MONDAY, APRIL 24, 1978 TESTIMONY Gorton, Slade, attorney general, State of Washington Kirkham, Francis R., attorney, Pillsbury, Madison & Sutro, San Francisco, Ellis, Dorsey D., Jr., professor, College of Law, University of Iowa, Iowa City, Von Kalinowski, Julian O., attorney and author, Los Angeles, Calif Aders, Robert O., president, Food Marketing Institute, accompanied by James Summerhays, Lowell V., attorney, Robinson, Guyon, Summerhays & Barnes, PREPARED STATEMENTS Page 293 297 306 323 329 334 337 350 354 Cleveland, Edgar W., wheat farmer, southwest Oklahoma Friemel, Jerome, wheat farmer, Hereford, Tex Kaplan, Deborah, director, Disability Rights Center Moore, Beverly C., Jr., director, Citizens for Class Actions Lawsuits, Washington..... 423 425 443 448 428 446 453 FAIR AND EFFECTIVE ENFORCEMENT OF THE ANTITRUST LAWS, S. 1874 Part 2 FRIDAY, APRIL 7, 1978 U.S. SENATE, SUBCOMMITTEE ON ANTITRUST AND MONOPOLY, Washington, D.C. The subcommittee met, pursuant to recess, at 9:35 a.m., in room 2228, Dirksen Senate Office Building, Senator Strom Thurmond (acting chairman of the committee) presiding. Present: Senator Wallop. Also present: David Boies, chief counsel, Terry Lytle and Robert Banks, counsel; Emory Sneeden, minority chief counsel; Peter Chumbris, minority consultant, and Garrett Vaughn, minority economist. Senator THURMOND [acting chairman]. The committee will come to order. OPENING STATEMENT OF SENATOR THURMOND The Senate Judiciary Committee has agreed to additional days of hearings on S. 1874: a bill to restore effective enforcement of the antitrust laws by amending section 4 of the Clayton Act by inserting the words, "in fact, directly or indirectly," immediately after the word, "injured." The purpose of the amendment is to overrule the Supreme Court's unanimous 1968 decision in Hanover Shoe and its corollary, the June 9, 1977, ruling in the Illinois Brick case, and thus restore the pass-on defense and the pass-on offense toward indirect purchasers theory, the latter of which was espoused by the dissenting opinion in Illinois Brick. At the direction of Chairman James O. Eastland, and as the ranking minority member, I instructed my minority Antitrust Subcommittee staff, after consulting with the committee staff and subcommittee Chairman Kennedy's staff, to arrange appropriate dates consistent with the schedules of the prominent antitrust economists, lawyers, and professors who would be invited to testify. The dates of hearings also were scheduled so as not to conflict with the Judiciary Committee's oversight hearings on the Department of Justice and its various divisions scheduled during the March 22 to April 19 period. We shall hold hearings on April 7, 17, 21, and 24, before completing our work prior to a markup session on S. 1874 on April 28, 1978, and a vote the following week. At the outset, I shall briefly review for the record that the Senate Subcommittee on Antitrust and Monopoly conducted hearings on July 11, 22, and later on September 9, 1977, after the Senate reconvened for the August recess. The House Subcommittee on Monopolies and Commercial Law of the Committee on the Judiciary conducted hearings on September 9 and 16, October 6 and 20, 1977. Since those hearings, attempts have been made to amend S. 1874 and H.R. 8359, which bills are not identical. There is controversy between the two bodies on certain provisions that have been alluded to by several of the witnesses, some of whom have testified before both subcommittees. Since some of the witnesses are expected to comment on both versions, I shall not review the differences of the bills nor review the testimony as to those differences except for this brief reference from Prof. Phillip Areeda who cautions the Congress in its deliberations on a bill. Professor Areeda stated that "H.R. 8359, and some other proposals as well, do not necessarily accomplish their objective of overruling Illinois Brick." To say that those indirectly injured may sue does not address the rationale of the Illinois Brick decision and therefore would not guarantee a different result. The Supreme Court did not deny standing to the plaintiffs in Illinois Brick because they were indirect purchasers. The Court rested, not on indirectness but on the difficulties of tracing damages and of avoiding duplicate recoveries. The proposed legislation does not reject those grounds for denying a recovery. Thus, the proposed legislation may be so narrow as not to accomplish its purpose while so broad as to cause mischief. This Senator is continuing his position of an open mind on either S. 1874, H.R. 8359, or the amendments that may be considered on the bills, until the hearings are completed and the debates in committee are in progress. I am advised that Chairman Peter W. Rodino of the House Judiciary Committee has introduced a new Illinois Brick bill as H.R. 11942 as a result of the House subcommittee's action on April 4, 1978 when it reported an amended version of H.R. 8359. Our first witness this morning is Prof. Milton Handler. We welcome you to the committee, Professor, and thank you for taking the time to come down and provide us with your thoughts on these matters. You may proceed in any way you wish. STATEMENT OF MILTON HANDLER, ATTORNEY, ACCOMPANIED BY MICHAEL D. BLECHMAN, ATTORNEY Mr. HANDLER. Mr. Blechman and I thank you for this opportunity to appear again before the subcommittee to discuss with it the effects of the pending bill, if enacted, on the vast volume of private, civil damage actions which are now pending in the Federal courts. We are here today to bring to the subcommittee's attention the serious effects that S. 1874 is likely to have on some 3,000 treble damage actions presently pending in the Federal courts. This is a matter which, as far as we know, no one has considered. Yet, based on a pilot study which we have undertaken-and which I will describe to this subcommittee-it would appear that, if the proposed bill becomes law, almost 2,000 of the 3,000 antitrust cases now in the Federal courts could be torpedoed. The reason this is so is that the proposed bill by restoring the pass-on defense will cripple the ability of most direct purchasers to sue under the antitrust laws. Since, as we can now document, direct purchaser suits provide the backbone of private antitrust enforcement, the measure will have the unintended-but nevertheless disastrous-effect of substantially repealing the treble damage remedy as an instrument of antitrust enforcement. The bill's proponents assume-wronglythat it is the indirect rather than direct purchasers who play the instrumental role of private attorneys general. Indeed, they have claimed that direct purchasers have no incentive to sue their suppliers because they have not in fact been injured and because, in addition, they may be fearful of disrupting relations with their suppliers. The bill's supporters also assert that the preponderance of antitrust actions are brought by indirect purchasers. We know, based on our own experience in representing a great many antitrust plaintiffs as well as defendants over the years, that this simply is not so. In the electrical equipment litigation alone, where we represented the lead group of utility plaintiffs, more than 2,000 suits were brought by direct purchasers of some 19 different kinds of products. There have also been many other major antitrust litigationsHanover Shoe itself, the Grinnell litigation, the Oil Jobber cases, the Aluminum Wire and Cable and Brass Tube litigations, and numerous others-where the plaintiffs were direct purchasers. Indeed, in connection with our previous testimony, I personally examined the decisions in my casebook, the opinions reviewed in my 25 annual lectures and the cases reported in the 1975 and 1976 CCH trade regulation reports and concluded that the vast majority of price-fixing actions are brought by direct purchasers. In view of the critical importance of this issue, however, we decided to go beyond our own experience and personal knowledge. We undertook to gather for this subcommittee the indisputable facts from the public record as to the numbers of pending antitrust suits brought by direct as compared with indirect purchaser plaintiffs. To do this, we first obtained from the Administrative Office of the U.S. Courts a computer printout listing the 3,182 antitrust cases before the courts in all 91 judicial districts. We decided to make a pilot study of the 203 nongovernmental actions which the printout showed were pending in the southern district of New York. We sent a team of research assistants down to the courthouse at Foley Square in New York and, with the cooperation and assistance of the clerk of the court, they set out to examine the complaints in the listed actions. It turned out that some of the pleadings were in judges chambers or were otherwise unavailable, and that some of the cases shown on the printout had been closed. There were, however, 116 actions in which the complaints were available, and these were carefully studied. Now what did this study show? It was quite startling. The results of our examination were that a total of 69 cases were brought by purchasers or sellers of goods or services. Of these, 66 suits, including 16 class actions, were brought by direct buyers or sellers. These included suits by purchasers of lumber, chemicals, and other raw materials; suits by distributors of gasoline, packaged foods, motion pictures, newspapers, paper products, and books and magazines; suits by retailers of clothing, automobiles, furniture, radios, and groceries; suits by theater owners and motion picture exhibitors; suits by various kinds of franchisees; and suits by consumers who had bought goods or services directly from travel agents, airlines, or department stores. In short, our study showed that suits by various kinds of direct buyers or sellers make up the overwhelming bulk of day to day antitrust litigation in this district. A list of all of the 116 actions in which the complaints are available, broken down into categories of direct purchaser suits, indirect purchaser suits, and other actions, is attached to this statement as exhibit A. Furthermore, of the 47 actions in the southern district of New York which were brought by persons other than purchasers or sellers, 38 were suits by competitors. The other nine were actions by shareholders or by employers suing unions. This confirmed our own experience that it is generally the persons who are in direct contact with a defendant who sue under antitrust laws. [Exhibit A, referred to above, follows prepared statement of Milton Handler.] Finally, while three of the pending suits in the southern district of New York were brought on behalf of indirect purchasers, we found that even these three suits would be undermined if the proposed bill were to become law. That is because, in each of those cases, although the plaintiffs purchased indirectly, they later resold the product in suit or used it to make and sell something else. In one case, the plaintiffs were manufacturers of clothing; in another, they were auto brokers; in the third suit, the plaintiff was an electric utility. Thus, in each one of these suits, the indirect purchaser plaintiffs would be subject to the pass-on defense if the proposed bill were adopted. The legislation now being considered by this subcommittee, as far as our pilot study shows, would result in the elimination of not only the direct but all of the indirect purchaser suits pending in the southern district. If the pattern we found in the southern district of New York applies to the other 90 judicial districtsand we have no reason to believe that it does not-then the enactment of this measure could subvert thousands of direct and indirect purchaser actions across the country. To cite just one example, one suit that would be undermined would be the presently pending action by the Tennessee Valley Authority against the uranium suppliers based on an alleged massive price-fixing cartel affecting nuclear fuel. This matter has been the subject of hearings by the Senate committees. TVA, in this instance, is in the same position as private investor utilities who were direct purchasers of the price-fixed fuel, all of whom would be |