The policy of the Supreme Court, in giving damages to the initial party who passed-on most of the overcharges from the price fixer to the public, is extremely shortsighted. Once again, it is the consumer who is asked to pay the heavy price for antitrust violations. Not only have consumers rights to sue in their own names for damages been removed, but the Attorney General has also been rendered ineffectual as a protector of consumer rights. The economic implications of the Supreme Court's decision on the entire structure of our system are staggering. Some of the effects of this decision will be felt immediately, while others will impact in later years. I would urge that you consider offering or supporting legislation amending Section 4 of the Clayton Act to allow indirect purchasers to recover their damages from violations of the antitrust laws so as to restore the concept of the private attorney general to a position which will enable him to protect all of us from the dangers of anticompetitive activities. |