May 23, 2019

Future of Antitrust Class Actions Foreshadowed in Apple Inc. v. Pepper

On May 13, 2019, the Supreme Court issued its most recent decision relating to antitrust class action litigation. The case, Apple Inc. v. Pepper, No. 17-204 1, could represent a significant shift in antitrust class action litigation — particularly in how courts define “direct” and “indirect” purchases under the Illinois Brick doctrine — that is especially pertinent to the emerging market of platform providers.

The Case

In a 5-4 decision, the Court held that a plaintiff class of iPhone owners could bring a class action lawsuit against Apple for its alleged monopolization of the retail market for iPhone apps — a violation of antitrust laws (specifically, Section 2 of the Sherman Act and Section 4 of the Clayton Act). Of note, the Court’s analysis in Apple Inc. v. Pepper did not address the merits of the iPhone owners’ class action lawsuit, but rather, whether plaintiffs had standing to sue under the federal antitrust laws. As part of their ruling, the Court relied on the Illinois Brick doctrine, which generally holds that indirect purchasers do not have standing (save for a few inapplicable exceptions) to seek damages under the federal antitrust laws. In a move that some may construe as broadening the scope of what it means to be a “direct purchaser” of a product, the Court agreed with the lower court’s conclusion that the plaintiffs’ class members were direct purchasers — as stipulated under the Illinois Brick doctrine — and allowed the class action to proceed against a company operating a digital platform.

This ruling is significant because it could allow purchasers using a digital platform to bring claims against the platform provider for damages under the federal antitrust laws.

The Future of the Illinois Brick Doctrine

Whether Illinois Brick will be reversed is a question that will remain unanswered in the near future. The Supreme Court avoided what appeared to be a perfect opportunity to reverse the Illinois Brick doctrine in Apple Inc. v. Pepper, declining the invitation from 30 states and the District of Columbia to reconsider and potentially overturn it.

In support of plaintiffs’ claim that the case proceed on the merits, 30 states and the District of Columbia filed an amicus brief advocating that the Illinois Brick doctrine be overruled. They primarily argued:
  • Illinois Brick contradicts the purpose of Section 4 of the Clayton Act
  • The states have rejected Illinois Brick and have permitted indirect purchaser litigation under state antitrust laws
  • Illinois Brick is increasingly difficult to apply in the modern economy with emerging markets
  • Yet, the Supreme Court’s Apple Inc. v. Pepper decision noted that it had no occasion to consider argument for overruling Illinois Brick because the iPhone owners were direct purchasers from the alleged antitrust violator: the Apple App Store.

    While the Court’s ruling ultimately sidestepped the matter in the short-term, questions remain as to the future of the Illinois Brick doctrine, which has applied to federal antitrust law for over 40 years.

    What’s clear from the Apple Inc. v. Pepper decision and briefing is that there is mounting, though not necessarily preponderant, support for reversal of the Illinois Brick doctrine.2 And it is likely that states will continue to advocate for its reversal before the Court. The Court has yet to grant certiorari in the upcoming term on another case presenting federal antitrust questions that implicate Illinois Brick. At least for the upcoming year, it appears, indirect purchasers will continue to remain excluded from seeking federal antitrust damages and will need to rely on state Illinois Brick repealer statutes, and the very narrow and limited Illinois Brick exceptions, to recover for their antitrust claims.

    Implications for Platform Providers

    Unique about Apple Inc. v. Pepper is the Court’s analysis of the federal antitrust laws in the emerging market of platform providers. The Apple App Store serves as an intermediary platform that hosts apps developed and largely priced by others and connects these app developers with consumers. App developers set the prices for their apps and then pay Apple a 30 percent commission for each app sold in the App Store. The Court’s opinion makes clear that neither the fact Apple does not set prices, nor the fact that it is paid through a commission, insulates it from antitrust liability. Instead, the Court’s decision that Apple must face consumers’ antitrust claims turned on the fact that Apple itself sells directly to consumers. 3

    Following Apple Inc. v. Pepper, other large digital platforms could face potential antitrust liability to consumers even if they do not themselves set prices, and instead facilitate a transaction between buyers and sellers. This could include other large-scale sale platforms or resale platforms as well as online marketplaces that operate on a commission model. After Apple Inc. v. Pepper, companies in this situation might risk antitrust liability based on the fact that they operate under a commission model — provided, of course, that they have market power, which they leverage to charge supracompetitive prices or foreclose competition by smaller competitors. Digital platform providers should therefore monitor how lower courts apply Apple Inc. v. Pepper to see how this important decision could impact their businesses.

     

    1. The full opinion of the Court is available on the Supreme Court’s website at https://www.supremecourt.gov/opinions/18pdf/17-204_bq7d.pdf.
    2. Last year, Andrew Finch, the U.S. Department of Justice (DOJ) Antitrust Division’s principal deputy assistant attorney general, commented that the DOJ Antitrust Division is “looking at whether or not it might be worthwhile” to recommend that the Supreme Court reverse Illinois Brick. A more thorough discussion of the Illinois Brick doctrine and the DOJ Antitrust Division may be found at https://www.faegrebd.com/en/insights/publications/2018/1/bringing-back-indirect-purchasers-doj-considers-seeking-reversal-of-illinois-brick.
    3. The Court explained: “There is no intermediary in the distribution chain between Apple and the consumer. The iPhone owners purchase apps directly from the retailer Apple, who is the alleged antitrust violator. The iPhone owners pay the alleged overcharge directly to Apple. The absence of an intermediary is dispositive.” Slip op. at 6.
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