JAMES CLAYWORTH v. PFIZER, INC

Filed 7/25/08

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION TWO

This case presentsan issue of first impression in California antitrust law: whether the pass-on defense is available to defendants accused of price-fixing. We hold that it is.

Retail pharmacies (plaintiffs) sued pharmaceutical companies (defendants) alleging price-fixing, asserting claims for violation of the Cartwright Act (Bus. & Prof. Code, 16700, et seq.),[1] and for restitution and injunctive relief under the California Unfair Competition Law (UCL) ( 17200, et seq.). Defendants asserted as an affirmative defense that plaintiffs passed-on all of the claimed overcharges to their customers. Discovery demonstrated that they did pass on the charges, and plaintiffs further admitted that they sought no other damages, such as lost or delayed sales, aside from the claimed overcharges.

Plaintiffs moved for summary adjudication on the pass-on defense, contending that it is not recognized in California, relying primarily on Hanover Shoe v. United Shoe Mach. Corp. (1968) 392 U.S. 481 (Hanover Shoe), which rejected the pass-on defense, and the legislative history of the Cartwright Act. Defendants filed their own motion, contending that California never adopted the Hanover Shoe holding and that the language of the Cartwright Act makes clear that plaintiffs in an antitrust action cannot recover for an overcharge passed on to a subsequent purchaser.

The trial court decided the cross-motions in favor of defendants, concluding that the pass-on defense is available in California, and that plaintiffs did not suffer any compensable injury within the meaning of section 16750 and thus could not recover on the Cartwright Act claim. The court also concluded that plaintiffs lacked standing to bring a UCL claim because they had not lost money or property and, alternatively, were not eligible for restitution. The trial court thus granted summary judgment. We affirm.

Background

1. The Parties and the Pleadings

Plaintiffs are retail pharmacies located in California.[2] Defendants are, with two exceptions, companies that manufacture, market, and/or distribute brand-name pharmaceutical products throughout the United States.[3] Defendants also manufacture, market, and/or distribute similar brand-name pharmaceutical products in Canada where, unlike in the United States, the products are subject to government-imposed pricing limitations.

Plaintiffs action sought treble damages, restitution, and injunctive relief, alleging that defendants fixed the prices of their brand-name pharmaceuticals in violation of the Cartwright Act and the UCL. The case came at issue on the third amended complaint, which alleged that plaintiffs were injured by defendants purported price-fixing because they have paid more than they otherwise would have or should have paid in the absence of the [d]efendants violations . . . .; specifically, plaintiffs alleged that defendants conspired to eliminate price competition and fix prices in the U.S. market by, among other things, using Canadian prices as a floor or minimum price for defendants U.S. products.

Each defendant filed a separate answer, denying plaintiffs allegations and asserting as an affirmative defense that plaintiffs claims were barred on the ground plaintiffs passed on any alleged overcharge to third parties and therefore did not suffer a compensable injury.

The case was designated as complex and assigned to the Honorable Ronald M. Sabraw.

2. The Facts

Over plaintiffs objection, and without deciding whether the pass-on defense was available in California, Judge Sabraw permitted defendants to conduct discovery that is relevant to the pass on defense. The resulting discovery included requests for production of documents, requests for admissions, form interrogatories, special interrogatories, and depositions. Multiple discovery disputes ensued, resulting in detailed discovery orders providing the parties with guidance as to the discovery to be produced and setting schedules for the production of written discovery and the taking of depositions. In one such order, entered on May 22, 2006, Judge Sabraw concluded that defendants request that plaintiffs compile information and produce reports regarding their purchases and sale of certain specified drugs was neither overly burdensome nor oppressive, explaining: No [p]laintiff has submitted a declaration describing how the information is maintained, how it must be retrieved, and the burden of retrieval and organization. The deposition testimony of the witnesses for [five plaintiffs] suggests that the information sought is kept by each of the [p]laintiffs in readily retrievable electronic form and that it can be accessed and organized by [p]laintiffs without undue burden. Judge Sabraw then ordered plaintiffs to produce, among other things, all responsive purchasing, pricing and sales-related documents and information, including in electronic form where appropriate, within 10 days, with any disputes over the production of the data to be resolved with the assistance of information technology consultants retained by both sides. Judge Sabraw also ordered each plaintiff to provide a narrative . . . describing that [p]laintiffs pricing and price-setting practices.

The resulting narratives, as well as deposition testimony of the persons most knowledgeable and plaintiffs responses to written discovery, revealed the following salient facts, which are essentially undisputed.

Defendants sell their drugs to wholesalers at a price referred to as the Wholesale Acquisition Cost (WAC). The wholesalers resell the drugs to plaintiffs at prices using a formula mathematically tied to the WAC, called the Average Wholesale Price (AWP), which apparently represents a benchmark price published in lists by companies unrelated to defendants. As a result, when defendants prices increase, the cost of drugs to plaintiffs increases by the same percentage amount. So, plaintiffs pay the full amount of the alleged overcharge, defined in plaintiffs brief as the difference between what [plaintiffs] actually paid and what they would have paid in the absence of the conspiracy.

Plaintiffs sell the drugs to two groups of customers, also on the basis of the AWP: (1) those with third-party insurance or a drug benefit plan offered by either a private entity or the government, which in turn pay customers claims on their behalf; and (2) uninsured (or cash-paying) customers. The vast majority of customers are covered by third-party payers, which reimburse plaintiffs at a contractually or statutorily fixed amount, predetermined as a percentage of the AWP plus a dispensing fee, which provides plaintiffs a percentage profit above their acquisition cost. As to the sales to cash-paying customers, plaintiffs charge a set percentage of the AWP, and sometimes a dispensing fee, which could result in plaintiffs receiving a price above their acquisition cost. The result of this is that each time defendants increase their prices for a product, plaintiffsincrease the price they charge their customers by at least the same amount. And the higher defendants prices, the higher plaintiffs revenuesand the higher their gross profits.

In sum, discovery demonstrated two undisputed facts: (1) plaintiffs passed on to their customers all claimed overcharges, and (2) plaintiffs waived any claims for damages not based on the alleged overcharge, claiming no lost or delayed sales, or any other diminution in business.[4] Stated conversely, the only damages plaintiffs sought to recover were the claimed overcharges.

3. The Motions

On August 21, 2006, plaintiffs moved for summary adjudication on the pass-on defense, seeking an order striking it on the ground it was unavailable as a matter of law. Plaintiffs argued that the defense could not be asserted against their Cartwright Act claims based on the United States Supreme Court opinion in Hanover Shoe, supra, 392 U.S. 481, the legislative history of the Cartwright Act, and public policy. Plaintiffs also argued that the pass-on defense was inapplicable to the calculation of restitution under their UCL claim.[5]

On September 15, 2006, defendants filed a joint opposition to plaintiffs motion. They also filed a joint cross-motion for summary judgment or, in the alternative, summary adjudication regarding pass-on issues. Defendants argued that the plain language of the Cartwright Act demonstrates plaintiffs cannot recover damages they did not sustain and that Hanover Shoe has not been adopted in California. Alternatively, defendants argued that even if a pass-on defense is not generally available under California law, such a defense should be permitted here where it is easy to prove that plaintiffs have not been damaged.[6] Defendants also argued that the pass-on theory defeated plaintiffs UCL claim.

On December 1, 2006, Judge Sabraw issued a tentative ruling granting defendants cross-motion and denying plaintiffs motion as moot. On December 11 and 14, 2006, in response to statements contained in the tentative ruling, plaintiffs filed two separate requests for judicial notice of: (1) the legislative history of the Hart-Scott-Rodino Antitrust Improvements Acts of 1976 (Hart-Scott-Rodino Act) and Californias 1977 amendment to the Cartwright Act, and (2) the amicus curiaebrief filed on behalf of the state of California in Illinois Brick v. Illinois (1977) 431 U.S. 720 (Illinois Brick). Judge Sabraw granted both requests.[7]

The motions came on for hearing on December 15, 2006. Judge Sabraw heard lengthy argument, following which he took the motions under submission.

On December 19, 2006, Judge Sabraw issued a 26-page order containing a comprehensive analysis of the issues presented, concluding that defendants could assert the pass-on defense to defeat plaintiffs antitrust claims: [I]n defending a claim under the Cartwright Act, a defendant can present evidence that it has no liability or that its damages are lessened because the plaintiff has passed on the alleged price overcharge and therefore has either suffered no injury or has limited its damages. This ruling was based primarily on the language of the statute, which limits recovery to recovery three times the damages sustained.  Judge Sabraw read the phrase damages sustained as referring to the actual loss incurred by the [p]laintiffs, and concluded that because [the] undisputed facts demonstrate that if [d]efendants ever overcharged [p]laintiffs as a result of the alleged conspiracy, the [p]laintiffs sustained no damages because they increased their prices to their customers by at least the same dollar amount. [] . . . If [p]laintiffs have not sustained actual damages, then they cannot prevail on their claim. Judge Sabraw thus granted summary adjudication for defendants on the Cartwright Act claims.

As to the UCL claim, Judge Sabraw concluded that plaintiffs lacked standing to pursue this claim because they had not  lost money or property as required for standing under section 17204. Alternatively, he concluded that plaintiffs could not be awarded monetary relief under section 17203 because they did not have an ownership interest in whatever funds they paid as a result of any overcharge and thus were ineligible for restitution. Judge Sabraw thus granted summary adjudication for defendants on the UCL claim. Having disposed of all of plaintiffs claims, Judge Sabraw granted summary judgment for defendants.

Judgment pursuant to the December 19, 2006 order was entered on January 4, 2007, from which plaintiffs filed a timely appeal.

Discussion

1. Standard of Review

Code of Civil Procedure section 437c, subdivision (c) provides that summary judgment is properly granted when there is no triable issue of material fact and the moving party is entitled to judgment as a matter of law. As applicable here, with moving defendants, they can meet their burden by demonstrating that a cause of action has no merit, which they can do by showing that [o]ne or more of the elements of the cause of action cannot be separately established . . . . (Code Civ. Proc.,  437c, subd. (o)(1); see also, Romano v. Rockwell Internat., Inc. (1996) 14 Cal.4th 479, 486 [statute of limitations]; Trujillo v. First American Registry, Inc. (2008) 157 Cal.App.4th 628, 632 [summary adjudication and judgment properly granted where plaintiffs suffered no damages].)Once defendants meet this burden, the burden shifts to plaintiffs to show the existence of a triable issue of material fact. (Code Civ. Proc.,  437c, subd. (p)(2).)

On appeal [w]e review a grant of summary judgment de novo; we must decide independently whether the facts not subject to triable dispute warrant judgment for the moving party as a matter of law. [Citations.] (Intel Corp. v. Hamidi (2003) 30 Cal.4th 1342, 1348.) Put another way, we exercise our independent judgment, and decide whether undisputed facts have been established that negate plaintiffs claims. (Romano v. Rockwell Internat., Inc., supra, 14 Cal.4th at pp. 486-487.) Or, as we said in Horn v. Cushman & Wakefield Western Inc. (1999) 72 Cal.App.4th 798, 807, in affirming a summary judgment for the defendant employer, We review the evidence presented to the trial court and independently adjudicate its effect as a matter of law. (Lee v. Crusader Ins. Co. (1996) 49 Cal.App.4th 1750, 1756.)

2. The Law

A. The Cartwright Act

In 1907, the California Legislature enacted the Cartwright Act, section 16700, et seq., which  generally outlaws any combinations or agreements which restrain trade or competition or which fix or control prices.  (Pacific Gas & Electric Co. v. County of Stanislaus (1997) 16 Cal.4th 1143, 1147 (Pacific Gas & Electric) [quoting Antitrust and Trade Reg. Law Section of the State Bar of Cal., Cal. Antitrust Law (1991) p. 4].) As is pertinent here, section 16750, subdivision (a) provides, Any person who is injured in his or her business or property by reason of anything forbidden or declared unlawful by this chapter, may sue therefor . . . and to recover three times the damages sustained by him or her . . . .

It is often said that the Cartwright Act is patterned after the federal Sherman Anti-Trust Act (e.g., Kolling v. Dow Jones & Co. (1982) 137 Cal.App.3d 709, 717), though [h]istorical and textual analysis reveals that the [Cartwright] Act was patterned after the 1889 Texas act and the 1899 Michigan act. (State of California ex rel. Van de Kamp v. Texaco, Inc. (1988) 46 Cal.3d 1147, 1164, overruled in part on other grounds by statute.) Our Supreme Court has noted that judicial interpretation of the Sherman Act, while often helpful, is not directly probative of the Cartwright drafters intent. (Ibid.) And such precedent should be used with caution. (Freeman v. San Diego Assn. of Realtors (1999) 77 Cal.App.4th 171, 183, fn. 9.)

Bruno v. Superior Court (1981) 127 Cal.App.3d 120, 132, a Cartwright Act case, noted that private antitrust lawsuits serve three purposes: (1) compensation, (2) deterrence, and (3) punishment: although compensation is the primary rationale for the allowance of private antitrust lawsuits, the prevention and punishment of anticompetitive acts is a not insignificant purpose of antitrust laws.

B. Hanover Shoe

Hanover Shoe, supra, 392 U.S. 481, the focal point of the motions below, was an action by plaintiff Hanover Shoe, Inc. (Hanover Shoe), a shoe manufacturer, against United Shoe Machinery Corp. (United Shoe), a manufacturer of equipment used in the shoe-making process. The action alleged that United Shoe had monopolized the shoe industry in violation of the Sherman Act, 15 U.S.C.  2, by its practice of only leasing, and refusing to sell, its machinery. (392 U.S. at pp. 483-484.) Hanover Shoe sought damages, trebled under section 4 of the Clayton Act, 15 U.S.C. 15, for the overcharges, amounting to the difference between what it had paid United Shoe in shoe machine rentals and what it would have paid had United Shoe been willing to sell those machines. (Ibid.)

United Shoe countered that Hanover Shoe suffered no legally cognizable injury because any illegal overcharge was reflected in the price it charged its customers for its shoes, arguing that if Hanover Shoe had purchased the machines at a lower price, it would have charged less for the shoes sold to its customersin short, that Hanover Shoe suffered no loss from the antitrust violation. (Hanover Shoe, supra, 392 U.S. at pp. 487-488.)[8]

The District Court awarded Hanover Shoe damages of $4,239,609. The Court of Appeals affirmed the finding of liability, but disagreed with the District Court on certain questions relating to the damage award. (Hanover Shoe, Inc. v. United Shoe Machinery Corp. ( 3d Cir. 1967) 377 F.2d 776.)

In a unanimous opinion written by Justice White, the Supreme Court reversed the Court of Appeals on questions relating to the damage award. And as apt to the issue before us, the Court held that Hanover Shoe proved injury and the amount of its damages within the meaning of section 4 of the Clayton Act when it proved that United Shoe had overcharged it and showed the amount of the overcharge, and the possibility that it might have recouped the overcharge by passing it on to its customers was not relevant in the assessment of its damages: We hold that the buyer is equally entitled to damages if he raises the price for his own product. As long as the seller continues to charge the illegal price, he takes from the buyer more than the law allows. At whatever price the buyer sells, the price he pays the seller remains illegally high, and his profits would be greater were his costs lower. (Hanover Shoe, supra, 392 U.S. at p. 489.)

Justice White gave two reasons for the holding. First, establishing the amount of the overcharge passed on to the consumer would present insurmountable evidentiary problems. As he put it, A wide range of factors influence a companys pricing policies. Normally the impact of a single change in the relevant conditions cannot be measured after the fact; indeed a businessman may be unable to state whether, had one fact been different (a single supply less expensive, general economic conditions more buoyant, or the labor market tighter, for example), he would have chosen a different price. Equally difficult to determine, in the real economic world rather than an economists hypothetical model, is what effect a change in a companys price will have on its total sales. Finally, costs per unit for a different volume of total sales are hard to estimate. Even if it could be shown that the buyer raised his price in response to, and in the amount of, the overcharge and that his margin of profit and total sales had not thereafter declined, there would remain the nearly insuperable difficulty of demonstrating that the particular plaintiff could not or would not have raised his prices absent the overcharge or maintained the higher price had the overcharge been discontinued. (Hanover Shoe, supra, 392 U.S.at pp. 492-493.)

Secondary to the nearly insuperable difficulty of establishing the amount of overcharge passed on, Justice White also expressed concern that if a direct purchaser such as Hanover Shoe were not allowed to sue for overcharges passed on to indirect purchasers, antitrust violators would retain the fruits of their illegality because indirect purchasers would have only a tiny stake in [the] lawsuit and would thus lack the incentive to bring an antitrust action. (Hanover Shoe, supra, 392 U.S. at p. 494.)

Though they will be discussed in detail post, three things about Hanover Shoe deserve mention here. The first is that the opinion holds as it does without analysis of the language of the Clayton Act. The second is that the Court did not create an absolute bar to the pass-on defense in all situations. It recognize[d] that there might be situationsfor instance, when an overcharged buyer has a pre-existing cost-plus contract, thus making it easy to prove that he has not been damagedwhere the considerations requiring that the passing-on defense not be permitted in this case would not be present. We also recognize that where no differential can be proved between the price unlawfully charged and some price that the seller was required by law to charge, establishing damages might require a showing of loss of profits to the buyers. (Hanover Shoe, supra, 392 U.S. at p. 494.) Third, and as our colleagues in Division Five would later observe, Hanover Shoe presented a particularly complicated problem with respect to the pass-on issue. (B.W.I. Custom Kitchen v. Owens-Illinois, Inc. (1987) 191 Cal.App.3d 1341, 1352 (B.W.I. Custom Kitchen).)

Though Hanover Shoe focused on antitrust defendants and the proper limits of defensive arguments, it nevertheless suggested something about the nature of antitrust injury and the category of purchasers who might be viewed as having experienced it. Nine years later, the Supreme Court addressed the issue directly in Illinois Brick, supra, 431 U.S. 720.

C. Illinois Brick and Its Aftereffects

Illinois Brick was the flip-side of Hanover Shoe,addressing whether the pass-on theory could be used offensively by an indirect purchaser plaintiff against an alleged violator. (Illinois Brick, supra, 431 U.S.at p. 726.) Illinois Brick and its co-defendants manufactured and distributed concrete block, selling primarily to masonry contractors who then submitted bids to general contractors in charge of construction projects for public entities, such as counties, municipalities, housing authorities, and school districts. Plaintiff State of Illinois brought an action on behalf of itself and local government entities seeking treble damages under section 4 of the Clayton Act, alleging that defendants had engaged in a conspiracy to fix the prices of the concrete block, the inflated prices of which were ultimately absorbed by the end purchasers of the product. (Id. at pp. 726-727.)

Defendants sought partial summary judgment against all plaintiffs that were indirect purchasers of concrete block, contending that as a matter of law only direct purchasers could sue for the alleged overcharge. (Illinois Brick, supra, 431 U.S. at p. 727.) The district court granted summary judgment, but the Court of Appeals reversed, holding that indirect purchasers . . . can recover treble damages for an illegal overcharge if they can prove that the overcharge was passed on to them through intervening links in the distribution chain. (Id. at pp. 727-728.)

The Supreme Court disagreed. In another opinion by Justice White, this time six to three, the Court agreed with defendants, holding that plaintiffs as indirect purchasers of the concrete block were not the parties  injured in [their] business or property  within the meaning of section 4 and therefore lacked standing to sue in federal antitrust cases. Only the direct purchaser was the injured party. (Illinois Brick, supra, 431 U.S. at pp. 727‑729.) The Court reached this result in two steps. (Id. at p. 728.)

The Court first reasoned that the rule prohibiting use of the pass-on theory must apply equally to plaintiffs and defendants because allowing offensive but not defensive use of pass-on would create a serious risk of multiple liability for defendants. (Illinois Brick, supra, 431 U.S. at pp. 728, 730.) Moreover, the Court was concerned that [p]ermitting the use of pass-on theories under [section] 4 essentially would transform treble-damages actions into massive efforts to apportion the recovery among all potential plaintiffs that could have absorbed part of the overchargefrom direct purchasers to middlemen to ultimate consumers. (Id. at p. 737.) Finally, the Court expressed concern that granting standing to indirect purchasers would result in under-enforcement of the antitrust laws. (Id. at pp. 745-747.)[9]

In the wake of the Supreme Courts holding that indirect purchasers lacked standing, numerous states enacted so-called Illinois Brick repealer amendments. One such state was California, where the amendment took the form of Assembly Bill 3222, which added the following language to section 16750: This action may be brought by any person who is injured in his or her business or property by reason of anything forbidden or declared unlawful by this chapter, regardless of whether such injured person dealt directly or indirectly with the defendant. The statute enacting the amendment declared that it does not constitute a change in, but is declaratory of, the existing law. (Stats. 1978, ch. 536,  2, p. 1696.) So, while indirect purchasers lack standing to bring an action for treble damages under the federal antitrust law pursuant to Illinois Brick, such purchasers can pursue a claim in California. As discussed in detail below, this amendment to the Cartwright Act, as well as other amendments, are heavily relied on by plaintiffs.[10]

Story Continue As Part II ..

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[1] All statutory references are to the Business and Professions Code unless otherwise noted.

[2] Plaintiffs are James Clayworth, R.Ph., an individual, dba Clayworth Pharmacy and Clayworth Healthcare; Marin Apothecaries, Inc., dba Ross Valley Pharmacy; Golden Gate Pharmacy Services, Inc., dba Golden Gate Pharmacy; Pediatric Care Pharmacy, Inc.; Chimes Pharmacy, Inc.; Mark Horne, R.Ph., an individual, dba Burtons Pharmacy; Meyers Pharmacy, Inc.; Benson Toy, R.Ph., an individual, dba Marin Medical Pharmacy; Seventeen Fifty Medical Center Pharmacy, Inc.; Tony Mavrantonis, R.Ph., an individual, dba Jacks Drug; Julian Potashnick, R.Ph., an individual, dba Leos Pharmacies; Jerry Shapiro, R.Ph., an individual, dba Uptown Drug, Co.; Tilley Apothecaries, Inc., dba Zwebers Apothecary; RP Healthcare, Inc.; Rohnert Park Drugs, Inc.; and JGS Pharmacies, Inc., dba Dollar Drugs.

[3]Defendants are Abbott Laboratories; AstraZeneca LP; Novartis Pharmaceuticals Corp.; Allergan, Inc.; Boehringer Ingelheim Pharmaceuticals, Inc.; Eli Lilly & Company; Johnson & Johnson; Janssen Pharmaceutical, Inc.; Ortho McNeil Pharmaceutical, Inc.; Ortho Biotech, Inc.; GlaxoSmithKline; Pfizer, Inc.; Hoffman-LaRoche; Aventis Pharmaceuticals, Inc.; Amgen, Inc.; Purdue Pharma L.P.; Merck & Co., Inc.; Bristol‑Myers-Squibb Company; Wyeth; Johnson & Johnson Health Care Systems Inc., which apparently does not manufacture, market, or distribute pharmaceutical products; and Pharmaceutical Research and Manufacturers of America, a U.S.-based nonprofit trade association.

[4] In the separate statement of undisputed facts in support of their cross-motion, defendants stated as Fact No. 7, Plaintiffs have expressly waived any claims for damages not based on the alleged overcharge, including lost sales and diminished business damages. Plaintiffs responded, Undisputed as written, though immaterial and irrelevant. Plaintiffs have waived their right to collect money damages on lost profits. Plaintiffs damages are the full extent of the overcharge paid by [p]laintiffsno more or less. However, [p]laintiffs have never stated they were not damaged in fact by [d]efendants overcharge, which put them at a competitive disadvantages vis--vis other pharmacies; they simply choose not to collect monies owed them for lost profits.

[5] Plaintiffs also sought summary adjudication on other affirmative defenses. These were not ruled on below, and are not at issue here.

[6] This motion assumed arguendo that defendant did in fact engage in price-fixing. At the same time, defendants filed a motion for summary judgment on the merits of plaintiffs claims, which motion was pending at the time the motions at issue here were decided.

[7] Plaintiffs also filed a request for judicial notice in this court, asking us to take notice of two items from the litigation in the United States District Court in In re TFT-LCD (Flat Panel) Antitrust LitigationThis Document Relates to All Indirect Actions, Master File No. M-07-1827 SI, MDL No. 1827: (1) the amicus brief of the State ofCalifornia filed by the Attorney General, and (2) request for judicial notice filed by the Attorney General. We granted the request at oral argument.

[8] Section 4 of the Clayton Act provided in pertinent part, any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor . . . and shall recover threefold the damages by him sustained . . . . (15 U.S.C.  15.)

[9] On behalf of the State of California, the Attorney General filed an amicus curiaebrief in Illinois Brick, arguing in support of standing for indirect purchasers. The brief argued first that defendants were improperly attempting to assert a pass-on defense that had already been rejected in Hanover Shoe. Alternatively, it argued that the facts of the case would fall within the exception recognized in Hanover Shoe in any case.

[10] In the 40 years since Hanover Shoe, the Legislature has amended the Cartwright Act six times: Stats. 1969 ch. 1234, p. 2395; Stats. 1972 ch. 1140, p. 2207; Stats. 1977 ch. 540, p. 1741; Stats. 1978 ch. 536, p. 1693; Stats. 1983 ch. 1069, p. 3772; and Stats. 1987 ch. 865, p. 2742.