Ninth Circuit Clarifies Limited Scope of Illinois Brick Exceptions

Antitrust Update

Ninth Circuit Clarifies Limited Scope of Illinois Brick Exceptions

The United States Court of Appeals for the Ninth Circuit recently issued an important decision regarding the scope of two exceptions to the indirect purchaser rule articulated in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). See In re ATM Fee Antitrust Litig., No. 10-17354, 2012 WL 2855813 (9th Cir. July 12, 2012). The Ninth Circuit narrowly applied the exceptions and clarified language in its previous decisions to affirm summary judgment in favor of the defendants. Sidley Austin LLP represents defendants Citibank, N.A. and Citibank (West), FSB in the proceeding.

Plaintiffs alleged that the defendants – bank members of the STAR ATM network that both issue ATM cards and own ATMs, as well as the STAR network itself – engaged in horizontal price fixing by purportedly colluding to fix the STAR interchange fee paid by card issuers to ATM owners. They claimed that the card issuers passed the interchange fee on to ATM cardholders in the form of a fee for using a “foreign” ATM machine – i.e., a machine owned by a bank other than the issuer of the ATM card. In September 2010, the district court granted summary judgment dismissing plaintiffs’ claims for lack of standing under Illinois Brick. In re ATM Fee Antitrust Litigation, No. C 04-02676 CRB, 2010 WL 3701912, at *2-3, 5 (N.D. Cal. Sept. 16, 2010). The Illinois Brick rule provides that only direct purchasers have standing to recover damages under § 4 of the Clayton Act in the absence of certain exceptions.

In granting summary judgment, the district court emphasized that plaintiffs did not allege that defendants had conspired to fix the foreign ATM fee, the fee directly paid by ATM cardholders. Instead, “plaintiffs assert that their banks pay an unlawfully inflated interchange fee and then pass the cost along to them through foreign interchange fees.” In re ATM Fee Antitrust, 2010 WL 3701912, at *2-3, 5. Because the plaintiffs were not direct purchasers with respect to the allegedly fixed fee – the interchange fee – and no exceptions to Illinois Brick applied, the district court ruled that their damages claims were barred. Id. *5-10.

The Ninth Circuit affirmed, and in doing so clarified the limited exceptions to Illinois Brick. The Court first explained that, while the “Supreme Court has expressed reluctance in carving out exceptions to the Illinois Brick rule, limited exceptions do exist.” 2012 WL 2855813, at * 6. The Supreme Court and other courts have discussed three potential exceptions, the co-conspirator exception, the ownership or control exception and the cost plus exception. The Court considered whether plaintiffs had standing to sue under either: (1) a purported exception where there is no realistic possibility that the direct purchaser will sue the defendants; or (2) the co-conspirator “exception,” which permits an indirect purchaser to sue under certain circumstances if it establishes a price-fixing conspiracy between the initial seller and the direct purchaser. After an extensive review of Illinois Brick precedent, the Ninth Circuit ruled that neither of these exceptions “allow Plaintiffs to avoid run[ning] squarely into the Illinois Brick wall.” Id. (internal citations omitted).

The Ninth Circuit had arguably appeared to recognize a new exception to Illinois Brick in Freeman v. San Diego Association of Realtors, 322 F.3d 1133 (9th Cir. 2003), allowing an indirect purchaser to sue for damages if “there is no realistic possibility that the direct purchaser will sue.” Relying on Freeman, plaintiffs in the ATM case argued that an exception to Illinois Brick applied because there was no realistic possibility that banks, which paid the challenged interchange fee, would sue the defendants. The Ninth Circuit rejected this argument, ruling that Freeman did not create a new exception to the Illinois Brick rule. Instead, “in Freeman, we found no realistic possibility of suit because the [defendants] owned and controlled the direct purchaser,” and the Supreme Court in Illinois Brick had suggested the direct purchaser rule does not apply in the context of such ownership and control. 2012 WL 2855813, at * 13. Contrary to the plaintiffs’ arguments, the Court explained that the “no realistic possibility” inquiry is not a separate exception to the Illinois Brick rule, and does not apply outside the ownership or control context.

The Court also clarified limits to the co-conspirator exception, rejecting the plaintiffs’ argument that the exception applied because defendants allegedly conspired to fix the interchange fee, which is a component of the foreign ATM fee plaintiffs directly paid to the alleged co-conspirators. The Court held that the co-conspirator exception is only applicable if the co-conspirators fix the price directly paid by the plaintiff – the foreign ATM fee in this case. However, the co-conspirator exception does not apply if, as here, the co-conspirators fix an upstream price that is then passed on to the plaintiff by a co-conspirator. Thus, under the Ninth Circuit’s ruling, the co-conspirator exception does not apply merely because the plaintiff purchases from an alleged co-conspirator; the plaintiff must also show that the price it directly pays was fixed by conspiracy.

Both of these holdings suggest that some lower courts have interpreted exceptions to Illinois Brick too broadly. They are also consistent with the Supreme Court’s prior admonitions against creating new or broader exceptions to the bright line rule adopted in Illinois Brick.

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