Brick By Illinois Brick: Ninth Circuit Builds High Wall For Indirect Purchaser Suits

by Sheppard Mullin Richter & Hampton LLP
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[authors: Dylan Ballard and Nadezhda Nikonova]

The Ninth Circuit unanimously affirmed a grant of summary judgment for defendants in an antitrust suit involving alleged price-fixing of ATM fees, holding that the plaintiffs were indirect purchasers within the meaning of Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) and could not satisfy an exception to the “Illinois Brick wall,” which deprives indirect purchasers of standing to bring federal antitrust claims. In re ATM Fee Antitrust Litigation, No. 10-17354 (9th Cir. July 12, 2012).

When an ATM cardholder withdraws money from another bank’s ATM (a “foreign” ATM), several fees are generated. One is a “foreign ATM fee,” which the cardholder must pay to the bank that issued her ATM card. Another is known as an “interchange fee,” which is paid by the card-issuing bank to the owner of the foreign ATM. The card-issuing bank sets the amount of the foreign ATM fee, while interchange fees are set by entities known as ATM networks, which are responsible for administering agreements between card-issuing banks and foreign ATM owners. Plaintiffs, a class of ATM cardholders, alleged that several banks colluded with the STAR ATM network to fix the interchange fees paid by the banks, which the banks then passed on to plaintiffs as part of the foreign ATM fee.

“Indirect Purchasers”

The Court adopted a strict definition of direct purchaser in price-fixing cases, finding that anyone who does not pay the allegedly fixed price is an indirect purchaser. Thus, because the allegedly fixed interchange fees were paid by the bank defendants, not plaintiffs, the plaintiffs were indirect purchasers for purposes of Illinois Brick. The Court rejected plaintiffs’ argument that they were in fact direct purchasers under this standard because the fee they paid—the foreign ATM fee—was “fixed” within the meaning of the Clayton Act as a result of defendants’ alleged collusion with respect to interchange fees. The Court explained that the rationales underpinning Illinois Brick’s bar on indirect purchaser suits—avoiding multiple recoveries, simplifying the process for determining injury and damages, and promoting antitrust enforcement—apply whenever a plaintiff relies on the concept of pass-on in attempting to demonstrate injury. The plaintiffs relied on a pass-on theory; therefore they were indirect purchasers.

The “Co-Conspirator” Exception

The Court next addressed whether plaintiffs satisfied the so-called “co-conspirator exception” to Illinois Brick, which has generally been held to apply where an alleged co-conspirator set the price paid by the plaintiff. Some lower courts had held this exception satisfied even where the price paid by the plaintiff was not fixed by the alleged conspiracy—for example, where a component subject to an alleged price-fixing conspiracy was sold at a supracompetitive price and then later incorporated into a finished product and resold (by an alleged co-conspirator) to the plaintiff. The ATM Fee Court, however, held that the co-conspirator exception is strictly limited to situations where the alleged conspiracy directly fixed the price actually paid by the plaintiff. Here, the plaintiffs alleged a conspiracy to fix interchange fees, which are paid by banks, not the ATM cardholder plaintiffs; as a result, plaintiffs failed to satisfy the co-conspirator exception. It was not sufficient that the fees actually paid by plaintiffs—the foreign ATM fees—were paid to an alleged co-conspirator.

The “Ownership and Control” Exception

Finally, the Court turned to the “ownership and control” exception to Illinois Brick, which previous courts have held provides indirect purchasers with standing under federal law where the direct purchaser is effectively owned and controlled by a co-conspirator, such that there is “no realistic possibility” that the direct purchaser will bring an antitrust suit. Plaintiffs focused heavily on the “no realistic possibility of suit” prong of this formulation, arguing that it was satisfied because the bank defendants and STAR network were alleged co-conspirators and thus unlikely to sue each other. The Court rejected this argument, holding that the ownership and control exception was designed for situations where the direct purchaser was or would be prohibited from suing by its “owner” or “controller.” Mere alleged collusion between a direct purchaser and the entity setting the price, without an ownership or control relationship, is not enough.

The Court further rejected plaintiffs’ argument that the bank defendants “owned and controlled” the STAR network, noting that the bank defendants collectively owned only about 10% of the STAR network’s outstanding common stock. While the banks had some “input on policies and ricing issues,” it was the ATM Network and its Board of Directors that had the ultimate power to make business decisions.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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