Evolving Antitrust Principles in the Age of Big Tech: Supreme Court Allows Antitrust Suit to Move Forward Against Apple
In a recent decision decided on May 13, 2019, the Supreme Court allowed an antitrust suit to move forward against Apple. Consumers brought suit based on Apple’s operation of its App Store – which serves as the exclusive electronic marketplace through which iPhone owners may purchase iPhone applications (“apps”). Independent app developers create these apps, and then contract with Apple in order to make the apps available for purchase to iPhone owners in the App Store. Apple allows app developers to set the retail price, but charges a 30% commission on every app sale. The plaintiffs allege that Apple has unlawfully monopolized the retail market for app sales, and used its market dominance to force iPhone owners into purchasing apps exclusively from Apple while paying Apple’s 30% commission. Apple moved to dismiss, arguing that Illinois Brick’s direct-purchaser rule bars the plaintiffs from suing Apple under the antitrust laws.
In Illinois Brick Co. v. Illinois, 431 U.S. 720 (2019), the State of Illinois sued Illinois Brick – a manufacturer and distributor of concrete blocks – alleging that Illinois Brick engaged in a conspiracy to fix the price of concrete blocks in violation of Section 1 of the Sherman Act. Illinois Brick sold these concrete blocks primarily to masonry contractors, who in turn used them to build masonry structures which are sold to general contractors. These general contractors then sold their services for larger construction projects (which incorporate these masonry structures) to customers, such as the State of Illinois. The State of Illinois claimed that it had paid more for the concrete blocks than it would have paid absent the price-fixing conspiracy. The Supreme Court held that Section 4 of the Clayton Act did not permit indirect purchasers to bring suit against an alleged antitrust violator based on a theory that the overcharge was passed on to the consumers. See Illinois Brick Co. v. Illinois, 431 U.S. 720, 735, 745-46 (2019).
Apple contended that the Illinois Brick rule precluded the plaintiffs from bringing suit, because the app developers – rather than Apple – set the retail price charged to consumers. According to Apple, the customers were therefore not direct purchasers from Apple. The Supreme Court rejected this argument, however, finding it to be inconsistent with the text of the antitrust laws, Illinois Brick, and effective antitrust enforcement.
The Supreme Court first explained that Section 4 of the Clayton Act provides that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue . . . the defendant[.]” This Court reasoned that this broad language – “any person” may sue – “readily covers consumers who purchase goods or services at higher-than-competitive prices from an allegedly monopolistic retailer.”
The Court next explained that Illinois Brick set forth a “bright-line rule” under which “indirect purchasers who are two or more steps removed from the antitrust violator in a distribution chain may not sue.” Conversely, direct purchasers – immediate buyers from the alleged antitrust violators – may sue. The Court found that a straightforward application of this rule dictated the result, noting that in this case the iPhone owners purchased apps directly from the App Store. The absence of an intermediary in the distribution chain between Apple and the consumer was “dispositive.”
Lastly, the Court reasoned that Apple’s proposed rule was inconsistent with the policy rationales undergirding Illinois Brick’s bar on indirect-purchaser suits: (1) facilitating more effective enforcement of antitrust laws; (2) avoiding complicated damages calculations; and (3) eliminating duplicative damage awards against antitrust defendants. The Court explained that “[l]eaving consumers at the mercy of monopolistic retailers simply because upstream suppliers could also sue the retailers makes little sense and would directly contradict the longstanding goal of effective private enforcement and consumer protection in antitrust cases.” The Court also reasoned that complicated damages awards were “hardly unusual in antitrust cases,” and stated that Illinois Brick “is not a get-out-of-court-free card for monopolistic retailers to play any time that a damages calculation might be complicated.” Lastly, the Court concluded that this was not a case that involved conflicting claims to a common fund, because “[t]he overcharge has not been passed on by anyone to anyone.” Accordingly, the three Illinois Brick rationales “cut strongly in the plaintiff’s favor” rather than Apple’s.
Although amici urged the Court to overrule Illinois Brick, the Court’s decision thus leaves the rule set forth in Illinois Brick formally intact. As Justice Gorsuch pointed out in dissent, however, the Court’s reasoning leaves Illinois Brick on somewhat shaky footing. According to Justice Gorsuch, the Court’s decision “doubt[s] that those directly injured are always the best plaintiffs to bring suit, that calculating damages for pass-on plaintiffs will often be unduly complicated, and that conflicting claims to a common fund justify limiting who may sue[,]” and is therefore inconsistent with Illinois Brick. The import of the Court’s decision remains to be seen, and, at least for now, the debate regarding the continued vitality of Illinois Brick will go on. We will continue to monitor further developments in this area.