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Defendants Summary Judgment Motion in In re Cathode Ray Tube Antitrust Litigation May Illuminate Policy Justifications Behind Ownership or Control Exception

Earlier this month, defendants in the In re Cathode Ray Tube Antitrust Litigation moved to challenge the standing of major retailers to pursue damages claims under the Supreme Court’s 1977 Illinois Brick decision.  LG Electronics, Samsung, Panasonic, and other manufacturers asked the United States District Court for  the Northern District of California to deny standing to Best Buy, K-Mart, Costco, and other so-called “Direct Action Plaintiffs” who actually purchased cathode ray tube (CRT) Finished Products and not CRT tubes themselves, arguing that the purchase of CRT Finished Products, as opposed to CRT tubes, renders the “Direct Action Plaintiffs”—despite their name—indirect purchasers who have no antitrust standing to recover damages.  Panasonic’s motion in particular presents an issue as to whether the “ownership or control” exception to the rule barring indirect purchasers from recovering damages is applicable to some of the purchases made by the Direct Action Plaintiffs.

The “ownership or control” exception is derived from a footnote in the Illinois Brick decision where the court noted that indirect purchasers may have standing to sue for damages “where the direct purchaser is owned or controlled by its customer” because that is a situation “in which market forces have been superseded.”  Ill. Brick Co. v. Ill., 431 U.S. 720, 736 n.16 (1977).  In Sun Microsystems, Inc. v. Hynix Semiconductor, Inc., 608 F. Supp. 2d 1166 (N.D. Cal. 2009), an instructive case on the application of the exception, the court held that the direct purchasers were not sufficiently controlled by the price-fixing conspirators such that the “ownership or control” exception allowed indirect purchasers to sue for damages.  The court ruled that the “ownership or control” exception requires “functional economic or other unity” between the defendant and direct purchaser such that “there effectively has been only one sale.”  Id. at 1180.  However, the court also noted that “policy reasons behind the Illinois Brick decision remain intact” because “to the extent that the [direct purchasers] retain, and have exercised, their right to sue defendants, this further confirms that market forces have not been superseded.”  Id. at 1182.

Panasonic’s motion will likely require the court to analyze the underlying policy reasons behind the exception, which may end up determining the results.  Panasonic has moved the court to strip standing from plaintiffs who purchased CRT Finished Products from Sanyo, a company that Panasonic purchased an ownership stake in two years after the price-fixing lawsuit began.  Panasonic argues that the exception only applies if it “owned or controlled” Sanyo during the time of the conspiracy, and it is undisputed that it did not.  While plaintiffs have not yet filed their opposition to this motion, they will likely respond that a defendant should not be allowed to extinguish damages claims by acquiring the direct purchasers who have standing to sue it.  This appears to be the first instance where a court is directly faced with the question of whether ownership or control of a direct purchaser is only relevant during the life of the conspiracy.  How the court decides this motion will help illuminate whether the relevant “market forces” that could be “superseded” by ownership or control of direct purchasers is the ex ante market for the price-fixed product, or the ex poste market for private enforcement of antitrust law.