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May 5, 1980


The opinion of the court was delivered by: BECKER


This opinion addresses the motion for summary judgment brought by certain defendants *fn1" against plaintiff Zenith Radio Corporation (Zenith) on the grounds that Zenith could only have been indirectly injured by defendants' alleged violations of the antitrust laws, and that its ability to recover is therefore eradicated by the doctrine of Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S. Ct. 2061, 52 L. Ed. 2d 707 (1977).

 The facts of this extensive litigation have been amply described elsewhere, and we need not elaborate them here. *fn2" In brief, Zenith is one of two plaintiffs *fn3" who have brought suit against virtually the entire Japanese consumer electronics product industry, alleging that the Japanese defendants *fn4" and their coconspirators are and have been participants in a massive unitary conspiracy which, by artificially lowering export prices, has for more than twenty years sought the methodical destruction of the United States domestic consumer electronics products industry. The defendants are accused of carrying out the aims of this conspiracy by flooding the American market with imported goods at prices so attractive to consumers that domestic producers suffered serious losses, and were either unable to compete or able to do so only by removing their own production facilities from this country. This conspiracy is alleged to violate §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and § 73 of the Wilson Tariff Act, 15 U.S.C. § 8. Plaintiffs also allege actual and attempted monopolization under § 2 of the Sherman Act; violation of § 801 of the Revenue Act of 1916, better known as the 1916 Antidumping Act, 15 U.S.C. § 72; *fn5" price discrimination under the Robinson-Patman Act, 15 U.S.C. § 13(a); and, as to certain of the defendants, violations of § 7 of the Clayton Act, 15 U.S.C. § 18.

 Section 4 of the Clayton Act, 15 U.S.C. § 15, provides that "(a)ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor" and recover treble damages. In Illinois Brick the Supreme Court confined that treble damage recovery to those "directly injured" by the antitrust violation, rejecting the "pass-on" damage theory proffered by the plaintiff. Because Zenith concededly sells its consumer electronic products to independent wholesalers, *fn6" and not to retailers or ultimate consumers, defendants maintain that any injury which Zenith may have suffered by virtue of defendants' alleged antitrust violations must have been a result of lost sales or lower prices of Zenith's distributors. The distributors' injury would then have been passed back to Zenith in the form of reduced purchases or purchase prices. This passing on, it is asserted, evidences an injury which is solely derivative and indirect, and as such not cognizable under the doctrine of Illinois Brick and the case whose rationale was thought by the Supreme Court inexorably to require the holding in Illinois Brick, Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S. Ct. 2224, 20 L. Ed. 2d 1231 (1968).

 Zenith rejoins by asserting that Illinois Brick must be restricted to its particular factual pattern, and that that case certainly did not overrule sub silentio ninety years of antitrust law and practice by which manufacturers have successfully maintained actions for violations of the antitrust laws by their manufacturing competitors. To grant defendants' motion, Zenith asserts, "would emasculate Section 4 of the Clayton Act and would seriously undermine its purpose as a bulwark in the Congressional scheme of enforcement of the federal antitrust laws." As will be seen in the discussion below, we agree with Zenith's contentions. However, since further elaboration of the parties' contentions will be intelligible only against the backdrop of a discussion of Illinois Brick, we turn now to an explication of that case. *fn7"

 In Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S. Ct. 2061, 52 L. Ed. 2d 707 (1977), plaintiffs, purchasers of completed buildings, brought suit under § 4 of the Clayton Act alleging that defendants, concrete block manufacturers, had engaged in a price-fixing conspiracy in violation of § 1 of the Sherman Act. Defendants sold their concrete block primarily to masonry contractors, who in turn sold to general contractors who incorporated the block into the finished structures purchased by plaintiffs. Thus the only way plaintiffs could have been injured by defendants' price-fixing conspiracy would have been if the overcharge had been passed along throughout the chain of distribution, resulting in proportionately higher prices to plaintiffs, rather than being absorbed at other levels of the chain. Defendants contended that this offensive use of a pass-on theory by an indirect purchaser plaintiff was barred as being logically inconsistent with the previously adopted ban on the defensive use of a pass-on theory in Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S. Ct. 2224, 20 L. Ed. 2d 1231 (1968).

 In Hanover Shoe, which also dealt with an illegal overcharge, the defendant, a manufacturer of shoe machinery, had attempted to show that the plaintiff, a shoe manufacturer who utilized defendant's equipment, had not been injured because it had passed on the overcharge to those who bought its shoes i. e., that the shoe consumer was the only person actually injured by the antitrust violation. The Supreme Court rejected that defensive passing-on theory, holding that a direct purchaser suing for treble damages under § 4 of the Clayton Act is injured by the full amount of the overcharge paid by him, and that evidence of actual injury to the indirect purchasers would not be permitted. 392 U.S. at 494, 88 S. Ct. at 2232.

 The Hanover Shoe Court rooted its decision in two major policy concerns. First, it was disturbed by the specter of "long and complicated proceedings involving massive evidence and complicated theories" which would be necessary to establish the applicability of the pass-on defense. 392 U.S. at 493, 88 S. Ct. at 2231. To assert a pass-on defense, a defendant would be required to trace the effect of the overcharge on his purchaser's business, showing that the overcharge, and not some independent market variable, had determined his pricing policy in a manner which reflected the overcharge, and that the overcharge had not been absorbed and the price independently chosen. The Court felt that this task "would normally prove insurmountable," because the figures would be "virtually unascertainable," id., but assumed that, if the defense were permitted, defendants would frequently assert it (and plaintiffs would have to rejoin), thus entangling the courts in unproductive protracted proceedings.

 The Hanover Shoe Court's second concern was for the effectiveness of enforcement of the antitrust laws through the private treble-damage action. Under the defendant's theory, the ultimate consumer would be the only one ultimately able to bring suit, but that consumer might "have only a tiny stake in a lawsuit and little interest in attempting a class action. In consequence, those who violate the antitrust laws . . . would retain the fruits of their illegality because no one was available who would bring suit against them." 392 U.S. at 494, 88 S. Ct. at 2232. Thus the overcharged direct purchaser was deemed by the Court to have suffered the full injury.

 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' ...

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