Supreme Court at the Illinois Brick wall: iPhone App Store customers can sue Apple for violation of federal antitrust law

May 13, 2019

Antitrust Alert

Author(s): Gordon L. Lang, Alycia A. Ziarno, Ronaldo Rauseo-Ricupero, Brian J. Whittaker

Yesterday, the Supreme Court paved the way for a potential class action by iPhone App Store customers against Apple for damages for alleged monopolization of the aftermarket for iPhone applications. The decision is important for the software industry, electronic marketplaces, and for various alternative sales arrangements.

In a much-anticipated opinion, the U.S. Supreme Court yesterday ruled in a 5-4 decision that iPhone App Store customers could proceed against Apple on their claim that Apple monopolized the market for aftermarket iPhone apps by requiring developers to sell apps to consumers only through the App Store and to allow a 30% commission to Apple on those sales. Apple Inc. v. Robert Pepper et al.

Apple argued that the consumers were barred from seeking damages under the longstanding principle of federal antitrust law—that “indirect purchasers” cannot recover damages for antitrust violations—set forth in Illinois Brick Co. v. Illinois, 431 U. S. 720 (1977). Apple contended that the plaintiffs were indirect purchasers because the developers, not Apple, set the prices for the apps, and Apple was a mere intermediary. Furthermore, it argued that any alleged damaged claim relied on the theory that developers had “passed on” their commission costs to them—and such passing on claims had been barred by Illinois Brick. The United States Department of Justice supported Apple.

Writing for the majority, Trump-appointee Justice Kavanaugh, joined by Justices Ginsburg, Breyer, Sotomayor, and Kagan, held for the iPhone owners: “It is undisputed that the iPhone owners bought the apps directly from Apple. Therefore, under Illinois Brick, the iPhone owners were direct purchasers who may sue Apple for alleged monopolization.” Apple was proposing “arbitrary and unprincipled” line-drawing that would “gerrymander Apple out of this and similar lawsuits” and “furnish monopolistic retailers with a how-to guide for evasion of the antitrust laws.”

Justice Gorsuch, joined by Chief Justice Roberts and Justices Thomas and Alito dissented, arguing that the majority’s decision departed from Illinois Brick and would allow suits for “convoluted ‘pass on’ theories of damages.”

The Court’s decision could well have far-reaching consequences—certainly that was the fear of the U.S. Chamber of Commerce and others who supported Apple at the Court. In refusing to draw a distinction between traditional retail purchases and purchases made through a commission-based e-commerce model, the decision could engender consumer claims based on sales through other electronic marketplaces and alternative sales models. The Supreme Court did not decide whether or not Apple committed an antitrust violation, but e-commerce and other businesses may want to keep an eye open.

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