May 13, 2019

Supreme Court Decides Apple Inc. v. Pepper

On May 13, 2019, the Supreme Court decided Apple Inc. v. Pepper, No. 17-204, holding that iPhone owners who purchase apps from Apple’s App Store are “direct purchasers” from Apple and may sue Apple for alleged monopolization of the retail market for iPhone apps in violation of antitrust laws.

Plaintiffs are a proposed class of iPhone owners who allege that Apple has monopolized the retail market for the sale of iPhone apps, causing consumers to pay higher-than-competitive prices for those apps. iPhone owners purchase apps directly from Apple through the App Store, but Apple does not itself develop the apps it sells. Rather, Apple contracts with independent app developers, who pay Apple a $99 annual membership fee and agree to allow Apple to keep a 30 percent commission of the sale of every app in the App Store. Apple does not set the app prices, but it does require the independent app developers to set a retail price that ends in $.99.

Under Illinois Brick v. Illinois, 431 U.S. 720 (1977), only “direct purchasers” from an alleged antitrust violator are the proper plaintiffs to bring an antitrust suit. Apple argued that the plaintiffs were not direct purchasers from Apple because the app developers, not Apple, set the price of the apps and that therefore, under Illinois Brick, plaintiffs could not sue Apple for alleged antitrust violations.

The district court agreed with Apple and dismissed the plaintiffs’ complaint. The Ninth Circuit reversed, holding that the plaintiffs were direct purchasers from Apple because they purchased apps directly from Apple in the App Store.

The Supreme Court affirmed. The Court noted that it was “undisputed that the iPhone owners bought the apps directly from Apple” and that “[t]he iPhone owners pay the alleged overcharge directly to Apple.” According to the Court, Illinois Brick bars only antitrust actions brought by “consumers at the bottom of the vertical distribution chain” attempting to sue “manufacturers at the top of the chain” when those consumers purchased the product or service from “an intermediary in the distribution chain.” Here, the Court concluded, “[t]he absence of an intermediary is dispositive”: the iPhone users are direct purchasers from Apple and may sue Apple for alleged antitrust violations. The Court rejected Apple’s argument that “Illinois Brick allows consumers to sue only the party who sets the retail price, whether or not that party sells the good or service directly to the complaining party.” The Court emphasized that Illinois Brick is a bright-line rule that asks only from whom the purchaser bought the goods or services; courts are not to examine in each case whether the rationales of Illinois Brick apply to that particular case. But the Court held that even examining those rationales in this case leads to the same result. It concluded that efficient enforcement of the antitrust laws is promoted by allowing consumers to sue monopolistic retailers even if upstream suppliers could also sue the retailers, that the difficulty in calculating damages is common to just about every antitrust case, and that allowing the claims here would not result in conflicting claims to a “common fund,” as app developers and app purchasers would be seeking different types of damages, not overlapping ones. The Court did not comment on the merits of the plaintiffs’ claims against Apple.

Justice Kavanaugh announced the opinion of the Court, joined by Justices Ginsburg, Breyer, Sotomayor, and Kagan. Justice Gorsuch filed a dissenting opinion, in which Chief Justice Roberts and Justices Thomas and Alito joined.

Download Opinion of the Court.

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