I am not sure I fully agree, but this article is worth consideration.
Technology advances at warp speed these days, but the antitrust bar keeps attempting a switch in time. On Monday the Supreme Court will consider in Apple v. Pepper whether to overturn decades of precedent that supports the digital economy.
A decade ago Apple revolutionized software development and the smartphone with its one-stop application shop where consumers could download games, social media and other applications. Apple assumed overhead functions for developers including protecting intellectual property and intermediating financial transactions. In return, it collects a 30% commission on app purchases.
Apple’s App Store freed developers to innovate and expanded distribution of their products— epitomizing Steve Jobs’s famous axiom that people don’t know what they want until you show it to them. The App Store launched with 500 apps but now has more than two million. Google, Microsoft and others have imitated Apple’s model to the benefit of consumers world-wide.
Yet plaintiff lawyers now want a share of the bounty. A class action on behalf of all App Store purchasers alleges that Apple monopolizes the app market and overcharges consumers by collecting the 30% commission. Plaintiffs are seeking treble damages under the Clayton Act.
The relevant precedent here is the Supreme Court’s landmark 1977 Illinois Brick Co. v. Illinois decision that bars indirect purchasers from bringing antitrust suits for “pass-through costs.” As the Court correctly reasoned, allocating “overcharges” along distribution chains is inordinately complicated, and allowing those who may be indirectly harmed by anti-competitive practices to sue could “‘open the door to duplicative recoveries.’” Since Apple doesn’t create or set the price for apps, it is a distributor. Commissions are “pass-through” costs, and developers don’t uniformly raise their prices 30%. Developers facing intense competition and elastic consumer demand may absorb the full commission, while others may charge consumers more for in-app purchases.
Consumers are indirect purchasers. The direct purchasers who would have standing to sue are app developers, yet they haven’t. Instead they argue in an amicus brief in the current case that the “developerplatform partnership is procompetitive and lowers costs for consumers.” Yet a Ninth Circuit Court of Appeals panel said app purchasers could sue and “whether app developers are direct purchasers of distribution services from Apple in the sense of Illinois Brick makes no difference.” Nor was the panel concerned that allowing lawsuits by both direct and indirect purchasers could result in duplicative damages. Somehow plaintiffs would figure out how to divvy up the pie equitably. Sure.
The Ninth Circuit ruling is an anomaly that would vastly expand antitrust liability, giving plaintiff attorneys more bites at the Apple. Online marketplaces of all sorts including e-Bay, Amazon Marketplace, and Etsy that charge sellers fees or commissions could be affected. Ditto sharing-economy services such as Airbnb and TaskRabbit.
Thirty-one states have joined a brief asking the Court to overturn Illinois Brick, which they say limits their ability to protect consumers. The Clayton Act allows state AGs to bring antitrust actions on behalf of their citizens, so reversing Illinois Brick would empower them to tap another honey pot by suing tech companies.
One irony is that state AGs persuaded the Court last term to reverse its Quill precedent and allow states to collect sales tax from remote retailers. As a result, more mom-and-pop retailers are likely to off-load their responsibility to collect sales tax to platforms in return for a commission. Yet under the Ninth Circuit’s antitrust expansion, consumers could sue platforms for doing so.
The Supreme Court in Illinois Brick invited Congress to amend the Clayton Act if Members disagreed with its decision. Congress has since modified the law several times and considered reversing Illinois Brick but failed to do so. Expanding antitrust law by judicial decree would usurp Congress’s authority to regulate commerce and disrupt innovation that has benefited millions of consumers.