Apple v. Pepper: Can Consumers Sue Apple for an Anticompetitive App Store Market

by Dennis Crouch

Apple Inc v. Pepper (Supreme Court 2018)

On November 26, 2018, the Supreme Court will hear oral arguments in an interesting consumer antitrust class action lawsuit involving Apple’s “App Store.”  The only typical* way to install new apps on an Apple iPhone is via the App Store and the complaint in this case alleges that the single-market setup results in inflated prices.  Apple’s first response in this case is that it is simply providing the market and that App prices are being set by app developers, not Apple.  Of course the reality here is that Apple charges the app developers to sell on the App Store, and the developers raised their prices to account for the fees.

The question before the Supreme Court:

 Whether consumers may sue anyone who delivers goods to them for antitrust damages, even when they seek damages based on prices set by third parties who would be the immediate victims of the alleged offense.

Apple argues that the lawsuit should be barred by Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), which limited certain antitrust remedies to direct purchasers and not downstream parties.  Although Apple does interact directly with consumers, it argues that it does so as “an agent on behalf of third party sellers.”

The district court agreed with Apple and dismissed the case. On appeal, however, the 9th Circuit reversed and distinguished this case from Illinois Brick since Apple is dealing directly with consumers — holding that consumers can sue the party who delivers the goods even if seeking pass-through damages. This is a split from a prior 8th Circuit decision.

Apple’s argument here is essentially a technicality.  There are several ways of implementing a legal structure for the App Store market that would effectively identical in terms of market structure and pricing.  Here, Apple intentionally chose a legal structure that attempts to limit its liability to consumers all while (allegedly) abusing its market power over those consumers.  The question for the court seems parallel to what it faces in patent eligibility: Whether or not to ignore the details of the legal documents in favor of an approach that looks at a more generalized impact.

(Note – My understanding is that “sideloading” is technically possible but problematic for many reasons.)

10 thoughts on “Apple v. Pepper: Can Consumers Sue Apple for an Anticompetitive App Store Market

  1. 4

    >>The question for the court seems parallel to what it faces in patent eligibility: Whether or not to ignore the details of the legal documents in favor of an approach that looks at a more generalized impact.

    This is a ridiculously backward statement. The Scotus fabricated the rule of reason that enables any court to magically make the Sherman Anti-trust Act disappear. The Scotus fabricated Alice to enable any court to magically make the claims of a patent disappear.

    Here, I am little confused why an Illinois law is trumping federal law.

    Also, “who would be the immediate victims of the alleged offense”. This part of the question is not necessarily factually correct. You can be an intermediary where market power is being abused and not be a victim. It can be a case where the market power holder is cutting you in for a piece of the pie.

    Pretty sad when it comes to this type of action to try to get any anti-trust laws enforced. Patent owners should take this as a warning. Patent rights are becoming non-existent.

    1. 4.1

      Software Patent rights are becoming non-existent.

      Fixed for accuracy.

      And cause for celebration! Yee haw!

      1. 4.1.2

        You couldn’t come up with a substantive comment MM?

  2. 3

    This suit ignores the fact that prior to the Apple AppStore, there was no market at all, and for software, retailers typically charged 40% markups as well as stocking fees that amounted to 10% or more.

    The suit is ignorant of the market conditions that were the predicate of this manner of distribution.

    1. 3.1

      >The suit is ignorant of the market conditions that were the predicate of this manner of distribution.

      And, so, the Scotus can use the magic “rule of reason” to eviscerate any Sherman Anti-trust Act cause of action.

  3. 2

    DC: The question for the court seems [to be] whether or not to ignore the details of the legal documents in favor of an approach that looks at a more generalized impact.

    What “details” of what “legal documents” are at risk of being “ignored” by the Supreme Court in this case?

    I think it’s time to start clearing away some of that Thanksgiving Turkey fog. ;)

  4. 1

    The question for the court seems parallel to what it faces in patent eligibility: Whether or not to ignore the details of the legal documents in favor of an approach that looks at a more generalized impact.

    The Ends do not justify the Means.

    Not even here.

    If the approach is legal and still a problem, then the approach needs to be controlled — as an approach — and certainly not against one party for one particular Ends.

    1. 1.1

      I haven’t the foggiest idea what your point is.

      I know it’s difficult for you, but can you try to actually say what you mean?

      1. 1.1.1

        It’s not my difficulty on display AM: the point is courts should not take a “more generalized approach” when that approach does not accord a proper analysis (and weight) to a provided means (the details of the legal documents, or avenues of proper legality).

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