Second Circuit Adopts the Indirect Purchaser Rule for Civil RICO

At a Glance

• Manufacturers facing civil RICO claims should raise the indirect purchaser rule at the pleading stage as a threshold defense.
• While four circuits have now adopted the indirect purchaser rule in the RICO context, the rule has faced considerable criticism from commentators and even the judiciary.
• Plaintiffs regularly argue for exceptions to the rule, and many states have drafted their antitrust laws to exclude the indirect purchaser rule.

On July 30, 2026, the US Court of Appeals for the Second Circuit joined the Third, Sixth, and Seventh Circuits to hold that the "indirect purchaser" rule applies to civil actions under the Racketeer Influenced and Corrupt Organizations Act (RICO). In Yousefzadeh, the Second Circuit adopted the rule from Illinois Brick Co. v. Illinois, reasoning that RICO's private right of action mirrors Section 4 of the Clayton Act almost verbatim and that Illinois Brick's policy rationales apply equally in the RICO context. As a consequence, the consumers who bought allegedly ineffective oral nasal decongestants from retailers lacked a RICO cause of action against the manufacturers. With yet another federal circuit adopting the indirect purchaser rule, manufacturers facing civil RICO claims have yet another threshold defense to raise at the pleading stage and to avoid the costs of discovery.

Background

The case arises from consolidated multidistrict litigation in the Eastern District of New York over oral phenylephrine ("oral PE"), the active ingredient in various over-the-counter nasal decongestants. Although the FDA recognized oral PE as effective in 1994, by 2016 scientific studies allegedly had made "crystal clear" that oral PE was "no more effective than [a] placebo."

Consumers and other purchasers asserted several claims, including a federal civil RICO claim against certain oral PE manufacturers. The RICO claim alleged that the manufacturers engaged in mail and wire fraud in furtherance of a scheme to conceal oral PE's lack of efficacy from consumers and the FDA.

The district court dismissed the civil RICO claim, holding that the consumer plaintiffs lacked statutory standing under the indirect purchaser rule. On appeal, the consumer plaintiffs did not dispute that they were indirect purchasers or that they would lack a cause of action if the rule applies; the key question was whether the rule extends to civil RICO — an issue that had not yet been decided by the Second Circuit.

The Second Circuit Applies the Bright-Line Rule of Illinois Brick

On appeal, the Second Circuit upheld the district court's decision and applied the indirect purchaser rule to bar the RICO claim of the consumer plaintiffs. Under the indirect purchaser rule, only immediate buyers (often middlemen) have a cause of action to sue a seller for injuries, while purchasers who are further down the line from the seller (often consumers) do not.

The Second Circuit's reasoning proceeded in two steps. Textually, Illinois Brick located the indirect purchaser rule in Section 4 of the Clayton Act, 15 U.S.C. § 15(a), which authorizes treble damages for "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws." The RICO statute, 18 U.S.C. § 1964(c), "mirrors this language almost exactly"; and as the Supreme Court has held, Congress modeled RICO's enforcement provision on the Sherman and Clayton Acts. Although Congress enacted RICO seven years before Illinois Brick, the court found no textual barrier to importing the rule, given the Second Circuit's "longstanding practice of interpreting civil RICO in parallel, if not lockstep, with the antitrust laws" and the principle that RICO, like the Clayton Act, should not be read so expansively as to "allow all factually injured plaintiffs to recover."

Next, the court turned to Illinois Brick's underlying rationales: efficient enforcement, avoidance of complicated pass-on damage calculations, and prevention of duplicate recoveries. The Second Circuit concluded that each rationale carries "no less force in the civil RICO context." Giving the remedy only to direct purchasers preserves their financial incentive to sue and thus promotes efficiency. Without the rule, courts would need to apportion overcharges from direct purchasers to middlemen and end-consumers, which would add new dimensions of complexity. And allowing both direct and indirect purchasers to recover the same overcharge would impose double liability.

The court further rejected the consumer plaintiffs' argument that the indirect purchaser rule is superfluous in light of RICO's proximate cause standard, noting that the two doctrines are consistent with one another.

Implications

This decision is significant for consumer-facing industries that sell through retailers, wholesalers, or platforms. To maximize recovery, plaintiffs often include a civil RICO claim in complaints alleging a wide variety of allegedly fraudulent conduct or product defects. Now, four federal circuits — the Second, Third, Sixth, and Seventh — expressly recognize that indirect purchasers and end-consumers are generally barred from seeking treble damages under federal civil RICO against upstream manufacturers. Manufacturers facing civil RICO claims should raise the indirect purchaser rule at the pleading stage as a threshold defense.

Finally, while four circuits have now adopted the indirect purchaser rule in the RICO context, the rule has faced considerable criticism from commentators and even the judiciary. Indeed, even though it felt legally compelled to apply the indirect purchaser rule to RICO, the Sixth Circuit criticized the rule as "unsupported by sensible principles." Similarly, the Second Circuit acknowledged that "whether policy considerations still favor the indirect purchaser rule is a close call." Consequently, plaintiffs regularly argue for exceptions to the rule, and many states have drafted their antitrust laws to exclude the indirect purchaser rule.