The U.S. Supreme Court ruled on February 20, 2026, that the tariffs implemented by executive order in early 2025 under the International Emergency Economic Powers Act (“IEEPA”) were illegal. This decision has triggered litigation by downstream purchasers of imported goods against importers of record seeking reimbursement for price increases allegedly tied to the now-defunct tariffs.
Pass-through of tariff duties will likely emerge as a key issue within this new wave of litigation. The issue is whether tariff-imposed cost increases led to price increases down the supply chain to distributors and downstream customers. If they did, the variation in pass-through patterns may require individual trials instead of a class-wide approach.
Economists have long analyzed these types of pass-through questions, including in the context of indirect purchaser claims and class certification in antitrust matters. Economic literature consistently demonstrates that pass-through is a highly product-specific phenomenon that varies significantly across industries, products, and regions.
Studies find a wide range of pass-through rates, indicating that quantification in IEEPA-related litigation is likely to be challenging and may show a high degree of variance. Courts have closely reviewed the robustness of economic methodologies, including their handling of the relevant market structure, in reaching a variety of conclusions in cases involving pass-through.
For example, in the antitrust context, courts have sometimes rejected pass-through models and denied indirect purchaser class certification, as seen in In re Graphics Processing Units Antitrust Litigation and In re Flash Memory Antitrust Litigation. In other cases, courts have granted indirect purchaser class certification, such as in In re TFT-LCD (Flat Panel) Antitrust Litigation.
Purchaser behavior and cost pass-through are also critical determinants of the extent of pass-through. The actual scope of pass-through is dictated by the specifics of demand and supply conditions, market competition, and the mechanics of how a market operates.
The extent of cost pass-through can often depend on the negotiating leverage of the buyer. For instance, direct purchasers or large institutional indirect purchasers—such as
Courts have closely reviewed the robustness of economic methodologies, including their handling of the relevant market structure, in reaching a variety of conclusions in cases involving pass-through. Pass-through rates are also contested in international trade proceedings: World Trade Organization (“WTO”) disputes and International Trade Commission (“ITC”) investigations often need to reach pass-through estimates when evaluating how tariffs, antidumping duties, or countervailing measures impact downstream domestic market prices.
In the context of IEEPA tariffs, finding an appropriate control group for quasi-experimental designs may be challenging given the economy-wide effects of tariffs. Furthermore, the analysis must appropriately account for any concurrent policy interventions occurring in either the products’ country of origin or the U.S. to ensure an accurate assessment of price trends.
Given the high degree of variance in pass-through rates and the complexity of the issues involved, it’s possible that the courts will need to consider alternative approaches to estimating pass-through, such as using industry-specific data or expert testimony. Ultimately, the outcome of these cases will depend on the ability of economists and lawyers to present a clear and compelling case to the courts, considering the corporate disputes and their impact on business courts.
They will need to carefully examine the specifics of each case and the various factors that influence pass-through.
Courts have experience with complex lending cases, which may inform their approach to these pass-through cases.
Leave a Reply