Supreme Court Poised to Update Indirect Purchaser and Antitrust Standing Rules
On June 18, the Supreme Court granted cert in Pepper v. Apple, Inc., a significant antitrust case that should clarify the application of the Illinois Brick “indirect purchaser” doctrine to contemporary distribution models. The indirect purchaser doctrine limits the classes of private plaintiffs that may bring an antitrust damages suit under federal law. This case is of particular import to those who operate platforms that match buyers and sellers but do not set the prices of or take title to the goods or services being exchanged. Should the Supreme Court narrow the indirect purchaser doctrine, the types of plaintiffs seeking damages could be reduced substantially.
Developing Indirect Purchaser Standing Doctrine
The Supreme Court has considered the limits of indirect purchaser standing to sue for damages under federal antitrust laws in a trio of cases that date to the 1960s. First, in Hanover Shoe v. United Shoe Machinery Corp,1 the Court held that an antitrust defendant could not defend against a federal antitrust claim by showing that the plaintiff was not injured because the plaintiff was able to pass on any overcharge to others further along in the distribution chain. The Court noted that “establishing the applicability of the passing-on defense would require a convincing showing of [several] virtually unascertainable figures” such that “the task would normally prove insurmountable.”2
Next, in Illinois Brick Co. v. Illinois,3 the seminal case in this arena, the Court held that a plaintiff who indirectly purchased a price-fixed commodity could not use pass-on offensively by claiming that it was injured when those above it in the distribution chain passed on an overcharge. Again focusing on complexity, the Court noted that any “attempt to trace the complex economic adjustments to a change in the cost of a particular factor of production would greatly complicate and reduce the effectiveness of already protracted treble damages proceedings.”4
Finally, in Kansas v. UtiliCorp United,5 the Court rejected parens patriae claims brought on behalf of consumers by several states against natural gas suppliers, holding that only the utilities who purchased gas directly had standing, even when those utilities were required by state regulation to pass on 100% of their costs (and, hence, any overcharge) to consumers. The Court noted that “[a]lthough the rationales of Hanover Shoe and Illinois Brick may not apply with equal force in all instances” it would be “an unwarranted and counterproductive exercise to litigate a series of exceptions” to the direct purchaser rule.6
In each case, the Supreme Court generally focused on the complexities and administrative difficulties associated with attempting to prove the amount of damages that were passed on along with the corresponding threat of duplicative recoveries against defendants. The Court has consistently held that the purposes of the federal antitrust laws are best fostered by a simple rule that allows only the firm that initially bears an overcharge to recover the full amount of that overcharge.
Pepper v. Apple – Bringing Illinois Brick into the 21st Century
The plaintiffs in Pepper allege that Apple illegally monopolized app distribution by prohibiting competing app stores in the iOS ecosystem. They further allege that this monopoly allowed Apple to charge app developers a supracompetitive 30% commission, and that the plaintiffs were injured as a result by overpaying for apps that they purchased through the Apple app store.
The district court granted Apple’s motion to dismiss.7 It held that any overcharge was first borne by the developers who then passed on some or all of that overcharge to the plaintiffs. Thus, any injury that the consumer plaintiffs suffered was a classic case of “pass-on” damages that are not available under federal law under Illinois Brick and its progeny. The Ninth Circuit reversed the dismissal, holding that Apple effectively was a distributor of apps, selling them directly to the consumer plaintiffs, and therefore plaintiffs had a direct purchaser relationship with Apple which gave them standing to sue.8 The Ninth Circuit acknowledged that its holding was in conflict with the Eighth Circuit’s decision in Campos v. Ticketmaster.9
The Supreme Court requested the views of the United States, which supported granting certiorari and reversing the Ninth Circuit. The U.S. argues that the Ninth Circuit misapplied Illinois Brick, which should be fairly read as prohibiting damages claims where the theory is that “the defendant unlawfully overcharged a third party and that the third party passed on all or part of the overcharge to the plaintiff.”10 The Supreme Court granted certiorari on the question of: “Whether consumers may sue for antitrust damages anyone who delivers goods to them, even where they seek damages based on prices set by third parties who would be the immediate victims of the alleged offense.”
The Supreme Court’s grant of certiorari will draw attention to other companies following similar business models and the Court’s decision could have a significant effect on the viability of potential antitrust claims against others with similar distribution models. That the United States has weighed in in favor of reversal increases the chances of a ruling barring such suits under the indirect purchaser doctrine.
What This Means for You
Any company that operates a marketplace that matches up buyers and sellers should be interested in how this case may impact their liability under the federal antitrust laws. A ruling in favor of Apple would make it more difficult for consumers to bring antitrust claims against the operators of such marketplaces or similar platforms under federal law.
In addition, senior officials in the DOJ Antitrust Division have recently stated that they are considering whether they should advocate for a repeal of the Illinois Brick indirect purchaser rule.11 Although the Government did not make that argument when it supported the petition for certiorari, it is possible that the Supreme Court may also reconsider Illinois Brick in its entirety. Notably, the position of the Solicitor General in Pepper appears to be at odds with the Antitrust Division’s consideration regarding the propriety of the Illinois Brick doctrine.
1 392 U.S. 481 (1968).
2 Id. at. 493.
3 431 U.S. 720 (1977).
4 Id. at 732.
5 497 U.S. 199 (1990).
6 Id. at 208, 217.
7 In re Apple iPhone Antitrust Litig., No. 11–cv–06714–YGR, 2013 WL 6253147 (N.D. Cal. Dec. 2, 2013).
8 In re Apple iPhone Antitrust Litig., 846 F.3d 313 (9th Cir. 2017).
9 140 F.3d 1166 (1998) (rejecting analogous claims by ticket purchasers who allege that they bore an overcharge when they purchased tickets through Ticketmaster at a price set by the concert venues)
10 Brief of United States as Amicus Curiae at 6.
11 See Charles McConnell, DOJ looks at overturning Illinois Brick, Global Competition Review (Jan. 24, 2018), https://globalcompetitionreview.com/article/usa/1153021/doj-looks-at-overturning-illinois-brick.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.