431 U.S. 720 (1977)
Petitioners Illinois Brick Co. and other manufacturers and distributors of concrete block sell the product primarily to masonry contractors in the Greater Chicago area.1 These contractors submit bids for the masonry portions of construction projects to general contractors.2 The general contractors in turn submit bids for entire projects to customers including the State of Illinois and approximately 700 local governmental entities such as counties, municipalities, housing authorities, and school districts.3
Respondents are thus indirect purchasers of concrete block, which passes through two separate levels in the distribution chain before reaching respondents. Respondent State of Illinois, on behalf of itself and the local governmental entities, brought this antitrust treble-damages action under section 4 of the Clayton Act.4 The complaint alleged that petitioners had engaged in a combination and conspiracy to fix the prices of concrete block in violation of section 1 of the Sherman Act, resulting in amounts paid by respondents for concrete block that were more than $3 million higher by reason of the price-fixing conspiracy.5
The only way the antitrust violation could have injured respondents is if all or part of the overcharge was passed on by the masonry and general contractors to respondents rather than being absorbed at the first two levels of distribution.6 Private treble-damages actions brought by masonry contractors, general contractors, and private builders were settled without prejudice to this suit.7 Petitioner manufacturers moved for partial summary judgment against all plaintiffs that were indirect purchasers of concrete block, contending that as a matter of law only direct purchasers could sue for the alleged overcharge.8
The responses to petitioners' interrogatories indicated that only four of the plaintiffs represented by the State purchased concrete block directly from one of the petitioners.9 The District Court granted petitioners' motion.10 The Court of Appeals for the Seventh Circuit reversed, holding that indirect purchasers such as respondents can recover treble damages for an illegal overcharge if they can prove that the overcharge was passed on to them through intervening links in the distribution chain.11 The Supreme Court granted certiorari to resolve a conflict among the Courts of Appeals on the question whether the offensive use of pass-on authorized by the decision below is consistent with Hanover Shoe's restrictions on the defensive use of pass-on.12
Whether an indirect purchaser may recover treble damages under section 4 of the Clayton Act by proving that an illegal overcharge was passed on through intervening links in the distribution chain?13
No. The established facts establish that respondents are indirect purchasers two steps removed from petitioners and can recover only by proving that masonry contractors and general contractors passed on the overcharge rather than absorbing it.16 The Court applied the Hanover Shoe construction of section 4 to bar this offensive use of pass-on because the same theory could not be used defensively by petitioners against the direct-purchaser masonry contractors.17
An indirect purchaser may not recover treble damages under section 4 by proving pass-on through intervening links in the distribution chain.18
Related opinions on this issue
Joined by Marshall And Blackmun, Jj.
Justice Brennan dissented on the ground that Hanover Shoe rested on the need to preserve the effectiveness of treble-damages actions and should be limited to defensive use.19 Allowing offensive pass-on by indirect purchasers would further both compensation and deterrence without the risks Hanover Shoe sought to avoid.20 The 1976 parens patriae legislation confirmed Congress's understanding that section 4 reaches indirect purchasers.21
He stressed that the broad objectives of section 4 are to compensate victims and deter violations, and that indirect purchasers often bear the brunt of overcharges passed along the chain. The decision below correctly construed the statute to authorize such suits by those actually injured.
Whether the pass-on theory may be used offensively by an indirect purchaser plaintiff when Hanover Shoe bars its defensive use by an antitrust violator against a direct purchaser?22
Whatever rule governs pass-on must apply equally to plaintiffs and defendants.23 Hanover Shoe bars defendants from asserting pass-on against direct purchasers except in narrow circumstances such as preexisting cost-plus contracts.24 The same bar prevents indirect purchasers from asserting pass-on offensively.25
No. The established facts show that respondents seek to prove pass-on by masonry contractors who transformed the block into masonry structures and by general contractors who incorporated those structures into buildings.26 Under Hanover Shoe petitioners could not assert this theory defensively against the masonry contractors, so respondents may not assert it offensively.27
The pass-on theory may not be used offensively by an indirect purchaser plaintiff when Hanover Shoe bars its defensive use against a direct purchaser.28
Related opinions on this issue
Joined by Marshall And Blackmun, Jj.
Justice Brennan dissented on the ground that the interests at stake in offensive and defensive pass-on cases are not the same.29 Hanover Shoe's concern for effective enforcement supports allowing indirect purchasers to prove pass-on.30 The decision below correctly read Hanover Shoe as not barring such offensive use.31
He explained that the same policies favoring enforcement and preventing wrongdoers from retaining illegal gains favor permitting indirect purchasers to recover when they can prove injury through pass-on. Treating the two situations differently avoids frustrating the congressional scheme while respecting the narrow scope of Hanover Shoe.
Whether allowing offensive but not defensive use of pass-on would create a serious risk of multiple liability for defendants?32
Allowing offensive but not defensive use of pass-on creates a serious risk of multiple liability.33 A direct purchaser could recover the full overcharge while an indirect purchaser simultaneously recovers the passed-on portion.34 This produces duplicative recoveries that section 4 does not authorize.35
Yes. The established facts show that private actions by masonry contractors, general contractors, and private builders were already settled without prejudice to this suit.36 Permitting respondents to recover on a pass-on theory would expose petitioners to liability for the same overcharge already recovered by direct purchasers, creating the duplicative recoveries the Court refused to countenance.37
Allowing offensive but not defensive use of pass-on would create a serious risk of multiple liability for defendants.38
Whether the construction of section 4 adopted in Hanover Shoe should be overruled or limited to permit pass-on theories in treble-damages actions?39
No. The established facts present no basis for overruling or limiting Hanover Shoe.42 Permitting pass-on theories would transform treble-damages actions into massive multiparty litigations requiring apportionment of the overcharge among all levels of the distribution chain and would undermine the effectiveness of section 4 enforcement by diffusing recoveries and increasing litigation costs.43
The construction of section 4 adopted in Hanover Shoe should not be overruled or limited to permit pass-on theories in treble-damages actions.44
Related opinions on this issue
Justice Blackmun dissented on the ground that Hanover Shoe was on the books and the Court felt compelled to apply it consistently.45 That wooden approach was inadequate in light of the objectives of the Sherman and Clayton Acts.46 The 1976 legislation revealed Congress's present understanding that indirect purchasers should recover, and the Court should have affirmed rather than awaiting further legislation.47
He noted that if Hanover Shoe had not preceded this case the Court would almost certainly have affirmed the judgment below, as policy and the statutory scheme point toward recovery for injured indirect purchasers who can prove their damages.