We’re Passing It Along: One Court’s Treatment Of The Upstream And Downstream Pass-On In An Indirect Purchaser Case

In summer 2013, Best Buy faced off against Toshiba and HannStar in a price-fixing trial that was part of the multi-district Flat-Panel litigation, TFT-LCD (Flat-Panel) Antitrust Litigation, 07 MD. 01827 (N.D. Cal.). Although there has been a lot of press about Best Buy's inability to collect its $22 million verdict due to set offs, and the parties' protracted battle over attorneys' fees, there has been little to no coverage of the court's treatment of the passing on of the overcharge under applicable Minnesota law.

Most antitrust practitioners know that under the twin pillars of Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968) and Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), the Supreme Court established the federal rule governing treatment of pass-on claims and defenses. In most circumstances, indirect purchasers, i.e., those that do not buy directly from the alleged price-fixing conspirators, cannot recover under the Sherman Act. Correspondingly, under most circumstances the alleged price fixers are barred from claiming that the direct purchasers were not injured on the theory that the illegal overcharge was passed onto downstream purchasers.

These dual principles are not necessarily true under state law. Whether an indirect purchaser can recover and whether a manufacturer can assert a pass-on defense is a state-specific inquiry. Anyone who has looked into these issues will know that there is often little to no case law on these topics.

And that's where the Flat-Panel litigation comes in. The court reached both of these issues under Minnesota law in its jury instructions.

Best Buy had sued alleged co-conspirators Toshiba and HannStar in its capacities as a direct and indirect purchaser. For Best Buy's indirect purchaser claims, the jury had to resolve two questions with respect to the pass-on. First, was the overcharge passed on from the direct purchasers to Best Buy? This is often referred to as the upstream pass-on. Second, was the overcharge passed on from Best Buy to its customers? This is often referred to as the downstream pass-on or the pass-on defense. For Best Buy to prevail on its claims, the jury would need to find that there was an upstream pass-on, but there was not a complete downstream pass-on, i.e., that retailer Best Buy incurred at least some of the economic loss stemming from the alleged price-fixing overcharge.

The...