In Re Processed Egg Products Antitrust Litigation

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

________________________

No. 16-3795

________________________

IN RE: PROCESSED EGG PRODUCTS

ANTITRUST LITIGATION

KRAFT FOODS GLOBAL, INC., KELLOGG COMPANY,

GENERAL MILLS, INC., and NESTLÉ USA, INC.,

Appellants

________________________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(District Court Nos. 2-08-md-02002 and 2-12-cv-00088)

District Judge: The Honorable Gene E.K. Pratter

________________________

Argued July 11, 2017

Before: SMITH, Chief Judge, FUENTES, Circuit Judge, and

STARK, † Chief District Judge

†

Honorable Leonard P. Stark, Chief Judge of the United States

District Court for the District of Delaware, sitting by

designation.

(Opinion Filed: January 22, 2018)

________________________

Richard P. Campbell

James T. Malysiak

Michael T. Brody [Argued]

Jenner & Block LLP

353 N. Clark Street

Chicago, IL 60654

Counsel for Appellants

Carrie C. Mahan [Argued]

Weil, Gotshal & Manges LLP

1300 Eye Street, N.W.

Washington, DC 20005

William L. Greene

Ruth S. Shnider

Stinson Leonard Street LLP

150 S. Fifth Street

Minneapolis, MN 55402

Brian E. Robison

Gibson, Dunn & Crutcher LLP

2100 McKinney Avenue, Suite 1100

2

Dallas, TX 75201

Christine C. Levin

Jennings F. Durand

Dechert LLP

2929 Arch Street

Philadelphia, PA 19104

Donald M. Barnes

Jay L. Levine

Porter Wright Morris & Arthur LLP

1900 K Street, N.W., Suite 1110

Washington, DC 20006

Molly S. Crabtree

Porter Wright Morris & Arthur LLP

41 South High Street

29th Floor

Columbus, OH 43215

Michael L. Scheier

Joseph M. Callow, Jr.

Keating Muething & Klekamp PLL

1 East Fourth Street, Suite 1400

Cincinnati, OH 45202

Jan P. Levine

Robin P. Sumner

Whitney R. Redding

Pepper Hamilton LLP

3

3000 Two Logan Square

Philadelphia, PA 19103

Counsel for Appellees

________________________

OPINION

________________________

STARK, Chief District Judge.

In this antitrust case, suppliers of processed egg

products are accused of conspiring to reduce the supply of eggs

and, consequently, increasing the market price for egg

products. The District Court, relying on our decision in Mid-

West Paper Products Co. v. Continental Group, Inc., 596 F.2d

573 (3d Cir. 1979), as well as the bar on indirect purchaser

actions established in Illinois Brick Co. v. Illinois, 431 U.S. 720

(1977), concluded that the purchaser-plaintiffs lack antitrust

standing. We find that neither Mid-West Paper nor Illinois

Brick bars the price-fixing claims asserted here and reverse the

District Court’s grant of summary judgment.

I

This is a case about eggs. After collection from laying

hens, most commercially-produced eggs proceed through one

of two principal distribution channels. The first path is for

“shell eggs,” which are supplied to grocery stores and other

4

distributors as whole eggs, packaged, for example, in crates by

the dozen. “‘Shell eggs’ [are] defined as eggs produced from

caged birds that are sold in the shell for consumption or for

breaking and further processing.” In re Processed Egg

Products Antitrust Litig., 312 F.R.D. 171, 177 n.4 (E.D. Pa.

2015).

The second path involves what are referred to as “egg

products.” “‘Egg products’ [are] defined as the whole or any

part of shell eggs that have been removed from their shells and

then processed, with or without additives, into dried, frozen, or

liquid forms.” Id. at 177 n.5. Food manufacturers are the

primary purchasers of egg products, using them as ingredients

in goods ranging from frozen waffles to salad dressing to

mayonnaise.

In a series of individual and class actions brought by

purchasers of shell eggs and egg products, certain egg suppliers

are accused of price-fixing in violation of the Sherman Act, 15

U.S.C. § 1. It is alleged that, between at least 1999 and 2008,

these producers conspired to reduce the population of egg-

laying hens, resulting in a reduced supply of eggs and, in light

of the inelasticity of demand in the relevant markets,

supracompetitive prices. 1

1

“Demand for a product is inelastic if the price can rise without

a corresponding drop in demand.” A.D. Bedell Wholesale Co.

v. Philip Morris Inc., 263 F.3d 239, 246 (3d Cir. 2001). As

applied here, if “the demand for eggs is highly inelastic,” as

Appellants contend, then “a relatively small reduction in the

egg supply results in a large increase in egg prices.” (Opening

5

Appellee United Egg Producers, Inc. (“UEP”), a trade

association, allegedly played an important role by coordinating

a certification program. Egg producers participating in the

certification program were required to increase their hens’ cage

sizes and refrain from replacing hens that died with another

laying hen (a practice known as “backfilling”). It is alleged

that the animal welfare rationale offered for these practices is

merely a pretext for the true goal of reducing egg supply to

drive up egg prices.

Appellants – Kraft Foods Global, Inc., Kellogg

Company, General Mills, Inc., and Nestlé USA, Inc.

(hereinafter, “Plaintiffs” or “Purchasers”) – are food

manufacturers. They sued Appellees – UEP, as well as an

exporting entity under UEP’s control (United States Egg

Marketers, Inc. (“USEM”)), and five processed egg product

suppliers 2 who made sales directly to the Plaintiffs – in the U.S.

District Court for the Northern District of Illinois. The Judicial

Panel on Multidistrict Litigation transferred the case to the U.S.

District Court for the Eastern District of Pennsylvania,

consolidating it for pretrial purposes with other cases involving

similar antitrust claims (the “MDL”).

Brief of Plaintiffs-Appellants (“OB”) at 15)

2

The five supplier Appellees are Rose Acre Farms, Inc., Ohio

Fresh Eggs, LLC, Michael Foods, Inc. (“Michael Foods”),

R.W. Sauder, Inc., and Cal-Maine Foods, Inc. (hereinafter

referred to, together with UEP and USEM, as “Defendants” or

“Suppliers”).

6

Plaintiffs’ claims are based solely on purchases of egg

products; claims by purchasers of shell eggs are being litigated

in other cases within the MDL. Plaintiffs seek to recover

overcharges they paid in the market for egg products due to

“substantially increased” prices resulting from Defendants’

alleged participation in the supply-reduction conspiracy. (OB

at 10)

More particularly, the Purchasers’ theory is that the

Suppliers conspired to reduce the supply of shell eggs, and to

inflate the price of shell eggs, with the intent and effect of also

artificially inflating the price of egg products. The Purchasers’

view, which they contend is supported by their expert, is that

the relevant market consists of shell eggs and egg products.

Therefore, according to the Purchasers, the prices they paid for

egg products – of which shell eggs are the main input – include

overcharges, just as the conspiring Suppliers intended. (See

generally JA416) (Plaintiffs’ counsel arguing during summary

judgment hearing, “[O]ur allegations and our proof are that the

output-reduction conspiracy at the henhouse level impacted in

the same way both shell eggs and egg products.”) 3

3

In this Opinion we sometimes refer to shell eggs as the price-

fixed product. At other times we refer to shell eggs as a price-

fixed input into egg products, and describe egg products – the

principal component of which is shell eggs – as a price-fixed

good. For purposes of this Opinion, these descriptions are

interchangeable. Plaintiffs allege, and have an expert who

agrees, that Defendants intended to artificially inflate the prices

of shell eggs and egg products by restricting the supply of eggs.

(See OB at 10 (“The conspiracy was intended by defendants to

7

The Suppliers are vertically integrated to varying

degrees. Thus, some proportion of the egg products purchased

by Plaintiffs was made using eggs obtained from non-party,

non-conspirator egg producers (“non-conspirator eggs”), with

much or all of the remainder made from eggs sourced

internally, from the Suppliers’ own laying hens (“internal

eggs”). 4 A slightly altered version of a diagram prepared by

the Purchasers depicts this arrangement:

raise market prices for both shell eggs and egg products.”);

JA248 (alleging that “Defendants agreed to control supply and

artificially maintain and increase the price of eggs [i.e., all

eggs]”); JA200 (specifying that term “‘eggs’ refers to both

‘shell eggs’ and ‘egg products’”); JA749 (“[E]conomic theory

and the documentary record indicate that firms that process egg

products affect shell egg prices by seeking opportunities to

divert eggs to the most profitable product, and vice versa. . . .

Thus, anticompetitive actions to reduce the overall production

of eggs will impact prices of all types of eggs analyzed in my

report.”)) While in some cases whether the price-fixed item is

the complete product purchased by the plaintiff, or is instead

merely a component of that product, may be relevant,

resolution of the issues presented here is not impacted by this

distinction. See generally Weiss v. York Hosp., 745 F.2d 786,

815 (3d Cir. 1984) (“Antitrust policy requires the courts to seek

the economic substance of an arrangement, not merely its

form.”).

4

In addition, certain Defendants obtained shell eggs from other

conspirator-Defendants. These eggs are within the scope of

what this Opinion refers to as “internal” eggs, as they were

8

The dashed line in the left box indicates that internal eggs are

used as an input for the egg products purchased by Plaintiffs-

Purchasers from Defendants-Suppliers. In addition, as

represented by the dotted line running from the right box into

the left box, those same egg products also contain some amount

of non-conspirator eggs that are first purchased by Defendants-

Suppliers from non-conspirator egg producers. Therefore, the

egg products Plaintiffs purchased from Defendants contain

some combination of internal eggs, supplied directly by

Defendants, and non-conspirator eggs, supplied indirectly by

non-conspirator egg producers.

produced within the conspiracy. For purposes of the issues

before us, it does not matter whether a Defendant’s “internal”

eggs came from a flock owned by that same Defendant or

instead from a flock that belonged to a fellow conspirator-

Defendant.

9

During discovery, Plaintiffs’ damages expert opined

that (i) the relevant market included both shell eggs and egg

products; (ii) small reductions in flock size and egg supply

caused significant increases in egg prices, due to the market’s

high inelasticity of demand; and (iii) this increase also enabled

Defendants to overcharge Plaintiffs for their purchases of egg

products. Plaintiffs collectively claim aggregate damages in

excess of $111 million.

Plaintiffs’ damages calculations make no distinction

between overcharges for egg products made using internal

eggs and those made from non-conspirator eggs. Plaintiffs’

expert testified at his deposition that the proportion of price-

fixed egg products derived from non-conspirator eggs is

irrelevant. In the view of Plaintiffs’ expert, Defendants’

conspiracy effected an increase in the market price of all shell

eggs, regardless of their source. (See JA596-97) (“As

documented . . . there are no close substitutes for eggs –

regardless of whether one considers shell, liquid, dried, or

frozen eggs. . . . A reduction in egg production means that

fewer eggs are available for making/processing shell eggs or

egg products.”) Consequently, and as Defendants allegedly

intended, Plaintiffs paid an overcharge on all of the egg

products they purchased from Defendants, even if those egg

products were made, in whole or in part, from non-conspirator

eggs. (See generally JA749-50) (“[A]nticompetitive actions to

reduce the overall production of eggs will impact prices of all

types of eggs analyzed in my report. . . . The primary

mechanism through which the alleged conspiracy impacted the

prices of shell eggs and egg products was through coordinated

efforts to reduce national flock size and the overall number of

eggs generally . . . .”)

10

After discovery concluded, Defendants moved for

summary judgment. They argued that Plaintiffs’ inclusion in

their damages calculations of egg products made with non-

conspirator eggs violated Mid-West Paper’s prohibition on

“umbrella damages.” Defendants emphasized that none of

Plaintiffs’ allegations involves any wrongdoing undertaken at

the egg product production stage, but only concern the

production of shell eggs at the laying stage. They also

demonstrated that one defendant, Michael Foods, made the

“overwhelming majority” of relevant egg product sales, and

that most of the egg products sold by Michael Foods were

made with non-conspirator eggs. (Joint Response Brief of

Defendants-Appellees (“AB”) at 10) In other words, it is

undisputed that “a Michael Foods egg product most likely was

manufactured using egg supplied by a non-conspirator.” (Id.

at 11)

Defendants also pointed to Plaintiffs’ expert’s

acknowledgment that, “as of 2004, producers not alleged to be

defendants or conspirators accounted for more than 45% of

[hen] flocks in the United States.” (AB at 12) (citing JA590)

Further, according to Defendants, Plaintiffs’ damages

calculations do not reveal “whether the allegedly higher prices

resulted from higher raw egg prices or higher processing

margins.” (AB at 14)

The District Court entered summary judgment for

Defendants. It found that Plaintiffs lack antitrust standing

because they impermissibly seek to “link the raw egg prices of

non-conspirators to the conspiracy” in violation of Mid-West

Paper, and, alternatively, their allegations run afoul of Illinois

Brick’s bar on “recovery of pass through overcharges.” (JA9-

11

10) Plaintiffs ask us to reverse the District Court’s entry of

summary judgment and remand the case for trial.

II

The District Court had jurisdiction under 28 U.S.C. §§

1331 and 1337. Plaintiffs filed a timely notice of appeal on

October 4, 2016. On October 6, 2016, we sought input from

the parties as to whether “[t]he order appealed from . . .

dismissed all claims as to all parties.” In response, both sides

agreed that, notwithstanding the pendency of other related

cases in the MDL, the District Court’s order that is the subject

of this appeal resolved all claims brought by Plaintiffs and,

therefore, was a final order immediately appealable under 28

U.S.C. § 1291. We agree. See Gelboim v. Bank of America

Corp., 135 S. Ct. 897, 904 (2015) (“Cases consolidated for

MDL pretrial proceedings ordinarily retain their separate

identities, so an order disposing of one of the discrete cases in

its entirety should qualify under § 1291 as an appealable final

decision.”). Therefore, we have appellate jurisdiction pursuant

to § 1291.

III

We review the District Court’s order granting summary

judgment de novo. In doing so, we “apply the same test the

District Court should have used.” Howard Hess Dental Labs.

Inc. v. Dentsply Int’l, Inc., 602 F.3d 237, 246 (3d Cir. 2010).

Summary judgment is appropriate when “there is no genuine

dispute as to any material fact and the movant is entitled to

judgment as a matter of law.” Fed. R. Civ. P. 56(a). We

evaluate the record “in the light most favorable to the

12

nonmoving party and draw all inferences in that party’s favor.”

Burns v. Pa. Dep’t of Corr., 642 F.3d 163, 170 (3d Cir. 2011)

(internal quotation marks omitted).

IV

Section 4 of the Clayton Act allows one “injured in his

business or property by reason of anything forbidden in the

antitrust laws,” such as price-fixing prohibited by the Sherman

Act, to sue for treble damages. 15 U.S.C. § 15(a). Plaintiffs

contend that the District Court erred in finding that they lack

antitrust standing and their § 4 claims are barred by Mid-West

Paper and Illinois Brick. 5 We agree.

A

The term “standing” as used in the antitrust context is

conceptually difficult and has not been delineated with

precision. See generally Associated Gen. Contractors of

5

Plaintiffs also contend that the District Court abused its

discretion in “sua sponte rejecting [their] economic expert’s

opinions concerning the relevant product market and the

impact of the alleged output conspiracy on the prices that

[Plaintiffs] paid.” (OB at 5; see also id. at 51-56) Any flaw in

the District Court’s assessment of Plaintiffs’ expert’s opinions

stemmed from the District Court’s assessment of the relevant

case law. On remand, it will be for the District Court to

determine whether to permit Defendants to renew or restate a

challenge to Plaintiffs’ expert’s opinions and to decide the

merits of any such attack. (See infra Section VI.C)

13

California, Inc. v. California State Council of Carpenters, 459

U.S. 519, 536 (1983) (“AGC”) (“There is a similarity between

the struggle of common-law judges to articulate a precise

definition of the concept of ‘proximate cause,’ and the struggle

of federal judges to articulate a precise test to determine

whether a party injured by an antitrust violation may recover

treble damages.”). It is also something of a misnomer. For a

party to have “antitrust standing,” it must do more than satisfy

the familiar three-part test for standing – “injury in fact,

causation, and redressability,” see generally Steel Co. v.

Citizens for a Better Env’t, 523 U.S. 83, 103 (1998) – that

arises from the constitutional requirement of a “case or

controversy.” See AGC, 459 U.S. at 535 n.31. 6 “The doctrine

of antitrust standing requires a plaintiff to ‘prove more than

injury causally linked to an illegal presence in the market.’” In

re Modafinil Antitrust Litig., 837 F.3d 238, 263 (3d Cir. 2016)

(quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429

U.S. 477, 489 (1977)). Even a showing of antitrust injury –

that is, “injury of the type the antitrust laws were intended to

prevent and that flows from that which makes defendants’ acts

unlawful,” Brunswick, 429 U.S. at 489 – is insufficient on its

own to show antitrust standing to sue for treble damages under

§ 4 of the Clayton Act. See, e.g., Cargill, Inc. v. Monfort of

Colorado, Inc., 479 U.S. 104, 110 (1986).

6

There is no dispute that Plaintiffs have met their burden to

show constitutional standing. They allege they suffered an

injury in fact by having to pay overcharges, which were caused

by Defendants’ anticompetitive price-fixing, and which could

be redressed by a Court order awarding treble damages.

14

Instead, noting the breadth of § 4, courts have concluded

that, rather than allowing “antitrust laws to provide a remedy

in damages for all injuries that might conceivably be traced to

an antitrust violation,” Hawaii v. Standard Oil Co. of Calif.,

405 U.S. 251, 262 n.14 (1972), the treble damages remedy

should be “confine[d] . . . to those individuals whose protection

is the fundamental purpose of the antitrust laws,” Cromar Co.

v. Nuclear Materials & Equip. Corp., 543 F.2d 501, 505 (3d

Cir. 1976) (internal quotation marks omitted). There is no

bright-line test. Instead, the Supreme Court has identified

factors to be considered in determining if a plaintiff is a party

entitled (under the particular circumstances of a specific case)

to the protections of the antitrust laws. Based on the Supreme

Court’s opinion in AGC, we have extracted the following five-

factor inquiry:

(1) the causal connection between the antitrust

violation and the harm to the plaintiff and the

intent by the defendant to cause that harm, with

neither factor alone conferring standing;

(2) whether the plaintiff’s alleged injury is of the

type for which the antitrust laws were intended

to provide redress;

(3) the directness of the injury, which addresses

the concerns that liberal application of standing

principles might produce speculative claims;

(4) the existence of more direct victims of the

alleged antitrust violations; and

15

(5) the potential for duplicative recovery or

complex apportionment of damages.

See Ethypharm S.A. France v. Abbott Labs., 707 F.3d 223, 232-

33 (3d Cir. 2013); see also Steamfitters Local Union No. 420

Welfare Fund v. Philip Morris, Inc., 171 F.3d 912, 924 (3d Cir.

1999) (characterizing AGC as setting out six-factor test).

Therefore, determining whether Plaintiffs have antitrust

standing to pursue their claims requires application of the AGC

factors, based on an understanding of the most pertinent

antitrust precedents. It is to those opinions that we now turn. 7

B

The District Court’s ruling turned on our Mid-West

Paper decision and the Supreme Court’s decision in Illinois

Brick, and we discuss both cases in some detail below. Other

cases must also be considered in order to place these two

principal cases in the proper context.

In Hanover Shoe, Inc. v. United Shoe Machinery Corp.,

392 U.S. 481 (1968), the Supreme Court considered a § 4

action brought by a shoe maker against a manufacturer of

machinery that the shoe maker used in its operation. The

manufacturer argued that the shoe maker was not injured by

the manufacturer’s anticompetitive conduct because the shoe

7

Although all the cases we discuss in the next section predate

AGC, they remain binding precedents, and their analyses of

many of the factors later discussed in AGC are highly

informative.

16

maker had passed on to its own customers any overcharge it

had paid to the manufacturer. The Supreme Court rejected this

“passing-on defense” on the basis that overcoming it would

impose on antitrust plaintiffs a requirement of making “a

convincing showing of . . . virtually unascertainable figures,”

resulting in the possibility that “those who violate the antitrust

laws by price fixing or monopolizing would retain the fruits of

their illegality because no one was available who would bring

suit against them.” Id. at 493-94. “Treble-damage actions

would often require additional long and complicated

proceedings involving massive evidence and complicated

theories,” which would unduly deter those suffering from

antitrust injury, and embolden those inclined to commit

antitrust violations. Id. at 493.

A decade after Hanover Shoe, the Supreme Court

decided Illinois Brick, 431 U.S. 720. There, the State of Illinois

and local governments claimed that concrete block

manufacturers had engaged in a price-fixing conspiracy.

Observing that the plaintiffs were “indirect purchasers of

concrete block, which passes through two separate levels in the

chain of distribution before reaching” the plaintiffs, id. at 726,

the Supreme Court explained that Hanover Shoe’s prohibition

on a “pass-on theory as a defense in an action by direct

purchasers” likewise required a symmetrical ban on “offensive

use of a pass-on theory against an alleged violator.” Id. at 735.

In so holding, the Court aimed to protect defendants from the

“serious risk of multiple liability” that might result from

allowing an unascertainably large number of disparate, indirect

purchasers to bring antitrust claims. Id. at 730. Potential

17

liability would arise, instead, only from transactions

defendants had with their direct customers. See id. at 745-47. 8

Further, just as Hanover Shoe wanted to avoid

burdening antitrust plaintiffs from nearly-impossible

evidentiary challenges, Illinois Brick reflected the Supreme

Court’s “perception of the uncertainties and difficulties in

analyzing price and out-put decisions in the real economic

world . . . and of the costs to the judicial system and the

efficient enforcement of the antitrust laws of attempting to

reconstruct those decisions in the courtroom.” Id. at 731-732

(internal quotation marks omitted). The Court was concerned

that allowing pass-on theories “would transform treble-

damages actions into massive efforts to apportion the recovery

among all potential plaintiffs that could have absorbed part of

the overcharge from direct purchasers to middlemen to

ultimate consumers.” Id. at 737.

This Court was called upon to apply Illinois Brick’s

teachings in In re Sugar Industry Antitrust Litigation (Stotter

& Co., Inc. v. Amstar Corp.), 579 F.2d 13 (3d Cir. 1978)

(“Stotter”). In Stotter, a candy wholesaler sued sugar refiners

who allegedly conspired to fix sugar prices. The wholesaler

had purchased candy (made with the price-fixed sugar) directly

from one of the sugar refiners. The district court granted

8

There are exceptions to Illinois Brick’s “indirect purchaser”

rule – for “pre-existing cost-plus contract[s]” or circumstances

where “the direct purchaser is owned or controlled by its

customer,” 431 U.S. at 736 & n.16 – but they are not relevant

to the issues before us.

18

summary judgment to the refiners, finding that the wholesaler-

plaintiff had not “pleaded or proved . . . that a conspiracy to fix

sugar prices by the major refiners extends to their own sugar-

containing products.” Id. at 16 (internal quotation marks

omitted). On appeal, the plaintiff argued – as the egg product

Purchasers do here – that “if it cannot sue for the overcharge

incorporated in candy brought about by the price-fixing of

sugar, then no one can,” and thus the refiner from whom it

purchased candy would “escape liability for fixing the price of

all the sugar it incorporated into candy.” Id. at 17.

Judge Weis, in an eloquent and succinct opinion,

explained why the plaintiff did not “run into an (Illinois) brick

wall” and could, indeed, pursue its § 4 action. Id. at 15. While

it was true that the product at issue – that is, the wholesaler’s

candy – “competes not with sugar, but with other candy, and

more than one ingredient determines the price” of candy, this

could not “be allowed to obscure the fact that the plaintiff did

purchase directly from the alleged violator.” Id. at 17. We

distinguished Illinois Brick on the basis that the Supreme

Court’s concerns over complicated allocations of “overcharge

among a number of entities in the chain” were not present. Id.

at 18. “The difficulty in computation” in Stotter was “not in

parceling out damages among entities in the chain, but in

isolating the excessive cost of one ingredient which goes into

the product purchased by the plaintiff.” Id. This was a

tolerable level of complexity. See id. Judge Weis also

explained that denying recovery under the circumstances

presented in Stotter “would leave a gaping hole in the

administration of the antitrust laws” by allowing “the price-

fixer of a basic commodity to escape the reach of a treble-

damage penalty simply by incorporating the tainted element

19

into another product.” Id. This Court, therefore, reversed the

district court and permitted the wholesaler-plaintiff to proceed

with its claim. 9

Shortly after deciding Stotter, we were again tasked

with applying Illinois Brick, this time in Mid-West Paper,

which involved allegations of price-fixing by manufacturers of

consumer bags. See 596 F.2d 573. One of the plaintiffs was a

grocery store (“Murray”) that used consumer bags to package

its own products. Even though Murray purchased these bags

from competitors of the price-fixing defendants – and not from

the price-fixing defendants themselves – Murray argued that it

had standing to pursue § 4 damages from the price-fixing

defendants because it was the defendants’ actions that allowed

Murray’s non-conspirator supplier to charge supracompetitive

prices. See id. at 580-81; see also id. at 578 (“[W]e are required

to assess whether Illinois Brick bars suits by purchasers from

competitors of the antitrust defendants who allege that

defendants’ anticompetitive activity made it possible for their

9

We came to the same conclusion more recently in In re

Linerboard Antitrust Litigation, 305 F.3d 145 (3d Cir. 2002).

There, the putative class plaintiffs purchased “corrugated

sheets or boxes” directly from the defendants; these products

were made with “linerboard that was subject to an agreement

on output.” Id. at 159. We held that, under Stotter, the

plaintiffs – as direct purchasers from conspirators who had

unlawfully raised the price of an input into finished products

the conspirators themselves sold to plaintiffs – had antitrust

standing. See id at 159-60.

20

competitors to charge higher prices, thereby injuring

plaintiffs.”).

We recognized that a “literal reading” of § 4’s broad

language might support Murray’s contention. See id. at 581.

However, we further observed that Ҥ 4 standing doctrine has

been forged so as to confine the availability of treble damages

to those individuals whose protection is the fundamental

purpose of the antitrust laws.” Id. (internal quotation marks

omitted). In evaluating Murray’s claim that it was harmed by

the conspirators’ creation of an “‘umbrella’ under which their

competitors were able to charge higher prices than otherwise,”

we concluded that only a “tenuous line of causation” existed

between the price-fixers’ conduct and the prices Murray

ultimately paid. Id. at 583. We also observed that, because

Murray was not a direct purchaser from the price-fixers, “[t]he

defendants secured no illegal benefit at Murray’s expense.” Id.

Additionally, as in Illinois Brick, it would have been

difficult to trace Murray’s alleged injuries to the price-fixers’

conduct, or to prove that the price-fixers’ competitors would

not have charged the elevated price for reasons other than

defendants’ conspiracy. Comparing Murray’s claim to Illinois

Brick, we explained:

[I]n both situations the plaintiff seeks to recover

for higher prices set by, and paid by it to, parties

other than the defendants. And the rationale

underlying Illinois Brick [–] that it would be

almost impossible, and at the very least

unwieldy, to attempt to trace the incidence of the

anticompetitive effect of defendants’ conduct

21

[–] bears even greater truth in the context of a

purchaser from a competitor of the defendants.

For . . . it cannot readily be said with any degree

of economic certitude to what extent, if indeed at

all, purchasers from a competitor of the price-

fixers have been injured by the illegal

overcharge.

Id. at 584.

We did not want to sanction the transformation of

antitrust litigation “into the sort of complex economic

proceeding that the Illinois Brick Court was desirous of

avoiding if at all possible.” Id. at 585. Hence, we concluded,

Murray could not be considered among “those whose

protection is the fundamental purpose of the antitrust laws.”

Id. at 583 (internal quotation marks omitted). Barring parties

like Murray from recovering under an “umbrella theory,” from

antitrust conspirators with whom Murray had no direct

relationship, would not undercut the goals of “depriv[ing] the

violators of all the fruits of their illegality” or deterring further

wrongdoing, but would instead efficaciously “concentrat[e] the

entire award in the hands of the direct purchasers.” Id. at 585

(internal quotation marks omitted). This would give direct

purchasers “an incentive to sue” and “compensate[] those

victims who are most likely to assume the mantle of private

attorneys general for the injuries they suffered.” Id.; see also

id. at 578 n.9 (“[T]he [Supreme] Court has ensured that under

all circumstances there will be an incentive for direct

purchasers to sue, a factor that, in the Court’s view, is

necessary to promote effective enforcement of the antitrust

laws . . . .”).

22

V

In this case, the District Court applied Mid-West Paper

and Illinois Brick and concluded that Plaintiffs lack antitrust

standing. The District Court remarked that a significant

proportion of the eggs used in the egg products purchased by

Plaintiffs were non-conspirator eggs; that is, they had come

from suppliers who were neither price-fixing conspirators nor

defendants.

The District Court reiterated concerns it had raised in a

previous ruling in a related case (also part of the MDL)

regarding Defendants’ opposition to a class certification

motion. There, the Court had observed:

‘[T]he failure to investigate the effect of the eggs

from non-defendants on the prices of egg

products weighs against a finding that the

conspiracy would have had a common impact on

the members of the putative subclass, [because]

non-conspiring producers might price their

products differently than conspirators, [and these

differences might be reflected] in the prices of

egg products, even if sold by Defendants,

meaning that certain subclass members might

not have experienced an impact as a result of the

conspiracy.’

(JA7-8) (quoting Processed Egg, 312 F.R.D. at 202 n.22)

As the District Court pointed out, “Plaintiffs’ theory of

the case is that Defendants conspired to reduce the supply of

23

eggs. This, in turn, raised the price of eggs, and, consequently,

the price of egg products.” (JA9) Given that “[a] significant

proportion of the egg products at issue here is made with eggs

purchased from non-conspirators,” the absence of any analysis

by Plaintiffs of what Defendants paid for non-conspirator eggs

and how much of Defendants’ egg products were made with

those eggs rendered it “impossible to tell whether [or to what

extent] the Defendants profited unduly from these egg

products.” (Id.) It seemed to the District Court that, instead,

Defendants may have had to pay the non-conspirator egg

producers a price that could have precluded Defendants from

“reap[ing] ill-gotten gains from the egg products sales.” (Id.)

In the District Court’s view, because “Plaintiffs are

relying on the theory that the conspiracy raised prices for all

eggs, even those produced by non-conspirators,” their claim “is

a quintessential restatement of the umbrella theory” rejected in

Mid-West Paper. (Id.) Alternatively, but also unavailing, the

District Court found Plaintiffs’ claims could be characterized

as a combination of umbrella damages and a pass-on/indirect

purchaser “problem” of Illinois Brick. (Id.) As the District

Court saw it: “Attempting to link the raw egg prices of non-

conspirators to the conspiracy is, under Mid-West Paper, too

attenuated, and recovering overcharges when the Plaintiffs

have not presented evidence that the Defendants, and not the

non-conspirators, pocketed those overcharges creates a

situation in which Plaintiffs are seeking recovery of pass-

through overcharges, something prohibited by Illinois Brick.”

(JA9-10) Furthermore, despite Plaintiffs’ insistence that “their

expert has isolated the effects of the conspiracy on the prices

of egg products,” to the District Court the expert could not have

done so “without any analysis whatsoever of the non-

24

conspirator egg producers’ pricing decisions and without any

knowledge of which eggs went into which egg products, and

in what proportion.” (JA10) Accordingly, because “Plaintiffs

are indeed at odds with the ‘umbrella’ damages rule,” the

District Court granted summary judgment to Defendants.

(JA4; see also JA10 n.4 (concluding Plaintiffs “cannot

distinguish their damages theory from prohibited umbrella

damages”))

VI

A

We have a different view than the District Court. While

the District Court appropriately turned to Mid-West Paper and

Illinois Brick as the most relevant precedents, we see this case

as one in which the correct result is not compelled by either of

these opinions – or, indeed, by any other. Instead, this case

presents an issue of first impression. The novel issue is

whether a direct purchaser of a product that includes a price-

fixed input has antitrust standing to pursue a claim against the

party that sold the product to the purchaser, where the seller is

a participant in the price-fixing conspiracy, but where the

product also includes some amount of price-fixed input

supplied by a third-party non-conspirator.

Before answering that question, we first note that

Plaintiffs plainly have antitrust standing to seek damages for

overcharges for egg products made only with internal eggs.

Relatedly, Plaintiffs have antitrust standing to seek damages

for just the portion of the egg products they purchased that

were made from internal eggs. These conclusions are

25

compelled by our holdings in Stotter and Linerboard. Just as

the Stotter defendants were accused of fixing the price of sugar,

and then incorporating price-fixed sugar into candy they sold

directly to the Stotter plaintiff, Defendants here allegedly

conspired to raise the price of shell eggs (by reducing supply),

and then incorporated their price-fixed internal eggs into the

egg products they sold directly to Plaintiffs. Like the plaintiff

in Stotter, if Plaintiffs cannot sue for the overcharges they paid

for egg products made with Defendants’ internal eggs, no one

can. Cf. Stotter, 579 F.2d at 18 (“[T]o deny recovery [here] . .

. would leave a gaping hole in the administration of the antitrust

laws . . . [by] allow[ing] the price-fixer of a basic commodity

to escape the reach of a treble-damage penalty simply by

incorporating the tainted element into another product.”).

Moreover, any difficulty in computing damages arises not from

“parceling out damages among entities in the chain, but in

isolating the excessive cost of one ingredient.” Id. This is a

challenging task, but also one we found in Stotter to be

amenable to litigation and worthy of the efforts of federal

courts, and we again find so here.

We need not belabor these points. Defendants concede

that, had Plaintiffs limited their claim to damages based only

on the internal eggs used in the Defendants’ egg products,

Plaintiffs likely would have had antitrust standing. Plaintiffs

have avoided limiting their claim in this manner and strongly

prefer not to do so now. Nor does it appear that the parties

asked the District Court to assess the viability of an antitrust

claim based solely on egg products made from internal eggs.

26

B

As the Plaintiffs have chosen to pursue a claim for

damages on all the egg products they purchased from the

Suppliers, without regard to whether those egg products were

made with internal eggs, non-conspirator eggs, or both, we

must determine whether Plaintiffs have antitrust standing with

respect to this broader claim. We hold that they do.

We do not view Plaintiffs’ claim as “a quintessential

restatement of the umbrella theory” of Mid-West Paper. (JA9-

10) To be sure, there are similarities between the Purchasers’

allegations here and those that were inadequate to create

antitrust standing in Mid-West Paper. The Purchasers’ claims,

like those of Murray in Mid-West Paper, involve allegations

that the conspiracy raised the price of a product that was

produced both by conspirators and non-conspirators. This

allegedly price-fixed product found its way into the injured

parties’ hands and, as in Mid-West Paper, the Purchasers seek

to recover for overcharges for products whose manufacture

involved non-conspirators. But the pertinent similarities

between the Purchasers’ claims and those rejected in Mid-West

Paper end there.

Crucially, unlike the plaintiff in Mid-West Paper, who

sued price-fixing suppliers from whom it made no purchases

and with whom it had no direct relationship, here the

Purchasers are pressing claims against price-fixing suppliers

from whom they directly purchased products that incorporate

a price-fixed component. While Murray, in Mid-West Paper,

had to predicate its purported injuries on an “umbrella theory”

– that is, that the price-fixing defendants’ wrongful conduct

27

created an artificially high price “umbrella” under which non-

conspiring producers from whom the plaintiff purchased also

benefitted by charging higher prices – here the Purchasers’

theory of injury is different, and simpler. The Purchasers are

suing the conspiring parties from whom they bought the price-

fixed product. The Purchasers were directly injured by

wrongful conduct undertaken by their Suppliers.

The direct relationship between the Purchasers and their

Suppliers, and the fact that the Suppliers are alleged price-

fixing conspirators and not merely competitors of those

conspirators, are key distinctions from the scenario we

confronted in Mid-West Paper. See In re Modafinil, 837 F.3d

at 264-65 (“Mid-West Paper reached its result because it

wanted to ensure that only those who are most directly harmed

by the anticompetitive conduct can sue to remedy the antitrust

violation.”); In re Lower Lake Erie Iron Ore Antitrust Litig.,

998 F.2d 1144, 1167-68 (3d Cir. 1993) (discussing Mid-West

Paper and noting “all-important[] directness factor”). The

plaintiff in Mid-West Paper was “not in a direct or immediate

relationship to the antitrust violators,” 596 F.2d at 583, and was

“seek[ing] to recover for higher prices set by, and paid by [it]

to, parties other than the defendants,” id. at 584. Here, the

Purchasers are in a direct relationship with the antitrust

violators and seek to recover for higher prices set by those

violators, and paid by the Purchasers to those very parties.

These quite different facts render the Purchasers “among those

28

whose protection is the fundamental purpose of the antitrust

laws.” Id. at 583 (internal quotation marks omitted). 10

Nor is the outcome here governed by Illinois Brick.

Unlike Illinois and the other municipal purchasers of

completed masonry structures and buildings from non-

conspirators, who had only a highly attenuated relationship

with the concrete manufacturer conspirators, Plaintiffs are in a

direct purchaser relationship with the conspirator Defendants.

Plaintiffs simply are not seeking to press an indirect purchaser

antitrust claim: the egg products are alleged to be price-fixed,

as the principal component of the egg products – shell eggs –

is alleged to be price-fixed, regardless of whether those shell

eggs are internal eggs or non-conspirator eggs. Moreover,

unlike in Illinois Brick, here there appears to be no “serious

risk of multiple liability” – Defendants can be sued by, and

likely only by, direct purchasers, such as Plaintiffs – and the

issues of proof and apportionment of damages are not of a

magnitude that imposes intolerable “costs to the judicial

system and the efficient enforcement of the antitrust laws.”

Illinois Brick, 431 U.S. at 730-32.

10

Additionally, our holding in Mid-West Paper reflected

reluctance to “expand the standing doctrine” in cases where

complex economic analyses “are a prerequisite to establishing

that the plaintiff has suffered compensable injury altogether.”

596 F.2d at 585. That problem is not presented here. To the

contrary, as noted above, the question of whether the

Purchasers suffered any actionable harm is clearly resolved in

their favor under Stotter.

29

Application of the AGC factors confirms the conclusion

that Plaintiffs have antitrust standing to pursue their full claim.

See generally 459 U.S. at 537-38; see also Ethypharm, 707

F.3d at 232-33. Plaintiffs allege a clear “causal connection

between the antitrust violation and the harm to [them] and the

intent by the defendant[s] to cause that harm.” That is,

Plaintiffs contend that Defendants drove up the price of shell

eggs intending to likewise artificially inflate the price of egg

products and then injured Plaintiffs by making them pay

overcharges to Defendants. Further, Plaintiffs’ “alleged

injury” – that is, being made to pay higher prices – “is of the

type for which the antitrust laws were intended to provide

redress,” and the injury allegedly flowed “direct[ly]” from

Defendants to Plaintiffs. See generally In re Modafinil, 837

F.3d at 263 (“[D]irectness of injury is the focal point by which

the remainder of the AGC factors are guided.”) (internal

quotation marks omitted). Also, there are no “more direct

victims of the alleged antitrust violations,” no “potential for

duplicative recovery,” and no “complex apportionment of

damages” issues among various levels of injured parties. Our

recognition here that direct purchasers, like Plaintiffs, have

antitrust standing to sue conspirators, like Defendants, from

whom they purchased a price-fixed product, does not make

Defendants vulnerable to suit from downstream consumers –

for instance, a purchaser of waffles made by Plaintiffs with

Defendants’ egg products – with whom Defendants have no

relationship. To the contrary, if Plaintiffs cannot sue for the

overcharges incorporated in the egg products they purchased,

no one else can sue Defendants for these losses.

The Purchasers’ antitrust standing does not turn on

whether it is the Suppliers, as opposed to someone else, who

30

benefitted from the overcharges the Purchasers paid. Damages

recoverable by a plaintiff on a § 4 claim do not depend on the

ill-gotten benefit of the wrongdoer. See Howard Hess Dental

Labs. Inc. v. Dentsply Int’l, Inc., 424 F.3d 363, 374 (3d Cir.

2005). Instead, the “typical measure” of damages on such a

claim is the overcharge paid by the plaintiff, that is “the

difference between the actual price and the presumed

competitive price multiplied by the quantity purchased.” Id.

(internal quotation marks omitted). Regardless of who actually

collected the overcharge, the Purchasers’ econometric analysis

purports to show the “difference between the actual

[supracompetitive] price and the presumed competitive price”

of the egg products they purchased. This purported difference,

and the Purchasers’ resulting injury, was allegedly a direct and

intended result of the Suppliers’ conspiracy to reduce the

supply of eggs and to artificially inflate the price of egg

products.

In sum, we conclude that Plaintiffs-Appellants have

antitrust standing to pursue overcharge damages from the

Defendants-Appellees from whom they purchased egg

products, regardless of whether those egg products were made

with internal eggs, non-conspirator eggs, or both.

Consequently, we reverse the District Court’s grant of

summary judgment to Defendants and remand for further

proceedings.

C

We emphasize that our holding today is limited to

determining that Plaintiffs have antitrust standing to pursue

their claims. We conclude that the District Court’s grant of

31

summary judgment due to lack of such standing was error. 11

We express no view as to the merits of Plaintiffs’ claims. Nor

have we reached any conclusion as to whether their claims may

suffer from other flaws that may make this case amenable to

resolution short of trial. Hence, while Plaintiffs ask us to

“remand the case for trial” (OB at 56), we have not done so.

Instead, it will be for the District Court to determine whether,

given our conclusion that Plaintiffs have antitrust standing, this

case should proceed to trial.

We recognized in Mid-West Paper that antitrust

plaintiffs must prove “actual causation” with “reasonable

certainty,” and provide the trier of fact enough to “make a

reasonable estimate of damages.” 596 F.2d at 584 n.43

(internal quotation marks omitted). We reiterate these

holdings. Our decision today does not consider whether

Plaintiffs have made, or can make, a sufficient evidentiary

showing on these elements to warrant presenting their claims

to a jury. Similarly, it is for the District Court to decide

whether to entertain any challenge to Plaintiffs’ expert’s

econometric analysis under the familiar standard set out in

Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579

11

Defendants’ motion for summary judgment was based solely

on their theory that Plaintiffs lack antitrust standing due to their

reliance on an invalid umbrella theory of damages.

Consequently, the District Court’s summary judgment opinion

considered only that issue.

32

(1993), 12 and whether to grant any request it may receive from

any party to expand the record in light of today’s decision.

VII

For the reasons given above, we find that Plaintiffs-

Appellants have antitrust standing to pursue their Clayton Act

§ 4 claims. The District Court’s grant of summary judgment

to Defendants-Appellees is reversed. The case is remanded for

proceedings not inconsistent with this Opinion.

12

The District Court noted that “no party has challenged the

admissibility of [Plaintiffs’] expert report or testimony.” (JA5)

33