Apple v. Pepper: SCOTUS rules for Pepper (full text)

Supreme Court Justice Brett Kavanaugh wrote for the majority:

Apple Inc. sells iPhone applications, or apps, directly to iPhone owners through its App Store—the only place where iPhone owners may law- fully buy apps. Most of those apps are created by independent devel- opers under contracts with Apple. Apple charges the developers a $99 annual membership fee, allows them to set the retail price of the apps, and charges a 30% commission on every app sale. Respond- ents, four iPhone owners, sued Apple, alleging that the company has unlawfully monopolized the aftermarket for iPhone apps. Apple moved to dismiss, arguing that the iPhone owners could not sue be- cause they were not direct purchasers from Apple under Illinois Brick Co. v. Illinois, 431 U. S. 720. The District Court agreed, but the Ninth Circuit reversed, concluding that the iPhone owners were di- rect purchasers because they purchased apps directly from Apple.

Held: Under Illinois Brick, the iPhone owners were direct purchasers who may sue Apple for alleged monopolization. Pp. 4–14.

(a) This straightforward conclusion follows from the text of the antitrust laws and from this Court’s precedent. Section 4 of the Clayton Act provides that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue.” 15 U. S. C. §15(a). That broad text readily covers consumers who purchase goods or services at higher-than-competitive prices from an allegedly monopolistic retailer. Applying §4, this Court has consistently stated that “the immediate buyers from the alleged antitrust violators” may maintain a suit against the antitrust violators, Kansas v. UtiliCorp United Inc., 497 U. S. 199, 207, but has ruled that indirect purchasers who are two or more steps removed from the violator in a distribution chain may not sue. Unlike the consumer in Illinois Brick, the iPhone owners here are not consumers at the bottom of a vertical distribution chain who are attempting to sue manu- facturers at the top of the chain. The absence of an intermediary in the distribution chain between Apple and the consumer is dispositive. Pp. 4–7.

(b) Apple argues that Illinois Brick allows consumers to sue only the party who sets the retail price, whether or not the party sells the good or service directly to the complaining party. But that theory suffers from three main problems. First, it contradicts statutory text and precedent by requiring the Court to rewrite the rationale of Illinois Brick and to gut its longstanding bright-line rule. Any ambigui- ty in Illinois Brick should be resolved in the direction of the statutory text, which states that “any person” injured by an antitrust violation may sue to recover damages. Second, Apple’s theory is not persuasive economically or legally. It would draw an arbitrary and unprincipled line among retailers based on their financial arrangements with their manufacturers or suppliers. And it would permit a consumer to sue a monopolistic retailer when the retailer set the retail price by marking up the price it had paid the manufacturer or supplier for the good or service but not when the manufacturer or supplier set the retail price and the retailer took a commission on each sale. Third, Apple’s theory would provide a roadmap for monopolistic retailers to structure transactions with manufacturers or suppliers so as to evade antitrust claims by consumers and thereby thwart effective antitrust enforcement. Pp. 7–11.

(c) Contrary to Apple’s argument, the three Illinois Brick rationales for adopting the direct-purchaser rule cut strongly in respondents’ favor. First, Apple posits that allowing only the upstream app developers—and not the downstream consumers—to sue Apple would mean more effective antitrust enforcement. But that makes little sense, and it would directly contradict the longstanding goal of effective private enforcement and consumer protection in antitrust cases. Sec- ond, Apple warns that calculating the damages in successful consumer antitrust suits against monopolistic retailers might be complicated. But Illinois Brick is not a get-out-of-court-free card for monopolistic retailers to play any time that a damages calculation might be complicated. Third, Apple claims that allowing consumers to sue will result in “conflicting claims to a common fund—the amount of the alleged overcharge.” Illinois Brick, 431 U. S., at 737. But this is not a case where multiple parties at different levels of a distribution chain are trying to recover the same passed-through overcharge initially levied by the manufacturer at the top of the chain, cf. id., at 726–727. Pp. 11–14.

KAVANAUGH, J., delivered the opinion of the Court, in which GINS- BURG,BREYER,SOTOMAYOR,andKAGAN,JJ.,joined. GORSUCH,J., filed a dissenting opinion, in which ROBERTS, C. J., and THOMAS and ALITO, JJ., joined.

My take: Weird conservative-liberal split that will take some unpacking. What this means immediately is that the Pepper suit can proceed. Whether it can win on the merits is another matter.

See also:

4 Comments

  1. Fred Stein said:

    The legal arguments are beyond me.

    The irony, though, is the question of harm to consumers. Our smart devices are gateways for a vast range of bad actors from those who bait vulnerable youth into suicide or sexual exploitation to hate groups whether alt right or ISIS to financial fraud, and more. The only way to protect consumers is create a walled garden as Apple has done. For more about a big tech company that does not protect us users, see this article about FaceBook: https://www.sfgate.com/business/article/Facebook-auto-generates-videos-celebrating-13837068.php

    And the only way to protect the App developers is to prevent copy cats and to provide fair mark-up policies and to allow App developers to set their own prices.

    Further since most Apps are free, and the rest are very cheap compared to value, where’s the financial harm? Between Apple Pay and the my bank’s App I no longer need to carry a wallet. I can get cash from an ATM, buy at most stores and gas stations, and deposit checks. All free. No paper with any credit card info. Imagine if a fraudulent App tricked me into thinking it was my bank. That would be bad.

    4
    May 13, 2019
  2. David Emery said:

    With my IANAL understanding, I thought Apple’s defense was weak. It’s certainly not a particularly moral position, and even within the law, it appears that a surprising group of Justices thought it was crap.

    0
    May 13, 2019
  3. David Emery said:

    JUSTICE GORSUCH, with whom THE CHIEF JUSTICE, JUSTICE THOMAS, and JUSTICE ALITO join, dissenting.

    More than 40 years ago, in Illinois Brick Co. v. Illinois, 431 U. S. 720 (1977), this Court held that an antitrust plaintiff can’t sue a defendant for overcharging someone else who might (or might not) have passed on all (or some) of the overcharge to him. Illinois Brick held that these convoluted “pass on” theories of damages violate tradi- tional principles of proximate causation and that the right plaintiff to bring suit is the one on whom the overcharge immediately and surely fell. Yet today the Court lets a pass-on case proceed. It does so by recasting Illinois Brick as a rule forbidding only suits where the plaintiff does not contract directly with the defendant. This replaces a rule of proximate cause and economic reality with an easily manipulated and formalistic rule of contractual privity. That’s not how antitrust law is supposed to work, and it’s an uncharitable way of treating a precedent which— whatever its flaws—is far more sensible than the rule the Court installs in its place.

    0
    May 15, 2019

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