Vanderbilt Law Review


David K. Herzog

First Page



In Mid-West Paper Products Co. v. Continental Group, Inc., I" the Third Circuit took the position that it would "not extend the exception beyond the limited circumstances recognized by the Supreme Court."" Accordingly, the court held that the use of passing-on theory is impermissible unless its proponent can show preexisting, fixed-quantity, cost-plus contracts at every level of the distribution chain, with the result that he absorbed the illegal overcharge in its entirety. In In re Beef Industry Antitrust Litigation, however, the Fifth Circuit declared that if the exception is confined to "cases involving literal cost-plus contracts," then it "is a narrow one indeed."" Rejecting such a rigid construction, the court held that the exception is also applicable when allegations of rigid formula pricing by middlemen and structural in elasticity of short term supplies compel recognition of a "functional equivalent" of the cost-plus contract.'" This Recent Development examines the conflict between the circuits in light of the principles underlying the Hanover Shoe--Illinois Brick rule to determine the feasibility and implications of recognizing a functional equivalent to the cost-plus exception.

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