The Modernization Commission's Approach To Illinois Brick and Indirect Purchaser Litigation Conference on International Cartels September 8, 2006 Jonathan M. Jacobson

2 The Illinois Brick/Indirect Purchaser Issues  The Illinois Brick decision (U.S., 1977) barred indirect purchasers from suing for overcharge damages under the federal antitrust laws  Some 30 years later, however, over 30 states, either by statute or judicial decision, allow some form of indirect purchaser recovery  In a number of cases, this has led to proceedings both in federal court and numerous state courts, simultaneously, to address damages claims from the same conduct  The Class Action Fairness Act of 2005 has mitigated, but not eliminated, this phenomenon

3 The Illinois Brick/Indirect Purchaser Issues  These indirect purchaser issues were high on the list of questions AMC set down for consideration  The subject was AMC’s first hearing Witnesses representing direct purchaser plaintiffs; indirect purchaser plaintiffs; State AGs; the ABA; and the defense bar

4 The Illinois Brick/Indirect Purchaser Issues  A significant majority of the AMC expressed the view from the outset that the multiplicity of proceedings resulting from the coexistence of Illinois Brick and state indirect purchaser laws was a problem, and that the problem was one that should be addressed through Congressional legislation There was, however, a credible argument advanced that a “wait and see” attitude was appropriate to observe the effects of CAFA But given the ability to plead around CAFA in a number of cases, and the various other problems CAFA does not address (such as the threat of multiple recoveries), a majority expressed the view that additional change was appropriate

5 AMC Recommendations  Six commissioners voted to support the view that the optimal solution, in an ideal world, would be to have the rule of Illinois Brick apply across the board to all federal and state claims  The commissioners recognize, however, that this ideal solution is not a realistic solution; and, so, the AMC will make legislative recommendations that presume indirect purchaser recovery  Only 1 of 12 commissioners expressed the view that “no change” from the current regime is warranted

6 AMC Recommendations 1. “Recommend that Illinois Brick be overruled by statute so that indirect purchasers may sue under federal law to recover damages” (11 favor) 2. Recommend that the rule in Hanover Shoe, barring the pass-on defense in overcharge cases, be modified to provide that defendants’ liability in the single direct/indirect purchaser claims proceeding (described below) will be limited to the damages suffered by direct purchasers (without regard to pass-on), which will be apportioned among all non- remote purchasers in full satisfaction of their claims (11 favor) Where only direct purchasers sue, and indirect purchasers do not or cannot, Hanover Shoe will continue to bar a pass-on defense (10 favor)

7 AMC Recommendations 3. “Recommend a statute that will permit resolution of both pre-trial and trial matters of all purchaser claims in a single forum” (10 favor) This means a limited reversal of Lexecon 4. “Recommend adoption of a statutory provision that would allow removal of all state indirect purchaser actions to federal court to the full extent permitted under the Constitution” (11 favor) A minority (5) would recommend preemption of state indirect purchaser laws rather than relying on removal

8 AMC Recommendations  The AMC report will also encourage courts to structure proceedings so that proof of violation and the total amount of overcharge are separated, where appropriate and permissible, from the allocation of damages among direct and indirect purchasers  Report will also state that it is not the AMC’s intent to alter the standards for class certification; instead, AMC expects that classes will be certified with the same frequency as occurs now pre-legislation This is important because introduction of a pass-on defense, without regard to the class certification process, could lead to great difficulties in certifying classes of either direct or indirect purchasers Thus, individual issues arising from the fact and degree of pass-on should not preclude class certification so long as there is sufficient commonality regarding issues of violation and aggregate overcharge damages

9 Challenges Going Forward  Many issues that we already encounter today: Determining which indirect purchasers can sue and which are too remote (e.g., consumer suits filed against Visa and MasterCard based on alleged overcharges to merchants resolved in Wal-Mart) Determining rates of pass-through from direct to indirect purchasers, and allocation of damages among them Settlement approval processes for cases involving both direct and indirect purchasers

10 Challenges Going Forward  Some new issues that may arise from the proposed legislation Developing class certification standards to allow the single- proceeding resolution that the proposed legislation envisions Ensuring ability to remove cases filed under novel theories of indirect purchaser recovery (e.g., state consumer fraud statutes)