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From Antitrust Law Daily, June 18, 2018

Supreme Court to consider standing in Apple monopolization case

By Jody Coultas, J.D.

The U.S. Supreme Court will hear Apple’s appeal of a Ninth Circuit ruling that iPhone app purchasers had standing as direct purchasers to assert monopolization and attempted monopolization claims of the market for iPhone apps against Apple (Apple Inc. v. PepperDkt. 17-204).

The case originated when a putative class of consumers alleged that Apple had monopolized or attempted to monopolize the aftermarket for iPhone software applications (apps). Apple prohibited third-party developers from selling iPhone apps through channels other the App Store, and discouraged iPhone owners from downloading unapproved apps under threat of voiding their warranties. But Apple charged an allegedly supracompetitive commission of 30 percent on every third-party iPhone application purchased from the company’s App Store, which was the basis of the consumers' antitrust claim.

The district court ruled that, pursuant to Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), the treble-damages remedy was not available to the consumers because the allegedly supracompetitive commission was borne by the developers; the consumers were indirect purchasers. On appeal, the U.S. Court of Appeals in San Francisco ruled that Apple acted as a distributor of the apps, not a manufacturer or producer. Thus, the appellate court ruled, consumers who purchased iPhone applications from the company’s App Store were direct purchasers of those apps, and had standing to sue Apple for the monopolization and attempted monopolization of the market for the sales of iPhone apps. Apple petitioned the U.S. Supreme Court for certiorari, asking "[w]hether consumers may sue for antitrust damages anyone who delivers goods to them, even where they seek damages based on prices set by third parties who would be the immediate victims of the alleged offense"

In an amicus brief, the Solicitor General argued that the Ninth Circuit created a circuit conflict by misapplying Illinois Brick in ruling that the availability of treble damages remedy depended on the defendant's functional role. To the contrary, the brief asserts, pass-through theories are prohibited by Illinois Brick and related cases.

Although Apple acts as an intermediary or distributor, it does not buy apps from app developers and then resell them to consumers at prices of its choosing. Instead, it acts as an agent for the developers, completing sales on the developers’ behalf at prices the developers set. That is precisely the pass-on inquiry this Court has disapproved in Illinois Brick and related cases, the brief asserts. The iPhone consumers are direct purchasers only in the sense that they deal directly with Apple in purchasing apps from the App Store, but they are not direct purchasers of Apple's app distribution services. Instead, the consumers are indirect purchasers as Illinois Brick uses that term.

For details about these and other petitions and cases pending before the Supreme Court, please consult the chart of Supreme Court opinions and petitions.

Attorneys: Noel J. Francisco, Solicitor General, Department of Justice; Alden F. Abbott, Acting General Counsel, FTC; Daniel M. Wall (Latham & Watkins LLP) for Apple Inc.; and Mark Carl Rifkin (Wolf Haldenstein Adler Freeman & Herz LLP) for Robert Pepper.

Companies: Apple Inc.

MainStory: TopStory Antitrust

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