The California Supreme Court has followed federal law in rejecting the pass-on defense, i.e. the argument that a defendant is not liable to a direct purchasing plaintiff for anticompetitive overcharges because the plaintiff passed on the overcharge to indirect purchasers. The court recognized two exceptions: (1) for cost-plus contracts that essentially require the direct purchaser to pass on all costs to indirect purchasers; and (2) as needed to guard against double recovery.
Although federal law has long rejected the pass-on defense, federal law also prohibits indirect purchasers from recovering damages. California, like a number of states, permits indirect purchasers to sue for damages. This decision could therefore lead to complicated litigation.