ROYAL PRINTING AND THE FTAIA

By Robert E. Freitas¹

In Royal Printing Company v. Kimberly-Clark Corporation,² the Ninth Circuit created an exception to the Illinois Brick³ direct purchaser rule that grants an indirect purchaser standing to sue participants in a price fixing conspiracy "when the direct purchaser is a subsidiary or division of a co-conspirator."⁴ The Ninth Circuit now applies the Royal Printing exception "when a conspiring seller owns or controls the direct purchaser."⁵ The Supreme Court has not approved or adopted the Royal Printing "owned or controlled" exception.

In addition to creating a new Illinois Brick exception, the Royal Printing court established a "full overcharge" rule that allows an indirect purchaser plaintiff to recover the full amount of the price fixing overcharge paid by its direct purchaser supplier. There is no requirement that the plaintiff prove that the overcharge was fully or partially passed on to the indirect purchaser. Further, the defendant is not allowed to defend with evidence that the overcharge was absorbed by the direct purchaser, or to reduce the amount of the plaintiff’s recovery by proving that pass on of the overcharge was not complete. The Royal Printing court concluded that "[d]etermining what portion of the illegal overcharge was ‘passed on’ . . . and what part was absorbed by the middlemen would involve all the evidentiary and economic complexities that Illinois Brick clearly forbade."⁶

The Royal Printing full overcharge rule is not compelled by Illinois Brick, or by Hanover Shoe,⁷ the case from which the limitation on the use of evidence of pass on in antitrust cases is derived. Hanover Shoe and Illinois Brick are based on an interpretation of Section 4 of the Clayton Act⁸ making the direct purchaser the only party that is "injured in [its] business or property" within the meaning of Section 4 by the payment of an illegal overcharge. In both Hanover Shoe and Illinois Brick, the Supreme Court expressed concern about "evidentiary and economic complexities" associated with proof of pass on, but the basis for the Court’s decisions was the determination that the direct purchaser is the injured party under Section 4. Illinois Brick did not simply "forbid" evidence of pass on based on "evidentiary and economic complexities." The Royal Printing full overcharge rule—which allows indirect purchaser recovery without proof of injury—is a questionable application of Illinois Brick, and is arguably inconsistent with the Hanover Shoe interpretation of Section 4.

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Regardless of how the full overcharge rule ultimately fares under Section 4, Hanover Shoe, and Illinois Brick, the requirements of the Foreign Trade Antitrust Improvements Act ("FTAIA")⁹ present additional issues. Under the FTAIA, foreign anticompetitive conduct is not subject to the Sherman Act unless it "involves" import trade or commerce, or produces an effect on import or domestic commerce that is "direct, substantial, and reasonably foreseeable."¹⁰ Without proof that a price ixing overcharge, or other anticompetitive harm, was passed on by the owned or controlled direct purchaser to the plaintiff, no "effect" on import or domestic commerce can be established. Nothing in Hanover Shoe or Illinois Brick allows a complexity-based disregard of the requirements of the FTAIA effects exception.

In United States v. Hsiung,¹¹ a criminal price fixing case involving TFT-LCD panels, the Ninth Circuit treated proof of pass on as a routine way to satisfy the effects exception. There is no reason why a similar approach should not be taken in civil cases. Royal Printing, a pre-FTAIA court of appeals decision, cannot justify a lessening of the proof requirements established by the FTAIA.

HANOVER SHOE AND THE ORIGINS OF THE DIRECT PURCHASER RULE

The direct purchaser rule has roots going back to Hanover Shoe, in which the Supreme Court barred the defensive use of pass on. As a matter of interpretation of Section 4 of the Clayton Act, the Hanover Shoe Court determined that the direct purchaser is the party "injured in [its] business or property" by the payment of an illegal overcharge,¹² and held that a defendant may not negate the plaintiff’s proof of injury with evidence that the overcharge was passed on to the plaintiff’s customers.¹³ In Illinois Brick, the Supreme Court upheld the Hanover Shoe interpretation of Section 4, and refused to allow a plaintiff to demonstrate injury by proving that its direct-purchaser supplier passed on an overcharge.¹⁴

Illinois Brick also addressed an "owned or controlled" paradigm different from the one at issue in Royal Printing. In Hanover Shoe, the Supreme Court had "indicated the narrow scope it intended for any exception to its rule barring pass-on defenses" by mentioning only "a pre-existing cost-plus contract" as a possible justification for an exception.¹⁵When a direct purchaser resells price-fixed goods pursuant to a cost-plus contract, "[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."¹⁶ The Illinois Brick Court stated that "[a]nother situation in which market forces have been superseded and the pass-on defense might be permitted is where the direct purchaser is owned or controlled by its customer."¹⁷

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THE ROYAL PRINTING EXCEPTION TO THE DIRECT PURCHASER RULE

The Royal Printing court did not rely on the idea that market forces are superseded when a "division or subsidiary" of a conspirator sells price-fixed goods to its customer, although it acknowledged the supersession of market forces as the basis for the potential "owned or controlled" exception mentioned in Illinois Brick.¹⁸ Nor did the court suggest a parallel supersession of market forces that is relevant when a conspirator owns or controls the direct purchaser and a customer of the direct purchaser is a price fixing plaintiff. The court explicitly recognized that "the pricing decisions of such a subsidiary or division" might be "determined by market forces."¹⁹ Indeed, the court concluded that "[a]lthough the wholesalers here are owned or controlled by appellees, the wholesalers’ pricing decisions are determined by market forces."²⁰ The court therefore acknowledged that the idea behind the potential "owned or controlled" exception discussed in Illinois Brick was not applicable.

Royal Printing is based on an entirely different line of reasoning, that it is necessary to recognize a "subsidiary" or "owned or controlled" exception, lest private antitrust enforcement be unavailable when conspirators sell price-ixed goods through intermediaries. The court began its analysis with the idea that "[t]he threat of private treble-damages suits is vital to the enforcement of the antitrust laws," and stated that "[i]t was the purpose of Hanover Shoe and Illinois Brick to increase the effectiveness and deterrent power of such suits."²¹ The court then observed that private enforcement was limited to direct purchasers "because of the twin rationales of danger of multiple liability and complexity of proof."²² Finding neither a danger of multiple liability nor a complexity problem, the court created a new exception, holding "that Illinois Brick does not bar an indirect purchaser’s suit where the direct purchaser is a division or subsidiary of a co-conspirator."²³

Relying on the idea that the litigation decisions of subsidiaries "will usually be subject to parental control," the court concluded that a participant in a price ixing conspiracy has "little reason . . . to fear a direct purchaser’s suit when the direct purchaser is a subsidiary or division of a co-conspirator."²⁴ "The co-conspirator parent will forbid its subsidiary or division to bring a lawsuit that would only reveal the parent’s own participation in the conspiracy," and the risk of multiple liability discussed in Illinois Brick is therefore absent.²⁵

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THE ROYAL PRINTING "FULL OVERCHARGE" RULE

The Ninth Circuit eliminated complexity concerns by the adoption of a rule that allows an indirect purchaser plaintiff to recover the "full overcharge" paid by the direct purchaser. "Determining what portion of the illegal overcharge was ‘passed on’ to Royal Printing and what part was absorbed by the middlemen would involve all the evidentiary and economic complexities that Illinois Brick clearly forbade."²⁶ The court understood that allowing Royal Printing to recover the full overcharge, despite the likelihood that the direct purchaser absorbed at least a part of the overcharge, created a risk of a windfall recovery, trebled.²⁷ The court considered this windfall "no more than was approved in Hanover Shoe, where the plaintiff was allowed to recover its ‘full’ damages even though it had ‘mitigated’ its damages by passing part of the excessive costs on to its customers."²⁸

Because "[n]either of the rationales (multiple liability and complexity) underlying Illinois Brick"²⁹ was seen to apply, the court created its new exception, not based on an interpretation of Section 4, and allowed indirect purchasers to recover the full amount of the overcharge without proving that they were harmed in any amount. The Ninth Circuit took this step although, unlike in Hanover Shoe and Illinois Brick, the party whose standing was recognized had not necessarily been injured within the meaning of Section 4. The court did not address the Hanover Shoe interpretation of Section 4, which made the direct purchaser an injured party because it paid an overcharge, or offer an alternative theory by which it could be said, without proof of pass on, that Royal Printing was "injured in [its] business or property."

[Page 279]

THE UTILICORP APPROACH TO EXCEPTIONS TO ILLINOIS BRICK

The Royal Printing court was concerned that the strict application of Illinois Brick would eliminate private enforcement in situations in which price fixed goods are sold through intermediaries and, perhaps, by the thought that a price fixer could actively evade liability by structuring its business so that the only direct purchasers of price-fixed goods would be owned or controlled affiliates. The Supreme Court took a different approach in Kansas v. Utilicorp United Inc.³⁰ As the Court explained, "ample justification exists for our stated decision not to ‘carve out exceptions to the [direct purchaser] rule for particular types of markets.’"³¹ The Supreme Court concluded that, "even in rather meritorious circumstances," allowing exceptions "would undermine the rule."³²

In Utilicorp, the Supreme Court frankly acknowledged that its "decisions in Hanover Shoe and Illinois Brick often deny relief to consumers who have paid inflated prices because of their status as indirect purchasers."³³ The Court nonetheless affirmed both the interpretation of Section 4 underlying the direct purchaser rule and declined to approve a process of case-by-case evaluation of the efficacy or appropriateness of the rule. As the Ninth Circuit later observed in Delaware Valley Surgical Supply v. Johnson & Johnson³⁴ "[t]he Court refused to create an exception to the Illinois Brick rule, even where its previous concerns ‘about the difficulties of apportionment, the risk of multiple recovery, and the diminution ofincentives for private antitrust enforcement’ would ‘not apply with equal force.’"³⁵

In Delaware Valley Surgical Supply, the Ninth Circuit concluded that that the "firm rule" of Illinois Brick "does not provide us the leeway to make a policy determination on a case-by-case basis as to whether standing should be recognized when there are special business arrangements."³⁶

ROYAL PRINTING AND THE HANOVER SHOE INTERPRETATION OF SECTION 4

The Ninth Circuit’s assumption that current subsidiaries are not likely to sue their parents or their parents’ conspirators seems generally sound, but the court’s recognition of indirect purchaser standing is not consistent with the foundation of the direct purchaser rule. Hanover Shoe held that only the direct purchaser is "injured in [its] business or property" within the meaning of Section 4. "We think it sound to hold that when a buyer shows that the price paid by him for materials purchased for use in his business is illegally high and also shows the amount of the overcharge, he has made out a prima facie case of injury and damage within the meaning of §4."³⁷ Under the Hanover Shoe interpretation of Section 4 followed in Illinois Brick, when a plaintiff proves that it has paid an overcharge, injury and damage within the meaning of Section 4—and thus standing to sue—are established. It is a significant step from simple application of Hanover Shoe and Illinois Brick to a standing rule that dispenses with proof that the plaintiff paid an illegal overcharge.

[Page 280]

If an overcharge paid by the direct purchaser is not passed on, an indirect purchaser allowed to recover the full overcharge under Royal Printing has not been injured at all, factually or as a matter of the application of the Hanover Shoe interpretation of Section 4. An indirect purchaser is also not injured in fact in the full amount of the overcharge paid by its supplier if pass on is not complete. Illinois Brick precludes the use of pass on to prove that an indirect purchaser plaintiff was harmed; Royal Printing provides the indirect purchaser a claim without proof that it was harmed.

The Ninth Circuit’s assertion that Illinois Brick "forbade" the "evidentiary and economic complexities" involved in proof of pass on³⁸ does not capture the entire picture. A foundation for Illinois Brick is the conclusion in Hanover Shoe that only the direct purchaser is injured within the meaning of Section 4. In both Hanover Shoe, where a pass on defense to a direct purchaser’s claim was not allowed, and Illinois Brick, in which an indirect purchaser was not allowed to create a claim by proving pass on, a predicate is that the direct purchaser paid an overcharge and suffered harm within the meaning of Section 4. The Royal Printing full overcharge rule produces a different result, allowing a party not injured in the sense recognized in Hanover Shoe and Illinois Brick—and perhaps not injured at all—to sue.

The Supreme Court was motivated in Hanover Shoe and Illinois Brick to adopt and enforce the direct purchaser rule by the complexity considerations mentioned in Royal Printing, but the reasoning employed by the Supreme Court in Hanover Shoe and Illinois Brick does not necessarily call for a rule forbidding reliance on pass on in all circumstances. The Ninth Circuit’s adoption of a rule allowing a party other than the party held to be injured in Hanover Shoe to sue should not have been seen as a simple matter of following the Illinois Brick teaching on the problems associated with proof of pass on.

[Page 281]

THE FULL OVERCHARGE RULE AND THE FTAIA

This article is not, however, directed to the question of whether the Royal Printing full overcharge rule is ultimately justified by Illinois Brick, or to consideration of whether the Ninth Circuit’s creation of a new exception to Illinois Brick in Royal Printing is consistent with the approach to exceptions to the direct purchaser rule taken by the Supreme Court in Hanover Shoe, Illinois Brick, and Utilicorp. Instead, the article looks at the Royal Printing full overcharge rule through the lens of the FTAIA. Under the FTAIA, the Sherman Act does not apply to foreign price fixing and other anticompetitive conduct taking place outside of the United States, and not "involving" import trade or commerce, unless the conduct has a "direct, substantial, and reasonably foreseeable" effect on domestic commerce (or import or export commerce).³⁹

Hanover Shoe and Illinois Brick construe the injury requirement of Section 4 in a manner that makes consideration of pass on unnecessary (where a direct purchaser sues) or unavailing (where an indirect purchaser is the claimant). A different context is presented when the FTAIA "effects" exception is at issue. The Section 4 "injury" requirement remains, and an additional demand is placed on the plaintiff. It must prove injury, and it also must prove that its claim "arises out of" an effect on domestic commerce that is "direct, substantial, and reasonably foreseeable." In a price fixing case based on foreign conduct, with a foreign direct purchaser, proof of pass on is essential to proof of a direct effect, or any effect, on domestic commerce. There is no domestic "effect" when an overcharge paid by a foreign direct purchaser is fully absorbed by the direct purchaser.

The pre-FTAIA Royal Printing full overcharge rule allows a plaintiff to avoid proof of pass on. Thus, in a case in which a domestic indirect purchaser makes a claim based on foreign price fixing followed by a foreign direct purchase, the plaintiff avoids proof of a domestic effect. Is the Royal Printing full overcharge rule consistent with the FTAIA? Existing case law does not answer this critical question. In United States v. Hsiung,⁴⁰ however, the Ninth Circuit approved a methodology for proving a domestic effect that is dependent on proof that a price fixing overcharge was passed on by the direct purchaser. Hsiung helps explain why the Royal Printing full overcharge rule must yield to the FTAIA’s specific statutory requirement of proof of a direct effect on domestic commerce.

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FTAIA Basics

The FTAIA reads:

Sections 1 to 7 of this title shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless—

(1) such conduct has a direct, substantial, and reasonably foreseeable effect—

(A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or
(B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and

(2) such effect gives rise to a claim under the provisions of sections 1 to 7 of this title, other than this section.

If sections 1 to 7 of this title apply to such conduct only because of the operation of paragraph (1)(B), then sections 1 to 7 of this title shall apply to such conduct only for injury to export business in the United States.

As the Supreme Court has explained, the "technical language [of the FTAIA] initially lays down a general rule placing all (nonimport) activity involving foreign commerce outside the Sherman Act’s reach."⁴¹ The reference to "nonimport" activity is necessary because of the "import commerce exclusion" contained in the parenthetical in the preamble of the statute. Conduct "involving" import trade or commerce falls within the exclusion, and thus outside the FTAIA.⁴² The Sherman Act is fully applicable to foreign conduct when the conduct "involves" import commerce, but the situation is otherwise more complicated.⁴³

After initially carving out all foreign conduct, the FTAIA "brings such conduct back within the Sherman Act’s reach provided that the conduct both (1) sufficiently affects American commerce, i.e., it has a ‘direct, substantial, and reasonably foreseeable effect’ on American domestic, import, or (certain) export commerce, and (2) has an effect of a kind that antitrust law considers harmful, i.e., the ‘effect’ must ‘giv[e] rise to a [Sherman Act] claim.’"⁴⁴

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IDENTIFYING "DIRECT" EFFECTS

The courts of appeals are divided on the test to be applied under the FTAIA in the determination of whether an effect is "direct." The Ninth Circuit considers an effect "direct" if it "follows as an immediate consequence of the defendant’s activity."⁴⁵ The Seventh Circuit, joined by the Second Circuit, applies a "reasonably proximate causal nexus" test.⁴⁶ Under either standard, proof in a price fixing case of a "direct" effect may consist of evidence that an overcharge paid by the direct purchaser of a price-fixed commodity was passed on to the direct purchaser’s customers.

Royal Printing is commonly cited to support claims by domestic purchasers of finished products containing components that were the subject of foreign price fixing. When the direct purchasers of the price-fixed components are affiliates of conspirators, the finished product purchasers rely on the Royal Printing "owned or controlled" exception to expand the scope of their potential recovery.⁴⁷

Royal Printing was not a component case, and component cases differ from resale cases in a manner that may distinguish them for purposes of the Royal Printing full overcharge rule. Finished product buyers nonetheless rely on Royal Printing to dispense with a need for proof of "upstream" pass on of the component overcharge, and situations that, as Hsiung did, involve components are addressed here. Regardless of whether a finished product sale or the resale of a price-fixed commodity is in issue, more than reliance on the Royal Printing full overcharge rule is required under the FTAIA.

PASS ON UNDER HSIUNG

As the Hsiung court explained, "the FTAIA is . . . a component of the merits of a Sherman Act claim involving nonimport trade or commerce with foreign nations."⁴⁸ "[I]f the government proceeds on a domestic effects theory, . . . the government must plead and prove the requirements for the domestic effects exception to the FTAIA, namely that the defendants’ conduct had ‘a direct, substantial, and reasonably foreseeable effect" on United States commerce."⁴⁹ A civil plaintiff must satisfy the same requirements to establish the FTAIA-related elements of its Sherman Act claim.

In a component price fixing case, the idea is that the "direct effect" on the domestic finished product buyer is an increase in the price of the finished product that is attributable to price fixing at the component level. An effect of this type is possible only if a price fixing overcharge paid by the finished product manufacturer is passed on when the finished products are sold. Hsiung provides an illustration.

[Page 284]

In Hsiung, the indictment alleged that "’the substantial terms’ of the conspiracy were an agreement ‘to fix the prices of TFT-LCDs for use in notebook computers, desktop monitors, and televisions in the United States and elsewhere.’"⁵⁰ The "evidence under the domestic efects exception . . . was directed at foreign sales of panels that were incorporated into finished consumer products ultimately sold in the United States."⁵¹ The indictment did not allege inished product price ixing. In its simplest sense, the evidence was directed to proof that "if the panel price goes up, then it will directly impact the monitor set price."⁵² The court said "the practical upshot of the conspiracy would be and was increased prices to customers in the United States."⁵³ In summary, the court pointed to "the integrated, close and direct connection between the purchase of the price-fixed panels, the United States as the destination for the products, and the ultimate inflation of prices in finished products imported to the United States."⁵⁴

Most of what the court said in its effects discussion explicitly refers to the pass on of a price ixing overcharge. The suggestion from the court’s comments is that the trial evidence established that the overcharges resulting from the overseas ixing of the prices of the TFT-LCD panels were passed on by the inished product manufacturers and resulted in higher inished product prices in the United States. There is no indication in Hsiung that evidence of pass on is not admissible to show higher domestic prices attributable to the foreign price ixing, and no suggestion of another way to establish the existence of a "direct" efect on domestic commerce under the FTAIA. Hsiung recognizes proof ofpass on as an acceptable way to satisfy the effects exception.

Hsiung is a sufficiency of the evidence case on the effects issue, and the opinion does not contain either an explicit proof roadmap, or a detailed discussion of the government’s evidence of pass on.⁵⁵ While there is no mention of the use of the rigorous econometric analysis that is common in civil cases in which pass on is in issue under state law, there is no reason to believe that formal proof of this type would not be admissible. If the seemingly anecdotal evidence cited in Hsiung is sufficient, more detailed evidence must also suffice. The court’s focus was on the evidence said to support a conviction,⁵⁶ but nothing in Hsiung suggests that a defendant could properly be forbidden from attempting to refute the existence of a direct efect with pass on-related evidence. If, as in Hsiung, evidence that inished product prices were increased as a result of component price ixing is admissible, evidence that domestic inished product prices were not afected (notwithstanding foreign component price fixing) must also be allowed.

[Page 285]

DIRECT EFFECTS AND PASS ON

Evidence of pass on is necessary to establish a domestic effect, regardless of whether the price fixed good is resold or is a component of a finished product. Pass on evidence also has a role in determining whether any proven effect is "direct." The Hsiung defendants argued that the foreign conduct in issue was "too attenuated from the United States and that the intervening development, manufacture, and sale" of finished products throughout the world "resulted in a diffuse effect."⁵⁷ The Ninth Circuit found the evidence sufficient to support a jury finding that the domestic effect was "direct," even stating that the evidence "leads to one conclusion," but a contrary result is plausible in a given case under the Ninth Circuit "immediate consequence" test.⁵⁸

"A wide range of factors influence a company’s pricing policies,"⁵⁹ and it is not always a simple task to identify one factor as responsible for changes in a company’s prices or pricing practices.⁶⁰ The Hanover Shoe Court considered it "normal" that "the impact of a single change in the relevant conditions cannot be measured after the fact," and expressed doubt that a seller would be able to say convincingly that a difference in one fact would have produced "a different price."⁶¹ With evidence of pass on essential to the finding of an effect, doubt about whether a price fixing overcharge was passed on—and, if it was, the extent or frequency of pass on—are relevant in the assessment of whether the effect on domestic commerce resulting from pass on is "direct."

Evidence that pass on did not occur is plainly admissible to show the absence of an FTAIA "effect" on domestic commerce. When there is evidence that pass on occurred, but not always completely, the Ninth Circuit’s "immediate consequence" standard should also allow the admission of evidence about the process by which pass on occurs and the extent, frequency, and variation of pass on. That pass on is not always complete, or does not always occur, shows that pass on is not an automatic or inevitable result of the underlying price fixing. Thus, the effect on domestic finished product commerce that results from pass on may not be an "immediate consequence" of foreign price fixing. The pricing aspect of the "intervening development, manufacture, and sale" of the price-fixed goods, or finished products in which they are incorporated, may provide evidence that an increase in the resale price of a price-fixed good or the price of a finished product is not the "immediate consequence" or the invariable consequence of the challenged conduct.

THE IMPACT OF THE FTAIA

The idea that intervening processes might negate the existence of a "direct" effect in resale cases, or finished product cases based on component price fixing, is consistent with the backdrop against which the FTAIA was enacted. The context in which the law was written presents little reason to fear an interpretation or application of the "direct" requirement that would more than occasionally bar indirect purchaser claims.

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In 1982, when the FTAIA was enacted, Illinois Brick had been the law for five years, and Hanover Shoe for almost another decade. Given the approach to exceptions taken in both Hanover Shoe and Illinois Brick, Congress would have expected indirect purchaser claims to be infrequent at best. Congressional alarm at the thought that indirect purchaser claims under the Sherman Act might be severely limited by the requirement of a direct efect is not likely. A Congress that took no steps to eliminate the direct purchaser rule would not have expected indirect purchaser claims to be made in great numbers, and would not have gone out of its way to preserve them. For this reason, it is not necessary to seek to conine the impact of the "direct" requirement so that its impact on indirect purchaser claims is minimized.

There is also no reason to assume that Royal Printing, a court of appeals decision not squarely consistent with Hanover Shoe and Illinois Brick, would have been taken as a settled statement of the law. Even if Royal Printing were understood as a guiding statement of the law, it would not have been thought to require a conclusion that the efect of price ixing on indirect purchasers is always "direct," or even that an effect on indirect purchasers always occurs. The Royal Printing court found it probable that "market forces. . . . forced the middlemen to absorb part of the overcharge,"⁶² and the interaction of those market forces and the internal factors driving direct purchaser pricing decisions can fairly be expected to lead in a given case to an efect that is not "direct." Hsiung treated the impact of component price fixing on finished product sales as a jury issue affected by "ambiguity," and the evidence presented in other cases will similarly "raise[] a question regarding whether the effects were sufficiently direct to uphold a verdict based on [a] domestic efects claim."⁶³

The cases that established the direct purchaser rule and limited the use of pass on predate the FTAIA, and Hanover Shoe and Illinois Brick are based on an interpretation of Section 4 that does not preclude or limit the use of evidence of pass on in a case governed by the FTAIA. Because the direct purchaser is considered the party to have been injured within the meaning of Section 4, the ofensive and defensive use of pass on cannot be used to prove or refute a claim of Section 4 injury to the direct purchaser’s business or property. When the FTAIA efects exception is in issue, however, evidence of pass on has another role not addressed in Hanover Shoe or Illinois Brick.

As the government did in Hsiung, a civil claimant proceeding under the Royal Printing owned or controlled exception could ofer evidence that a price ixing overcharge was passed on to demonstrate an effect on domestic commerce. (No other technique for proving a direct efect seems possible, and none appears to have been attempted by the government lawyers in Hsiung.) A defendant might ofer evidence that pass on did not occur for the opposite purpose, or the defendant might present a detailed examination of the process by which pricing or pass on decisions are made to establish that any resulting impact was not an "immediate consequence" of the foreign price ixing in issue, and thus not a "direct" efect. Hanover Shoe and Illinois Brick did not consider the appropriateness of, or the necessity for, the presentation of evidence of pass on under the subsequently-enacted FTAIA.

[Page 287]

The Supreme Court did, however, express concern about the complexity and difficulty associated with the use of economic evidence in antitrust cases. Much ofwhat the Court said could also be applied to the evidence conventionally and without methodological controversy presented by plaintiffs to establish the existence and extent of an overcharge in price fixing cases. The typical overcharge evidence is just as complex, just as difficult to understand, and just as difficult to apply "in the real economic world rather than an economist’s hypothetical model" as evidence of pass on.⁶⁴ The Hanover Shoe Court’s observation that it is "normal" that "the impact of a single change in the relevant conditions cannot be measured after the fact" could be applied to the proof needed to construct the "but for world" and measure the alleged impact of price fixing. ⁶⁵ Economic evidence of pass on has nonetheless received separate scrutiny in light of Hanover Shoe and Illinois Brick, and the additional issues that are presented when apportionment of an overcharge among multiple buyers is in issue.

The principal justification for the Royal Printing full overcharge rule is the Illinois Brick concern with the complexity associated with attention to proof of pass on. This, in turn, was the primary basis for the preclusion of the pass on defense under the Supreme Court’s interpretation of Section 4 in Hanover Shoe:

"The principal basis for the decision in Hanover Shoe was the Court’s perception of the uncertainties and difficulties in analyzing price and out-put decisions ‘in the real economic world rather than an economist’s hypothetical model,’ and of the costs to the judicial system and the efficient enforcement of the antitrust laws of attempting to reconstruct those decisions in the courtroom. This perception that the attempt to trace the complex economic adjustments to a change in the cost of a particular factor of production would greatly complicate and reduce the effectiveness of already protracted treble-damages proceedings applies with no less force to the assertion of pass-on theories by plaintiffs than it does to the assertion by defendants."⁶⁶

Under the FTAIA, however, an indirect purchaser cannot prove a domestic effect from foreign price fixing without evidence of pass on. The complexity concerns that underlay the Supreme Court’s unwillingness to construe Section 4 in a manner recognizing injury to any but the direct purchaser cannot be used to justify the exclusion of evidence of pass on under the FTAIA.

It is also worth mentioning that the practical significance of the complexity concerns noted by the Supreme Court has arguably changed in the years since Hanover Shoe. In the wake of Illinois Brick, many states adopted so-called Illinois Brick "repealer" statutes that authorize indirect purchaser claims. These statutes require evidence of "upstream" pass on to establish injury (much as the FTAIA requires proofofpass on to demonstrate a domestic effect) and some allow a "downstream" pass on defense. Thus, managing the complexity associated with the type of pass on evidence necessary to prove an effect on domestic commerce under the FTAIA does not necessarily add to the burdens on a district court in modern price fixing litigation. As a result of the Class Action Fairness Act, most state law price fixing class actions end up in federal court, typically in the multidistrict litigation court in which federal law direct purchaser class actions are litigated. When state law claims are tried, the court will often be required to wrestle with the issues presented by upstream pass on, and, when the plaintiff or plaintiff class is not at the ultimate consumer level, downstream pass on.

[Page 288]

The Supreme Court was aware of the existence of statistical models by which economists assess pass on, but not convinced that they offer an efficient way to address the issues associated with the evaluation of pass on. "Under an array of simplifying assumptions, economic theory provides a precise formula for calculating how the overcharge is distributed between the overcharged party (passer) and its customers (passees). If the market for the passer’s product is perfectly competitive, the overcharge is imposed equally on all of the passer’s competitors, and the passer maximizes its profits, then the ratio of the shares of the overcharge borne by passee and passer will equal the ratio of the elasticities of supply and demand in the market for the passer’s product."⁶⁷ The Court considered it "unrealistic to think that elasticity studies introduced by expert witnesses will resolve the pass-on issue,"⁶⁸but it is often no more realistic to think that economic analysis will accurately replicate the "but for world" essential to proper measurement of the impact of price fixing on the price of the affected goods. Regardless of how difficult credible proof of pass on or its extent may be, or whether the economic evidence used to prove pass on can be distinguished from the economic evidence freely admitted on other issues, difficulties of this type cannot justify disregard of the explicit requirement of the FTAIA that a domestic effect be proved. Hsiung illustrates that proof of pass on is essential to this task.

FURTHER REASONS FOR LIMITING THE FULL OVERCHARGE RULE

When the effects exception is in issue, a price fixing plaintiff must present proof of pass on to establish a direct effect on domestic commerce. There is no justification for a rule that forbids a defendant from attempting to refute a claim of a direct effect with evidence that pass on did not occur, or with evidence directed to the nuance associated with pass on. In theory, this might lead to the admission of evidence of pass on with respect to FTAIA issues only, but that would not be a proper or sensible result. There is a "direct" link between the effects exception and proof of damages, and ample policy justification for rejecting the Royal Printing windfall once it is understood that pass on-related evidence must be admitted under the FTAIA.

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DISREGARDING EVIDENCE OF PASS ON

What would be the point of disregarding evidence of the occurrence or extent of pass on for damages purposes if the evidence were admitted to establish or to refute the existence of a "direct" effect?

The essential basis for the full overcharge rule was the idea that a determination of the extent to which the overcharge was passed on "would involve all the evidentiary and economic complexities that Illinois Brick clearly forbade."⁶⁹ For this reason, the Ninth Circuit concluded, "Royal Printing cannot sue the appellees only for the portion of the overcharge that was passed on to it through the wholesaling subsidiary and division."⁷⁰When "evidentiary and economic complexity" is injected into the case as a result of the requirement that a direct efect on domestic commerce be proven, there is no reason to ignore the evidence when damages are calculated.

"GIVES RISE TO"

The FTAIA also requires that the extent of pass on be considered as a part of the damages determination. The efects exception is satisied when the anticompetitive foreign conduct "has a direct, substantial, and reasonably foreseeable effect" on domestic commerce, and the domestic efect "gives rise to" the plaintif’s claim.⁷¹ The requirement that the domestic efect "give rise to" the plaintif’s claim calls for the rejection of the Royal Printing full overcharge rule. Price increases that are not passed on do not "give rise to" a claim.

Many pass on disputes are based on disagreement about the extent to which an overcharge was passed on. Even when the parties agree that pass on occurred to a signiicant extent, as economic theory suggests it will in certain market contexts, material disagreements commonly exist about the rate at which price ixing overcharges and other cost increases were passed on to the direct purchaser’s customers. A plaintif typically asserts an average upstream pass on rate of 100% (or more). Defense evidence, on the other hand, suggests a lower rate that reflects absorption of part of the overcharge by the direct purchaser. In some cases, the defendants may contend that any overcharge was fully absorbed by the direct purchaser.

When pass on does not occur—i.e., when the full amount of the overcharge is absorbed by the direct purchaser—there is no "effect" on domestic commerce, and no basis on which the Sherman Act can be applied to foreign conduct. When pass on occurs, but is not complete, there is similarly no effect resulting from the part of the overcharge that is not passed on to the customers of the direct purchaser. If, for example, the jury determines that, on average, 60% of the proven overcharge was passed on by the direct purchaser, the 40% absorbed by the direct purchaser has no efect—and thus no "direct" efect—on domestic commerce. The absorbed overcharge does not produce an efect that can "give rise to" the plaintif’s claim. When pass on is partial, the plaintif’s recovery must be limited under the FTAIA to the part of the overcharge paid by the direct purchaser, as it plainly would be absent any restriction on the use of evidence of pass on. Having been absorbed by the direct purchaser, and not being paid by the indirect purchaser plaintif, the 40% in this example cannot "give rise to" the plaintif’s claim.

[Page 290]

ABSENCE OF APPORTIONMENT ISSUES

Proof of a direct efect under the FTAIA also does not include the full collection of issues that might be associated with the apportionment of damages across multiple levels of distribution, a concern the Supreme Court addressed in Illinois Brick. There is no likelihood that claimants at multiple levels will be present when the FTAIA efects exception is in issue in a resale or component price ixing case.

Illinois Brick generally precludes indirect purchaser recovery. The Royal Printing owned or controlled exception creates the potential for recovery by an indirect purchaser at one level. By deinition, there will be no occasion for damages apportionment between the direct purchaser and the plaintif, even though the existence and extent of pass on by the direct purchaser must be proved. The absence of a threat of suit by the direct purchaser was the basis for the Royal Printing court’s conclusion that there is no substantial risk of multiple liability.⁷² It must therefore be assumed that there will be no upstream claimants seeking a share of the overcharge.

Nor will apportionment issues involving downstream purchasers be present when the Royal Printing exception is invoked. ⁷³ Subsequent buyers lack standing under Illinois Brick, and Royal Printing does not purport to change that. There is no reason to expect subsequent purchasers would consistently beneit from any other Illinois Brick exception. As a result, the complications the Illinois Brick court explained when it addressed the difficulty of apportioning damages among various levels of claimants are not likely to be present.⁷⁴

These differences between the FTAIA effects context and the broader circumstances of concern in Illinois Brick do not, by themselves, justify disregard of the complexity concerns expressed by the Illinois Brick Court. The diferences nonetheless show that allowing parties to present evidence necessary to satisfy the FTAIA will not be accompanied by all of the difficulties that contributed to the Supreme Court’s interpretation of Section 4 in

[Page 291]

Hanover Shoe and Illinois Brick.

ALTERNATIVE INTERPRETATION OF THE FTAIA

Plaintiffs might argue that, when pass on of a price fixing overcharge from a foreign direct purchaser to its domestic indirect purchaser customer occurs in any amount, there is an "effect" on domestic commerce, and the FTAIA is satisfied if the effect is "direct, substantial, and reasonably foreseeable." Pass on in any amount can result in a "direct, substantial, and reasonably foreseeable" domestic effect, but proof of an effect is not sufficient to establish that the effect "gives rise to" a civil plaintiff’s damage claim for harm it did not suffer.

In the example in which 60% of the overcharge is passed on, the effect on domestic commerce is the price increase associated with the pass on of 60% of the overcharge. With a $10.00 overcharge, only $6.00 finds its way to the cost of the finished product. That effect gives rise to the plaintiff’s claim.

The 40%, $4.00 in this example, absorbed by the direct purchaser does not produce a domestic effect. The effect associated with the $6.00 passed on overcharge does not give rise to a claim for $4.00 in impact that did not occur and $4.00 in damage that was not suffered. A plaintiff has no claim for harm it does not suffer.

Also significant is the fact that proof of a "direct, substantial, and reasonably foreseeable" effect is not a jurisdictional trigger automatically satisfying the FTAIA. As Hsiung and other cases show, prior conclusions that the FTAIA is "jurisdictional" are mistaken. It is now firmly settled that "the FTAIA is . . . a component of the merits of a Sherman Act claim involving nonimport trade or commerce with foreign nations."⁷⁵ It would be an odd "component of the merits" that allowed recovery of damages that were not suffered simply because the plaintiff suffered and claimed similar damages.

CONCLUSION

Hanover Shoe and Illinois Brick established firm rules forbidding evidence of pass on to demonstrate, or to disprove, injury under Section 4 of the Clayton Act, but neither case addresses the role of pass on when the existence of an effect on domestic commerce is in dispute under the FTAIA. The Royal Printing full overcharge rule, derived from Illinois Brick and adopted without consideration of the impact of the subsequently-enacted FTAIA, similarly does not bar the receipt of evidence of pass on that is admissible, or is required, under the FTAIA. Hsiung shows that proof of pass on is essential to the establishment of a domestic effect in a criminal case, and that is equally true in a civil case.

Evidence ofpass on should be received under the FTAIA in civil cases, notwithstanding the Royal Printing full overcharge rule, in both of the following circumstances.

First, at least under the Ninth Circuit "immediate consequence" standard, evidence of the frequency and extent of pass on, and evaluation of the internal and external factors that influence pass on decisions, may assist the determination of whether an effect on domestic commerce is "direct." Evidence of when and how pass on occurs is relevant to the assessment of whether pass on and the domestic effect it produces is an "immediate consequence" of foreign anticompetitive conduct. The "directness" issue is an all or nothing proposition, and pass on evidence considered for this purpose does not directly impact the Royal Printing full overcharge rule, or, when the domestic effect is found to be "direct," otherwise provide a basis for limiting the plaintiffs’ damage recovery.

[Page 292]

The FTAIA requirement that a domestic effect "give rise to" the plaintiff’s claim also calls for the admission of evidence of pass on, and it requires rejection of the Royal Printing full overcharge rule when pass on is not complete. A price fixing overcharge fully or partly absorbed by the direct purchaser does not produce an effect on domestic commerce, and cannot "give rise to" a claim for damages. The FTAIA does not allow the recovery of damages that are not the result of a direct effect on domestic commerce.

[Page 293]

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Notes:

^1. Partner at Freitas Angell & Weinberg LLP (Redwood Shores, California). The views and opinions expressed in this article are those of the individual author and do not necessarily reflect the views or opinions of the firm or its clients.

^2. 621 F.2d 323 (9th Cir. 1980).

^3. Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).

^4. 621 F.2d at 326. The court recognized that "[i]f the plaintiff purchased a defendant’s goods through the defendant’s own wholesaling division, the plaintiff would qualify as a ‘direct purchaser’ from the corporate defendant and could sue for the entire amount of the overcharge, trebled." Id. at 326 n.6. See Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816, 822 (9th Cir. 2015) ("In other words, Motorola is pretending that its foreign subsidiaries are divisions rather than subsidiaries. But Motorola can’t just ignore its corporate structure whenever it’s in its interests to do so.").

^5. In re ATM Fee Antitrust Litig., 686 F.3d 741, 749 (9th Cir. 2012).

^6. 621 F.2d at 327.

^7. Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968).

^8. 15 U.S.C. § 15.

^9. 15 U.S.C. § 6a.

^10. Id. See generally F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 161-62 (2004). Application of the effects exception can be based on an effect on domestic or import commerce. See 15 U.S.C. § 6a(1)(A). Under some circumstances, an effect on export commerce can also be sufficient. See 15 U.S.C. § 6a(1)(A). When an effect on export commerce is in issue, the final sentence of 15 U.S.C. § 6a limits the application of the effects exception to "injury to export business in the United States." This article primarily considers attempts to satisfy the FTAIA with proof of an effect on domestic commerce.

^11. 778 F.3d 738, 754 (9th Cir. 2015).

^12. Hanover Shoe, 392 U.S. at 488-91.

^13. Id. at 491-94. See Illinois Brick, 431 U.S. at 724-25.

^14. Illinois Brick, 431 U.S. at 728-29.

^15. Id. at 735-36.

^16. Id. at 736. See California v. ARC Am. Corp., 490 U.S. 93, 97 n.2 (1989) ("The Court noted two possible exceptions: when the direct purchaser and the indirect purchaser have entered into preexisting cost-plus contracts, and when the direct purchaser is owned or controlled by the indirect purchaser.") (citations omitted).

^17. Illinois Brick, 431 U.S. at 736 n.16.

^18. Royal Printing, 621 F.2d at 326 n.4.

^19. Id. at 326.

^20. Id. at 326 n.4.

^21. Id. at 325-26.

^22. Id. at 326.

^23. Id.

^24. Id.

^25. Id.

^26. Id. at 327.

^27. Id.

^28. Id. As explained below, the situation presented in Royal Printing is different from that of Hanover Shoe, and the reasoning employed by the Hanover Shoe Court would not support the new claim established in Royal Printing. Hanover Shoe held a direct purchaser’s payment of a price fixing overcharge to be Section 4 injury. The Supreme Court allowed full recovery of the overcharge by the direct purchaser, notwithstanding the possibility that all or part of the overcharge was passed on. An indirect purchaser seeking to recover price fixing damages cannot establish injury without proof of pass on.

^29. Id.

^30. 497 U.S. 199 (1990).

^31. Id. at 216 (quoting Illinois Brick, 431 U.S. at 744).

^32. Id.

^33. Id. at 211-12.

^34. 523 F.3d 1116 (9th Cir. 2008).

^35. Id. at 1121 (quoting Utilicorp, 497 U.S. at 208).

^36. Id. at 1124.

^37. Hanover Shoe, 392 U.S. at 489. See Utilicorp, 497 U.S. at 204 ("we hold that only the utility has the cause of action because it alone has suffered injury within the meaning of § 4"); id. at 217 ("Having stated the rule in Hanover Shoe, and adhered to it in Illinois Brick, we stand by our interpretation of §4."); California v. ARC Am. Corp., 490 U.S. 93, 102-03 (1989) ("As we made clear in Illinois Brick, the issue before the Court in both that case and in Hanover Shoe was strictly a question of statutory interpretation — what was the proper construction of § 4 of the Clayton Act."); id. at 97 ("The [Illinois Brick] Court held that, with limited exceptions, only overcharged direct purchasers, and not subsequent indirect purchasers, were persons ‘injured in [their] business or property’ within the meaning of § 4, and that therefore the State of Illinois was not entitled to recover under federal law for the portion of the overcharge passed on to it.") (footnote omitted); Illinois Brick, 431 U.S. at 724—25 ("The [Hanover Shoe] Court held that except in certain limited circumstances, a direct purchaser suing for treble damages under § 4 of the Clayton Act is injured within the meaning of § 4 by the full amount of the overcharge paid by it and that the antitrust defendant is not permitted to introduce evidence that indirect purchasers were in fact injured by the illegal overcharge.") (footnote omitted); id. at 729 ("[W]e decline to abandon the construction given § 4 in Hanover Shoe that the overcharged direct purchaser, and not others in the chain of manufacture or distribution, is the party ‘injured in his business or property’ within the meaning of the section in the absence of a convincing demonstration that the Court was wrong in Hanover Shoe to think that the effectiveness of the antitrust treble-damages action would be substantially reduced by adopting a rule that any party in the chain may sue to recover the fraction of the overcharge allegedly absorbed by it."); Chattanooga Foundry & Pipe Works v. City of Atlanta, 203 U.S. 390, 396 (1906) ("A person whose property is diminished by a payment of money wrongfully induced is injured in his property."); In re ATM Fee Antitrust Litig., 686 F.3d 741, 748 (9th Cir. 2012) ("This rule (the Illinois Brick rule), that indirect purchasers suffer no injury under § 4, was reaffirmed in Kansas v. Utilicorp United, Inc., 497 U.S. 199, 207(1990)."); Delaware Valley Surgical Supply, 523 F.3d at 1123—24.

^38. Royal Printing, 621 F.2d at 327.

^39. See generally Empagran, 542 U.S. at 161—62.

^40. 778 F.3d 738, 754 (9th Cir. 2015).

^41. Empagran, 542 U.S. at 142. See id. at 163 ("the FTAIA’s general rule applies where the anticompetitive conduct at issue is foreign").

^42. See Hsiung, 778 F.3d at 754 ("Under its plain terms, the FTAIA does not affect import trade."); Minn-Chem, Inc. v. Agrium Inc., 683 F.3d 845, 855 (7th Cir. 2012) (en banc) ("The FTAIA does not require any special showing in order to bring [import] transactions back into the Sherman Act, as Empagran put it, because they were never removed from the statute.").

^43. See Hsiung, 778 F.3d at 754 ("[I]mport trade, as referenced in the parenthetical statement, does not fall within the FTAIA at all. It falls within the Sherman Act without further clarification or pleading."). The scope of the import commerce exclusion is not entirely settled. See Animal Science Prods., Inc. v. China Minmetals Corp., 654 F.3d 462, 470 (3d Cir. 2011) (anticompetitive conduct "directed at an import market") (citing Turicentro, S.S. v. Am. Airlines, 303 F.3d 293, 303 (3d Cir. 2002)); Hsiung, 778 F.3d at 755 n.8 ("We need not determine the outer boundaries of import trade by considering whether commerce directed at, but not consummated within, an import market is also outside the scope of the FTAIA’s import provisions because at least a portion of the transactions here involves the heartland situation of the direct importation of foreign goods into the United States.").

^44. Empagran, 542 U.S. at 162. The effect must give rise to the plaintiff’s claim, rather than generically to "a" claim. Id. at 174.

^45. United States v. LSL Biotechnologies, 379 F.3d 672, 680 (9th Cir. 2004) (citing Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 618 (1992)).

^46. Minn-Chem, 683 F.3d at 857; Lotes Co. v. Hon Hai Precision Ind. Co., 753 F.3d 395, 398 (2d Cir. 2014).

^47. Finished product purchases from affiliates of component price fixers are sometimes called "direct" purchases from the conspirators, but this is a misnomer. "Royal Printing merely permits suit under federal law by indirect purchasers notwithstanding Illinois Brick; it does not somehow transform indirect purchasers into direct purchasers." In re Optical Disk Drive Antitrust Litig., No. 3:10-md-2143, 2011 WL 3894376 *6 (N.D. Cal. Aug. 3, 2011).

^48. Hsiung, 778 F.3d at 751. See id. at 753 ("The FTAIA . . . provides substantive elements under the Sherman Act in cases involving nonimport trade with foreign nations.") See also Minn-Chem, 683 F.3d at 852 ("the FTAIA sets forth an element of an antitrust claim, not a jurisdictional limit on the power of the federal courts"); Lotes, 753 F.3d at 395; Animal Science Prods., 654 F.3d at 462.

^49. Hsiung, 778 F.3d at 756.

^50. Id. at 757. See id. at 757—58 ("the facts in the indictment necessarily supported the domestic effects claim, namely by allegations that AUO and AUOA sold price-fixed panels in the United States and abroad for use in finished consumer goods sold in or delivered to the United States").

^51. Id. at 758.

^52. Id. at 759.

^53. Id.

^54. Id.

^55. Id. at 758-60.

^56. See Jackson v. Virginia, 443 U.S. 307, 319 (1979).

^57. Id. at 758.

^58. In Best Buy Co. v. HannStar Display Corp, Nos. 13-17408, 17618 (9th Cir. Jan. 7, 2016), which involved the TFT-LCD price fixing conspiracy in issue in Hsiung, "the jury . . . found that the conspiracy did not involve conduct with a ‘direct, substantial and reasonably foreseeable effect on trade or commerce in the United States.’" Id. at 4 n.3. Disclosure: The author represented one of the defendants in the Best Buy trial.

^59. Hanover Shoe, 392 U.S. at 492.

^60. See id. at 492-23.

^61. Id. at 493.

^62. Royal Printing, 621 F.3d at 327.

^63. Hsiung, 778 F.3d at 758.

^64. See Hanover Shoe, 392 U.S. at 492-93.

^65. See id. at 493.

^66. Illinois Brick, 431 U.S. at 731-32 (citations and footnote omitted).

^67. Illinois Brick, 431 U.S. at 741-42 (footnote omitted).

^68. Id. at 742. See also id. at 742-43 ("More important, as the Hanover Shoe Court observed, ‘in the real economic world rather than an economist’s hypothetical model,’ the latter’s drastic simplifications generally must be abandoned. Overcharged direct purchasers often sell in imperfectly competitive markets. They often compete with other sellers that have not been subject to the overcharge; and their pricing policies often cannot be explained solely by the convenient assumption of profit maximization. As we concluded in Hanover Shoe, attention to ‘sound laws of economics’ can only heighten the awareness of the difficulties and uncertainties involved in determining how the relevant market variables would have behaved had there been no overcharge.") (citations and footnote omitted).

^69. Royal Printing, 621 F.2d at 327.

^70. Id.

^71. Empagran, 542 U.S. at 174.

^72. Royal Printing, 621 F.2d at 326.

^73. In theory, a price ixed good or a inished product containing a price ixed component could transit through multiple levels of owned or controlled purchasers before being purchased by a plaintif. If the Royal Printing owned or controlled exception were applied in such a situation, and the remoteness of the plaintif from the conduct in issue did not otherwise defeat its standing, consideration of pass on issues involving multiple levels of distribution could be necessary, although there would be a claimant at only one level of distribution.

^74. See Illinois Brick, 431 U.S. at 732—33 ("Indeed, the evidentiary complexities and uncertainties involved in the defensive use of pass-on against a direct purchaser are multiplied in the offensive use of pass-on by a plaintiff several steps removed from the defendant in the chain of distribution. The demonstration of how much of the overcharge was passed on by the irst purchaser must be repeated at each point at which the price-fixed goods changed hands before they reached the plaintiff.") (footnote omitted); id. at 737 ("Permitting the use of pass-on theories under § 4 essentially would transform treble-damages actions into massive eforts to apportion the recovery among all potential plaintifs that could have absorbed part of the overcharge from direct purchasers to middlemen to ultimate consumers. However appealing this attempt to allocate the overcharge might seem in theory, it would add whole new dimensions of complexity to treble-damages suits and seriously undermine their efectiveness."); id. at 740—41 ("But allowing indirect purchasers to recover using pass-on theories, even under the optimistic assumption that joinder of potential plaintifs will deal satisfactorily with problems of multiple litigation and liability, would transform treble-damages actions into massive multiparty litigations involving many levels of distribution and including large classes of ultimate consumers remote from the defendant. In treble-damages actions by ultimate consumers, the overcharge would have to be apportioned among the relevant wholesalers, retailers, and other middlemen, whose representatives presumably should be joined. And in suits by direct purchasers or middlemen, the interests of ultimate consumers are similarly implicated.") (footnote omitted).

^75. Hsiung, 778 F.3d at 751. See also Minn-Chem, 683 F.3d at 852 ("the FTAIA sets forth an element of an antitrust claim, not a jurisdictional limit on the power of the federal courts").