APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA.
Hunter, Higginbotham, Circuit Judges and Gerry,*fn* District Judge. A. Leon Higginbotham, Jr., Circuit Judge, dissenting.
1. This interlocutory appeal requires us to address the limits imposed by Illinois Brick Co. v. Illinois, 431 U.S. 720, 52 L. Ed. 2d 707, 97 S. Ct. 2061 (1977), on liability for treble damages under section 4 of the Clayton Act, 15 U.S.C.A. § 15 (West Supp. 1983). The issue arises in an action filed by plaintiff-appellees Merican, Inc., Merican Curtis, Inc., and Merican Curtis, Ltd. ("Appellees") against defendant-appellant Caterpillar Tractor Company ("Caterpillar"). Appellees allege that Caterpillar violated section 1 of the Sherman Act, 15 U.S.C. § 1 (1976), by illegally imposing a penalty on its dealers in order to eliminate the source of supply of Caterpillar products to Appellees and other independent marketers. Following the district court's denial of Caterpillar's motion to dismiss, we granted appellate review under 28 U.S.C. § 1292(b) (1976) to address the question of whether Appellees are precluded from maintaining a private damage action by operation of the rule of Illinois Brick. We hold that the district court misconstrued the scope of Illinois Brick and its progeny and that it erred by refusing to grant Caterpillar's motion to dismiss Appellees' claims for damages.
2. This case involves the international sale and distribution of electric generator sets designed, manufactured, and marketed by Caterpillar.*fn1 To distribute its generator sets Caterpillar employs a world-wide network of authorized Caterpillar dealers who function generally as retail sellers of Caterpillar products. Each of those dealers enters into a Distribution Agreement with Caterpillar which provides for, inter alia, the promotion, distribution, installation, and servicing of Caterpillar-manufactured products by the dealers. Under that agreement each dealer has an area of service responsibility in which he agrees to maintain one or more suitable places of business, to maintain adequate service facilities, to employ trained salesmen to market Caterpillar's products, and to employ trained technicians and mechanics to render diagnostic and mechanical service to all users of Caterpillar products in the dealer's service area. In addition each dealer agrees to provide, free of charge to the user, delivery, inspection, and warranty services with respect to all Caterpillar products that receive their "initial substantial use" in that dealer's service territory, regardless of when, where, or by whom the product may have been sold.
3. Under the Distribution Agreement in effect in 1978, Caterpillar agreed to sell new generator sets to its dealers at a discount of 25% off the list price. Caterpillar allocated 5% of that discount as reasonable compensation for the dealer's obligation to assume the responsibility of providing delivery, inspection, and warranty services described above. If a dealer sold a generator set that received its initial substantial use in a second dealer's service territory, the selling dealer was not entitled to the 5% "service fee" and thus was only entitled to keep a 20% discount. Under the Distribution Agreement the selling dealer was required to return the 5% to Caterpillar, which in turn transferred it to the dealer responsible for providing service, if that dealer filed an appropriate claim. Caterpillar had a practice of returning the service fee to the selling dealer if the servicing dealer did not claim the fee within one year.*fn2 Thus if a selling dealer sold a generator set for use outside his territory to an independent marketer who provided full warranty service, the selling dealer could adjust his price down knowing that another Caterpillar-authorized dealer would not have to provide service and accordingly would not claim the fee.
4. In 1978 Caterpillar instituted a new system for collecting the 5% service fee from its dealers. Under the new system Caterpillar no longer returned the service fee to a selling dealer when the servicing dealer made no claim for the fee. Instead the company retained all unclaimed service fees as miscellaneous income. The practical result of Caterpillar's new system was that its dealers could not provide as large a price reduction off the list price when they sold a generator set to an independent marketer for resale outside of the selling dealer's service area.
5. Appellees are general trading companies engaged in the international marketing and servicing of numerous products. In the mid-1970's Appellees began to trade in Caterpillar electric generator sets by purchasing them in the United States and then reselling them in the international market. Appellees purchased the sets primarily from Ohio Machinery Company ("OMCO"), a Caterpillar-authorized dealer located in Cleveland, Ohio. They would then resell them in competition with Caterpillar-authorized dealers in Europe and the Middle East, specifically Zahid Tractor and Heavy Machinery Company ("Zahid"), Caterpillar's authorized dealer in Saudi Arabia. Appellees or their reseller-customers performed the necessary delivery, installation, inspection, and warranty service for the users of the generator sets.
6. Appellees allege that Caterpillar changed its fee system in 1980 because of Appellees' competition in selling generator sets in Saudi Arabia. Appellees claim that the new system was the result of a combination and conspiracy between Caterpillar and Zahid "to allocate customers and territories for the sale of Caterpillar electric generator sets and to foreclose [Appellees] and other generator set marketers from engaging in price competition with defendant's authorized dealers." Complaint para. 21, app. at 18B.*fn3 Appellees allege that the service fee in effect became an "automatic penalty" imposed on dealers who sold generator sets for use outside their territory. They claim that because of Caterpillar's new policy, they have suffered substantial losses in sales and profits and have been restrained from securing new business. Appellees also allege that prices of electric generator sets have been artificially stabilized and maintained, that competition in the sale of the generator sets has been substantially lessened or eliminated, that Caterpillar's authorized dealers have been prevented from distributing generator sets in territories and to customers of their choosing, and that purchasers of the generator sets have been deprived of the opportunity to purchase those products from suppliers of their own choice at competitive prices.
7. On September 25, 1980, Appellees filed this action in the United States District Court for the Eastern District of Pennsylvania. They filed an amended complaint on May 26, 1981. In their amended complaint Appellees claimed that Caterpillar's service fee system violated section 1 of the Sherman Act, 15 U.S.C. § 1 (1976).*fn4 Appellees sought monetary and injunctive relief under sections 4 and 16 of the Clayton Act, 15 U.S.C.A. § 15 (West Supp. 1983); 15 U.S.C. § 26 (1976 & Supp. II 1978).
8. On March 1, 1982, Caterpillar filed a motion to dismiss*fn5 based on the rule of Illinois Brick that "indirect purchasers" are precluded from suing for passed-on damages under section 4 of the Clayton Act. See Illinois Brick, 431 U.S. at 746.*fn6 After hearing argument the district court issued an order from the bench on July 2, 1982, denying Caterpillar's motion. While recognizing Appellees' status as indirect purchasers, the district court held that based on the then-recent opinion of Blue Shield of Virginia v. McCready, 457 U.S. 465, 102 S. Ct. 2540, 73 L. Ed. 2d 149 (1982), it was improper "to just mechanically apply the Illinois Brick doctrine and thereby exclude in every case anybody who is not a direct purchaser from the original seller or the manufacturer." App. at 451I. Because the Appellees had alleged that they were the "direct target[s] of an unlawful conspiracy," the district court held that under Illinois Brick, as interpreted by Blue Shield, Appellees could maintain their action for damages. App. at 452I-53I. On August 16, 1982, the district court ...