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Full Opinion
ILLINOIS BRICK CO. ET AL.
v.
ILLINOIS ET AL.
Supreme Court of United States.
*722 Edward H. Hatton argued the cause for petitioners. With him on the briefs were Lynne E. McNown, Alan L. Metz, Samuel J. Betar, Earl E. Pollack, James P. Morgan, Thomas W. Johnston, and George B. Collins.
Lee A. Freeman, Jr., Special Assistant Attorney General of Illinois, argued the cause for respondents. With him on the brief was William J. Scott, Attorney General.
Assistant Attorney General Baker argued the cause for the United States as amicus curiae urging affirmance. With him on the brief were Acting Solicitor General Friedman and Carl D. Lawson.[*]
*723 MR. JUSTICE WHITE delivered the opinion of the Court.
Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U. S. 481 (1968), involved an antitrust treble-damages action *724 brought under ง 4 of the Clayton Act[1] against a manufacturer of shoe machinery by one of its customers, a manufacturer of shoes. In defense, the shoe machinery manufacturer sought to show that the plaintiff had not been injured in its business as required by ง 4 because it had passed on the claimed illegal overcharge to those who bought shoes from it. Under the defendant's theory, the illegal overcharge was absorbed by the plaintiff's customersโindirect purchasers of the defendant's shoe machineryโwho were the persons actually injured by the antitrust violation.
In Hanover Shoe this Court rejected as a matter of law this defense that indirect rather than direct purchasers were the parties injured by the antitrust violation. The Court held that, except in certain limited circumstances,[2] a direct purchaser suing for treble damages under ง 4 of the Clayton Act is injured within the meaning of ง 4 by the full amount of the overcharge paid by it and that the antitrust defendant is *725 not permitted to introduce evidence that indirect purchasers were in fact injured by the illegal overcharge. 392 U. S., at 494. The first reason for the Court's rejection of this offer of proof was an unwillingness to complicate treble-damages actions with attempts to trace the effects of the overcharge on the purchaser's prices, sales, costs, and profits, and of showing that these variables would have behaved differently without the overcharge. Id., at 492-493.[3] A second reason for barring the pass-on defense was the Court's concern that unless direct purchasers were allowed to sue for the portion of the overcharge arguably passed on to indirect purchasers, antitrust violators "would retain the fruits of their illegality" *726 because indirect purchasers "would have only a tiny stake in the lawsuit" and hence little incentive to sue. Id., at 494.
In this case we once again confront the question whether the overcharged direct purchaser should be deemed for purposes of ง 4 to have suffered the full injury from the overcharge; but the issue is presented in the context of a suit in which the plaintiff, an indirect purchaser, seeks to show its injury by establishing pass-on by the direct purchaser and in which the antitrust defendants rely on Hanover Shoe's rejection of the pass-on theory. Having decided that in general a pass-on theory may not be used defensively by an antitrust violator against a direct purchaser plaintiff, we must now decide whether that theory may be used offensively by an indirect purchaser plaintiff against an alleged violator.
I
Petitioners manufacture and distribute concrete block in the Greater Chicago area. They sell the block primarily to masonry contractors, who submit bids to general contractors for the masonry portions of construction projects. The general contractors in turn submit bids for these projects to customers such as the respondents in this case, the State of Illinois and 700 local governmental entities in the Greater Chicago area, including counties, municipalities, housing authorities, and school districts. See 67 F. R. D. 461, 463 (ND Ill. 1975); App. 16-48. Respondents are thus indirect purchasers of concrete block, which passes through two separate levels in the chain of distribution before reaching respondents. The block is purchased directly from petitioners by masonry contractors and used by them to build masonry structures; those structures are incorporated into entire buildings by general contractors and sold to respondents.
Respondent State of Illinois, on behalf of itself and respondent local governmental entities, brought this antitrust treble-damages action under ง 4 of the Clayton Act, alleging that *727 petitioners had engaged in a combination and conspiracy to fix the prices of concrete block in violation of ง 1 of the Sherman Act.[4] The complaint alleged that the amounts paid by respondents for concrete block were more than $3 million higher by reason of this price-fixing conspiracy. The only way in which the antitrust violation alleged 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. See Illinois v. Ampress Brick Co., 536 F. 2d 1163, 1164 (CA7 1976).[5]
Petitioner manufacturers moved for partial summary judgment against all plaintiffs that were indirect purchasers of concrete block from petitioners, contending that as a matter of law only direct purchasers could sue for the alleged overcharge.[6] The District Court granted petitioners' motion, but the Court of Appeals reversed, holding that indirect purchasers such as respondents in this case can recover treble damages for an illegal overcharge if they can prove that the overcharge *728 was passed on to them through intervening links in the distribution chain.[7]
We granted certiorari, 429 U. S. 938 (1976), to resolve a conflict among the Courts of Appeals[8] 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. We hold that it is not, and we reverse. We reach this result in two steps. First, we conclude that whatever rule is to be adopted regarding pass-on in antitrust damages actions, it must apply equally to plaintiffs and defendants. Because Hanover Shoe would bar petitioners from using respondents' pass-on theory as a defense to a treble-damages suit *729 by the direct purchasers (the masonry contractors),[9] we are faced with the choice of overruling (or narrowly limiting) Hanover Shoe or of applying it to bar respondents' attempt to use this pass-on theory offensively. Second, we decline to abandon the construction given ง 4 in Hanover Shoeโthat the overcharged direct purchaser, and not others in the chain of manufacture or distribution, is the party "injured in his business or property" within the meaning of the sectionโin the absence of a convincing demonstration that the Court was wrong in Hanover Shoe to think that the effectiveness of the antitrust treble-damages action would be substantially reduced by adopting a rule that any party in the chain may sue to recover the fraction of the overcharge allegedly absorbed by it.
II
The parties in this case agree that however ง 4 is construed with respect to the pass-on issue, the rule should apply equally to plaintiffs and defendantsโthat an indirect purchaser should not be allowed to use a pass-on theory to recover damages from a defendant unless the defendant would be allowed to use a pass-on defense in a suit by a direct purchaser. Respondents, in arguing that they should be allowed to recover by showing pass-on in this case, have conceded that petitioners should be allowed to assert a pass-on defense against direct purchasers of concrete block, Tr. of Oral Arg. 33, 48; they ask this Court to limit Hanover Shoe's bar on pass-on defenses to its "particular factual context" of overcharges for capital goods used to manufacture new products. Id., at 41; see id., at 36, 47-48.
Before turning to this request to limit Hanover Shoe, we consider the substantially contrary position, adopted by our dissenting Brethren, by the United States as amicus curiae, and by lower courts that have allowed offensive use of pass-on, that the unavailability of a pass-on theory to a defendant *730 should not necessarily preclude its use by plaintiffs seeking treble damages against that defendant.[10] Under this view, Hanover Shoe's rejection of pass-on would continue to apply to defendants unless direct and indirect purchasers were both suing the defendant in the same action; but it would not bar indirect purchasers from attempting to show that the overcharge had been passed on to them. We reject this position for two reasons.
First, allowing offensive but not defensive use of pass-on would create a serious risk of multiple liability for defendants. Even though an indirect purchaser had already recovered for all or part of an overcharge passed on to it, the direct purchaser would still recover automatically the full amount of the overcharge that the indirect purchaser had shown to be passed on; similarly, following an automatic recovery of the full overcharge by the direct purchaser, the indirect purchaser could sue to recover the same amount. The risk of duplicative recoveries created by unequal application of the Hanover Shoe rule is much more substantial than in the more usual situation where the defendant is sued in two different lawsuits by plaintiffs asserting conflicting claims to the same fund. A one-sided application of Hanover Shoe substantially increases the possibility of inconsistent adjudicationsโand therefore of unwarranted multiple liability for the defendant โby presuming that one plaintiff (the direct purchaser) is entitled to full recovery while preventing the defendant from using that presumption against the other plaintiff; overlapping recoveries are certain to result from the two lawsuits *731 unless the indirect purchaser is unable to establish any pass-on whatsoever. As in Hawaii v. Standard Oil Co. of Cal., 405 U. S. 251, 264 (1972), we are unwilling to "open the door to duplicative recoveries" under ง 4.[11]
Second, the reasoning of Hanover Shoe cannot justify unequal treatment of plaintiffs and defendants with respect to the permissibility of pass-on arguments. The principal basis for the decision in Hanover Shoe was the Court's perception of the uncertainties and difficulties in analyzing price and output *732 put decisions "in the real economic world rather than an economist's hypothetical model," 392 U. S., at 493, and of the costs to the judicial system and the efficient enforcement of the antitrust laws of attempting to reconstruct those decisions in the courtroom.[12] This perception that the attempt to trace the complex economic adjustments to a change in the cost of a particular factor of production would greatly complicate and reduce the effectiveness of already protracted treble-damages proceedings applies with no less force to the assertion of pass-on theories by plaintiffs than it does to the assertion by defendants. However "long and complicated" the proceeding would be when defendants sought to prove pass-on, ibid., they would be equally so when the same evidence was introduced by plaintiffs. Indeed, the evidentiary complexities and uncertainties involved in the defensive use of pass-on against a direct purchaser are multiplied in the offensive use of pass-on by a plaintiff several steps removed from the defendant in the chain of distribution. The demonstration of how much of the overcharge was passed on by the first purchaser must be repeated at each point at which *733 the price-fixed goods changed hands before they reached the plaintiff.[13]
It is argued, however, that Hanover Shoe rests on a policy of ensuring that a treble-damages plaintiff is available to deprive antitrust violators of "the fruits of their illegality," id., at 494, a policy that would be furthered by allowing plaintiffs but not defendants to use pass-on theories. See, e. g., In re Western Liquid Asphalt Cases, 487 F. 2d 191, 197 (CA9 1973), cert. denied sub nom. Standard Oil Co. of Cal. v. Alaska, 415 U. S. 919 (1974); Brief for United States as Amicus Curiae 4-6, 12-13, 17-19.[14] We do not read the Court's *734 concern in Hanover Shoe for the effectiveness of the treble-damages remedy as countenancing unequal application of the Court's pass-on rule. Rather, we understand Hanover Shoe *735 as resting on the judgment that the antitrust laws will be more effectively enforced by concentrating the full recovery for the overcharge in the direct purchasers rather than by allowing every plaintiff potentially affected by the overcharge to sue only for the amount it could show was absorbed by it.
We thus decline to construe ง 4 to permit offensive use of a pass-on theory against an alleged violator that could not use the same theory as a defense in an action by direct purchasers. In this case, respondents seek to demonstrate that masonry contractors, who incorporated petitioners' block into walls and other masonry structures, passed on the alleged overcharge on the block to general contractors, who incorporated the masonry structures into entire buildings, and that the general contractors in turn passed on the overcharge to respondents in the bids submitted for those buildings. We think it clear that under a fair reading of Hanover Shoe petitioners would be barred from asserting this theory in a suit by the masonry contractors.
In Hanover Shoe this Court did not endorse the broad exception that had been recognized in that case by the courts belowโpermitting the pass-on defense against middlemen who did not alter the goods they purchased before reselling them.[15] The masonry contractors here could not be included under this exception in any event, because they transform the concrete block purchased from defendants into the masonry portions of buildings. But this Court in Hanover Shoe *736 indicated the narrow scope it intended for any exception to its rule barring pass-on defenses by citing, as the only example of a situation where the defense might be permitted, a preexisting cost-plus contract. In such a situation, the purchaser is insulated from any decrease in its sales as a result of attempting to pass on the overcharge, because its customer is committed to buying a fixed quantity regardless of price. The effect of the overcharge is essentially determined in advance, without reference to the interaction of supply and demand that complicates the determination in the general case. The competitive bidding process by which the concrete block involved in this case was incorporated into masonry structures and then into entire buildings can hardly be said to circumvent complex market interactions as would a cost-plus contract.[16]
We are left, then, with two alternatives: either we must overrule Hanover Shoe (or at least narrowly confine it to its facts), or we must preclude respondents from seeking to recover on their pass-on theory. We choose the latter course.
III
In considering whether to cut back or abandon the Hanover Shoe rule, we must bear in mind that considerations of stare decisis weigh heavily in the area of statutory construction, where Congress is free to change this Court's interpretation of its legislation. See Edelman v. Jordan, 415 U. S. 651, 671 (1974); Burnet v. Coronado Oil & Gas Co., 285 U. S. 393, 406-408 (1932) (Brandeis, J., dissenting). This presumption of adherence to our prior decisions construing legislative enactments would support our reaffirmance of the Hanover Shoe *737 construction of ง 4, joined by eight Justices without dissent only a few years ago,[17] even if the Court were persuaded that the use of pass-on theories by plaintiffs and defendants in treble-damages actions is more consistent with the policies underlying the treble-damages action than is the Hanover Shoe rule. But we are not so persuaded.
Permitting the use of pass-on theories under ง 4 essentially would transform treble-damages actions into massive efforts to apportion the recovery among all potential plaintiffs that could have absorbed part of the overchargeโfrom direct purchasers to middlemen to ultimate consumers. However appealing this attempt to allocate the overcharge might seem in theory, it would add whole new dimensions of complexity to treble-damages suits and seriously undermine their effectiveness.
As we have indicated, potential plaintiffs at each level in the distribution chain are in a position to assert conflicting claims to a common fundโthe amount of the alleged overcharge โby contending that the entire overcharge was absorbed at that particular level in the chain.[18] A treble-damages action brought by one of these potential plaintiffs (or one class of potential plaintiffs) to recover the overcharge implicates all three of the interests that have traditionally been thought to support compulsory joinder of absent and potentially adverse claimants: the interest of the defendant in *738 avoiding multiple liability for the fund; the interest of the absent potential plaintiffs in protecting their right to recover for the portion of the fund allocable to them; and the social interest in the efficient administration of justice and the avoidance of multiple litigation. Reed, Compulsory Joinder of Parties in Civil Actions, 55 Mich. L. Rev. 327, 330 (1957). See Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U. S. 102, 110-111 (1968); 7 C. Wright & A. Miller, Federal Practice and Procedure ง 1602 (1972).
Opponents of the Hanover Shoe rule have recognized this need for compulsory joinder in suggesting that the defendant could interplead potential claimants under 28 U. S. C. ง 1335.[19] But if the defendant, for any of a variety of reasons,[20] does not choose to interplead the absent potential claimants, there would be a strong argument for joining them as "persons needed for just adjudication" under Fed. Rule Civ. Proc. 19 (a).[21] See Comment, Standing to Sue in Antitrust Cases: *739 The Offensive Use of Passing-On, 123 U. Pa. L. Rev. 976, 998 (1975). These absent potential claimants would seem to fit the classic definition of "necessary parties," for purposes of compulsory joinder, given in Shields v. Barrow, 17 How. 130, 139 (1855):
"Persons having an interest in the controversy, and who ought to be made parties, in order that the court may act on that rule which requires it to decide on, and finally determine the entire controversy, and do complete justice, by adjusting all the rights involved in it."
See Notes of Advisory Committee on 1966 Amendment to Rule 19, 28 U. S. C. App., p. 7760; 7 C. Wright & A. Miller, supra, งง 1604, 1618; 3A J. Moore, Federal Practice ถ 19.08 (1974). The plaintiff bringing the treble-damages action would be required, under Fed. Rule Civ. Proc. 19 (c), to "state the names, if known," of these absent potential claimants; they should also be notified by some means that the action was pending.[22] Where, as would often be the case, the potential claimants at a particular level of distribution are so numerous that joinder of all is impracticable, a representative presumably would have to be found to bring them into the action as a class. See Fed. Rule Civ. Proc. 19 (d); 3A J. Moore, supra, ถ 19.21.
It is unlikely, of course, that all potential plaintiffs could or would be joined. Some may not wish to assert claims to the *740 overcharge; others may be unmanageable as a class; and still others may be beyond the personal jurisdiction of the court. We can assume that ordinarily the action would still proceed, the absent parties not being deemed "indispensable" under Fed. Rule Civ. Proc. 19 (b). See Provident Tradesmens Bank & Trust Co. v. Patterson, supra. But allowing indirect purchasers to recover using pass-on theories, even under the optimistic assumption that joinder of potential plaintiffs will deal satisfactorily with problems of multiple litigation and liability, would transform treble-damages actions into massive multiparty litigations involving many levels of distribution and including large classes of ultimate consumers remote from the defendant. In treble-damages actions by ultimate consumers, the overcharge would have to be apportioned among the relevant wholesalers, retailers, and other middlemen, whose representatives presumably should be joined.[23] And in suits *741 by direct purchasers or middlemen, the interests of ultimate consumers are similarly implicated.[24]
There is thus a strong possibility that indirect purchasers remote from the defendant would be parties to virtually every treble-damages action (apart from those brought against defendants at the retail level). The Court's concern in Hanover Shoe to avoid weighing down treble-damages actions with the "massive evidence and complicated theories," 392 U. S., at 493, involved in attempting to establish a pass-on defense against a direct purchaser applies a fortiori to the attempt to trace the effect of the overcharge through each step in the distribution chain from the direct purchaser to the ultimate consumer. We are no more inclined than we were in Hanover Shoe to ignore the burdens that such an attempt would impose on the effective enforcement of the antitrust laws.
Under an array of simplifying assumptions, economic theory provides a precise formula for calculating how the overcharge is distributed between the overcharged party (passer) and its customers (passees). If the market for the passer's product is perfectly competitive; if the overcharge is imposed equally on all of the passer's competitors; and if the passer maximizes its profits, then the ratio of the shares of the overcharge borne by passee and passer will equal the ratio of the elasticities of supply and demand in the market for the passer's product.[25]
*742 Even if these assumptions are accepted, there remains a serious problem of measuring the relevant elasticitiesโthe percentage change in the quantities of the passer's product demanded and supplied in response to a one percent change in price. In view of the difficulties that have been encountered, even in informal adversary proceedings, with the statistical techniques used to estimate these concepts, see Finkelstein, Regression Models in Administrative Proceedings, 86 Harv. L. Rev. 1442, 1444 (1973), it is unrealistic to think that elasticity studies introduced by expert witnesses will resolve the pass-on issue. We need look no further than our own difficulties with sophisticated statistical methodology that were evident last Term in Gregg v. Georgia, 428 U. S. 153 (1976), and its companion cases. See id., at 184-185 (joint opinion of STEWART, POWELL, and STEVENS, JJ.); 233-236 (MARSHALL, J., dissenting); Roberts v. Louisiana, 428 U. S. 325, 354-355 (1976) (WHITE, J., dissenting).
More important, as the Hanover Shoe Court observed, 392 U. S., at 493, "in the real economic world rather than an economist's hypothetical model," the latter's drastic simplifications generally must be abandoned. Overcharged direct purchasers often sell in imperfectly competitive markets. They often compete with other sellers that have not been subject to the overcharge; and their pricing policies often cannot be explained solely by the convenient assumption of profit maximization.[26] As we concluded in Hanover Shoe, 392 U. S., at 492, *743 attention to "sound laws of economics" can only heighten the awareness of the difficulties and uncertainties involved in determining how the relevant market variables would have behaved had there been no overcharge.[27]
It is quite true that these difficulties and uncertainties will be less substantial in some contexts than in others. There have been many proposals to allow pass-on theories in some of these contexts while preserving the Hanover Shoe rule in others. Respondents here argue, not without support from some lower courts,[28] that pass-on theories should be permitted for middlemen that resell goods without altering them and for contractors that add a fixed percentage markup to the cost of their materials in submitting bids. Brief for Respondents 9-30; Tr. of Oral Arg. 36-48. Exceptions to the Hanover Shoe rule have also been urged for other situations in which most of the overcharge is purportedly passed onโfor example, where a price-fixed good is a small but vital input into a *744 much larger product, making the demand for the price-fixed good highly inelastic. Compare Philadelphia Housing Auth. v. American Radiator & Standard Sanitary Corp., 50 F. R. D. 13 (ED Pa. 1970), aff'd sub nom. Mangano v. American Radiator & Standard Sanitary Corp., 438 F. 2d 1187 (CA3 1971), with In re Master Key Antitrust Litigation, 1973-2 Trade Cas. ถ 74,680 (Conn.). See Schaefer, supra n. 25, at 918-925.
We reject these attempts to carve out exceptions to the Hanover Shoe rule for particular types of markets.[29] An exception allowing evidence of pass-on by middlemen that resell the goods they purchase of course would be of no avail to respondents, because the contractors that allegedly passed on the overcharge on the block incorporated it into buildings. See supra, at 735. An exception for the contractors here on the ground that they purport to charge a fixed percentage above their costs would substantially erode the Hanover Shoe rule without justification. Firms in many sectors of the economy rely to an extent on cost-based rules of thumb in setting prices. See F. Scherer, Industrial Market Structure and Economic Performance 173-179 (1970). These rules are not adhered to rigidly, however; the extent of the markup (or the allocation of costs) is varied to reflect demand conditions. Id., at 176-177. The intricacies of tracing the effect of an overcharge on the purchaser's prices, costs, sales, and profits thus are not spared the litigants.
More generally, the process of classifying various market situations according to the amount of pass-on likely to be *745 involved and its susceptibility of proof in a judicial forum would entail the very problems that the Hanover Shoe rule was meant to avoid. The litigation over where the line should be drawn in a particular class of cases would inject the same "massive evidence and complicated theories" into treble-damages proceedings, albeit at a somewhat higher level of generality. As we have noted, supra, at 735-736, Hanover Shoe itself implicitly discouraged the creation of exceptions to its rule barring pass-on defenses, and we adhere to the narrow scope of exemption indicated by our decision there.
The concern in Hanover Shoe for the complexity that would be introduced into treble-damages suits if pass-on theories were permitted was closely related to the Court's concern for the reduction in the effectiveness of those suits if brought by indirect purchasers with a smaller stake in the outcome than that of direct purchasers suing for the full amount of the overcharge. The apportionment of the recovery throughout the distribution chain would increase the overall costs of recovery by injecting extremely complex issues into the case; at the same time such an apportionment would reduce the benefits to each plaintiff by dividing the potential recovery among a much larger group. Added to the uncertainty of how much of an overcharge could be established at trial would be the uncertainty of how that overcharge would be apportioned among the various plaintiffs. This additional uncertainty would further reduce the incentive to sue. The combination of increasing the costs and diffusing the benefits of bringing a treble-damages action could seriously impair this important weapon of antitrust enforcement.
We think the longstanding policy of encouraging vigorous private enforcement of the antitrust laws, see, e. g., Perma Life Mufflers, Inc. v. International Parts Corp., 392 U. S. 134, 139 (1968), supports our adherence to the Hanover Shoe rule, under which direct purchasers are not only spared the burden *746 of litigating the intricacies of pass-on but also are permitted to recover the full amount of the overcharge. We recognize that direct purchasers sometimes may refrain from bringing a treble-damages suit for fear of disrupting relations with their suppliers.[30] But on balance, and until there are clear directions from Congress to the contrary, we conclude that the legislative purpose in creating a group of " `private attorneys general' " to enforce the antitrust laws under ง 4, Hawaii v. Standard Oil Co. of Cal., 405 U. S. at 262, is better served by holding direct purchasers to be injured to the full extent of the overcharge paid by them than by attempting to apportion the overcharge among all that may have absorbed a part of it.
It is true that, in elevating direct purchasers to a preferred position as private attorneys general, the Hanover Shoe rule denies recovery to those indirect purchasers who may have been actually injured by antitrust violations. Of course, as MR. JUSTICE BRENNAN points out in dissent, "from the deterrence standpoint, it is irrelevant to whom damages are paid, so long as some one redresses the violation." Post, at 760. But ง 4 has another purpose in addition to deterring violators and depriving them of "the fruits of their illegality," Hanover Shoe, 392 U. S. at 494; it is also designed to compensate victims of antitrust violations for their injuries. E. g., Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U. S. 477, 485-486 (1977). Hanover Shoe does further the goal of compensation to the extent that the direct purchaser absorbs at least some and often most of the overcharge. In view of the considerations supporting the Hanover Shoe rule, we are unwilling to carry the compensation principle to its logical extreme by attempting to allocate damages among all "those within the defendant's chain of distribution," post, at 761, especially *747 because we question the extent to which such an attempt would make individual victims whole for actual injuries suffered rather than simply depleting the overall recovery in litigation over pass-on issues. Many of the indirect purchasers barred from asserting pass-on claims under the Hanover Shoe rule have such a small stake in the lawsuit that even if they were to recover as part of a class, only a small fraction would be likely to come forward to collect their damages.[31] And given the difficulty of ascertaining the amount absorbed by any particular indirect purchaser, there is little basis for believing that the amount of the recovery would reflect the actual injury suffered.
*748 For the reasons stated, the judgment is reversed, and the case is remanded for further proceedings consistent with this opinion.
So ordered.
MR. JUSTICE BRENNAN, with whom MR. JUSTICE MARSHALL and MR. JUSTICE BLACKMUN join, dissenting.
Respondent State of Illinois brought this treble-damages civil antitrust action under ง 4 of the Clayton Act on behalf of itself and various local governmental entities in the Greater Chicago area alleging that an overcharge in the price of concrete block used in the construction of public buildings was made by the petitioners, manufacturers and sellers of concrete block, pursuant to a price-fixing conspiracy in violation of ง 1 of the Sherman Act, 15 U. S. C. ง 1.[1] Section 4 of the Clayton Act, 38 Stat. 731, 15 U. S. C. ง 15, broadly provides: "[A]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor . . . and shall recover threefold the damages by him sustained . . . ."
Decisions of the Court defining the reach of ง 4 have been consistent with its broad objectives: to compensate victims of antitrust violations and to deter future violations. The Court has stated that ง 4 "does not confine its protection to consumers, or to purchasers, or to competitors, or to sellers . . . [but] is comprehensive in its terms and coverage, protecting all who are made victims of the forbidden practices by whomever they may be perpetrated." Mandeville Island Farms, Inc. v. American Crystal Sugar Co., 334 U. S. 219, 236 (1948).[2]*749 Today's decision that ง 4 affords a remedy only to persons who purchase directly from an antitrust offender is a regrettable retreat from that line of cases. Section 4 was clearly intended to operate to protect individual consumers who purchase through middlemen. Indeed, Congress acted on the premise that ง 4 gave a cause of action to indirect as well as direct purchasers when it recently enacted the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 90 Stat. 1394-1396, 15 U. S. C. ง 15c et seq. (1976 ed.), and authorized state attorneys general to sue as parens patriae to recover damages on behalf of citizens of their various States.
Today's decision flouts Congress' purpose and severely undermines the effectiveness of the private treble-damages action as an instrument of antitrust enforcement. For in many instances, the brunt of antitrust injuries is borne by indirect purchasers, often ultimate consumers of a product, as increased costs are passed along the chain of distribution.[3] In these instances, the Court's decision frustrates both the compensation and deterrence objectives of the treble-damages action. Injured consumers are precluded from recovering damages from manufacturers, and direct purchasers who act as middlemen have little incentive to sue suppliers so long as they may pass on the bulk of the illegal overcharges to the ultimate consumers. This frustration of the congressional scheme is in no way mandated by Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U. S. 481 (1968). To the contrary, the same considerations that Hanover Shoe held *750 required rejection of the defendant's argument there, that because plaintiff had passed on cost increases to consumers in the form of higher prices defendant should be relieved of liabilityโespecially the consideration that it is essential to the public interest to preserve the effectiveness of the private treble-damages actionโrequire affirmance of the decision below construing ง 4 to authorize respondent's suit.
I
In Hanover Shoe, supra, the Court held that a defendant in a treble-damages action could not escape liability, except in very limited circumstances,[4] by proof that the plaintiff had passed on illegal overcharges to others farther along in the chain of distribution.[5] The defendant in Hanover Shoe, United Shoe, argued that Hanover was not entitled to recover damages because the increased price it had paid for United's equipment[6] had in turn been reflected in the increased price at which Hanover had sold its shoes to the consuming public. The Court held that several reasons supported its conclusion that this defense was not available to United despite "the argument that sound laws of economics require" its recognition, 392 U. S., at 492. First, the Court followed earlier cases holding that the "victim of an overcharge is [immediately] *751 damaged within the meaning of ง 4 to the extent of that overcharge." Id., at 491. The particularly apt precedent supporting this proposition was Southern Pacific Co. v. Darnell-Taenzer Lumber Co., 245 U. S. 531 (1918),[7] where a pass-on defense had been rejected because of "[t]he general tendency of the law, in regard to damages at least, . . . not to go beyond the first step," and the Court's belief that "[t]he carrier ought not to be allowed to retain his illegal profit, and the only one who can take it from him is the one that alone was in relation with him, and from whom the carrier took the sum. . . ." Id., at 533-534. In other words, the requirement of privity between plaintiff and defendant was a reason to deny defendant the pass-on defense, since otherwise the defendant would be able to profit by his own wrong. Hanover Shoe cannot be read, however, as limiting actions to parties in privity with one another. That was made clear in Perkins v. Standard Oil Co., 395 U. S. 642, 648 (1969), decided the next Term, a price discrimination case in which the Court traced an illegal overcharge through several levels in the chain of distribution, ultimately holding that a plaintiff seeking to recover damages need show only a "causal connection between the price discrimination in violation of the [antitrust laws] and the injury suffered. . . . If there is sufficient evidence in the record to support an inference of causation, the ultimate conclusion as to what that evidence proves is for the jury." Darnell-Taenzer does, however, support Hanover Shoe's denial of the pass-on defense for the other reasons relied upon in Hanover Shoe: the difficulty of proving and quantifying a pass-on, and the role of the treble-damages action as the most effective means of antitrust enforcement. 392 U. S., at 492-494.
The Court correctly discerned that the difficulty of reconstructing *752 hypothetical pricing decisions,[8] would aggravate the already complex nature of antitrust litigation since pass-on defenses would become commonplace whenever the chain of distribution extended beyond the plaintiff. This would lessen the effectiveness of the treble-damages action, since ultimate consumers individually often suffer only minor damages and therefore have little incentive to bring suit. Limiting defendants' liability to the loss of profits suffered by direct purchasers would thus allow the antitrust offender to avoid having to pay the full social cost of his illegal conduct in many cases in which indirect purchasers failed to bring suit. Consequently,
"those who violate the antitrust laws by price fixing or monopolizing would retain the fruits of their illegality because no one was available who would bring suit against them. Treble damage actions, the importance of which the Court has many times emphasized, would be substantially reduced in effectiveness." Id., at 494.
Hanover Shoe thus confronted the Court with the choice, as had been true in Darnell-Taenzer, of interpreting ง 4 in a way that might overcompensate the plaintiff, who had certainly suffered some injury, or of defining it in a way that underdeters the violator by allowing him to retain a portion of his ill-gotten overcharges. The Court chose to interpret ง 4 so as to allow the plaintiff to recover for the entire overcharge. This choice was consistent with recognition of the importance *753 of the treble-damages action in deterring antitrust violations.[9] But Hanover Shoe certainly did not imply that an indirect purchaser would not also have a cause of action under ง 4 when the illegal overcharges were passed on to him.
Despite the superficial appeal of the argument that Hanover Shoe should be applied "consistently," thus precluding plaintiffs and defendants alike from proving that increased costs were passed along the chain of distribution, there are sound reasons for treating offensive and defensive passing-on cases differently. The interests at stake in "offensive" passing-on cases, where the indirect purchasers sue for damages for their injuries, are simply not the same as the interests at stake in the Hanover Shoe, or "defensive" passing-on situation. There is no danger in this case, for example, as there was in Hanover Shoe, that the defendant will escape liability and frustrate the objectives of the treble-damages action. Rather, the same policies of insuring the continued effectiveness of the treble-damages action and preventing wrongdoers from retaining the spoils of their misdeeds favor allowing indirect purchasers to prove that overcharges were passed on to