                                                                                                                           Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


9-21-2005

Howard Hess Dental v. Dentsply Intl Inc
Precedential or Non-Precedential: Precedential

Docket No. 04-1979




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                                       PRECEDENTIAL

      UNITED STATES COURT OF APPEALS
           FOR THE THIRD CIRCUIT


                     No. 04-1979


   HOWARD HESS DENTAL LABORATORIES
                INCORPORATED;
 PHILIP GUTTIEREZ, *d/b/a Dentures Plus, on behalf
    of themselves and all other similarly situated,
                                    Appellants
                           v.

        DENTSPLY INTERNATIONAL, INC.

          *Amended per Clerk's Order dated 4/30/04




                     No. 04-1980


 JERSEY DENTAL LABORATORIES, f/k/a Howard
                      Hess Dental
Laboratories Incorporated; PHILIP GUTTIEREZ, *d/b/a
  Dentures Plus, on behalf of themselves and all others
                   similarly situated,
                              Appellants
                            v.

           DENTSPLY INTERNATIONAL, INC.;
               A. LEVENTHAL & SONS, INC.;
  ACCUBITE DENTAL LAB, INC.; ADDIUM DENTAL
                          PRODUCTS;
         ARNOLD DENTAL SUPPLY COMPANY;
        ATLANTA DENTAL SUPPLY COMPANY;
 BENCO DENTAL COMPANY; BURKHART DENTAL
                     SUPPLY COMPANY;
 DARBY DENTAL LABORATORY SUPPLY CO., INC.;
                     DENTAL SUPPLIES
AND EQUIPMENT, INC.; EDENTALDIRECT.COM, INC.,
                         as successor to
Crutcher Dental, Inc.; HENDON DENTAL SUPPLY, INC.;
HENRY SCHEIN, INC., and its affiliates including, without
               limitation, Zahn Dental Co., Inc.;
                IOWA DENTAL SUPPLY CO.;
   JAHN DENTAL SUPPLY COMPANY; JB DENTAL
                      SUPPLY CO., INC.;
 JOHNSON & LUND CO., INC.; KENTUCKY DENTAL
                  SUPPLY COMPANY, INC.
          a/k/a KDSC Liquidation Corp.; MARCUS
                    DENTAL SUPPLY CO;
MIDWAY DENTAL SUPPLY INC.; MOHAWK DENTAL
                   CO., INC.; NASHVILLE
  DENTAL, INC.; NOWAK DENTAL SUPPLIES, INC.;
                    PATTERSON DENTAL
   COMPANY, its subsidiaries, predecessors, successors,
                             assigns,
   affiliates and related companies; PEARSON DENTAL

                           2
              SUPPLIES, INC.;
 RYKER DENTAL OF KENTUCKY, INC.; THOMPSON
            DENTAL COMPANY

             *Amended per Clerk's Order dated 4/30/04




      On Appeal from the United States District Court
                for the District of Delaware
    (D.C. Civil Action Nos. 99-cv-00255 / 01-cv-00267)
        District Judge: Honorable Sue L. Robinson


                   Argued April 7, 2005

              Before: BARRY, AMBRO and
              GREENBERG, Circuit Judges

                (Filed September 21, 2005)

Thomas A. Dubbs, Esquire (Argued)
Richard T. Joffe, Esquire
Goodkind, Labaton, Rudoff & Sucharow
100 Park Avenue, 12th Floor
New York, NY 10017

Pamela S. Tikellis, Esquire
Robert J. Kriner, Jr. Esquire
Chimicles & Tikellis, LLP
One Rodney Square, Suite 500

                            3
P.O. Box 1035
Wilmington, DE 19899

      Counsel for Appellants

Richard A. Ripley, Esquire
Margaret M. Zwisler, Esquire (Argued)
Kelly A. Clement, Esquire
Eric J. McCarthy, Esquire
Charles R. Price, Esquire
Howrey, Simon, Arnold & White
1299 Pennsylvania Avenue, N.W.
Washington, D.C. 20004

Brian M. Addison, Esquire
Dentsply International, Inc.
Susquehanna Commerce Center
221 West Philadelphia Street
York, PA 17405

W. Harding Drane, Jr., Esquire
Potter Anderson & Corroon LLP
1313 North Market Street, 6th Floor
P.O. Box 951
Wilmington, DE 19899

C. Scott Reese, Esquire
Cooch & Taylor
824 Market Street Mall, Suite 1000
P.O. Box 1680
Wilmington, DE 19899

                               4
James J. Maron, Esquire
Maron Marvel & Wilks, P.A.
1300 North Broom Street
P.O. Box 288
Wilmington, DE 19899

       Counsel for Appellees




                 OPINION OF THE COURT


AMBRO, Circuit Judge

        We consider consolidated appeals involving the same
parties in two antitrust suits, Howard Hess Dental Laboratories,
Inc. v. Dentsply Internationl, Inc. (“Hess”) and Jersey Dental
Laboratories v. Dentsply International, Inc. (“Jersey Dental”).1
Plaintiffs are dental laboratories who have brought these
antitrust class actions on behalf of themselves and a class of
similarly situated labs. Defendant Dentsply International, Inc.
(“Dentsply”) markets artificial teeth used by the dental labs to
make dentures. Plaintiffs allege, among other things, an
exclusive-dealing conspiracy and a retail price-fixing conspiracy
among Dentsply and its dealer-middlemen.


       1
        Hess Dental changed its name to “Jersey Dental” during
the period between the two suits.

                               5
        The District Court denied Plaintiffs standing to recover
damages in both suits based primarily on Illinois Brick Co. v.
Illinois, 431 U.S. 720 (1977), which held that indirect purchaser
plaintiffs do not have statutory standing to recover damages for
“passed-on” overcharges.2 We hold that Plaintiffs may not
recover damages in Hess (a) under the “co-conspirator”
exception to Illinois Brick, (b) under the “control” exception to
Illinois Brick, (c) under a non-overcharge theory of damages, or
(d) for “drop shipments.” While Plaintiffs may not recover
damages under either the control exception or a lost profits
theory in Jersey Dental, they do have statutory standing under
the co-conspirator exception to pursue an action for overcharge
damages (including for drop shipped teeth) caused by the
alleged retail price-fixing conspiracy, although not for the
alleged exclusive-dealing conspiracy.




       2
        Section 4 of the Clayton Act provides that “any person
who shall be injured in his business or property by reason of
anything forbidden in the antitrust laws . . . shall recover
threefold the damages by him sustained.” 15 U.S.C. § 15(a)
(emphasis added). Illinois Brick determined that direct
purchasers are the only parties “injured” in a manner that
permits them to recover damages. 431 U.S. at 729, 735. It thus
held that indirect purchaser plaintiffs do not have statutory
standing to recover damages under Section 4 of the Clayton Act.
Id.

                               6
                          Background

      Plaintiffs allege the following in one or both of the
complaints.

       (1) Manufacturers of artificial teeth need to distribute
through dealers in order to compete effectively. Dealers are the
primary source of distribution to dental labs, which use the teeth
to produce dentures. Dentsply uses a network of authorized
dealers.

       (2) Plaintiffs have purchased Dentsply’s teeth both
indirectly through Dentsply’s dealers and directly through “drop
shipping.” Drop shipping occurs when a dealer does not have
certain teeth in stock or cannot fulfill a lab’s order for some
other reason and asks Dentsply to ship the teeth directly to a lab.
When teeth are drop shipped, the dealer never has physical
custody of them, but it does bill the lab for the teeth, collect
payments from the lab, and pay Dentsply.

       (3) Dentsply has foreclosed its competitors’ access to
dealers by explicitly agreeing with some dealers that they will
not carry certain competing brands of teeth and by inducing
other dealers not to carry those competing brands of teeth.
Pursuant to its written policy called “Dealer Criterion Number
6,” Dentsply threatens to terminate, and does terminate, dealers
that add to their inventory teeth made by Dentsply’s competitors.
Thus, unless Dentsply’s dealers were already selling another

                                7
manufacturer’s teeth before Dentsply imposed its exclusive-
dealing policies, its dealers cannot sell other manufacturers’
teeth unless they give up the opportunity to continue to sell
Dentsply’s teeth. No rational dealer would be likely to make
such a switch because, given Dentsply’s monopoly position (it
has a 75-80% market share on a revenue basis), losing the ability
to sell Dentsply’s teeth would hurt a dealer more than gaining
the ability to sell Dentsply’s competitors’ teeth would help a
dealer. By explicitly agreeing with some dealers that they will
not carry certain competing brands of teeth and by enacting
Dealer Criterion Number 6, Dentsply has foreclosured its rivals’
access to adequate channels of distribution, and competition has
been restricted. This has caused Dentsply’s market share to
increase, the price of Dentsply’s and other manufacturers’ teeth
to increase, and the availability of rival teeth to decrease.

        (4) Furthermore, by agreement among Dentsply and its
dealers, Dentsply sets the dealers’ resale prices. It distributes a
list of “suggested” prices for its dealers to charge dental labs.
Before a dealer can charge a lower price, Dentsply must approve
this “price deviation.” Price deviations have been granted only
when a lab has been buying, or is thinking of buying, a
competitor’s teeth because they are being sold for less than those
of Dentsply. In those instances, Dentsply negotiates with the lab
to allow it to buy teeth from the dealer at a price below
Dentsply’s suggested price. The dealer then agrees to the price
negotiated by Dentsply.



                                8
       (5) Dentsply’s foreclosing of its competitors’ access to
dealers and setting of the dealers’ resale prices have caused
Plaintiffs to purchase Dentsply’s teeth at artificially high prices
and lose profits from unrealized sales of Dentsply’s competitors’
teeth.

                      Procedural History

       In 1999, Plaintiffs filed the Hess suit against Dentsply
alleging conspiracy to monopolize, attempt to monopolize, and
maintenance of monopoly in violation of Section 2 of the
Sherman Act, 15 U.S.C. § 2, and restraint of trade in violation
of Section 3 of the Clayton Act, 15 U.S.C. § 14. Plaintiffs asked
for both damages and an injunction. Dentsply moved for
summary judgment, claiming that Plaintiffs lacked standing
under Illinois Brick. The District Court granted Dentsply’s
motion on Plaintiffs’ damages claims. The Court reasoned that:
(1) a co-conspirator exception to Illinois Brick did not apply
because Plaintiffs had not joined Dentsply’s dealers as co-
defendants; (2) the control exception to Illinois Brick did not
apply because Dentsply does not own its dealers; (3) Plaintiffs
could not recover on a non-overcharge theory of damages
because they had not articulated any such theory; and (4)
Plaintiffs could not recover for drop shipments because they had
specifically alleged that they were not direct purchasers, and
even if they had alleged they were direct purchasers, they were
indirect purchasers of drop shipments.



                                9
        In 2001, Plaintiffs filed the Jersey Dental suit, this time
naming as Dentsply’s co-defendants twenty-six of its then
twenty-eight authorized dealers. Plaintiffs made substantially
the same allegations as they did in Hess with one key addition:
they claimed they were not only indirect purchasers but also
direct purchasers. As in Hess, Plaintiffs asked for both damages
and an injunction. Dentsply moved under Federal Rule of Civil
Procedure 12(b)(6) to dismiss the claims for damages, citing
Illinois Brick. The District Court granted the motion. The Court
reasoned that: (1) Plaintiffs could not recover under a co-
conspirator exception to Illinois Brick because the suit still
implicated Illinois Brick’s policy concerns; (2) in Hess it had
already rejected Plaintiffs’ argument that they could recover
under the control exception to Illinois Brick; (3) Plaintiffs could
not recover damages for lost profits because their complaint
sought only overcharge damages and because, as Plaintiffs were
indirect purchasers, Illinois Brick would bar recovery of lost
profits anyway; and (4) in Hess it had already rejected Plaintiffs’
argument that they could recover for drop shipped teeth.

        Plaintiffs then moved for leave to amend their complaint.
Among the proposed additions to the complaint were allegations
that “[t]he Dealer Defendants agree wiith Dentsply and and with
each other” to abide by suggested retail prices and that “the
prices at which the Dealer Defendants sell to dental laboratories
are controlled by Dentsply and agreed to by the Dealer
Defendants.” The District Court denied leave to amend because
the amended pleading would not withstand a motion to dismiss.

                                10
It reasoned that: (1) the co-conspirator exception to Illinois
Brick did not apply because the dealers could still sue Dentsply;
(2) the control exception to Illinois Brick did not apply because
the dealers were not subsidiaries of Dentsply; and (3) Illinois
Brick barred recovery of lost profits damages because Plaintiffs
were indirect purchasers.

        Plaintiffs moved pursuant to 28 U.S.C. § 1292(b) for
certification of appealability of the orders dismissing the
damage claims in Hess and Jersey Dental and the order denying
their motion for leave to amend in Jersey Dental. The District
Court granted these motions and certified the following
question:

       Whether, under the circumstances here,
       application of Illinois Brick, 431 U.S. 720 (1977),
       McCarthy v. Recordex Service, Inc., 80 F.3d 842
       (3d Cir. 1996), or other Third Circuit opinions
       dealing with Illinois Brick, prevents Plaintiffs
       from being able to recover damages against
       Dentsply International, Inc.

Plaintiffs then petitioned our Court for permission to appeal,
pursuant to 28 U.S.C. § 1292(b), the three orders certified by the
District Court. We granted the petition and consolidated the
appeals. In a Section 1292(b) appeal, our review is not limited
to the specific question certified by the District Court. We may
“consider all grounds which might require a reversal of the order

                               11
appealed from.” Merican, Inc. v. Caterpillar Tractor Co., 713
F.2d 958, 962 n.7 (3d Cir. 1983). We “may address any issue
fairly included within the certified order because it is the order
that is appealable, and not the controlling question identified by
the [D]istrict [C]ourt.” Yamaha Motor Corp., U.S.A. v.
Calhoun, 516 U.S. 199, 205 (1996) (emphasis in original)
(internal quotation marks omitted).3

                     Standard of Review

       As the Hess order partially granted Dentsply’s motion for
summary judgment, our review is de novo. Mass. Sch. of Law
at Andover, Inc. v. ABA, 107 F.3d 1026, 1032 (3d Cir. 1997).
The first Jersey Dental order granted Dentsply’s motion to
dismiss for failure to state a claim. Review of this order also
merits de novo review. Worldcom, Inc. v. Graphnet, Inc., 343
F.3d 651, 653 (3d Cir. 2003). The second Jersey Dental order
denied Plaintiffs’ motion for leave to amend the complaint on
the ground that “the proposed amended complaint would not


       3
        We note that the Government has also sued Dentsply for
alleged antitrust violations. See United States v. Dentsply Int’l,
Inc., 399 F.3d 181 (3d Cir. 2005). There we reversed the
District Court’s judgment in favor of Dentsply and granted
injunctive relief. In so doing, we determined that Dentsply had
monopoly power (i.e., the power to exclude competitors) and
that its exclusionary practices, particularly Dealer Criterion
Number 6, had an anticompetitive effect. Id. at 188-97.

                               12
survive a motion to dismiss under Fed. R. Civ. P. 12 (b)(6).”
Dist. Ct. Mem. Ord. at 7 (Aug. 27, 2002). Where, as here, “the
[D]istrict [C]ourt has based its decision to deny leave to amend
on a legal conclusion that the amended pleading would not
withstand a motion to dismiss, we review such a decision de
novo.” Ziegler v. IBP Hog Mkt., Inc., 249 F.3d 509, 518 (6th
Cir. 2001). Thus we review all three orders de novo.

                          Discussion

        Illinois Brick lays many of the markers for our decision.
In that case, the Supreme Court established the general rule that
only direct purchasers from antitrust violators may recover
damages in antitrust suits. The plaintiffs alleged that concrete
block manufacturers conspired to fix the prices at which
concrete blocks were sold to masonry contractors. They in turn
“passed on” overcharges to the general contractors, who then
passed them on to the plaintiffs, who had purchased buildings
made from the concrete block. The plaintiffs, therefore, were
“indirect purchasers” of concrete block, which “passe[d]
through two separate levels in the chain of distribution before
reaching” them. 431 U.S. at 726.

        Before the Court was whether the indirect purchaser
plaintiffs could use this pass-on theory to state a damages claim
against the alleged antitrust violators upstream. It had
previously held that an antitrust defendant could not argue that
a plaintiff who had purchased a product directly from the

                               13
defendant was not injured because it had passed on the illegal
overcharge to its own customers. Hanover Shoe, Inc. v. United
Shoe Mach. Corp., 392 U.S. 481, 494 (1968). To maintain
consistency, the Court held in Illinois Brick that direct
purchasers are the only parties “injured” in a manner that
permits them to recover damages. 431 U.S. at 729, 735. The
indirect purchaser plaintiffs were thus ineligible to recover
damages for the passed-on overcharges.

        The Court gave three policy reasons for its holding: (1)
a risk of duplicative liability for defendants and potentially
inconsistent adjudications could arise if courts permitted both
direct and indirect purchasers to sue defendants for the same
overcharge; (2) the evidentiary complexities and uncertainties
involved in ascertaining the portion of the overcharge that the
direct purchasers had passed on to the various levels of indirect
purchasers would place too great a burden on the courts; and (3)
permitting direct and indirect purchasers to sue only for the
amount of the overcharge they themselves absorbed and did not
pass on would cause inefficient enforcement of the antitrust
laws by diluting the ultimate recovery and thus decreasing the
direct purchasers’ incentive to sue. Id. at 730-35 & n.11, n.12,
737 & n.18, 740-43 & n.23, n.27, 745.

       I.     May Plaintiffs recover damages in Hess?




                               14
               a.     May Plaintiffs recover damages in Hess
                      under a co-conspirator exception to
                      Illinois Brick?

       Although the Hess complaint alleged that Dentsply’s
dealers conspired with Dentsply by agreeing to the exclusive-
dealing arrangements, Plaintiffs did not name any of the dealers
as co-defendants. We have rejected attempts to invoke a co-
conspirator exception to Illinois Brick’s bar on indirect
purchaser standing when plaintiffs have not named the co-
conspirators immediately upstream as defendants.            See
McCarthy v. Recordex Serv., Inc., 80 F.3d 842, 854 (3d Cir.
1996); Link v. Mercedes-Benz, 788 F.2d 918, 933 (3d Cir.
1986).

        In Link, for example, Mercedes car owners sued
Mercedes-Benz for allegedly requiring dealers to purchase parts
exclusively from it. 788 F.2d at 929. Plaintiffs had purchased
parts from the dealers, whom they named as co-conspirators but
not as defendants. Plaintiffs claimed that Illinois Brick did not
bar their vertical conspiracy claims because “the intervening
parties in the distribution process [were] co-conspirators.” Id.
at 931.

       We concluded that, unless the dealers were joined as
parties, plaintiffs’ suit implicated the policy concerns of Illinois
Brick and was barred. We explained that if a jury found that
Mercedes and its dealers were co-conspirators, but the dealers

                                15
were not parties to the suit, that determination would not have
any collateral estoppel effect in a subsequent suit by a dealer
against Mercedes. Id. at 932. Therefore, because the dealers
were not named as defendants, the risk of duplicative liability
identified in Illinois Brick remained. Similarly in Hess, because
the dealers may also sue Dentsply, the risk of duplicative
liability looms.

        Plaintiffs attempt to distinguish Hess from Link by
pointing to stipulations they entered into with most of
Dentsply’s dealers. As part of Plaintiffs’ opposition to
Dentsply’s motion for summary judgment in Hess, they executed
stipulations with twenty-two of Dentsply’s dealers. In each
stipulation, the dealer agrees “to release [Dentsply] from any
and all claims for antitrust violations” set forth in the complaints
in Hess or United States v. Dentsply (the Government’s suit
against Dentsply), and Plaintiffs agree to “refrain[] from filing
suit” against that dealer for the same antitrust violations. The
parties to each stipulation agree that “Dentsply is a third party
beneficiary of this stipulation” and that the stipulation “may be
specifically enforced by the parties hereto or by Dentsply.”
Plaintiffs’ expert calculated that the group of dealers who
executed these stipulations “represents approximately 95% of
the gross sales” of Dentsply’s artificial teeth. Plaintiffs argue
that the stipulations give Dentsply a safe harbor from dealer
suits, thus eliminating the risk of duplicative liability.

       Many problems attend Plaintiffs’ argument. First, while

                                16
in the stipulations Plaintiffs expressly agree not to sue the
dealers, they did sue the dealers in Jersey Dental. Thus, the
stipulations are likely unenforceable by Plaintiffs or Dentsply.4

       Furthermore, in Kansas v. Utilicorp United, Inc., 497
U.S. 199 (1990), the Supreme Court rejected the assertion that
the absence of a particular Illinois Brick concern in an individual
case would remove its bar on an indirect purchaser claim. 497
U.S. at 217. “[E]ven assuming that any economic assumptions
underlying the Illinois Brick rule might be disproved in a
specific case, we think it an unwarranted and counterproductive
exercise to litigate a series of exceptions.” Id. Thus, Plaintiffs
would not necessarily have standing even if the stipulations did
eliminate Illinois Brick’s duplicative liability concern.

       In addition, in Merican the indirect purchasers argued

       4
         Even if Plaintiffs had not sued the dealers, Dentsply may
not be able to enforce the stipulations in any event. The
stipulations state that “Dentsply is a third party beneficiary of
this stipulation” and that the stipulations “may be specifically
enforced by the parties hereto or by Dentsply.” However, “only
intended beneficiaries of a contract made between two or more
other parties have enforceable rights under the contract.” 13
Williston on Contracts § 37:8, at 67 (Richard A. Lord ed., 4th
ed. 2000) (citing Restatement (Second) of Contracts § 302). In
this case, the contracting parties arguably did not intend that
Dentsply benefit from the stipulations, as their purpose was to
allow Plaintiffs to sue Dentsply.

                                17
that there was no danger of duplicative recovery because the
direct purchaser had executed an affidavit that said it had not
suffered injury from the policy that was alleged to violate the
antitrust laws. 713 F.2d at 968. We nevertheless held that
plaintiffs were barred from seeking damages under Illinois
Brick, recognizing the remaining potential of a direct purchaser
suit. Id. at 968-69; see also Dickson v. Microsoft Corp., 309
F.3d 193, 215 (4th Cir. 2002) (applying Illinois Brick despite
argument that “there is no danger of duplicative recovery
because the [direct purchasers] apparently have elected not to
sue [the defendant].” (internal quotation marks omitted)).

       As our Court has expressly refused to adopt a co-
conspirator exception to Illinois Brick absent the joinder as
defendants of the alleged co-conspirators immediately upstream,
Plaintiffs in Hess lack standing to pursue claims for monetary
relief. Before the applicability of that exception may be
considered, the dealers must be joined.

              b.      May Plaintiffs recover damages in Hess
                      under the control exception to Illinois
                      Brick?

        The “control exception” to Illinois Brick “might” permit
an indirect purchaser to sue an initial seller when the initial
seller “own[s] or control[s]” the direct purchaser. Illinois Brick,
431 U.S. at 736 n.16. In Hess, Plaintiffs argued that they come
within this exception because “Dentsply exerts virtual control

                                18
over its . . . dealers.” Dist. Ct. Mem. Op. at 30 (March 30,
2001).

         We have applied the control exception only when the
initial seller owned the direct purchaser. See In re Sugar Indus.
Antitrust Litig., 579 F.2d 13, 18-19 & n.8 (3d Cir. 1978)
(holding that, in certain circumstances, the “first noncontrolled
purchaser” has standing to sue when it has purchased from a
subsidiary of the violator); see also Mid-West-Paper Prods. Co.,
v. Continental Group, Inc., 596 F.2d 573, 589 (3d Cir. 1979)
(indicating that control exception may apply “when the parent
dominates and controls the subsidiary to such an extent that the
subsidiary is deemed to be an agent of the parent.”). But
Dentsply does not own any interest in its dealers.

       Courts that have extended the control exception beyond
a parent-subsidiary relationship still require “relationships
involving such functional economic or other unity between the
direct purchaser and either the defendant or the indirect
purchaser that there effectively has been only one sale.” Jewish
Hosp. Ass’n v. Stewart Mech. Enter., 628 F.2d 971, 975 (6th Cir.
1980); see also Fisher v. Wattles, 639 F. Supp. 7, 9 (M.D. Pa.
1985) (to fall within the control exception, plaintiffs must show
“such significant control” that the two companies are “virtually
the same entity”). Modes of control that might qualify for the
control exception include “interlocking directorates, minority
stock ownership, loan agreements that subject the wholesalers
to the manufacturers’ operating control, [or] trust agreements.”

                               19
In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d
599, 605 (7th Cir. 1997) (Posner, J.). Plaintiffs in Hess,
however, do not allege that Dentsply exerts any of these modes
of control over its dealers.

        Furthermore, even assuming that Dentsply does exert
some degree of control over its dealers, Illinois Brick’s policy
reasons for denying standing remain. Nothing about Dentsply’s
“control” over its dealers would prevent the dealers from suing
Dentsply, thus creating a risk of duplicative liability for
Dentsply and potentially inconsistent judgments. Also, if
Plaintiffs wanted to recover overcharge damages, they would
still have to demonstrate the portion of the overcharge dealers
had passed on to them, leaving intact the evidentiary
complexities and uncertainties of concern in Illinois Brick.
Moreover, permitting Plaintiffs to sue for damages would
potentially lead to inefficient enforcement of the antitrust laws,
because the ultimate recovery for the dealers would be diluted
(assuming that, rather than the dealers being permitted to
recover the entire overcharge, it was apportioned among the
dealers and the labs), thereby decreasing the dealers’ incentive
to sue.

       In sum, Plaintiffs do not come within the control
exception because Dentsply does not own any interest in its
dealers and no functional unity exists among them and Dentsply.
Notwithstanding whatever lesser degree of control Dentsply may
exert over its dealers, Illinois Brick’s policy reasons for denying

                                20
standing apply.

              c.      May Plaintiffs recover non-overcharge
                      damages in Hess?

        In their opposition to summary judgment in Hess,
Plaintiffs argued that, even if Illinois Brick barred them from
proving overcharge damages, they might still be able to present
a non-overcharge theory of damages after further discovery.
The District Court rejected this claim “[b]ecause the Hess
plaintiffs have failed to articulate any theory of damages that
would be anything other than overcharges.” Dist. Ct. Mem. Op.
at 31 (March 30, 2001). We agree, and thus Plaintiffs’ claim
was properly dismissed at summary judgment.

              d.      May Plaintiffs recover damages based
                      on drop shipments in Hess?

        Plaintiffs in Hess claimed that, for teeth drop shipped
directly from Dentsply to the labs, they were direct purchasers
not subject to Illinois Brick. However, the Hess complaint
limited the plaintiff class to “all dental laboratory purchasers of
any Dentsply products who purchased such products through
Dentsply Dealers.” (emphasis added). Plaintiffs cannot avoid
Illinois Brick by claiming they were direct purchasers of drop
shipments when their complaint specifically alleges that they did
not directly purchase from Dentsply.



                                21
        Furthermore, the fact that some of the teeth are drop
shipped directly from Dentsply to Plaintiffs does not affect the
economic substance of the transaction. That is, the dealers still
make the sale to Plaintiffs and Dentsply makes the sale to the
dealers. Plaintiffs pay the dealers their usual price, the dealers
take their profit, and then the dealers pay Dentsply. See Dist. Ct.
Mem. Op. at 29 (March 30, 2001). While it is true that the
dealers do not take physical possession of the teeth, this is
nothing but a formal difference from the typical transactions.
Thus, even as to teeth drop shipped directly from Dentsply to the
labs, Plaintiffs are indirect purchasers potentially subject to
Illinois Brick.

       II.    May Plaintiffs recover damages in Jersey
              Dental?

              a.      May Plaintiffs recover lost profits
                      d am ag es cau sed b y their lost
                      opportunities to purchase and resell
                      Dentsply’s competitors’ products?

      Plaintiffs argue that, even if they do not have standing to
recover damages for overcharges they paid to dealers for
Dentsply’s teeth, they have standing to recover lost profits
damages caused by their lost opportunities to purchase and resell




                                22
products of Dentsply’s competitors.5 Plaintiffs allege that, as a
result of Dentsply’s exclusive-dealing, its competitors are denied
adequate access to a necessary means of distribution—the
dealers. Thus Dentsply’s competitors’ products are not
available. Plaintiffs are theoretically correct that, “but for
[Dentsply’s] exclusion of more efficient rivals, purchasers
would have shifted at least some of their business to the rivals.”
ABA Section of Antitrust Law, Proving Antitrust Damages:
Legal and Economic Issues 194 (1996).

      When antitrust violators cause prices to increase through
monopolization, a price-fixing conspiracy, or exclusionary
conduct, the harm they cause members of the distribution chain
comes in two ways: (1) overcharges paid for goods actually
purchased;6 and (2) lost profits resulting from the lost


       5
        If Dentsply’s exclusionary conduct enabled it to raise its
prices, thereby reducing (at least in theory) the demand for its
own products, Plaintiffs might also have claimed lost profits
damages caused by their lost opportunities to purchase and resell
Dentsply’s products. However, we would reject such a claim for
the same reasons we reject Plaintiffs’ claim for lost profits
damages caused by their lost opportunities to purchase and resell
Dentsply’s competitors’ products.
       6
        Members of the distribution chain usually mitigate this
harm by passing on some of the overcharge to their buyers.
However, much of this harm is not actually avoided, but rather
takes the form of the second type of harm—lost profits from the

                               23
opportunity to buy and resell a greater volume of goods. Jeffrey
L. Harrison, The Lost Profits Measure of Damages in Price
Enhancement Cases, 64 Minn. L. Rev. 751, 753, 770-772 (1980)
(“[T]he gross overcharge measure [of damages] ignores the
impact that the enhanced price has had on the volume of the
final good eventually produced.”); see also ABA Section of
Antitrust Law, supra, at 195 (“It is the fundamental law of
demand that as the price of a product increases the amount
purchased decreases. A collusive price increase, therefore, will
result in a reduction of the quantity of the good purchased.”).

       Thus, as some scholars see it, when antitrust plaintiffs


lost opportunity to buy and resell a greater volume of goods.
This is because, as members of the distribution chain pass on the
overcharge (i.e., raise their prices), their volume of sales
theoretically decreases.
        Like the second type of harm, the overcharge paid minus
the overcharge passed on for goods actually purchased and
resold are a form of “lost profits.” The overcharge paid minus
the overcharge passed on for goods actually purchased and
resold is one component of the loss an antitrust violation causes
to the bottom line (i.e., the profits) of members of the
distribution chain. However, because Illinois Brick precludes
indirect purchasers from recovering overcharge damages,
Plaintiffs do not seek in their lost profits claim the component
of their lost profits that includes the overcharge paid minus the
overcharge passed on for teeth they actually purchased and
resold.

                               24
claim that anticompetitive behavior caused prices to increase,
two measures of damages could theoretically be used: (1) the
overcharge (i.e., the difference between the price paid for goods
actually purchased and the price that would have been paid
absent the illegal conduct), or (2) lost profits (i.e., the
overcharge paid minus the overcharge passed on for goods
actually purchased and resold, plus lost profits from the lost
opportunity to buy and resell a greater volume of goods). See
Phillip E. Areeda, Herbert Hovenkamp & Roger D. Blair,
Antitrust Law ¶ 394, at 521 (2d ed. 2000).7

       A court might potentially use a lost profits measure of
damages, as “[t]he Supreme Court has not explicitly held that
any particular measure of damages is required or precluded.”
ABA Section of Antitrust Law, supra, at 184 (citing Thomsen
v. Cayser, 243 U.S. 66 (1917)); see also Illinois Brick, 431 U.S.
at 733 n.13, 743 n.27 (observing that even if the “pass-on
[defense] were permitted . . . [and] the defendant show[ed] that
as a result of the overcharge the direct purchaser increased its
price by the full amount of the overcharge, the direct purchaser
m[ight] still claim injury from a reduction in the volume of its
sales caused by its higher prices”).



       7
         We note that Professor Areeda, who gained recognition
for his scholarly work in antitrust law, is deceased, and that the
treatise is now the responsibility principally of Professor
Hovenkamp.

                               25
       However, the standard method of measuring damages in
price enhancement cases is overcharge, not lost profits. See
ABA Section of Antitrust Law, supra, at 172 (“The typical
measure of damages is the difference between the actual price
and the presumed competitive price multiplied by the quantity
purchased. This was the calculation that the Supreme Court
approved in Chattanooga Foundry [& Pipe Works v. Atlanta,
203 U.S. 390, 396 (1906)].”); id. at 193-94 (Where “a group of
suppliers conspires to drive a more efficient competitor out of
the market or, equivalently, prevent a more efficient supplier
from entering the market,” the excluded supplier (competitor)
“would have a claim for antitrust damages based on lost profits”
and “purchasers from the conspirators would also have antitrust
claims because they pay higher prices as a result of the
exclusionary practice.” The purchasers’ damages would be
based on the overcharge they paid measured by “the difference
between the price actually paid and the price that would have
been paid absent collusion, multiplied by the quantity.”);
Areeda, supra, ¶ 394b, at 529 (observing that “[i]n spite of the
(arguably) theoretical superiority of lost profits as a measure of
damages in a price-enhancement case, nearly all plaintiffs claim
damages on the basis of an overcharge calculation”); Harrison,
supra, at 755-56 (“[W]hen the specific activity at issue [is] price
enhancement, courts consistently allow[] recoveries based on the
gross overcharge instead of lost profits.” (footnote omitted)).

      Lost profits damages are disfavored, at least in part
because they are more difficult to prove than overcharge

                                26
damages. See ABA Section of Antitrust Law, supra, at 171
(“The overcharge measure has the virtues of conceptual
simplicity . . . and relative ease of calculation.”); Roger D. Blair
& William H. Page, “Speculative” Antitrust Damages, 70 Wash.
L. Rev. 423, 433-34 (1995) (“Overcharge damages . . . were
recognized by the Supreme Court [in Chattanooga Foundry]
primarily because of the difficulty of proving lost profits in
price-fixing cases. Rather than require the complex netting
associated with lost profits, and thus practically deny recovery,
the Court permitted plaintiffs to prove damages by showing a
price enhancement.”); Harrison, supra, at 756 (“The advantage
to plaintiffs of using a gross overcharge measure is that it is less
speculative and therefore easier to prove than lost profits.”).

        Furthermore, overcharge damages, unlike lost profits,
may induce antitrust plaintiffs to make arguments that will
protect rather than injure consumers. See Frank H. Easterbrook,
Treble What?, 55 Antitrust L.J. 95, 96-97, 100-01 (1986). Judge
Easterbrook argues that the overcharge to consumers, not lost
profits, “should be the basis of all [antitrust] damages.” Id. at
101. He reasons that

       [t]he lure of damages for lost profits induces firms
       to make arguments that will injure rather than
       protect consumers. Profits get lost primarily from
       hard competition or from the elimination of
       monopoly. . . . The more competitive the market,
       the more profits are ‘lost.’ . . . [Because] it is hard

                                 27
       to tell competition apart from exclusion, [] we
       must be wary of remedies that give the victims of
       hard competition a strong incentive to sue.

Id. at 100-01.

        But most importantly, Plaintiffs may not recover lost
profits damages because they are indirect purchasers. The
District Court concluded that “[t]he intermediate dental dealers
suffer the direct harm from any lost opportunity to sell a greater
volume of Dentsply products or to sell competitive product lines
and profit therefrom. Any harm suffered by plaintiffs remains
indirect.” Dist Ct. Mem. Op. at 24 n.9 (Dec. 19, 2001). We
agree.

        Even commentators who advocate for indirect purchaser
standing and a lost profits measure of damages admit that their
position is currently precluded by Supreme Court case law. As
Professor Harrison concedes in his article arguing for indirect
purchaser standing and a lost profits measure of damages, “[t]he
Illinois Brick decision seems absolutely to foreclose the
possibility of indirect-purchaser standing in price enhancement
suits,” even if the indirect purchaser plaintiffs seek lost profits
as opposed to overcharge damages. See Harrison, supra, at 777;
see also Illinois Brick, 431 U.S. at 746 (“[I]n elevating direct
purchasers to a preferred position as private attorneys general,
[our case law] denies recovery to those indirect purchasers who
may have been actually injured by antitrust violations.”).

                                28
Harrison also acknowledges that

       the legal precedents and policy arguments relied
       on by the [Hanover Shoe] Court in rejecting the
       pass-on defense do not support even the
       theoretical appropriateness of the lost profits
       measure. In addition, the Court hinted that it was
       actually rejecting the very notion that damages
       should be apportioned among various layers of
       buyers and sellers. . . . [T]o the extent that the
       apportionment process has been rejected by the
       Court, it would be inappropriate to infer that the
       lost profits measure has received even implicit
       approval.

Id. at 764-65 (footnotes omitted) (citing Hanover Shoe, 392 U.S.
at 489-90 & n.8, 494, 498). Similarly, while Professors Areeda,
Hovenkamp and Blair argue that “the correct solution is to
permit damages actions based on lost profits to all
intermediaries,” they concede that their position “is at variance
with the case law.” Areeda, supra, ¶ 346a, at 359-60. Finally,
the ABA’s Antitrust Section recognizes that “if a cartel sells to
an intermediate purchaser who resells to another, both
purchasers are likely to lose profits as a result of the price fix,”
but concedes that “[u]nder the Illinois Brick rule, the second
intermediate purchaser, or the indirect purchaser from the cartel,
cannot recover damages.” ABA Section of Antitrust Law,
supra, at 183-84.

                                29
        If we were to hold that indirect purchaser plaintiffs could
recover lost profits from their decreased volume of purchases
and resales, we would be implying that (1) past indirect
purchaser plaintiffs who have been denied standing based on
Illinois Brick could have recovered if only they had framed their
claim as one for lost profits rather than for overcharge damages,
and (2) that the Illinois Brick Court—which was concerned with
simplifying and controlling the costs of antitrust litigation and
with conserving judicial resources—really meant that indirect
purchasers do have standing to sue, but for lost profits rather
than overcharge damages. We find both of these propositions
untenable.

       For all of these reasons, we hold that Plaintiffs do not
have statutory standing to recover lost profits damages caused
by their lost opportunities to purchase and resell Dentsply’s
competitors’ products.

              b.      May Plaintiffs recover damages caused
                      by the alleged retail price-fixing
                      conspiracy in Jersey Dental under a co-
                      conspirator exception to Illinois Brick?

       In Jersey Dental, Plaintiffs claim that they come within
the “co-conspirator exception” to Illinois Brick because their
purchases from Dentsply’s dealers were made from members of
a retail price-fixing conspiracy. Other circuit courts have
adopted a co-conspirator exception to Illinois Brick that applies

                                30
in retail price-fixing cases. See Arizona v. Shamrock Foods Co.,
729 F.2d 1208, 1211-12 (9th Cir. 1984) (holding that purchasers
from down-stream conspirators may sue up-stream conspirators
for damages and noting that “[n]umerous other courts have
found Illinois Brick inapplicable to claims against remote sellers
when the plaintiffs allege that the sellers conspired with
intermediates in the distribution chain to fix the price at which
the plaintiffs purchased”); Paper Sys. Inc. v. Nippon Paper
Indus. Co., 281 F.3d 629, 631-32 (7th Cir. 2002) (Easterbrook,
J.) (holding that Illinois Brick does not bar suits for damages by
plaintiffs against an initial seller when it is alleged to have
conspired in violation of the antitrust laws with the seller
directly upstream from plaintiffs); Prescription Drugs, 123 F.3d
at 604 (same); see also Fontana Aviation, Inc. v. Cessna Aircraft
Co., 617 F.2d 478, 481 (7th Cir. 1980) (approving co-conpirator
exception in dicta).

       Our Court has not explicitly adopted a co-conspirator
exception to Illinois Brick. In McCarthy, we neither adopted
nor rejected the exception because it was inapplicable to the
case, but we did explain its “nature”: “In order to fall within the
exception, plaintiffs here would have to allege that the
intermediaries immediately upstream . . . colluded with the
defendants to overcharge plaintiffs . . . . Moreover, plaintiffs
would be obliged to join the [intermediaries] as defendants . . .
.” 80 F.3d at 855 (emphasis omitted). In our case, Plaintiffs
allege that they made purchases from Dentsply’s dealers (the
intermediaries immediately upstream from Plaintiffs) and that

                                31
Dentsply and its dealers are co-conspirators. In addition, in
Jersey Dental Plaintiffs sued not only Dentsply, but also joined
as defendants twenty-six of Dentsply’s then twenty-eight
authorized dealers.8       Thus, under McCarthy, Plaintiffs
potentially qualify for the co-conspirator exception.

      Furthermore, Professors Areeda, Hovenkamp, and Blair
approve of the co-conspirator exception. They explain that

       Illinois Brick does not limit suits by consumers
       against a manufacturer who illegally contracted
       with its dealers to set the latter’s resale price. . . .
       There is no problem of duplication or
       apportionment, because the consumer is the only
       party who has paid any overcharge. . . . The court
       simply computes the retail price that would have
       prevailed absent the illegal contract fixing the
       price. Further emphasizing that Illinois Brick
       does not apply is that a dealer challenging resale
       price maintenance imposed upon itself would not
       base its damages on an “overcharge” at all. Its


       8
       Plaintiffs may not recover from Dentsply for teeth
purchased from the two non-joined dealers under a co-
conspirator exception to Illinois Brick because, as previously
mentioned, our Court has expressly refused to adopt a co-
conspirator exception when the alleged co-conspirators
immediately upstream have not been joined.

                                 32
       action is not based on a higher product price to
       itself, but rather on the constraint on its resale
       price; its damages would be for lost profits
       resulting from the reduced volume of sales. As
       that case illustrates, lost profits damages for the
       intermediary and overcharge damages for the
       consumer are not in any way duplicative; they are
       both losses caused by the unlawful resale price
       maintenance.

Areeda, supra, ¶ 346h, at 369-70.

        In fact, a recent supplement to their treatise analyzed
Jersey Dental and concluded that the District Court “incorrectly
refus[ed] to apply a co-conspirator exception to Illinois Brick .
. . .” Areeda, supra, ¶ 346a, at 88 n.1 (2003 Supp.). It reasoned
that, to the extent that Dentsply imposed resale price
maintenance 9 on its dealers, they

       might have their own damage action against the
       supplier, but if so, it would be an action for lost
       profits, not for an overcharge; the dealer’s injury


       9
        “Resale price maintenance”—the term used by Areeda,
et al.—is simply another way of describing the vertical price
fixing in which Plaintiffs allege Dentsply and its dealers
engaged. In resale price maintenance, the initial seller dictates
the dealers’ resale price.

                               33
        would accrue from the profits lost by . . . lost
        output resulting from being required to sell at the
        maintained price; as a result, there was nothing to
        pass on . . . .

Id.10

        Not only are overcharge pass-on calculations not a
concern, the other two Illinois Brick policy justifications are also
inapplicable to Plaintiffs’ price-fixing conspiracy claim. First,
there is no risk of duplicative liability or potentially inconsistent
judgments because Plaintiffs and Dentsply’s dealers would not
be suing for the same injury. To the extent that Dentsply
imposed resale price maintenance on the dealers, the dealers’
claim against Dentsply would be for lost profits, not for an
overcharge.11 Lost profits would be caused by lost output,


        10
        In fact, Areeda implies that even the alleged exclusive-
dealing could not have caused the dealers to be overcharged.
Areeda, supra, ¶ 346a, at 88 n.1 (2003 Supp.). This appears to
be incorrect, for if the exclusive-dealing led to exclusion of
Dentsply’s competitors, Dentsply may have been able to
overcharge its dealers.
        11
         We are, of course, not saying that the dealers could
prevail on any particular claim. Rather, we merely point out that
if the dealers proved that Dentsply imposed resale price
maintenance on them, their measure of damages would be based
on the lost profits from their decreased volume of purchases and

                                 34
which in turn is caused by resale price maintenance. Areeda,
supra, ¶ 346a, at 88 n.1 (2003 Supp.). Second, permitting
Plaintiffs to sue would not cause inefficient enforcement of the
antitrust laws by diluting the ultimate recovery and thus
decreasing direct purchasers’ incentive to sue. Dealers would
still recover the same amount on their hypothetical lost profits
claim even if Plaintiffs recovered on their separate price-fixing
claim.

       Finally, we have found no precedent holding that
plaintiffs, who purchase from dealers who are part of a price-
fixing conspiracy with the initial seller, may not recover
damages from the initial seller.

       In this context, we hold that Plaintiffs in Jersey Dental
have statutory standing to recover damages from Dentsply for its
alleged price-fixing conspiracy with its dealers.

              c.     May Plaintiffs recover damages caused
                     by the alleged exclusive-dealing
                     conspiracy in Jersey Dental under a co-
                     conspirator exception to Illinois Brick?

       In Jersey Dental, Plaintiffs also claim that they come


resales. This lost profits harm is different from, and thus not
duplicative of, the overcharge harm that any resale price
maintenance would have caused Plaintiffs.

                               35
within the “co-conspirator exception” to Illinois Brick because
their purchases from Dentsply’s dealers were made from
members of an exclusive-dealing conspiracy. Thus, we must
decide whether there is—in addition to a co-conspirator
exception for RPM (resale price maintenence, i.e., vertical price-
fixing) conspiracies—a co-conspirator exception for non-RPM
conspiracies, such as exclusive-dealing or price-fixing at the
manufacturer level (“the general co-conspirator exception”).12


       12
         We recognize that one might ask why would it not
always be unprofitable for a direct purchaser to join such a non-
RPM conspiracy and effectively agree to be overcharged (as
input costs increase, profits decrease). Further, if economics
predicts that such overcharge conspiracies will never arise, why
consider adopting an exception for them?
       As an initial matter, because Jersey Dental is at the
Federal Rule of Civil Procedure 12(b)(6) stage, we must take as
true Plaintiffs’ allegations that Dentsply and its dealers have
conspired to fix, and have fixed, the prices that dealers charge
Plaintiffs and that there was an exclusive-dealing conspiracy
between Dentsply and its dealers to exclude Dentsply’s
competitors. We may not dismiss Plaintiffs’ claims because we
determine the alleged facts likely did not occur.
       In fact, however, we can imagine how the exclusive-
dealing conspiracy, in combination with the RPM conspiracy,
could have been profitable to the dealers. As previously
mentioned, it would presumably not have been profitable for the
dealers to have joined a conspiracy in which they were
overcharged (the exclusive-dealing conspiracy). However, the

                               36
dealers might have joined such a conspiracy if they were
compensated in some fashion. Plaintiffs argue that Dentsply
conspired to fix the prices that its dealers charge. This is
effectively a horizontal price fixing conspiracy at the dealer
level (which could presumably be profitable to the dealers) that
is policed by Dentsply. Thus, the RPM conspiracy could be the
mechanism by which Dentsply compensates its dealers in
exchange for the dealers’ agreement (1) not to deal with
Dentsply’s competitors and (2) thus to be overcharged by
Dentsply.
        In addition, in Prescription Drugs Judge Posner rejected
a similar argument that it would not have made sense
economically for the wholesalers in that case to have joined
what was arguably a horizontal price-fixing conspiracy at the
manufacturer level. 123 F.3d at 614. He explained that “[t]he
theory is that the wholesalers were the manufacturers’ cats-
paws. There is nothing new about the idea that a cartel might
‘hire’ a customer to help police the cartel.” Id. He also implied
that, because drug wholesalers appeared to be “an endangered
commercial species” and the manufacturers could have cut them
out altogether and sold directly to buying groups for pharmacies,
it was in the wholesalers’ self-interest to join the conspiracy. Id.

       Finally, “summary judgment for a defendant is proper,
even if there is some evidence of an antitrust violation, if
plaintiff’s theory of violation makes no economic sense.”
Prescription Drugs, 123 F.3d at 614 (citing Matsushita Electric
Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986);
Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S.

                                37
We hold that such an exception would only exist in
circumstances where the middlemen would be barred from
bringing a claim against their former co-conspirator—the
manufacturer—because their involvement in the conspiracy was
“truly complete” (i.e., if the middlemen would be barred from
suing by the “complete involvement defense” of a
manufacturer). See Perma Life Mufflers, Inc. v. Int’l Parts
Corp., 392 U.S. 134, 140 (1968) (expressly “not decid[ing] . . .
whether . . . truly complete involvement and participation in a
monopolistic scheme could ever be a basis . . . for barring a
plaintiff’s cause of action”).

                     1.     Why we adopt a “limited”
                            general co-conspirator exception.

        If there is a general co-conspirator exception, why do we
limit it? To begin, we examine whether Illinois Brick’s policy
justifications suggest we should adopt (1) a general co-
conspirator exception that would permit indirect purchaser
standing when the middlemen conspired with the manufacturers
even if the middlemen were not barred by the complete
involvement defense from suing their former co-
conspirator—the manufacturer (the “unlimited exception”), or
(2) an exception that would permit indirect purchaser standing


451, 467-69 (1992)). Thus, there is already a mechanism in
place for courts to dismiss before trial claims of a conspiracy
that would make no economic sense.

                               38
only if the middlemen were barred by the complete involvement
defense from suing the manufacturer (the “limited exception”).13

       Illinois Brick’s first policy concern—the risk of
duplicative liability—cuts against the unlimited exception, but
in favor of the limited exception. For example, imagine the
dealers had already sued and recovered overcharges from
Dentsply for the exclusive-dealing conspiracy. If there was an
unlimited exception, presumably nothing would stop the labs
from then suing Dentsply to recover the duplicative portion of
the overcharge that the dealers had passed on to them. Even
under the conditions of this case (with the labs suing first and
the dealers joined), duplicative recovery is a possibility. If the
labs prove Dentsply engaged in an exclusive-dealing conspiracy
with the dealers, the dealers could potentially sue Dentsply for
duplicative damages the conspiracy caused them. See Link, 788


       13
         The Seventh Circuit is the only Court of Appeals to
engage head-on the general co-conspirator exception, and it has
adopted it. See Paper Systems, 281 F.3d at 631-32 (“The right
to sue middlemen that joined the conspiracy is sometimes
referred to as a co-conspirator ‘exception’ to Illinois Brick, but
it would be better to recognize that Hanover Shoe and Illinois
Brick allocate to the first non-conspirator in the distribution
chain the right to collect 100% of the damages.”); Prescription
Drugs,123 F.3d at 604; Fontana Aviation, 617 F.2d at 481. However,
we do not discern an explanation by the Court why it did so or an
explicit delineation of the exception’s scope (i.e., whether it is
unlimited or limited).

                               39
F.2d at 932 n.12 (analyzing an alleged conspiracy analogous to
our case and noting that, even if the dealers were joined and
were co-conspirators, they could still potentially sue the
manufacturer for overcharges caused by the exclusive-dealing
conspiracy). However, under the limited exception, the risk of
duplicative liability is alleviated because that exception is only
applicable if the middlemen are barred from recovery.

        Illinois Brick’s second policy concern—avoiding the
need to ascertain the portion of an overcharge that was passed
on—cuts against both exceptions. Unlike vertical conspiracies
involving RPM, other vertical conspiracies are designed to
distort the wholesale market for a particular good. For example,
assume that Dentsply and its dealers only engaged in an
exclusive-dealing conspiracy. The effect of that conspiracy
would be to deny Dentsply’s competitors access to its authorized
dealers. The absence of competition for these dealers’ business
would allow Dentsply to charge its dealers a supra-competitive
price at wholesale. This overcharge would then be passed on (at
least in part) to the dealers’ customers, the dental laboratories.
The damages that the laboratories could recover from Dentsply
would thus be the treble portion of the overcharge that the
dealers passed on to them.14 Thus both exceptions, which apply


       14
         Because Section 4 of the Clayton Act provides for
damages of treble the amount a plaintiff is injured, presumably
indirect purchaser plaintiffs would only be permitted to recover
treble the amount of the manufacturer’s overcharge that the

                               40
direct purchasers passed on to them and would not be able to
recover the portion of the manufacturer’s overcharge that the
direct purchasers absorbed because the indirect purchasers
would not have been injured by that portion. See 15 U.S.C.
§ 15(a) (Section 4 of the Clayton Act provides that “any person
who shall be injured in his business or property by reason of
anything forbidden in the antitrust laws . . . shall recover
threefold the damages by him sustained.”) (emphasis added).
But see Paper Systems, 281 F.3d at 631-32 (“The right to sue
middlemen that joined the conspiracy is sometimes referred to
as a co-conspirator “exception” to Illinois Brick, but it would be
better to recognize that Hanover Shoe and Illinois Brick allocate
to the first non-conspirator in the distribution chain the right to
collect 100% of the damages.”) (emphasis added); cf. Hanover
Shoe, 392 U.S. at 494 (holding that an antitrust defendant could
not argue that a plaintiff who had purchased a product directly
from the defendant was not injured because it had passed on the
illegal overcharge to its own customers, thus creating a regime
under which plaintiffs can arguably recover more than
“threefold the damages by him sustained”). Of course, if under
the limited exception (where direct purchasers are barred from
recovering) indirect purchaser plaintiffs were allowed to recover
the entire overcharge that the manufacturers imposed on the
direct purchasers (even though the direct purchasers absorbed
some of that overcharge and did not pass on that absorbed
portion to the indirect purchasers), then the portion of the
overcharge that was passed on from the direct purchasers to the
indirect purchasers would not need to be ascertained and Illinois
Brick’s second policy justification would cut in favor of the

                                41
to conspiracies that attack the wholesale market, potentially
create the problems of apportionment that underlie Illinois
Brick.15

        Illinois Brick’s third policy concern—risk of inefficient
enforcement of the antitrust laws because the ultimate recovery
for the dealers would be diluted, thereby decreasing the dealers’
incentive to sue—cuts against the unlimited exception, but in



limited exception.
       15
         Technically speaking, there would be no need to
“apportion” damages between direct and indirect purchasers
under the limited exception. This is because, as we have
explained, the limited exception would only permit indirect
purchaser standing in circumstances where the direct purchaser
would be barred from bringing suit against the manufacturer.
As such, there would be no need to apportion any damages to
the direct purchasing middleman.
        Nevertheless, even under the limited exception, the finder
of fact would be required to ascertain the amount of the
overcharge that had been passed on by the middleman. After
all, an antitrust plaintiff (whether he be a direct or an indirect
purchaser) is only entitled to recover “threefold the damages by
him sustained.”       15 U.S.C. § 15(a) (emphasis added).
Therefore, to the extent that the middleman retained (i.e. did not
pass on to the indirect purchaser) a portion of any overcharge
imposed upon him, the damages actually sustained by the
indirect purchaser would be reduced by that amount.

                               42
favor of the limited exception. Under the unlimited exception,
when middlemen were not completely involved, their recovery
would be diluted and their incentive to sue would decrease
(assuming that, rather than the middlemen being permitted to
recover the entire overcharge, it was apportioned among the
middlemen and the indirect purchasers). However, under the
limited exception, when middlemen were not completely
involved, their recovery would not be diluted and their incentive
to sue would not decrease. As the indirect purchasers would not
have standing in this instance, no recovery by them could dilute
the middlemen’s recovery.

        Thus, all three of the Illinois Brick policy justifications
argue against adopting the unlimited exception, while the first
and the third favor adopting the limited exception and only the
second (the desire to avoid ascertaining the portion of an
overcharge that was passed on) cuts against it. Further, while it
is true that adopting the limited exception creates the need to
ascertain the portion of an overcharge that was passed on, we
think the alternative, adopting no general co-conspirator
exception, is less desirable. Cf. In re Lower Lake Erie Iron Ore
Antitrust Litig., 998 F.2d 1144, 1169 (3d Cir. 1993) (“[W]hile
complex apportionment problems are implicated here, we do
not hold that litigation must be avoided solely because it might
be difficult to ascertain damages. Injured parties cannot be
penalized and left without recourse because measurement of
their damages is difficult.”). The Illinois Brick Court was
concerned with promoting “the longstanding policy of

                                43
encouraging vigorous private enforcement of the antitrust laws.”
431 U.S. at 745. We are unwilling to hold that if initial sellers
and “completely involved” direct purchasers conspire, then no
plaintiff outside the conspiracy may sue the initial seller for
damages.

                      2.     Is    there   a    “complete
                             involvement” defense?

        We hold that a general co-conspirator exception would
only exist if the complete involvement defense barred the
middlemen from bringing a claim against their former co-
conspirator—the manufacturer. However, our Court has not
decided where the complete involvement defense even exists.
We thus examine this question.

         In Perma Life, the Supreme Court held that “the doctrine
of in pari delicto . . . is not to be recognized as a defense to an
antitrust action.” 392 U.S. at 140.16 But as previously
mentioned, the Court expressly did “not decide . . . whether . .
. truly complete involvement and participation in a monopolistic
scheme could ever be a basis . . . for barring a plaintiff’s cause


       16
          The Court explained that “[a]lthough in pari delicto
literally means ‘of equal fault,’ the doctrine has been applied .
. . in a wide variety of situations in which a plaintiff seeking
damages or equitable relief is himself involved in some of the
same sort of wrong doing.” Perma Life, 392 U.S. at 138.

                                44
of action.” Id. Further, in concurrences, five members of the
Perma Life Court favored barring suit by antitrust plaintiffs who
were involved in a conspiracy at a high enough level.17

        Further, every Court of Appeals that has decided the
issue has held that antitrust plaintiffs who were involved in a
conspiracy at a requisite level are barred from suing. See, e.g.,
Sullivan v. Tagliabue, 34 F.3d 1091, 1107 (1st Cir. 1994);
Columbia Nitrogen Corp. v. Royster Co., 451 F.2d 3, 16 (4th
Cir. 1971); Gen. Leaseways, Inc. v. Nat’l Truck Leasing Ass’n,
830 F.2d 716, 720-23 (7th Cir. 1987); Javelin Corp. v. Uniroyal,
Inc., 546 F.2d 276, 279 (9th Cir. 1976). But cf. Greene v. Gen.
Foods Corp., 517 F.2d 635, 646-47 (1975) (“seriously
question[ing]” whether antitrust plaintiffs should ever be barred


       17
         See Perma Life, 392 U.S. at 146 (White, J., concurring)
(“I would deny recovery where plaintiff and defendant bear
substantially equal responsibility for injury resulting to one of
[the co-conspirators] . . . .”); id. at 147 (Fortas, J., concurring)
(Suit should be barred when “the fault of the parties is
reasonably within the same scale.”); id. at 149 (Marshall, J.,
concurring) (“I would hold that where a defendant in a private
antitrust suit can show that the plaintiff actively participated in
the formation and implementation of an illegal scheme, and is
substantially equally at fault, the plaintiff should be barred from
imposing liability on the defendant.”); id. at 153 (Harlan, J.,
concurring in part and dissenting in part) (Stewart, J., joining)
(“[P]roperly used[, in pari delicto] refers to a defense that
should be permitted in antitrust cases.”).

                                45
from suing because of their “unclean hands”). In Link, our
Court recognized that co-conspirators who were completely
involved in a conspiracy might be barred from suing. 788 F.2d
at 932. However, we did not decide the issue because we
concluded that the co-conspirators in that case were not
completely involved in the conspiracy. Id.

         We recognize that the weight of authority favors barring
suit by antitrust plaintiffs who were involved in a conspiracy at
a high enough level. We also recognize, however, the strong
policy argument in favor of allowing suits by co-conspirators
even when their involvement in a conspiracy was large. The
Ninth Circuit has recognized that “[t]he formulation of the
‘complete involvement’ defense reflects a somewhat uneasy
balance between the compelling policy of enforcement of the
antitrust laws and the natural desire of any court to recognize the
equities as between parties.” THI-Hawaii, Inc. v. First
Commerce Fin. Corp., 627 F.2d 991, 995 (9th Cir. 1980). It is
notable, however, that, while the courts who have adopted the
c o m p le te in v o lv e m e nt def e n se h a v e s tru c k th e
“enforcement/equities balance” in favor of equities, the Supreme
Court in the holdings of Illinois Brick and Perma Life struck the
balance in favor of enforcement.

       In Illinois Brick, the Court

       conclude[d] that the legislative purpose in
       creating a group of ‘private attorneys general’ to

                                46
       enforce the antitrust laws under § 4 [of the
       Clayton Act] is better served by holding direct
       purchasers to be injured to the full extent of the
       overcharge paid by them than by attempting to
       apportion the overcharge among all that may have
       absorbed a part of it.

431 U.S. at 746 (citation and quotation marks omitted). Thus
the Illinois Brick Court made the balancing decision to deny
(some might argue inequitably18 ) injured indirect purchasers
standing to recover while granting direct purchasers the windfall
of the entire overcharge in order to further efficient antitrust law
enforcement.

          In Perma Life, the Court believed that allowing the in
pari delicto defense in an antitrust action would “threaten the
effectiveness of the private action as a vital means for enforcing
. . . antitrust policy.” 392 U.S. at 136. It noted that it had “often
indicated the inappropriateness of invoking broad common-law


       18
         See Areeda, supra, ¶ 346k, at 378 (“The obvious
difficulty with denying damages for consumers buying from an
intermediary is that they are injured, often more than the
intermediary, who may also be injured but for whom the entire
overcharge is a windfall. The indirect purchaser rule awards
greatly overcompensate interm ediaries and greatly
undercompensate consumers in the name of efficiency in the
administration of the antitrust laws.”).

                                 47
barriers to relief where a private suit serves important public
purposes.” Id. at 138. It concluded that

       [t]he plaintiff who reaps the reward of treble
       damages may be no less morally reprehensible
       than the defendant, but the law encourages his suit
       to further the overriding pubic policy in favor of
       competition. A more fastidious regard for the
       relative moral worth of the parties would only
       result in seriously undermining the usefulness of
       the private action as a bulwark of antitrust
       enforcement.

Id. at 139 (emphases added). Thus, the Court chose to allow the
inequity of letting plaintiffs, though as “morally reprehensible”
as defendants, sue in order to foster antitrust law enforcement.

        We further point out that a rule prohibiting antitrust
plaintiffs who were completely involved in a conspiracy to sue
co-conspirators need not be absolute and could be crafted to
maximize antitrust enforcement and cartel instability. For
example, the law might allow the first, but only the first,
completely involved co-conspirator the right to sue its fellow co-
conspirators. This would give each co-conspirator incentive to
be the first to defect from a cartel and enforce the antitrust laws
because (1) each would want to be the one and only co-
conspirator to gain the right to recover treble damages and (2)
each would be afraid that if it did not defect, another would, and

                                48
it would then be liable for treble damages. Under such a rule,
the incentive to defect and cartel instability would increase, and
cartel breakdown and failure should become more common.
Further, if potential co-conspirators knew their potential cartel
had a decreased chance of succeeding, they would be less likely
to form a cartel in the first place.

       Regardless, as we will explain, it turns out that we need
not resolve whether there is a complete involvement defense to
antitrust actions in order to determine whether Plaintiffs come
within a general co-conspirator exception.

                       3.     Could Plaintiffs come within a
                              general co-conspirator
                              exception?

       If there is a general co-conspirator exception, it would
only apply if the middlemen were barred from bringing a claim
against their former co-conspirator—the manufacturer—because
their involvement in the conspiracy was “truly complete.”
However, in our case, Plaintiffs could not qualify for such an
exception because the District Court concluded, and Plaintiffs
have conceded, that the dealers’ involvement in the alleged
conspiracy with Dentsply was not “truly complete.” The District
Court concluded that there was “no way to construe the facts
alleged such that the dental dealers could be considered
‘substantially equal’ participants in the alleged conspiracy . . . or
that their participation was ‘voluntary in any meaningful

                                 49
sense.’” Dist Ct. Mem. Op. at 20-21 (Dec. 19, 2001) (citation
omitted). Further, Plaintiffs acknowledged in their brief that
they “have not based any part of [their] appeal on any argument
that the dealers’ involvement was ‘substantially equal’ to
Dentsply’s.” Appellants’ Reply Br. at 23 n.16. Thus, Plaintiffs
may not recover damages caused by the exclusive-dealing
conspiracy under a general co-conspirator exception to Illinois
Brick.

                          Conclusion

       We thus hold that Plaintiffs may not recover damages in
Hess (a) under the “co-conspirator” exception to Illinois Brick,
(b) under the “control” exception to Illinois Brick, (c) under a
non-overcharge theory of damages, or (d) for “drop shipments.”
In Jersey Dental, however, while Plaintiffs may not recover
damages under the control exception or under a lost profits
theory, they do have statutory standing under the co-conspirator
exception to pursue an action for overcharge damages (including
for drop shipped teeth) caused by the alleged retail price-fixing
conspiracy, although not for the alleged exclusive-dealing
conspiracy.19


       19
         Plaintiffs also allege in Jersey Dental that—as to teeth
Dentsply drop shipped to them—they were direct purchasers not
subject to Illinois Brick. Further, the Jersey Dental complaint
does not have the Hess complaint’s defect, as it specifically
alleges that Plaintiffs were direct purchasers. As we hold that

                               50
the Jersey Dental Plaintiffs have standing to recover damages
from Dentsply for its alleged price-fixing conspiracy with its
dealers under the co-conspirator exception to Illinois Brick,
Plaintiffs may potentially recover on the drop-shipped teeth
under that theory.
         Finally, as in Hess, Plaintiffs in Jersey Dental do not
come within the control exception to Illinois Brick because, as
already noted, Dentsply does not own any interest in its dealers,
there is no functional unity among Dentsply and its dealers, and
all of Illinois Brick’s policy reasons for denying standing apply.




                               51
