The United States Supreme Court decided this week that purchasers of apps through the Apple App Store have standing under federal antitrust law to bring a class-action lawsuit against the tech giant.
The Sherman Antitrust Act makes it unlawful for any person to “monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States…” 26 Stat. 209, 15 U.S.C. § 2. Section 4 of the Clayton Act in turn provides that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue…” 38 Stat. 731, 15 U.S.C. §15(a) (emphasis added). The issue in this case is the scope of the phrase “any person… injured.”
The Plaintiffs are four iPhone owners who sued Apple, alleging that the company has monopolized the retail market for the sale of apps and has unlawfully used its monopolistic power to charge consumers higher-than-competitive prices.
To sell an app in the App Store, app developers must pay Apple a $99 annual membership fee along with 30% of the sales price of any app. According to the complaint, the 30% commission is “pure profit” for Apple – a cost these plaintiff-consumers argue is passed on to them. In a competitive environment with other retailers, Plaintiffs reason, “Apple would be under considerable pressure to substantially lower its 30% profit margin.” But by contract and through technological limitations, the App Store is the only place where iPhone owners may lawfully buy apps.
Apple moved to dismiss, arguing that the iPhone owners lack standing to sue because they are not direct purchasers from Apple under the “Illinois Brick doctrine” established by the Supreme Court in 1977, which determined that indirect consumers of products lack Article III standing to bring antitrust charges against producers of those products.
In that case, Illinois Brick Company manufactured and distributed concrete blocks. It sold the blocks primarily to masonry contractors who sold masonry structures to general contractors. Those general contractors in turn sold their services for large construction projects to the state of Illinois, the ultimate consumer of the blocks.
The State sued Illinois Brick under the Sherman Act, alleging that the company had engaged in a conspiracy to fix the price of concrete blocks. As a result, the State alleged, it was forced to pay more for the concrete blocks than it would have paid absent the price-fixing conspiracy. However, the Supreme Court ruled that the State could not bring an antitrust action against Illinois Brick because it had not purchased concrete blocks directly from Illinois Brick, but was several steps removed from the alleged antitrust violator in the distribution chain.
Accordingly, Apple argued that the consumer-plaintiffs in this case could not sue Apple for antitrust injuries because – like the State in Illinois Brick – they were not “direct purchasers” from Apple since the App Store deals in apps created and sold by independent developers.
The Court, however, was unpersuaded. Unlike the consumer in Illinois Brick, the Court reasoned, “the iPhone owners here are not consumers at the bottom of a vertical distribution chain who are attempting to sue manufacturers at the top of the chain.” Here, “the absence of an intermediary in the distribution chain between Apple and the consumer is dispositive.”
Further, the Court expressed concern that Apple’s limited theory of standing would “provide a roadmap for monopolistic retailers to structure transactions with manufacturers or suppliers so as to evade antitrust claims by consumers and thereby thwart effective antitrust enforcement.”
The Court’s decision empowering app purchasers to sue for antitrust injury could become impactful in other media contexts. For instance, a few weeks ago, YouTube TV subscribers received the unfortunate news that the price for an online bundle of television networks would soon increase. After the Google division reached a pricey content licensing deal with Discovery, YouTube TV passed along the additional cost to consumers. Notably, those who signed up for the service through Apple had to pay even more.
Whether the conduct of Apple (and others) actually rises to the level of an antitrust violation has yet to be decided. But the high court’s decision rejecting a too-narrow definition of “direct purchaser” gives more consumers a bite at the antitrust apple.