Passing-on-standing Matrix in Private Antitrust Enforcement: a Reconciliation of Economic and Justice Approaches

Abstract

Any scheme for private antitrust enforcement is framed by two main questions: who will have standing – direct or indirect purchasers – and will the passing-on defense be allowed. Imagine that a cartel of oil producers forces gas stations – direct purchasers – to buy petrol at a higher than competitive price. The gas stations then raise the price for the final customers – indirect purchasers. When the gas stations sue the cartel, the cartelist will claim that no damage has occurred to the gas stations, because the gas stations have passed on the overcharge to its final customers – the passing-on defines.

In the United States, the ruling of the California Supreme Court in Clayworth v. Pfizer, alongside a report of the Antitrust Modernization Commission of 2007, spurred new debate on whether the 1970s Federal case law should be overruled. The situation in the European Union has been even more challenging. The Court of Justice of the EU surprised everybody with two landmark cases in the early 2000s, in which the court set up a basic scheme for private antitrust enforcement. However, neither the EU nor the Member States had the appropriate legislation in place. The article analyzes these latest developments, offering new solutions to both jurisdictions.

I argue that the practice of passing on increases the total social welfare loss resulting from the existence of a cartel. To remedy the problem, I suggest a system that allows the passing-on defense, grants indirect purchasers standing, and multiplies the damages award. Such a system will lead to direct-purchaser suits being the rule, with indirect purchasers remaining subsidiary enforcers. It will also prompt the direct purchasers to commence the antitrust litigation in the proper time, thus limiting the additional social inefficiencies created by the cartel.

Keywords: competition law; private antitrust enforcement; passing on; treble damages; law and economics; torts; European Union; United States

JEL Classification: K21, L4