graphically illustrates the point. The case dealt with a statute withdrawing the Supreme Court's appellate jurisdiction in a class of habeas corpus cases while such a case was pending before it. In holding that the statute governed the appeal, the Court rested its decision on the "Exceptions" and "Regulations" clause, while distinguishing precedents involving the judicial exercise of "continuing jurisdiction." As the Court stated: 27-396 O-78-4 "It is quite true, as was argued by the counsel for the petitioner, that the appellate jurisdiction of this court is not derived from acts of Congress. It is, strictly speaking, conferred by the Constitution. But it is conferred 'with such exceptions and under such regulations as Congress shall make.' "We are not at liberty to inquire into the motives of the legislature. We can only examine into its power under the Constitution; and the power to make exceptions to the appellate jurisdiction of this court is given by express words. "Several cases were cited by the counsel for the petitioner in support of the position that jurisdiction of this case is not affected by the repealing act. But none of them, in our judgment, afford any support to it. They are all cases of the exercise of judicial power by the legislature, or of legislative interference with courts in the exercising of continuing jurisdiction. 74 U.S. וד (7 Wall.) at 512-13, 514 (emphasis supplied). Congress itself has previously been mindful of the constitutional distinction enunciated in McCardle and Zdanok. When it retroactively reversed the Supreme Court's decision that "portal-to-portal" compensation was required by the Fair Labor Standards Act V. Mt. Clemens Pottery Co., 328 U.S. 680 (1946) Anderson Congress did so by legislation withdrawing the jurisdiction of the courts to adjudicate pending suits for such compensation. 29 U.S.C. § 252 (a). In contrast, Congress provided only for prospective application when it enacted the 1976 parens patriae statute. 15 U.S.C.A. § 15c. The Hart-Scott-Rodino Act expressly specified that this newly created authority "shall not apply to any injury sustained prior to the date of enactment of the Act." 15 U.S.C.A. § 15c, unnumbered footnote (1977 Supp.). * In sum under the governing authorities, the retroactive application of legislation overruling Illinois Brick is constitutionally vulnerable on separation of powers principles as well as due process grounds. For all of the reasons indicated above, it is highly doubtful that the bill as presently drafted could withstand a constitutional challenge in the courts. * Congress removed the retroactivity feature originally prescribed for the parens patriae provision. As first reported by the Senate Committee on the Judiciary, it would have applied "[T]o all civil actions filed under Senator THURMOND [continuing]. Our next witness is Professor Richard A. Posner of the University of Chicago. Welcome, Professor Posner. You may proceed with your statement. STATEMENT OF RICHARD A. POSNER, PROFESSOR OF LAW, UNIVERSITY OF CHICAGO Mr. POSNER. Thank you, Senator. My name is Richard Posner. I am a professor of law at the University of Chicago. I will be very brief, since I have a written statement which will be submitted for the record. Senator THURMOND [acting chairman]. Thank you, Professor. Without objection, your statement will appear in the record. Mr. POSNER. There are two objectives that the private antitrust suit serves. One is compensatory, the other is deterrent. From the standpoint of compensation, I do not think that this bill will be helpful to plaintiffs. I do not think there are any adequate procedural mechanisms by which indirect purchasers can recover substantial damages. Indirect purchasers tend to be damaged in a very slight amount for each purchaser, and the practical result is that it is the lawyer representing the indirect purchaser who tends to get the lion's share of any judgment. The question, then, is whether this bill will promote the deterrent objectives of the private antitrust suit. I believe it will not for this reason. As is recognized in the bill, a corollary to granting the indirect purchaser the right to sue is giving the defendant a passing-on defense in a suit by the direct purchaser in order to avoid multiple recovery for the same antitrust violation. The passing-on defense, in turn, reduces the incentives of direct purchasers to sue. It reduces their gain from private antitrust suits. I regard this reduction in the incentive of the direct purchaser as a serious objection to this bill because the direct purchaser is the backbone of the private antitrust suit. Professor Handler's study that he just reported to you in his statement is the first solid evidence that that is so. The overwhelming number of antitrust plaintiffs are direct and not indirect purchasers. That means that anything like this bill which reduces the incentive of the direct purchaser to sue will reduce the deterrent effect of the private antitrust actions. The reason that the direct purchaser is the backbone of the private antitrust suit-the reason that most such suits are brought by direct purchasers-is that the direct purchaser is much closer to the violation. He is dealing directly with the violator, by definition. The indirect purchaser is far more remote from the violation and much less lilely to detect it. Apart from the adverse effects that I believe this bill will have on the deterrent impact of the private antitrust suit, there are serious administrative problems created by this bill. As explained in my statement, it is extraordinarily difficult to try to trace the incidence of a price increase through the entire chain of distribution and production, to trace every effect throughout the entire economy. Yet that sort of tracing is required by the bill as a corollary to the fact that there is both a requirement that the indirect purchaser prove his actual damages and a defense to the seller that his direct purchasers passed on some of the overcharge. If this bill is passed, I see the already serious manageability problems of antitrust enforcement being further complicated to a substantial degree. When you put together the administrative complications of the bill with its adverse impact on deterrance, I think the net effect of the bill would be to reduce the effectiveness of the private antitrust damage remedy in the total scheme of antitrust remedies. That is all I will say by way of opening. I will be happy to answer any questions you may have. Senator THURMOND. What do you think of having a new commission study this bill prior to action by Congress? Mr. POSNER. I think it is a good idea. If the procedural complications that I have suggested and that other witnesses in previous hearings have explained at greater length are to be avoided, it will require some very careful redesign of antitrust procedures. This bill does not attempt to do it. It is obviously a very substantial job to do. President Carter's Commission would be an appropriate body to attempt to do so. Senator THURMOND. Proponents of S. 1874 contend that this bill would bring about fair and effective enforcement of the antitrust laws. However, some opponents to S. 1874 have stated the following approach. As stated by Mr. Justice Byron White, the Illinois Brick principle limiting private antitrust claims to a direct purchaser from the alleged antitrust violator would, in fact, simplify and expedite antitrust litigation and make antitrust enforcement more rational, practical, and effective, without creating antitrust enforcement gaps. How do you react to the above contentions of proponents and opponents of S. 1874? Mr. POSNER. I do not think the bill will bring about fair and effective enforcement. Very little of the damages will actually trickle down to the plaintiffs. A class of more effective antitrust enforcers-the direct purchasers-will, I think, be deterred. I do not regard the regime brought about by Illinois Brick as ideal, because it does result in some injured parties' not being enabled to recover damages. But in an imperfect world, it seems to me that the solution brought about by the combination of the Hanover Shoe and Illinois Brick decisions may be the best we can obtain, short of some massive overhauling of the entire antitrust procedural system. Senator THURMOND. If one effect of S. 1874 is to increase the risk that a company will be exposed to antitrust litigation, whether or not it has actually committed a violation, would not a predictable result be an increase in prices charged to consumers for a whole range of products, hence the cost of doing business will have been increased? Mr. POSNER. It is true that if you increase potential antitrust liability, the cost of doing business to firms is increased. However, the extent of that potential liability is already so vast that I am not sure this bill would have a noticeable impact, enough to be reflected in prices. Senator THURMOND. Would you agree with Prof. Neil Bernstein of Washington University who stated before the Antitrust and Monoploy Subcommittee last September 9 that S. 1874: will exclude small business from any involvement in antitrust. I do not think they can afford to sue, and I do not think they can afford to be sued. It will raise the whole antitrust barrier to something that can only involve mammoth kinds of situations, and I think it will make it harder for small businesses to protect themselves if they are injured under the antitrust laws or to defend themselves if they are accused under the antitrust laws? Mr. POSNER. I would respond in this way. S. 1874 would make it more diffuclt for a small businessman who was a direct purchaser to bring an antitrust suit, because he would be faced with a passing-on defense. It would help, to some extent, the small businessman who is the indirect purchaser, although, as I said, I do not think that much in the way of antitrust damages will actually trickle down to the indirect purchaser. To the extent that small businessmen are now potential antitrust defendants, anything which increases their potential antitrust liability is harmful to small business. On the other hand, it is not clear that the net effect of this bill is to increase potential antitrust exposure. It increases exposure to indirect purchaser suit but reduces exposure to direct purchaser suits. Senator THURMOND. I have a number of other questions, but in order to get these other witnesses in here, would you mind answering those for the record? Mr. POSNER. I would be happy to. Senator THURMOND. Thank you. Without objection, the questions and answers will be made a part of the record. Senator WALLOP. I have a couple of question that I would also like to submit later. Senator THURMOND [acting chairman]. Without objection, they too will be made a part of the record, also. Senator WALLOP. I wonder if you could estimate how many potential antitrust violations will go unlitigated if, one, the bill is not passed, or, two, if direct pruchasers choose not to sue because of their relationships with their suppliers? Mr. POSNER. They are closely related questions. If all direct purchasers sued, then presumably no antitrust violations would go unremedied even if the bill were not passed. I do not think that many purchasers are reluctant to sue their sellers, or if they are reluctant I think they overcome their relutance. The potential for a large antitrust judgment is an effective persuader. Furthermore, there are potential liabilities on the part of corporate officers who decline to bring a clear-cut antitrust suit. There is a further point, which may be excessively subtle for some tastes. If a direct purchaser, having an antitrust cause of action, declines to press it against his seller, I assume that the direct purchaser is being compensated by the seller in some other fashion. I would regard it as a polite and perhaps legal form of extortion where the direct purchaser, having an antitrust claim, does not press it but presumably receives some other concession from his seller. That concession is an equivalent to the damages that the violator would have to pay if the purchaser actually sued. Senator WALLOP. Is that not the actual moment at which the indirect consumer interest becomes apparent? Mr. POSNER. There is no question that there will be uncompensated consumers under the regime of the Illinois Brick decision. My point is that most of these consumers will remain uncompen |