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California Supreme Court Bars Pass-on Defense for State Law Antitrust Claims

21 July 2010

Litigation Alert

On 12 July 2010, the California Supreme Court in Clayworth v. Pfizer, Inc., No. S166435, 2010 WL 2721021 (Cal. July 12, 2010), held that California law bars antitrust defendants from invoking a pass-on defense in most circumstances even though both direct and indirect purchasers may sue for treble damages. Defendants (or groups of defendants) in antitrust lawsuits are typically accused of illegally overcharging for their products. An overcharge would be initially borne by direct purchasers of the defendant's products such as dealers or distributors, and may be passed on, in whole or in part, to indirect purchasers such as consumers. If the direct purchasers do pass on the overcharge, a possibility of duplicative recoveries exists when multiple levels of purchasers are permitted to sue the defendant for damages. In such instances, the defendant will likely seek to argue that the plaintiff passed on the overcharge, which leaves the claimant with no measurable injury and therefore no cognizable claims for damages. This argument is referred to as a pass-on defense. The Clayworth decision raises significant questions about the scope of liability under California antitrust law and potentially opens the door for separate antitrust lawsuits to be filed by multiple levels of purchasers, and leaves defendants subject to duplicative recoveries.

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