May 14, 2019 12:29PM

Apple v. Pepper: A Chip Off the Old Illinois Brick?

In yesterday's decision in Apple v. Pepper, Justice Brett Kavanaugh joined the four liberal Justices to rule that class action lawyers can sue Apple on behalf of consumers who allegedly paid uncompetitively high prices for iPhone apps, even though the consumers bought the apps not from Apple itself but from third-party developers who were paying a commission to the tech giant. The majority rejected Apple's defense under the so-called Illinois Brick doctrine, under which only direct purchasers of a good or service, but not purchasers further down the distribution chain, can sue over monopoly pricing (everyone agrees that current law empowers the developers themselves to sue Apple for alleged monopolistic behavior). Kavanaugh, on behalf of the majority, said Apple lost the benefit of the Illinois Brick defense when it inserted itself into the supply chain as a retailer through its Apple Store, thus making itself in practice an intermediary even if it was not itself the party deciding what to charge app buyers. 

The significance of yesterday's ruling is probably not in its proximate consequences for the iPhone supply chain, which are still uncertain (the ruling allows the plaintiffs to proceed, but doesn't mean they'll win). As Justice Neil Gorsuch observed in dissent, the Court's mini-rule is "pointless and easily evaded": 

To evade the Court’s test, all Apple must do is amend its contracts. Instead of collecting payments for apps sold in the App Store and remitting the balance (less its commission) to developers, Apple can simply specify that consumers’ payments will flow the other way: directly to the developers, who will then remit commissions to Apple. No antitrust reason exists to treat these contractual arrangements differently, and doing so will only induce firms to abandon their preferred—and presumably more efficient—distribution arrangements in favor of less efficient ones, all so they might avoid an arbitrary legal rule.

The wider worry, as Gorsuch points out, is that the majority (significantly joined by Kavanaugh) did not merely resolve a technical puzzle about how the law's language applies to an unusually designed supply chain, but seemed inclined along the way to adopt an ungenerous and narrow reading of Illinois Brick. And that is significant because in the overall scheme of antitrust law, Illinois Brick serves as a major check against runaway litigation (aside from its own logic, it restrains multiple and duplicative suits over the same behavior). For that reason, the antitrust plaintiff's bar has long sought to knock down the defense. Yesterday's outcome gives it a passing chip at most, but will bear watching as a harbinger.