Apple Inc. v. Pepper

• Court: U.S. Supreme Court
• Writing for the Court: Justice KAVANAUGH delivered the opinion of the Court.
• Citation: Apple Inc. v. Pepper, 139 S.Ct. 1514 (2019)
• Decision Date: 13 May 2019
• Docket Number: No. 17-204.,17-204.
• Parties: APPLE INC., Petitioner v. Robert PEPPER, et al.

139 S.Ct. 1514

APPLE INC., Petitioner

v.Robert PEPPER, et al.

No. 17-204.

Supreme Court of the United States.

Argued November 26, 2018

Decided May 13, 2019

Daniel M. Wall, San Francisco, CA, for the petitioner.

Solicitor General Noel J. Francisco for the United States as amicus curiae, by special leave of the Court, supporting the petitioner.

David C. Frederick, Washington, D.C., for the respondents.

J. Scott Ballenger, Latham & Watkins LLP, Washington, DC, Daniel M. Wall, Christopher S. Yates, Sadik Huseny, Aaron T. Chiu, Latham & Watkins LLP, San Francisco, CA, for petitioner Apple Inc.

Mark C. Rifkin, Matthew M. Guiney, Wolf Haldenstein Adler Freeman & Herz LLP, New York, NY, Rachele R. Byrd, Wolf Haldenstein Adler Freeman & Herz LLP, San Diego, CA, David C. Frederick, Aaron M. Panner, Gregory G. Rapawy, Benjamin S. Softness, Kellogg, Hansen, Todd, Figel & Frederick, P.L.L.C., Washington, D.C., for respondents.

Justice KAVANAUGH delivered the opinion of the Court.

In 2007, Apple started selling iPhones. The next year, Apple launched the retail App Store, an electronic store where iPhone owners can purchase iPhone applications from Apple. Those "apps" enable iPhone owners to send messages, take photos, watch videos, buy clothes, order food, arrange transportation, purchase concert tickets, donate to charities, and the list goes on. "There’s an app for that" has become part of the 21st-century American lexicon.

In this case, however, several consumers contend that Apple charges too much for apps. The consumers argue, in particular, that Apple has monopolized the retail market for the sale of apps and has unlawfully used its monopolistic power to charge consumers higher-than-competitive prices.

A claim that a monopolistic retailer (here, Apple) has used its monopoly to overcharge consumers is a classic antitrust claim. But Apple asserts that the consumer-plaintiffs in this case may not sue Apple because they supposedly were not "direct purchasers" from Apple under our decision in Illinois Brick Co. v. Illinois , 431 U.S. 720, 745–746, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977). We disagree. The plaintiffs purchased apps directly from Apple and therefore are direct purchasers under Illinois Brick . At this early pleadings stage of the litigation, we do not assess the merits of the plaintiffs’ antitrust claims against Apple, nor do we consider any other defenses Apple might have. We merely hold that the Illinois Brick direct-purchaser rule does not bar these plaintiffs from suing Apple under the antitrust laws. We affirm the judgment of the U.S. Court of Appeals for the Ninth Circuit.

I

In 2007, Apple began selling iPhones. In July 2008, Apple started the App Store. The App Store now contains about 2 million apps that iPhone owners can download. By contract and through technological limitations, the App Store is the only place where iPhone owners may lawfully buy apps.

For the most part, Apple does not itself create apps. Rather, independent app developers create apps. Those independent app developers then contract with Apple to make the apps available to iPhone owners in the App Store.

Through the App Store, Apple sells the apps directly to iPhone owners. To sell an app in the App Store, app developers must pay Apple a $ 99 annual membership fee. Apple requires that the retail sales price end in $ 0.99, but otherwise allows the app developers to set the retail price. Apple keeps 30 percent of the sales price, no matter what the sales price might be. In other words, Apple pockets a 30 percent commission on every app sale.

In 2011, four iPhone owners sued Apple. They allege that Apple has unlawfully monopolized "the iPhone apps aftermarket." App. to Pet. for Cert. 53a. The plaintiffs allege that, via the App Store, Apple locks iPhone owners "into buying apps only from Apple and paying Apple’s 30% fee, even if" the iPhone owners wish "to buy apps elsewhere or pay less." Id., at 45a. According to the complaint, that 30 percent commission is "pure profit" for Apple and, in a competitive environment with other retailers, "Apple would be under considerable pressure to substantially lower its 30% profit margin." Id., at 54a–55a. The plaintiffs allege that in a competitive market, they would be able to "choose between Apple’s high-priced App Store and less costly alternatives." Id., at 55a. And they allege that they have "paid more for their iPhone apps than they would have paid in a competitive market." Id., at 53a.

Apple moved to dismiss the complaint, arguing that the iPhone owners were not direct purchasers from Apple and therefore may not sue. In Illinois Brick , this Court held that direct purchasers may sue antitrust violators, but also ruled that indirect purchasers may not sue. The District Court agreed with Apple and dismissed the complaint. According to the District Court, the iPhone owners were not direct purchasers from Apple because the app developers, not Apple, set the consumers’ purchase price.

The Ninth Circuit reversed. The Ninth Circuit concluded that the iPhone owners were direct purchasers under Illinois Brick because the iPhone owners purchased apps directly from Apple. According to the Ninth Circuit, Illinois Brick means that a consumer may not sue an alleged monopolist who is two or more steps removed from the consumer in a vertical distribution chain. See In re Apple iPhone Antitrust Litig. , 846 F. 3d 313, 323 (2017). Here, however, the consumers purchased directly from Apple, the alleged monopolist. Therefore, the Ninth Circuit held that the iPhone owners could sue Apple for allegedly monopolizing the sale of iPhone apps and charging higher-than-competitive prices. Id., at 324. We granted certiorari. 585 U.S. ––––, 138 S.Ct. 2647, 201 L.Ed.2d 1049 (2018).

II

A

The plaintiffs’ allegations boil down to one straightforward claim: that Apple exercises monopoly power in the retail market for the sale of apps and has unlawfully used its monopoly power to force iPhone owners to pay Apple higher-than-competitive prices for apps. According to the plaintiffs, when iPhone owners want to purchase an app, they have only two options: (1) buy the app from Apple’s App Store at a higher-than-competitive price or (2) do not buy the app at all. Any iPhone owners who are dissatisfied with the selection of apps available in the App Store or with the price of the apps available in the App Store are out of luck, or so the plaintiffs allege.

The sole question presented at this early stage of the case is whether these consumers are proper plaintiffs for this kind of antitrust suit—in particular, our precedents ask, whether the consumers were "direct purchasers" from Apple. Illinois Brick , 431 U.S. at 745–746, 97 S.Ct. 2061. It is undisputed that the iPhone owners bought the apps directly from Apple. Therefore, under Illinois Brick , the iPhone owners were direct purchasers who may sue Apple for alleged monopolization.

That straightforward conclusion follows from the text of the antitrust laws and from our precedents.

First is text: Section 2 of the Sherman 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, or with foreign nations." 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 ... the defendant ... and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee." 38 Stat. 731, 15 U.S.C. § 15(a) (emphasis added). The broad text of § 4—"any person" who has been "injured" by an antitrust violator may sue—readily covers consumers who purchase goods or services at higher-than-competitive prices from an allegedly monopolistic retailer.

Second is precedent: Applying § 4, we have consistently stated that "the immediate buyers from the alleged antitrust violators" may maintain a suit against the antitrust violators. Kansas v. UtiliCorp United Inc. , 497 U.S. 199, 207, 110 S.Ct. 2807, 111 L.Ed.2d 169 (1990) ; see also Illinois Brick , 431 U.S. at 745–746, 97 S.Ct. 2061. At the same time, incorporating principles of proximate cause into § 4, we have ruled that indirect purchasers who are two or more steps removed from the violator in a distribution chain may not sue. Our decision in Illinois Brick established a bright-line rule that authorizes suits by direct purchasers but bars suits by indirect purchasers. Id., at 746, 97 S.Ct. 2061.¹

The facts of Illinois Brick illustrate the rule. Illinois Brick Company manufactured and distributed concrete blocks. Illinois Brick sold the blocks primarily to masonry contractors, and those contractors in turn sold masonry structures to general contractors. Those general contractors in turn sold their services for larger construction projects to the State of Illinois, the ultimate consumer of the blocks.

The consumer State of Illinois sued the manufacturer Illinois Brick. The State alleged that Illinois Brick had engaged in a conspiracy to fix the price of concrete blocks. According to the complaint, the State paid more for the concrete blocks than it would have paid absent the price-fixing conspiracy. The monopoly overcharge allegedly flowed all the way down the distribution chain to the ultimate consumer, who was the State of Illinois.

This Court ruled that the State could not bring an antitrust action against Illinois Brick, the alleged violator, because the State had not purchased concrete blocks directly from Illinois Brick. The proper plaintiff to bring that claim against Illinois Brick, the Court stated, would be an entity that had purchased directly from Illinois Brick. Ibid .

The bright-line rule of Illinois Brick , as articulated in that case and as we reiterated in UtiliCorp , means that indirect purchasers who are two or more steps removed...