May 14, 2019 / 9:21 PM / 8 days ago

More antitrust class actions on the way after Supreme Court’s Apple ruling?

(Reuters) - In the U.S. Supreme Court’s decision Monday in Apple v. Pepper (2019 WL 2078087) – an antitrust class action in which consumers claim Apple is abusing its monopoly power in the market for iPhone apps – Justice Brett Kavanaugh wrote that the court was merely applying its longstanding antitrust precedent from Illinois Brick v. State of Illinois (97 S.Ct. 2061).

In Illinois Brick, as you know, the Supreme Court held that indirect purchasers – those a step or two down a purchasing chain tainted by anticompetitive conduct – cannot sue under federal antitrust law. Justice Kavanaugh said consumers who bought iPhone apps from Apple’s App Store weren’t barred by Illinois Brick because they purchased apps directly from Apple, which then passed along the purchase price, less a 30% commission, to app developers.

The majority acknowledged, in a footnote, an amicus brief by dozens of state attorneys general who called on the Supreme Court to overturn Illinois Brick precedent to allow downstream consumers to sue monopolists under federal law. Justice Kavanaugh and the court’s four liberal justices said there was no need to consider overturning Illinois Brick because the court concluded the Apple consumers’ claims were not barred by precedent.

Justice Neil Gorsuch disagreed, insisting that Kavanaugh and the rest of the majority did, in fact, tamper with precedent, whatever their protests to the contrary. The dissenters contended that Illinois Brick was based not on the formality of who contracts with purchasers but on principles of proximate cause. In the App Store case, according to the dissent, app developers set the prices for their products. If prices were inflated, Apple merely passed along the markup to consumers – precisely the scenario in which Illinois Brick bars claims.

“With so many grounds for caution,” Gorsuch wrote, “I would have thought the proper course today would have been to afford Illinois Brick full effect, not to begin whittling it away to a bare formalism.”

It’s obviously interesting that two conservative justices often described as textualists could read the Sherman Act and Illinois Brick to arrive at completely different conclusions, but there’s another reason why the disparate interpretations of the court’s holding carry significance: Gorsuch’s dissent raises the question of whether the Supreme Court’s ruling opens the way to consumer antitrust cases that would previously have been barred.

The plaintiffs’ lawyer who brought the class action against Apple, Mark Rifkin of Wolf Haldenstein Adler Freeman & Herz, told me the decision won’t change much for antitrust class action plaintiffs and defendants. The consumers’ Supreme Court counsel, David Frederick of Kellogg Hansen Todd Figel & Frederick, never called for the justices to overturn Illinois Brick, arguing instead that Apple app purchasers are direct purchasers under the court’s precedent. Rifkin said the majority opinion simply applied the bright-line test that Illinois Brick already established.

“I wish I could take credit for expanding the law,” Rifkin said. “I can only take credit for preserving it. The sky is not falling, no matter what Chicken Little says.”

But if Justice Gorsuch’s dissent is correct, the Supreme Court’s opinion can be read to allow consumers to bring class action antitrust claims against e-retailers that just act as a conduit between buyers and sellers without running into Illinois Brick preclusion. Apple’s lawyers at Latham & Watkins argued at the Supreme Court that such a holding could affect electronic marketplace behemoths like Amazon, eBay and Facebook. The U.S. solicitor general similarly warned that a ruling for consumers in the Apple case threatened to squelch the rapidly-expanding e-commerce sector.

Apple counsel Dan Wall of Latham declined to provide a statement, but antitrust defense lawyer Kenneth Vorrasi of Drinker Biddle & Reath said the case does seem to open up exposure for online platforms that engage directly with consumers. Under the majority’s reasoning, he said, consumers who make payments to online platforms are considered direct purchasers, even when the platforms do not set prices and function essentially as consignment agents between buyers and sellers. So after Monday’s Supreme Court decision, their claims won’t be tossed on Illinois Brick procedural grounds.

As Vorrasi pointed out, Kavanaugh explicitly said the court’s ruling did not address the merits of the class allegations. Even if antitrust class action plaintiffs survive Illinois Brick challenges, they will still have to get past dismissal motions arguing that they haven’t adequately alleged antitrust violations. Those defenses, for that matter, are still live in the Apple class action.

Justice Gorsuch’s dissent suggested that Apple, and presumably other online platforms, might be able to evade the Supreme Court’s ruling by rejiggering their contracts with suppliers. In Apple’s current model, app developers set a price for their products (complying with Apple’s stricture that all app prices end in $.99); consumers buy the product through the App Store; and Apple remits the purchase price, less 30 percent, to developers. If Apple were to restructure its contracts with app developers to pass on the entire purchase price and receive a subsequent payment of its commission, Justice Gorsuch said in his dissent, it could avoid the majority’s direct purchase test.

I’m not sure lower courts will buy Justice Gorsuch’s work-around. (In fairness, he mentioned it only to point out why, in his view, the majority’s analysis wrongly focuses on who is paid by the consumer instead of on who sets the price the consumer pays.) But after Monday’s decision, the odds are higher that online platforms will have a reason to consider trying it.

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