Academic journal article Contemporary Economic Policy

Umbrella Damages: Toward a Coherent Antitrust Policy

Academic journal article Contemporary Economic Policy

Umbrella Damages: Toward a Coherent Antitrust Policy

Article excerpt


When a price-fixing cartel is discovered, it is not uncommon to find that some industry members actively colluded while others did not. (1) To the extent that the cartel members raised their prices above preconspiracy levels, direct purchasers from the conspiring suppliers have been overcharged. These victimized customers are routinely granted standing to sue for treble damages under [section]4 of the Clayton Act. (2) Under predictable circumstances, the customers of the nonconspiring manufacturers will also pay inflated prices as a result of the conspiracy. If they seek to recover antitrust damages, they will be termed "umbrella" plaintiffs because their suppliers set prices under the price umbrella provided by the cartel.

The existence of umbrella victims pervades nearly every [section]1 case, as nearly all conspiracies are partial conspiracies. Antitrust casebooks are replete with examples including Indiana Federation of Dentists, Maricopa County, Professional Engineers, Trenton Potteries, Socony-Vacuum, and Topco? More contemporary examples include Digital Animators, High Tech Employees, and MasterCard. (4) Partial conspiracies can arise because some firms refuse to participate or are not invited to participate. To the extent that the prices of the nonparticipants are higher than they would be otherwise as a result of the conspiracy, then the customers of nonparticipants are umbrella victims. Their pervasive presence demands that the Supreme Court will decide whether they have standing or not. The split among the circuits induces forum shopping and inconsistencies in how umbrella victims are treated. Until this matter is resolved, the standing issue for umbrella victims is an important antitrust policy question.

In the United States, antitrust policy is embodied in the Sherman Act of 1890, the Clayton Act of 1914, and the judicial interpretations of these statutes. The central antitrust policy goal is to protect the competitive process from collusion and monopoly in order to promote consumer welfare. Public enforcement of the antitrust laws deters unlawful conduct through the threat of fines and imprisonment. Private enforcement provides deterrence through private damage suits that can result in treble damage awards. Private damage suits also serve a remedial purpose by compensating antitrust victims. There is, however, a gap in this protection for umbrella victims in some parts of the United States.

Since the Clayton Act is a federal statute, its application should be uniform throughout the nation. For nearly four decades, however, whether umbrella plaintiffs have antitrust standing to sue for damages has depended upon the jurisdiction in which they reside. (5) In 1979, the Third Circuit denied standing to umbrella plaintiffs in Mid-West Paper. (6) On the heels of this decision, the Fifth Circuit granted standing to umbrella plaintiffs in Beef Industry Antitrust Litigation. (7) In doing so, it explicitly rejected the holding in Mid-West Paper. Since then, the Ninth Circuit joined the Third in rejecting umbrella claims while the Seventh Circuit joined the Fifth in admitting them. This split has persisted because the Supreme Court has not spoken, leaving open the unresolved policy question of whether umbrella plaintiffs should be granted standing. Recently, there has even been a split within the Ninth Circuit, which we examine below.

In this article, (8) we identify the judicial concerns regarding umbrella damage claims, which can be traced to Mid-West Paper and Petroleum Products Antitrust Litigation. According to the decisions in these two cases, the fact of injury is conjectural and the magnitude of the damages is speculative. We note that these original concerns can be partly attributed to the incomplete acceptance of economic theory by the judiciary and to the state of econometric analysis at the time of those judicial decisions. (10) We show that economic analysis coupled with modern econometric techniques can address the judicial concerns in many circumstances. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.