On Monday, May 13, 2019, the United States Supreme Court granted certiorari in Apple, Inc. v. Pepper, 587 U.S. __ (2019). Four iPhone users sued Apple, Inc., alleging that the company monopolized the app market, which resulted in higher-than-competitive prices for apps. Apple argued that the consumer-plaintiffs were barred from suing Apple since the consumer-plaintiffs were not “direct purchasers” from Apple, as defined in Illinois Brick Co. v. Illinois, 431 U.S. 720, 745-746 (1977). The District Court agreed with Apple, while the Ninth Circuit Court of Appeals reversed and concluded that the consumer-plaintiffs were direct purchasers because they purchased the apps directly from Apple.
Apple’s App Store is the only market where iPhone users may legally purchase apps. App developers must pay Apple a $99 annual membership fee along with 30% commission on sales. App developers are free to set their own prices for their apps, but the price must end in 99 cents. The consumer-plaintiffs argued that, in a competitive market, Apple would be pressured to lower the 30% commission, thus resulting in lower app prices. To counter, Apple argued that the consumer-plaintiffs were indirect purchasers and thus barred from suing, per Illinois Brick.
Writing for the majority, Justice Brett M. Kavanaugh stated that “[o]ur decision in Illinois Brick established a bright-line rule that authorizes suits by direct purchasers but bars suits by indirect purchasers. . . The bright-line rule. . . means that indirect purchasers who are two or more steps removed from the antitrust violator in a distribution chain may not sue. By contrast, direct purchasers – that is, those who are the ‘immediate buyers from the alleged antitrust violators’ – may sue.” Justice Kavanaugh distinguished the consumer-plaintiffs’ case from Illinois Brick by the fact that, in the consumer-plaintiffs’ case, there is no intermediary between Apple and the consumers in the distribution chain. “The iPhone owners purchase apps directly from the retailer Apple, who is the alleged antitrust violator.” Justice Kavanaugh found the lack of intermediary dispositive.
Apple argued that Illinois Brick permits consumers to sue only the party who set the retail price and, as such, the consumer-plaintiffs are indirect purchasers because developers set app prices. The Court found three issues with Apple’s theory: (1) “Apple’s theory contradicts statutory text and precedent;” (2) “Apple’s proposed rule is not persuasive economically or legally;” and (3) “if accepted, 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.”
Chief Justice John G. Roberts, Jr., and Justices Clarence Thomas and Samuel Alito, Jr. joined Justice Neil M. Gorsuch in the dissent. Justice Gorsuch argued that the Court misconstrued the holding in Illinois Brick to “recast[] 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.”
Additional Reading
Kavanaugh joins with liberals in letting iPhone users sue Apple for alleged monopolistic app prices, ABA Journal (May 13, 2019)