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.)