Apple Inc. v. Pepper
139 S. Ct. 1514, 203 L. Ed. 2d 802 (2019)
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Rule of Law:
Consumers who purchase goods or services directly from an alleged monopolist retailer are direct purchasers with standing to bring an antitrust lawsuit, regardless of whether the retailer's business model involves a commission taken from a third-party supplier who sets the retail price.
Facts:
- In 2007, Apple began selling iPhones and in 2008 launched the App Store, an electronic marketplace for iPhone applications ('apps').
- By contract and technological design, the App Store is the exclusive lawful retailer for iPhone apps.
- Independent developers create the majority of apps and contract with Apple to sell them through the App Store.
- While developers set the retail prices for their apps, Apple acts as the retailer, processing all transactions directly with consumers.
- For every app sale, Apple retains a 30% commission from the retail price and remits the remaining 70% to the app developer.
- Several iPhone owners purchased apps through the App Store and believed they paid higher-than-competitive prices due to Apple's alleged monopoly power and its 30% commission.
Procedural Posture:
- Four iPhone owners filed a class-action lawsuit against Apple in the U.S. District Court for the Northern District of California, alleging federal antitrust violations.
- Apple filed a motion to dismiss the complaint for lack of statutory standing, arguing the plaintiffs were indirect purchasers barred from suing under the Illinois Brick rule.
- The District Court granted Apple's motion to dismiss.
- The plaintiffs (as appellants) appealed the dismissal to the U.S. Court of Appeals for the Ninth Circuit.
- The Ninth Circuit reversed the District Court's decision, holding that the plaintiffs were direct purchasers from Apple and therefore could sue.
- Apple (as petitioner) filed a petition for a writ of certiorari with the U.S. Supreme Court, which was granted.
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Issue:
Do consumers who purchase applications directly from Apple through its App Store qualify as direct purchasers with standing to sue Apple for alleged monopolization under the rule established in Illinois Brick Co. v. Illinois?
Opinions:
Majority - Justice Kavanaugh
Yes. Consumers who purchase apps directly from Apple are direct purchasers under Illinois Brick and have standing to sue. The Illinois Brick rule establishes a bright-line test based on the distribution chain, authorizing suits by immediate buyers against alleged antitrust violators. Here, consumers purchase apps directly from Apple, the alleged monopolist retailer, with no intermediary in the distribution chain between them. Apple’s argument that standing should depend on which party sets the price is rejected as an unworkable distinction that elevates form over substance and would create a roadmap for monopolists to evade antitrust liability simply by adopting a commission-based business model instead of a traditional markup model. The rationales underlying Illinois Brick—effective enforcement, avoiding complex damage calculations, and preventing duplicative recovery—all support allowing consumers, as direct purchasers, to sue the alleged monopolistic retailer.
Dissenting - Justice Gorsuch
No. The consumers' lawsuit relies on a 'pass-on' theory of damages that Illinois Brick prohibits. The Illinois Brick rule is grounded in principles of proximate cause, not formal contractual privity, and is designed to ensure that the party first and most directly injured by an overcharge is the proper plaintiff. Here, Apple's 30% commission is an alleged overcharge levied directly on the app developers, who are the first-injured party. The consumers' injury is derivative and indirect, occurring only if and to the extent that developers are able and choose to pass on Apple's commission to them through higher app prices. Allowing this suit reintroduces the complex damages apportionment and risk of duplicative recovery that Illinois Brick sought to eliminate, and it transforms a sensible rule of proximate cause into a formalistic and easily-evaded rule based on who happens to process the final transaction.
Analysis:
This decision solidifies the Illinois Brick direct-purchaser rule as a bright-line test focused on the structure of the distribution chain, not the economics of price-setting. It significantly impacts digital platform operators, such as app stores and online marketplaces, by affirming that consumers have standing to bring antitrust class actions against them, even if the platform operates on a commission or agency model. The ruling opens the door to greater antitrust scrutiny and potential liability for tech giants that control access to a digital market, strengthening the hand of consumers in challenging allegedly monopolistic practices in the platform economy.
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