Case No. 17-204 | 9th Cir.
Preview by Sean Lowry*
In Apple Inc. v. Pepper, the Court will consider whether consumers have standing to sue for antitrust damages against a party that delivers goods to them (Apple) even if the prices for the products are set by third parties (application developers). Aside from the direct effect of giving consumers a chance to take a bite out of Apple’s profits, the Court’s decision could shape future antitrust litigation against other tech giants.
Under section 4 of the Clayton Act, “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue” for treble antitrust damages. 15 U.S.C. § 15(a) (2018). The Court has limited standing for antitrust damages only to “the overcharged direct purchaser, and not others in the chain of manufacture or distribution.” Illinois Brick Co. v. Illinois, 431 U.S. 720, 729 (1977) (emphasis added).
The facts of the case revolve around a class action concerning Apple’s iPhone and App Store. Apple prohibits the sale and development of iPhone applications from sources outside of the App Store, where it charges a 30% commission from any third-party-developer sales. In 2012, consumers filed a class action lawsuit in California alleging that Apple has monopolized or attempted to monopolize the App Store, thereby increasing the price of iPhone applications set by third-party developers.
Apple moved to dismiss the complaint, arguing that the consumers lacked statutory standing to sue because they were not “direct purchasers” of applications sold in the App Store. The district court granted Apple’s motion to dismiss, but the Ninth Circuit reversed because it concluded that Apple was a distributor of iPhone apps, selling them directly to consumers through its App Store.
The parties’ arguments are based on different conceptions of the market and supply chain for iPhone applications. Under Apple’s interpretation of the law, third-party software developers can sue Apple for allegedly monopolistic commissions that it charges but consumers cannot. Even if consumers pay Apple directly for applications purchased through the App Store, Apple argues that it simply “delivers” the applications based on prices set by the third-party developers. Under the consumers’ argument, Apple was able to extract their 30% commission by monopolizing the distribution of iPhone Apps to be sold solely through the App Store. Because the consumers purchased the applications priced in an allegedly noncompetitive market, they argue that they have standing to sue Apple.
The amici curiae filing briefs in support of Apple include the Chamber of Commerce, other industry associations, and the Solicitor General (who has also moved to participate in oral arguments). The business and industry associations argue that increasing potential classes of antitrust plaintiffs could reduce investment, particularly in innovative e-commerce platforms. A group of antitrust scholars, including treatise coauthor Herbert Hovenkamp, filed a brief on behalf of the consumers. They argue that Apple’s interpretation of who has standing in the case is not supported by the broad wording of the Clayton Act and its legislative history. They further assert that Apple’s proposed construction of the law would encourage companies to draft contractual licensing arrangements to narrow the pool of potential antitrust plaintiffs. Here, the scholars argue that third-party developers have little economic leverage against the provider of the sole supply outlet for iPhone applications and might even have an economic incentive to cooperate with Apple and share in the monopoly profits extracted from a non-competitive market. A brief filed by 31 states and the District of Columbia goes even further, arguing that Illinois Brick should be overruled in order to allow indirect purchasers to bring suit (as many states modified their antitrust statutes in the wake of Illinois Brick) and enhance private antitrust enforcement efforts.
*Sean Lowry is a 2LE (Class of 2021) and Analyst in Public Finance at the Congressional Research Service (CRS). The views expressed are those of the author and are not necessarily those of the Library of Congress or CRS.