with two alternatives: to overrule (or restrict) Hanover Shoe, or to extend its rule to the offensive use of the pass-on theory. In terms of the facts of Illinois Brick, the latter course would require a holding that only the direct purchaser of the concrete blocks could sue, obviating the necessity of determining whether he had passed on the overcharge to others. In choosing this latter course, the Court echoed the concerns it had voiced in Hanover Shoe, discussing at some length the enormous difficulty of allocating the injury among the links of the distribution chain, and reemphasizing that the congressional policy of encouraging vigorous enforcement of the antitrust laws by private plaintiffs would be impeded by recognition of the pass-on theory. The Illinois Brick Court was also deeply concerned that recognition of the pass-on theory would raise the possibility of multiple recovery for the same antitrust injury by purchasers at different levels of distribution.
The Illinois Brick Court explicitly recognized two exceptions to its rule barring the assertion of pass-on theories, both offensively and defensively. The first exception, which had been formulated previously in Hanover Shoe, covers instances when the direct purchaser and the indirect purchaser are bound by a preexisting cost-plus contract. In such a situation, the Court noted, "(t)he effect of the overcharge is essentially determined in advance, without reference to the interaction of supply and demand that complicates the determination in the general case." 431 U.S. at 736, 97 S. Ct. at 2070. The second exception applies "where the direct purchaser is owned or controlled by its customer." Id. n. 16. Like the cost-plus exception, that situation is one in which "market forces have been superseded." Id. Since the policies underlying Illinois Brick and Hanover Shoe principally the difficulty of proving that an overcharge has been passed on, see 431 U.S. at 732 n. 12, 97 S. Ct. at 2067 would not be as seriously implicated in the cost-plus and control situations, the court carved out narrow exceptions for them.
Both Hanover Shoe and Illinois Brick arose in the context of a seller-purchaser relationship within a single chain of distribution, with allegations of an illegal overcharge. Thus, in that context, the Supreme Court has proscribed the use of the passing-on theory, both defensively and offensively. We are asked by defendants in the case at bar to read these cases broadly and apply their rule to preclude a manufacturer who sells his product through a wholesaler from recovering antitrust damages from an undercharging competitor who sells through a parallel distribution network, on the grounds that it is the wholesaler, and not the manufacturer, who is directly injured by defendants' undercharge. This we will decline to do, holding instead that the rule of Illinois Brick does not apply to this litigation.
A. Introduction: The Parties' Contentions Refined
As we have seen, Illinois Brick holds that an antitrust plaintiff may not assert a pass-on theory of damages. Zenith, however, has not asserted a pass-on theory, relying instead on other methods of calculating damages. But, defendants argue, the only way Zenith can prove it was injured is by showing that the alleged injury directly inflicted on Zenith's distributors was passed on through their distribution chain, thereby damaging Zenith. Since Zenith has not even attempted to trace that injury through the chain, defendants argue that it is barred from recovery by Illinois Brick.
"The fact that the plaintiff may in some colloquial sense be a "competitor' of the defendant (although indirect),"
defendants urge, "does not call for a different result." (emphasis added).
Zenith rejoins that there is no requirement anywhere in the ninety-year history of antitrust law that any injury, to be cognizable under the antitrust laws, must be traced through a seller's distribution network. Rather, it cites page after page of cases which have permitted recovery of antitrust damages by a manufacturer against a competing manufacturer without reference to the method of distribution. See, e.g., Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 89 S. Ct. 1562, 23 L. Ed. 2d 129 (1969); Radiant Burners, Inc. v. Peoples Gas Light & Coke Co., 364 U.S. 656, 81 S. Ct. 365, 5 L. Ed. 2d 358 (1961). See also Cromar Co. v. Nuclear Materials and Equipment Corp., 543 F.2d 501 (3d Cir. 1976). Thus, Zenith argues that Illinois Brick applies only in the restricted factual setting where an overcharge or an undercharge, see In re Beef Industry Antitrust Litigation, 600 F.2d 1148 (5th Cir. 1979), is passed through a single chain of distribution, as it was in Hanover Shoe and Illinois Brick. Had the Supreme Court intended otherwise, Zenith contends, it would have at least hinted that it understood its Illinois Brick result to have such far reaching consequences.
The question before us then is the scope of Illinois Brick : was it intended to reach factual patterns like the one before us? Before addressing that question directly, we shall first discuss the cases which have construed Illinois Brick, for they will be helpful to that analysis.
B. Illinois Brick's Progeny
The cases which have construed Illinois Brick, have, for the most part, refused to extend it beyond its confines. In Dart Drug Corp. v. Corning Glass Works, 480 F. Supp. 1091 (D.Md.1979), for example, the court held that Illinois Brick "bars suit only in those situations where plaintiff's injury is premised on an "overcharge' and where, in order to prove that injury, plaintiff must also demonstrate that persons in the chain of distribution between plaintiff and the antitrust violator passed on the overcharge to plaintiff. Neither the speculative and complex nature of the proof nor the disincentive to sue resulting from the uncertain apportionment of a recovery exists where these two elements are lacking." Id. at 1101. In that case, the court examined the complaint claim by claim, dismissing only the price-fixing claim on Illinois Brick grounds. See also Gas-a-Tron of Arizona v. American Oil Company, 1977-2 Trade Cas. P 61,789 (D.Ariz.1977), which similarly applied Illinois Brick selectively, allowing certain counts to remain.
Similarly declining to broaden the scope of Illinois Brick, a number of courts have held that a vertical conspiracy between links of a distribution chain will take the case out of Illinois Brick. See Fontana Aviation, Inc. v. Cessna Aircraft Co., 617 F.2d 478 (7th Cir. 1980), reversing 460 F. Supp. 1151 (N.D.Ill.1978); Reiter v. Sonotone Corp., 486 F. Supp. 115 (D.Minn.1980); Florida Power Corp. v. Granlund, 78 F.R.D. 441 (M.D.Fla.1978). In Reiter, for example, the defendants, following remand from the U.S. Supreme Court on standing grounds, 442 U.S. 330, 99 S. Ct. 2326, 60 L. Ed. 2d 931 (1979), argued that the action was barred by Illinois Brick because the plaintiff, a retail purchaser of hearing aids, had bought hearing aids from retailers and not from the defendant hearing aid manufacturers. The plaintiff had alleged a vertical conspiracy between manufacturers and retailers to fix retail prices. The court reasoned that the plaintiff's injury was direct even though she bought her hearing aid from an intermediary link in the distribution chain, since she bought the product directly from a member of the alleged price-fixing conspiracy.
In In Re Beef Industry Antitrust Litigation, 600 F.2d 1148 (5th Cir. 1979), the Fifth Circuit extended Illinois Brick slightly by applying its holding in reverse, prohibiting indirect sellers from recovering damages for the monopsonistic undercharges allegedly forced upon them by price-fixing indirect buyers. In that case, the plaintiffs were cattle breeders who alleged that supermarket chains with oligopsony power were able to set the prices at which they would buy beef. The plaintiffs were not allowed to recover against the defendant retail chains because the injury was passed through the intermediary meat packers. Thus Illinois Brick was held to apply when the antitrust violation was at the retail level and the injured party was the original seller, two levels back in the distribution chain. It is readily apparent, however, that this situation was the simple mirror image of the facts in Illinois Brick itself, and involved a claim within a single distribution chain.
In urging us to extend Illinois Brick's rule beyond injuries alleged to have been passed through a single distribution chain, defendants place their primary reliance on two cases. The first is Parkview Markets Inc. v. The Kroger Co., 1978 Trade Cas. P 62,373 (S.D.Ohio 1978), in which plaintiff was a wholesale grocery cooperative which sold groceries to its member retail stores, while the defendant was a consolidated wholesale-retail grocery enterprise. There were therefore, as in this case, two parallel lines of distribution: from Parkview to its member stores, and from Kroger's wholesale operation to its retail units. The alleged antitrust violations are not described in any detail in the opinion of the court, but are said to have "occurred only at the retail supermarket sales level." Id. at p. 76,205. The court held that the plaintiff lacked "standing" to bring an antitrust action for such violations, citing Illinois Brick, supra, Gas-a-Tron, supra, and the district court decision in Beef Industry, supra. We disagree that that result follows inexorably from Illinois Brick. While the Parkview opinion is totally lacking in analysis and is, at best, opaque, the court appears to be saying that Parkview was outside the target area of potential plaintiffs, i. e., that its injury was so indirect as to deny it standing under § 4 of the Clayton Act. See n. 7, supra. To the extent that the opinion does purport to be grounded upon Illinois Brick, we decline to follow it.
Of considerably more value is Mid-west Paper Products Co. v. Continental Group, Inc., 596 F.2d 573 (3d Cir. 1979). One of the plaintiffs in that case, Murray's of Baederwood, was a direct purchaser of consumer bags from competitors of the defendants. Murray's maintained that it was directly injured because its seller was able to charge artificially inflated prices under the "umbrella" of defendant's pricefixing, even though that seller was not directly implicated in the pricefixing scheme. Writing for the court in an extremely thoughtful opinion, Judge Adams viewed the question as essentially one of standing, while looking for guidance to the related theories of antitrust injury and pass-on. These three theories, said Judge Adams,
"each address different aspects of the problem of determining when a person is sufficiently "injured in his business or property by reason of anything forbidden in the antitrust laws,' so as to be eligible to sue for treble damages. Together, they constitute the judicial gloss upon the words of § 4 by which the courts have patrolled the portals to a treble damage action."