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Posted on Tuesday, May 14, 2019

Justice Kavanaugh Moves Antitrust Law One Giant Step Forward

On May 13, 2019, Justice Kavanaugh created a seismic shift in the world of antitrust law. He abandoned his fellow conservative justices on the Supreme Court and joined the liberal justices to author a 5-4 opinion holding that a class-action antitrust case filed by a group of consumers against Apple, Inc. could go forward.

Antitrust law is one of the murkiest areas of law. It might even be worse than murky. In the eyes of many, antitrust law is a quagmire of thick, black, sludge where the weak and unsuspecting are often devoured by the strong and powerful. Over the past few decades, antitrust law has arguably gotten even worse, meaning it has become more difficult to prove that a company has violated antitrust laws. As a result, large companies like Apple have had good reason not to be concerned. Most of the time, monopolists have found ways to dismiss antitrust cases filed against them.

Not this time. This time, Justice Kavanaugh said no.

To be fair, Apple v. Pepper is not about the core problems that antitrust law seeks to address. It’s about whether a group of consumers fit the qualifications to be a plaintiff in an antitrust case. Here, one of the qualifications comes from a case called Illinois Brick, which the Supreme Court decided in 1977.

In Illinois Brick, a consumer alleged that the Illinois Brick Company had a monopoly on brickmaking and had set the price of bricks unreasonably high. The consumer therefore sued Illinois Brick. The parties argued over whether the consumer was a valid plaintiff, and the appeal process eventually made its way to the Supreme Court.

There, the justices held that a consumer can file an antitrust lawsuit only if the consumer is a “direct purchaser.” Because the consumer in Illinois Brick had gone through an intermediary contractor to purchase the bricks, the Court found the consumer to be an indirect purchaser and therefore lacked the qualifications to be a valid antitrust plaintiff.

 

 

 

 

 

 

 

In Apple v. Pepper, the pattern is deceptively similar. A small group of consumers led by Robert Pepper sued Apple, alleging that Apple had unlawfully monopolized the iPhone software aftermarket by requiring all iPhone consumers to purchase their application software through Apple’s App Store, where Apple applies a 30% mark-up on all purchases. Relying on Illinois Brick, Apple moved to dismiss the case, arguing that the iPhone owners were not direct purchasers from Apple. Instead, according to Apple, the consumers should have sued the application developers who had set the original prices of the apps.

Justice Kavanaugh wouldn’t have it. For him, the key question is: where is the alleged market power? If the defendant is alleged to have market power, and if the plaintiff purchased directly from the defendant, then the plaintiff is a direct purchaser. That’s it. It’s an easy test. Even though the application developers had set the wholesale price for their applications, the consumers had properly alleged that Apple was the monopolist by charging an unfair mark-up on the base price. That was enough for Justice Kavanaugh to conclude that the facts alleged in Apple v. Pepper did not match the Illinois Brick pattern.

The important take-away from Apple v. Pepper is the wake-up call it sends to other companies – for example, Amazon and Netflix – who control the electronic or online marketplace in their respective businesses. Those companies should sit up and take notice. Illinois Brick will no longer insulate them from antitrust lawsuits. And maybe, because of Justice Kavanaugh, antitrust law might have just taken a step away from the murky swamp.

The author, Clyde Findley is Special Counsel at Berenzweig Leonard, LLP. He can be reached at cfindley@berenzweiglaw.com.