of recovery under § 4". (97 S.Ct. 2061, 2069 n. 14) If consumers' rights were in fact so attenuated as the Court has now made them, Congress need not have bothered with authorizing attorneys general to proceed to enforce them via the Hart-Scott-Rodino Act.

I specifically wish to urge the continued retention of Section 4 of H. 8359 (also Section 4 of the Senate Bill), which provides that the amendments to the Clayton Act which would, in effect, eliminate the impact of the Illinois Brick decision would be applicable "to any action commenced under section 4, 4A, or 4C (a) (1) of the Clayton Act, which was pending on June 9, 1977, or filed thereafter". The pretrial preparation of antitrust cases typically occurs over a period of several years. In the previously-mentioned Sugar Antitrust Litigation, which has proceeded in pretrial development much more rapidly than many similar antitrust actions, many of the cases were filed in early 1975, and the State of Minnesota, in particular, initiated its action on March 26, 1975.

It is presently anticipated that the consolidated cases will come to trial in the spring or early summer of 1978. Numerous litigants in scores of pending cases across the country who have been expending substantial amounts of time, effort, and money in the pretrial preparation of their cases, like those in the Sugar cases, should not now be left caught in the middle by a startling Supreme Court decision which is manifestly contrary to the intent of Congress. On behalf of the State of Minnesota, I therefore urge prompt passage of the "Bill to Restore Effective Enforcement of the Antitrust Laws", H. 8359, or a comparable bill such as the Senate Bill, and specifically urge that Section 4 of the Bill, which applies the amendments to all pending cases not be lost or compromised away, but instead be retained in the Bill in order that the parties to long-pending but unadjudicated antitrust cases not be barred from attempting to prove that they suffered injury from an antitrust offense by the Supreme Court's decision in the Illinois Brick case.

[From the New York Times, Oct. 28, 1977]

BRICKING UP AN ANTITRUST LOOPHOLE

If an appliance store buys an air conditioner or a refrigerator or anything else and then discovers the price has been illegally fixed by manufacturers, it may sue for treble damages under the antitrust laws. But if it manages to pass the rigged price on to a consumer, the consumer is out of luck; he cannot sue.

That, in effect, is what the Supreme Court decided last June when it rejected a suit against an Illinois brick manufacturer. The brick company had allegedly fixed the price of building supplies that it sold to builders, and they in turn passed on the added cost to local governments for which they worked. As "indirect" purchasers of bricks, the Court ruled, the local governments had no right to sue for damages.

The Court's judgment was based on a fear that antitrust defendants might otherwise become liable many times over for the same offense. In a 1968 case, the Court ruled that middlemen-wholesalers, contractors-might still sue manufacturers for price-fixing damages, even if the middlemen had passed on every penny of the actual damage to consumers. Hence, Justice White argued, also to allow the indirect purchasers to sue would open the defendants to treble damage claims from several levels of product distribution.

The difficulty now is that the Illinois Brick decision threatens in practice to cripple antitrust enforcement, or to force the Justice Department to seek redress through criminal rather than civil suits. The best deterrent against price-fixing has been the civil suit, often by those wronged indirectly, because of the threat of treble damage payments. The Supreme Court's ruling will also be devastating to class-action suits brought on behalf of groups of consumers by state attorneysgeneral. About 95 percent of such pending claims (totaling about $200 million) are based on indirect purchases.

The only remedy appears to be an amendment to the Clayton Antitrust Act, now being considered by both the House and Senate Judiciary Committees. It would restore the right of indirect purchasers to initiate suits-but under safeguards to protect defendants from *** or frivolous claims. An individual indirect purchaser-who bought the air conditioner-could sue if it seems worth the time or trouble. State attorneys-general could sue on behalf of the whole

The date of the Illinois Brick decision.

class of consumers who bought the air conditioners. But private lawyers would not be able to sue on behalf of a random group of indirect purchasers. Moreover, in response to the Court's concern, the bill would make it impossible for claimants at different levels of product distribution to collect redundant damages.

Some argue that the law as it stands goes far enough. Direct purchasers, they contend, have a powerful incentive to sue conspiring sellers, even when they are able to pass on the excess cost to consumers. But that seems a strange argument, on grounds of equity alone: Why should damages go to middlemen rather than to the people who are actually wronged? In the real world, the direct purchasers are often under pressure to let a price-fix go unprotested. They may be wholesalers who depend on manufacturers for their supplies and fear the loss of distribution rights. Sometimes the wholesalers themselves are vulnerable to antitrust complaints and thus reluctant to risk legal action.

Another argument against the proposed amendment is that it would further complicate antitrust proceedings. In the wake of the Illinois Brick decision, the courts need only determine the price-fixing has been proved and then assess damages. The new amendment would give the courts the extra job of dividing the damage award among direct and indirect purchasers. Few antitrust experts, however, foresee much effect on the work load of the Federal courts; dividing damages used to be a routine part of settling antitrust cases. That is not sufficient reason to tolerate a giant loophole in the Clayton Act.

We need effective antitrust laws to deny price-fixers the fruits of their conspiracies and to dampen inflationary pressures on the economy. Overturning the Illinois Brick decision would help to achieve those goals.

[Letter On Protecting 'Indirect' Buyers]

A LAW IN NEED OF RETROACTIVE APPLICATION

MANHASSET, L.I., October 28, 1977. To the Editor: I applaud your factually and legally accurate editorial on the need for passage of proposed legislative amendments to the Clayton Act to overrule Illinois Brick to insure that indirect purchasers injured in fact have standing to sue. A complicating factor is the need to apply the proposed legislation to cases now pending before the courts. Without retroactive application the Federal Government could lose $205 million in three cases now pending in which the Government is an indirect purchaser. Dismissal of these pending cases, including suits against Pfizer and Bristol Myers, would mean that those indirect purchasers and consumers would be denied recourse for actual injuries suffered.

The proposed bill attempts to make the amendments apply to actions pending or filed after June 9, 1977, and thus retroactive to the date of the Supreme Court decision. Some would argue that application of the statute to pending litigation in an explicit attempt to overrule a recent Supreme Court decision, which interpreted legislation created and adopted by a previous Congress, unconstitutionally violates the due process rights of direct purchasers who otherwise would be the sole parties with a right of action and a claim for damages, Legal research, however, indicates that application to pending cases would be allowed,

According to case precedent and legal commentary, the constitutionality of legislation made expressly retroactive depends on the strength of the policy arguments supporting the legislation and the extent of the abrogation and nature of the rights denied. Policy arguments of Congress made in the name of the commerce power would here outweigh any finding of abrogation of the direct purchasers' rights. The proposed amendments would not significantly abridge rights of direct purchasers, nor could the direct purchasers prove significant reliance on the recent court interpretation.

The proposed legislation would not, as some argue, subvert the will of a previous Congress. It instead would re-establish the intent of that prior legislature which was undermined by a surprise announcement from the Supreme Court. Retroactive application of curative and remedial statutes necessary to re-establish the will of Congress has been upheld. Basic policy allowing all those in fact injured by antitrust violation to recover for those injuries would also allow application to pending cases, once the Rodino-Kennedy amendments are passed.

JOYCE B. HUNDLEY.

[From the Washington Post, Oct. 31, 1977]

PURSUING THE PRICE FIXERS

The Supreme Court, in an unfortunate decision last June, suddenly created a large new obstacle to the enforcement of the antitrust laws. Even if you can prove that you are the victim of a price-fixing conspiracy, the Court said, you cannot recover damages unless you dealt directly with the fixer. In an economy as complex as this country's, with its vast networks of distributors, that is an extremely serious qualification. In many kinds of industry, it effectively eliminates any risk of damage suits over price conspiracies.

This anomaly stands out clearly in the case that the Court heard. The state of Illinois sued the Illinois Brick Co., charging that it had conspired to rig prices of concrete blocks. The state government had let construction contracts, the contractors had hired masonry subcontractors, and it was the subcontractors who actually bought the blocks from Illinois Brick. They presumably passed the price on, through the contractors, to the state.

Since it's not illegal to pass a rigged price on, the state can't sue the middlemen. Legally, the middlemen could sue the manufacturer. But these subcontractors weren't hurt by the conspiracy, if there was one, and in any case they are unlikely to undertake prolonged litigation against their supplier. For all the Court knew, it might have been the grandest conspiracy in the history of concrete blocks. But nobody, under the Court's rule, would recover anything.

How in the world did the Court arrive at that decision? Well, six of the justices got tangled up in a misconceived effort to apply the logic of an earlier, different case to this one. They were worried, for one thing, about creating multiple liabilities for price fixers if everyone down the distribution chain could sue for triple damages. But trial judges have broad authority to consolidate cases and require plaintiffs to allocate damages among themselves. That, in fact, was what happened in these cases before the Court suddenly halted them.

Fixing prices is a crime, and people who engage in it risk criminal prosecution by the Justice Department. But the Justice Department cannot monitor every price tag or pursue every complaint of conspiracy. To keep markets free and competitive, there is great public interest in encouraging a second kind of enforcement-the civil suit by the consumer. It's the consumer who has the sharpest interest in fair pricing. Consumers can be individuals or corporations or, as in the Illinois case, governments. The effect of the Court's decision, if it stands, is to make price-fixing much less dangerous to the conspirator.

Corrective legislation has been drafted under the leadership of Sen. Edward Kennedy (D-Mass.), and the Carter administration vigorously supports it. The opposition is coming, as usual, from those business organizations that celebrate free competition in theory, but find objections to every attempt at actually enforcing it. The Court's decision is an aberration with unhappy implications for the American economy. The remedy is a simple two-page bill, and it is needed urgently.

Hon. PETER W. RODINO, Jr.,

Chairman, Committee on the Judiciary,

KIRKLAND, ELLIS & ROWE, Washington, D.C., October 31, 1977.

Rayburn House Office Building, Washington, D.C.

DEAR MR. CHAIRMAN: On behalf of the Grocery Manufacturers of America, Inc., I am pleased to submit our statement in opposition to H.R. 8359 and similar proposals to overrule the Supreme Court's Illinois Brick decision, and would appreciate its inclusion in the printed record.

For the reasons detailed in our statement, we deem such "quick fix" legislation inappropriate and premature-particularly in view of the multiplicity and confusion of the diverse proposals to nullify the Supreme Court's decision, and reported indications that the Supreme Court may modify the text of its opinion. (BNA ATRR No. 836, p. A-3, October 27, 1977).

Particularly since the Department of Justice is reportedly moving to establish a study commission to recommend improvements in antitrust enforcement, the far-reaching changes in the antitrust enforcement machinery by the pending proposals to nullify Illinois Brick strongly warrant a careful and objective assess

ment by such an expert study group prior to hasty legislative action, which the hearing record to date confirms is bound to create more problems than it resolves. Very truly yours,

Enclosure.

FREDERICK M. ROWE.

STATEMENT BY FREDERICK M. ROWE1 ON BEHALF OF GROCERY MANUFACTURERS OF AMERICA, INC.

This statement, on behalf of the Grocery Manufacturers of America, Inc., is submitted in opposition to H.R. 8359, including all related proposals and drafts seen to date.

While GMA supports vigorous enforcement of the antitrust laws, GMA deems these proposals unwise and premature. Efforts to revise the law under § 4 of the Clayton Act should await a careful assessment of the potential impact on fair and efficient antitrust enforcement within the judicial system, and an objective overall evaluation of the recently fortified antitrust enforcement machinery. According to their sponsors, these efforts are intended "to restore effective enforcement of the antitrust laws," by overruling the Supreme Court's June 9, 1977 decision in Illinois Brick Co. v. Illinois.3

But such intent is misplaced, for

(1) As correctly stated by Mr. Justice Byron White, a former Deputy Attorney General and strong judicial antitrust proponent, the Illinois Brick principle limiting private antitrust claims to the first or "direct" purchaser from the alleged antitrust violator will in fact simplify and expedite antitrust litigation, and make antitrust enforcement more rational, practical, and effective;

(2) The Supreme Court's principle creates neither "windfall profits" for direct buyers, nor enforcement gaps benefiting pricefixing conspirators;

(3) These proposals go far beyond their aim to provide effective redress against price-fixing conspiracies violating the Sherman Act, and would expand the potential reach of all antitrust jurisprudence by novel and confusing terminology, which is likely to foment years of litigation aggravating already serious court congestion;

(4) These hastily-drafted proposals share defects of over- and under-inclusiveness, as well as unfair and questionable purported retroactivity likely to create more problems than they would solve; and

(5) Rather than hasty enactment of quick-fix legislation, the wise course is to obtain the experienced views of the judiciary about the efficient management of complex antitrust cases, and to refrain from imposing new rules until there can be a broader assessment of the recently fortified antitrust enforcement machinery.

This subcommittee began hearings on the proposed legislation, H.R. 8359, with a majority of its members declared to be firm in their resolve to support reversal of Illinois Brick.' But the record compiled to date, by this subcommittee and by the Senate subcommittee, contains litle to support that resolve.

Contrary to contentions that the decision "severely damages private enforcement of the antitrust laws and undermines the deterrent effect of private rights of acion," instead the decision is a "sound" and "serious and constructive response to a significant problem of antitrust litigation," which “does not eviscerate private antitrust enforcement," but instead makes the trebtle damage lawsuit "a more potent weapon."

1 Counsel to the Board of Directors. Grocery Manufacturers of America, Inc.; partner, Kirkland, Ellis & Rowe former Chairman, Section of Antitrust Law. American Bar Association, and Council of Antitrust and Trade Regulation, Federal Bar Association.

My law firm is involved in several lawsnits affected by this proposed legislation.

2 The Grocery Manufacturers of America, Inc. is a trade association of nearly 150 manufacturers of grocery products. located throughout the United States.

345 U.S.L.W. 4611 (June 9. 1977). According to recent reports, the Court may revise its Illinois Brick opinion. BNA ATRR No. 836, October 27, 1977. p. A-3:

Opening statement of Chairman Rodino. September 9. 1977.

F.g.. statement of Assistant Attorney General John Shenefield. p. 1; opening statement of Chairman Rodino, September 9. 1977.

• Statement of David Foster, p. 2.

I. AS CORRECTLY STATED BY MR. JUSTICE BYRON WHITE, A FORMER DEPUTY ATTORNEY GENERAL AND STRONG JUDICIAL ANTITRUST PROPONENT, THE ILLINOIS BRICK PRINCIPLE LIMITING PRIVATE ANTITRUST CLAIMS TO THE FIRST OR "DIRECT" PURCHASER FROM THE ALLEGED ANTITRUST VIOLATOR WILL IN FACT SIMPLIFY AND EXPEDITE ANTITRUST LITIGATION AND MAKE ANTITRUST ENFORCEMENT MORE RATIONAL, PRACTICAL, AND EFFECTIVE

The Supreme Court in Illinois Brick reaffirmed a decision it made nearly ten years ago, Hanover Shoe, Inc. v. The United Shoe Machinery Corp., 392 U.S. 481 (1968), defining the key term "injury" in section 4 of the 1914 Clayton Act.

Each case held, in different settings, that the direct purchaser, and not others within or beyond the chain of manufacture or distribution, was partly “injured in his business or property" within the meaning of that law. Moreover, the direct purchaser "should be deemed for purposes of Section 4 to have suffered the full injury" (slip. op. at 6, 3). It was the Court's concern, in both cases, that under any other rule "the effectiveness of the antitrust treble-damage action would be substantially reduced" (slip op. at 6).

In both cases, the Court decided that the persons "injured" under Section 4 are the first buyers, who have dealth directly with the alleged violator. Alternative theories which would permit claims that such persons actually "pass on" their "injury" to others further down the line of distribution were rejected. Thus, the Hanover Court disallowed a defendant seller's attempt to avoid his own liability by claiming that the plaintiff customer had passed on its "injury" to its own customers as higher prices. Now the Illinois Brick Court has underscored this point, by holding that plaintiffs may not claim that they were "injured" by higher prices passed along to them by somebody else up the line of distribution. The Court was gravely concerned about the practical consequences of authorizing antitrust claims by parties beyond the first "direct" buyer. In the Court's view, "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― from direct purchasers to middlemen to ultimate consumers." This effort "would add whole new dimensions of complexity to treble-damage suits and seriously undermine their effectiveness," and would foment "massive multiparty litigations involving many levels of distribution and including large classes of ultimate consumers remote from the defendant." (Slip Op. at 14, 17). In short, the Court was convinced that the antitrust laws "will be more effectively enforced by concentrating the full recovery for the overcharge in the direct purchasers than by allowing every plaintiff potentially affected by the overcharge to sue only for the amount it could show was absorbed by it." (Slip Op. at 12). For as former United States District Judge and Deputy United States Attorney General Harold Tyler told this subcommittee, the alternative of permitting "virtually every person to sue" would not mean stronger enforcement. Rather, "the facts of life" indicate that in that situation "truly effective enforcement may be weakened rather than strengthened." S

Commercial parties in direct dealings with each other now have strong incentives for antitrust compliance, since any antitrust violation may be redressed by the first buyer through a treble damage recovery which is neither complicated nor diluted by a host of competing claimants.

Moreover, such clear-cut and simplified enforcement will pose clear and manageable issues for determining whether the claimed offense was causally responsible for the claimed injuries, and if so, in what monetary amount. Indeed, the principal basis for the Hanover decision disallowing pass-on theories was the uncertainty and difficulty of analyzing price and output decisions "in the real economic world rather than an economist's hypothetical model," and the costs to the judicial system and to efficient antitrust enforcement of attempting to reconstruct those decisions in the courtroom. (Illinois Brick, slip op. at 8-9).

7 The Court explicitly did not base its decision on questions of "standing to sue" (slip. on. at 5, note 7). Though questions of "standing" may raise issues somewhat similar to those the Court discussed in its decision concerning "injury," nonetheless they are different concerns. The judicial concept of "standing" confines the parties entitled to ask for a court adindication to those who are not too remote from the violation alleged, while "injury" deals with the Clayton Act's statutory reach as to substantive liability in private antitrust enforcement.

Statement of Harold Tyler, p. 3.