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Court Finds Apple is a Distributor of iPhone Apps, Allows Antitrust Suit

In a significant Illinois Brick decision, the Ninth Circuit recently issued an opinion concluding that consumers who purchase apps from Apple’s “app store” directly purchase those apps from Apple, which acts as a distributor.  The purchasers therefore have antitrust standing to sue Apple for alleged monopolization of the iPhone app market.  The decision could make it easier for consumers to bring antitrust claims against sellers in e-commerce.

Plaintiffs argued that they directly purchased apps from Apple, not the app developers, because (1) they paid the full purchase price to Apple; (2) Apple sells the apps directly to customers; and (3) the app developers at no time directly sell the apps to customers or collect payments from customers.  Apple argued that the developers—not Apple—were the ones selling the apps and that Apple merely collected money and “passed on” the allegedly supracompetitive price charged by the developer.  According to Apple, plaintiffs’ grievance is with the price set by the app developers, not with any action taken by Apple.

Using the leading Supreme Court cases as guidelines, the Ninth Circuit found that Apple is a distributor of apps to consumers, selling them directly to purchasers through its App Store.  Apple does not merely provide a platform on which app developers can directly sell apps to consumers.  The Ninth Circuit declined to consider the nuances of the relationship between the purchasers, Apple, and the app developers.  Instead, it reaffirmed the bright line rule of Illinois Brick:  “the distributor who supplies the product directly to plaintiffs, rather than the producer of the product, is the appropriate defendant in an antitrust suit.”  For example, it was not dispositive that Apple collected the payments directly from consumers; otherwise a company could easily avoid being a direct seller simply by contracting out the collection of payment.  Similarly, Apple is a distributor notwithstanding the fact that it does not set the app prices or modify them, but rather simply adds a predetermined commission to the price set by the developers.

In deciding this case, the Ninth Circuit created a circuit split with the Eighth Circuit.  In Campos v. Ticketmaster, plaintiffs alleged that Ticketmaster was a monopolist of concert ticket distribution services.  The majority held that a party’s status as a direct or indirect purchaser turned on whether an antecedent transaction between the monopolist and another independent purchaser absorbed all or part of the monopoly overcharge.  Because concert venues contracted with Ticketmaster, there was an antecedent transaction and the consumers who purchased tickets through Ticketmaster were indirect, not direct, purchasers.  The Ninth Circuit agreed with the Ticketmaster dissent that the “antecedent transaction” analysis finds no basis in case law.  Like that dissent, the Ninth Circuit found that a distributor is a “direct” seller regardless of whether it passes on all, some, or none of the allegedly supra-competitive price. 

This ruling will be of no assistance to antitrust plaintiffs if they cannot prove that the middleman participated in the antitrust violation, since it just means they have standing to sue a supplier who is not liable.  But where the middleman can plausibly be alleged to have participated in the violation, the Ninth Circuit has just made the plaintiffs’ task easier.