We live in an era flooded with modern technology. A lot of us enjoy this. However, the complexity in technology and the ensuing versatility of business deals might lead to pressing legal issues unique to our time. Pending before the United States Supreme Court is Apple v. Pepper, a case concerning the issue of antitrust standing. The petitioner, Apple, presented the following question to the Court: “[w]hether respondents can seek treble damages under § 4 of the Clayton Act, 15 U.S.C. §15, based on their claim that Apple has monopolized the distribution of iPhone apps, where respondents were injured by Apple’s conduct only to the extent that third-party app developers passed on Apple’s allegedly supra-competitive commission in setting the prices that respondents paid.”[1] Prior to the Court’s grant of certiorari, the Ninth Circuit held that plaintiffs-respondents had standing as direct purchasers of iPhone apps through Apple and not third party developers, because Apple distributes the apps from third-party developers to the consumers for direct purchases through Apple’s App Store.[2]
In Apple, plaintiffs’ class allege that Apple monopolized the iPhone app market because only Apple can decide which apps can operate on the iPhone platform.[3] Apple’s App Store (“App Store”) is the sole distributor of compatible iPhone apps and third-party developers are required to share 30% of any consumer payments with Apple.[4] Apple prohibits app developers from selling apps through any channels other than the App Store and violating this rule leads to sales cut-offs.[5] Plaintiffs assert that Apple’s 30% commission functions like a monopoly rent, thus depriving plaintiffs the opportunity to pay less.[6]
Plaintiffs further assert that they are direct purchasers of iPhone apps from the App Store.[7] Apple’s response, however, was that plaintiffs were indirect purchasers, who did not have cause for a federal antitrust claim under a pass-through theory under Illinois Brick.[8] Rather, as Apple contended, plaintiffs would purchase the apps directly from the developers through Apple’s distribution chain and Apple only acted as an agent for the developers in the sales-distribution process.[9]
The issue in this case is whether plaintiffs have standing to bring this federal antitrust suit; which depends on whether plaintiffs are direct or indirect iPhone app purchasers. If yes, the next issue is whether they are subject to any exceptions to the Illinois Brick doctrine.[10] Even if plaintiffs survive Apple’s motion to dismiss, they still need to prove Apple’s monopolization caused an increase in the apps’ prices. As Justice Sotomayor pointed out during oral argument, plaintiffs “have to go out and prove at the next step how, without this monopoly, they would have paid less.”[11] This means that both the plaintiffs and judges realized the difficulty of quantifying the injuries. Justice Sotomayor further stated that the plaintiffs’ injury in this case would rather be the “the suppression of an opportunity to pay less [due to Apple’s monopolization].”[12]
The Apple decision might affect the ways in which tech tycoons develop and operate their platforms. On the one hand, commission fees are not uncommon and are fair, to an extent. For example, Amazon charges seller commission fees and it would be a reasonable business decision for the sellers to pass on at least part of such fees to the buyers. Similar to Apple, Google Play Store charges developer commissions at a one-time fee rate of $25.[13] Also, this is not the first instance where apps pass costs to consumers. For example, iTunes subscribers had to pay more for Spotify before the music channel completely disabled that payment option.[14] The reality, in today’s tech-forward world, is that nearly all smartphone users use either iOS or Android.[15] If plaintiffs prevail in this case, a flood of antitrust lawsuits is likely to ensue. Unless a new competitor emerges to offer alternatives to iOS or Android, the plaintiffs’ victory is also unlikely to change the way people download their apps.
On the other hand, this case demonstrates consumer grievances towards tech oligopolies in this increasingly digitized era. Senator Richard Blumenthal (D-Conn) recently commented that “Big Tech [is]no longer being entitled to say to America: trust us. Big Tech is no longer entitled to that trust, if it ever was. Big Tech may be no longer entitled to be as big as it is.”[16] With Apple, even if the Supreme Court does not overrule Illinois Brick, the justices seem to be leaning towards at most a narrow application of the Illinois Brick doctrine.[17] Illinois Brick was not built on statutory interpretation, but on the Supreme Court’s policy concern that antitrust defendants would be subject to dual-liability to both direct and indirect purchasers.[18]
However, Illinois Brick was decided forty years ago. Now, sales and distribution chains tend to be a lot more complicated, and therefore the pass-through theory may no longer be able to fully address the Illinois Brick Court’s policy concern. As Professor Samuel R. Miller has suggested, perhaps the Illinois Brick decision should be re-evaluated “to the extent necessary to allow both direct and indirect purchasers to sue for recovery of actual damages from violations of federal antitrust law.”[19] When indirect purchasers are the ultimate purchasers and the only parties enjoying the potentially overpriced product due to monopoly activities, economic realities should be more important than contractual formalities.
[1] See Brief for Petitioner as Amicus Curiae at 2, Apple Inc. v. Pepper et. al., (2017) (No. 17-204), https://www.supremecourt.gov/DocketPDF/17/17-204/46060/20180508135603183_17-204%20Apple%20v.%20Pepper%20%20-%20AC%20Pet pdf.
[2] Pepper v. Apple Inc. (In re Apple iPhone Antitrust Litg.), 846 F.3d 313, 325 (9th Cir. 2017).
[3] Id. at 324.
[4] Id. at 316.
[5] Id.
[6] Respondents’ Brief at 9, Apple Inc. v. Robert Pepper et. al., (2018) (No. 17-204), https://www.supremecourt.gov/DocketPDF/17/17-204/64643/20180924150810273_17-204bs.pdf.
[7] Id. at 25.
[8] Petitioner’s Brief at 4, Apple Inc. v. Robert Pepper et. al., (2018) (No. 17-204), https://www.supremecourt.gov/DocketPDF/17/17-204/59108/20180810114516634_17-204%20ts.pdf.See also Ill. Brick Co. v. Illinois, 431 U.S. 720, 97 S. Ct. 2061 (1977). In Illinois Brick, plaintiffs hired a general contractor, who hired subcontractor, for building construction. The subcontractor purchased concrete blocks from defendants manufacturer, who allegedly fixed the blocks’ prices in violation of §1 of the Sherman Act, 15 U.S.C.S. § 1, resulting in higher prices for the building construction. The United States Supreme Court held that plaintiffs, as indirect purchasers, could not recover for defendants’ alleged antitrust violations through a pass-through theory.
[9] Id. at 9.
[10] Shepard Goldfein & Karen Hoffman Lent, Potential Outcomes of ‘Apple v. Pepper’, New York Law Journal (Dec. 10, 2018), https://www.law.com/newyorklawjournal/2018/12/10/potential-outcomes-of-apple-v-pepper/?slreturn=20190025104257.
[11] Oral Argument Transcript at 6, Apple Inc. v. Pepper et. al., (2018) (No. 17-204), https://www.supremecourt.gov/oral_arguments/argument_transcripts/2018/17-204_32q3.pdf.
[12] Id.
[13] Tim Mackenzie, App Store Fees, Percentages, and Payouts: What Developers Need To Know, Tech republic, (May 7, 2012) https://www.techrepublic.com/blog/software-engineer/app-store-fees-percentages-and-payouts-what-developers-need-to-know/.
[14] Adi Robertson, What Happens if Apple Loses its Supreme Court App Store Antitrust Appeal?, The Verge (Nov. 26, 2018), https://www.theverge.com/2018/6/20/17479480/supreme-court-apple-vs-pepper-antitrust-lawsuit-standing-explainer.
[15] James Vincent, 99.6 Percent of New Smartphones Run Android or iOS,The Verge (Nov. 26, 2018), https://www.theverge.com/2017/2/16/14634656/android-ios-market-share-blackberry-2016.
[16] Kate Patrick, Congress is ‘Fed Up’ With Big Tech, But Antitrust Action May Be Impossible, Inside Sources: Technology (Nov. 30, 2018), https://www.insidesources.com/congress-is-fed-up-with-big-tech-but-antitrust-action-may-be-impossible/
[17] See Oral Argument Transcript, supra note 11.
[18] Samuel R. Miller, Why It’s Time To Rethink Illinois Brick, Law 360 (Oct. 5, 2018), https://www.law360.com/articles/1089440/why-it-s-time-to-rethink-illinois-brick.
[19] Id.
