Legal Definitions - passing on

The term "passing on" refers to a legal argument known as the pass-on defense.

The pass-on defense is a legal argument typically raised by a defendant in cases where they are accused of causing financial harm, often through anti-competitive practices like price-fixing. The defendant claims that the plaintiff (the party bringing the lawsuit) did not actually suffer the alleged financial damages because the plaintiff simply transferred, or "passed on," the increased costs or harm to their own customers or subsequent purchasers. In essence, the defendant argues that the plaintiff acted as a conduit, and the true financial burden ultimately fell on others further down the supply chain or on end consumers.

• Example 1: Manufacturer and Retailer

  Imagine a large electronics manufacturer is found to have colluded with competitors to artificially inflate the prices of a specific computer component. A major electronics retailer, who purchased these components from the manufacturer, sues the manufacturer for the overcharge. The manufacturer might raise a pass-on defense, arguing that the retailer didn't truly suffer financial harm because the retailer simply increased the final selling price of the computers containing those components, thereby passing the inflated cost directly to the end consumers who bought the computers.

  This example illustrates the pass-on defense by showing the manufacturer claiming the retailer recovered its losses by shifting the burden to its own customers.

• Example 2: Ingredient Supplier and Food Producer

  Consider a scenario where a company supplying a key flavoring ingredient to snack food producers is sued for price-fixing, leading to higher ingredient costs. A snack food producer, who bought the overpriced ingredient, brings a lawsuit. The ingredient supplier could employ a pass-on defense, asserting that the snack food producer merely adjusted the wholesale price of its snack bags to grocery stores, effectively passing the increased ingredient cost onto the stores and, ultimately, to the consumers purchasing the snacks.

  Here, the defense highlights the argument that the food producer did not absorb the higher cost but rather transferred it to the next stage in the distribution chain.

• Example 3: Software Vendor and Consulting Firm

  Suppose a dominant business software vendor is accused of monopolistic practices, forcing businesses to pay excessively high license fees for its essential project management software. A project management consulting firm, which relies heavily on this software for its operations, sues the vendor for the exorbitant fees. The software vendor might use a pass-on defense, contending that the consulting firm simply incorporated the higher software license costs into the service fees it charged its own clients for project management consulting, thus avoiding any direct financial loss itself.

  This example demonstrates the defense in a service industry context, where increased operational costs are argued to have been passed on to the end clients.