Supreme Court Of Canada Will Hear Indirect Purchaser Appeals

Today, the Supreme Court of Canada granted leave to appeal from the British Columbia Court of Appeal's decisions in Pro- Sys Consultants Ltd. v. Microsoft Corporation, 2011 BCCA 186 and Sun-Rype Products Ltd. v. Archer Daniels Midland Company, 2011 BCCA 187. The BC Court of Appeal had held that indirect purchasers in price-fixing class actions do not have a cause of action recognized in Canadian antitrust law. The Supreme Court's decision to hear the appeals signals its intention to rule on this important issue arising in price-fixing class actions and dividing provincial appellate courts. A decision on the merits of the appeal is likely to be the most significant to date involving antitrust class actions in Canada.

Background

Whether indirect purchasers have a cause of action is a fundamental issue in Canadian and American antitrust law. The U.S. Supreme Court addressed the issue in the 1970s, but Canadian appellate courts have only recently considered it. In its 1968 decision in Hanover Shoe Inc. v. United Shoe Machinery Corp, 392 U.S. 481 (1968), the U.S. Supreme Court rejected what is known as the passing on defence. Defendants cannot reduce their liability by arguing that the plaintiff passed on some of its damages to others.

Creative defence counsel seized upon the result in Hanover Shoe. They argued that if defendants cannot use passing on as a defence, plaintiffs, and specifically indirect purchasers, cannot use it as a sword. Indirect purchasers do not have a direct relationship with defendants. Rather, their relationship is with the direct purchasers who they allege passed on damage to them, usually in the form of higher prices for finished products.

In Illinois Brick v. Illinois, 431 U.S. 720 (1977), the U.S. Supreme Court agreed with defendants and held that indirect purchasers do not have a cause of action. Only direct purchasers do. Allowing claims by both direct and indirect purchasers would create the risk of double recovery and make the process of determining who had suffered what proportion of the price overcharge too complex. Conversely, giving direct purchasers access to 100 percent of the recovery would incentivize these entities to aggressively prosecute antitrust claims.

Several American states have enacted repealer statutes to permit indirect purchaser actions, but the rule in Illinois Brick remains federal law.

In Canada, the Ontario Court of Appeal considered Illinois Brick in Chadha v. Bayer Inc. (2003), 63 OR...