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Apple v. Pepper – 1.5 Years Later

By Ronald Tittle on Thursday, September 17th, 2020

2017 brought a surprising change in antitrust law, where the Supreme Court reexamined and clarified who has standing to bring an antitrust violation under the Sherman Act.[1] The rule that the Supreme Court set out nearly 40 years before was clarified as a “bright-line rule,” which while clarifying the rule, also ended up shaking up who has standing by making a clear rule.[2] 

 

Going back to June 1977, Illinois Brick Co. v. Illinois provided a strict interpretation of Section 4 of the Sherman Act, only allowing direct purchasers from an antitrust violator for a person to sue under that provision, not someone in a chain of purchasers.[3] Illinois Brick centered on the State of Illinois and other Chicago area government entities bringing a action for treble damages under Section 4 of the Sherman Act against concrete block manufacturers.[4]

 

The focus of the State of Illinois and the other government entities was to promote a “pass on” theory of antitrust liability, focusing on the fact an indirect purchaser, was passed the damages that the direct purchaser bought from the alleged antitrust violator.[5] A clearer explanation is to visualize this situation as a chain, where the antitrust violator interacts with the direct purchaser, and that direct purchaser interacts with the indirect purchaser, with the indirect purchaser never directly coming into contact with the antitrust violator in the process.

 

Previously, the Supreme Court determined that an antitrust violator could not use the “pass-on” theory defensively, and this case answered the question at the time of if it could be used offensively by an indirect purchaser against an antitrust violator.[6] While the indirect purchaser may suffer a harm, they “would have only a tiny stake in the lawsuit,” while the direct purchaser has the greater harm, which is why the Supreme Court restricted it defensively in Hannover Shoe.[7] Ultimately, the Supreme Court sided against the governmental entities, finding that the process to collect and divide the treble damages to all potential purchasers would be extremely challenging.[8] Those entities who could bring these “pass-on” may not end up doing so because of how limited their recovery would end up being.[9]

 

Effectively, Ill. Brick ended up closing the door to indirect purchasers to bring an antitrust suit, as they needed to purchase directly from the violator to have standing to sue.[10] Apple Inc. v. Pepper redefined this rule, with the Supreme Court defining the rule in Illinois Brick as a “bright line rule” where consumers cannot sue if they are not a direct purchaser.[11] However, in Apple, the consumers are considered direct purchasers from Apple, so they have standing to sue Apple, because they purchased the good through Apple’s service.[12] While the consumers may be seen as indirect purchasers, buying apps from the app developers who were harmed by Apple’s anticompetitive acts, since the consumers bought through Apple’s service, then the consumers have a direct connection to Apple.[13] The need to be a direct purchaser from the violator is still required, but as long as the purchaser or consumer can characterize their relationship to the violator as a direct connection with no intermediary entities, then they have standing to bring claims against the direct purchaser.[14]

 

This appears to open up the rule set in Illinois Brick and make more companies liable to suit for antitrust violations where they would not expect it beforehand. For an example, Uber and Lyft, two large ride-sharing companies considers their drivers to be independent contractors and wants their drivers to “Be Your Own Boss.”[15] Uber and Lyft may want to categorize the relationship where drivers and the ride-hailers are interacting with each other and making their own decisions, the ride-hailers still use their app’s to place their rides. The ride-hailers have a connection to Uber and Lyft similar to the relationship between Apple and the app consumers. There are differences in Uber / Lyft and Apple in terms of their business model, it appears that the direct connection is all that is needed to bring an action under Section 4 of the Sherman Act.[16]

 

Apple v. Pepper has been applied by courts to expand and allow companies to be sued where the consumer has purchased the good or service from the potential antitrust violator in question, and in doing so has expanded liability to companies. The Seventh Circuit has recently applied the holding in Apple to allow for antitrust suits to go forward, and that the “relevant inquiry…  [is] the relationship between the seller and the purchaser.”[17] In Marion, the plaintiffs were healthcare companies, who purchased products from an intermediary organization, and that intermediary purchased the products from the manufacturer.[18] The plaintiffs alleged that the manufacturer and the intermediary were a part of an antitrust conspiracy, so the plaintiffs were the direct purchaser. [19]

 

The Seventh Circuit determined that if a party is the first direct purchaser not involved in the conspiracy, they have the right to bring suit.[20] Apple is referenced here as clarifying the rule as one that focuses on the buyer’s and seller’s relationship with each other, and if the plaintiff buys directly from a manufacturer, then the plaintiff has standing to sue.[21] The Seventh Circuit ultimately found that the plaintiffs had standing to file a complaint under Section 4 of the Sherman Act suit under the Illinois Brick rule, as defined in Apple, but needed to amend their complaint to address this.[22] Marion illustrates the application of Apple, whereas the healthcare companies had a intermediary in the chain between them and the manufacturer, as the healthcare companies could allege that they were the direct purchaser outside of a antitrust conspiracy, they have standing to bring an action.[23]

 

Another Circuit Court case that referenced and relied on Apple came from the Ninth Circuit, National Football League’s Sunday Ticket Antitrust Litigation v. DirecTV, LLC.[24] The situation and the outcome was similar to Marion, where NFL Sunday Ticket subscribers claimed that the arrangement between the NFL, NFL Teams, and DirecTV restricted the broadcast of NFL games.[25] The Sunday Ticket subscribers brought an action under Sections 1 and 2 of the Sherman Act.[26]

 

The Ninth Circuit relies on Apple to address the argument from the NFL, NFL teams, and DirecTV that the subscribers do not have standing to bring this antitrust claim.[27] When applying the Illinois Brick rule, the Ninth Circuit applied Apple in finding that the indirect purchasers still may not sue, but direct purchasers may sue for antitrust violations.[28] Again, similar to Marion, the subscribers allege a conspiracy between the NFL, NFL teams, and DirecTV that they are all part of an antitrust conspiracy, and the subscribers are the first purchasers outside of that conspiracy.[29]In finding for the subscribers, the Ninth Circuit held that since the subscribers allege a conspiracy between the defendants and the subscribers are the ones injured, the subscribers do have standing.[30]

 

Although the overall case in Sunday Ticket is still ongoing, Sunday Ticket and Marion illustrate how courts have applied Apple v. Pepper to cases involving purchasers who are down the chain.[31] The Seventh and the Ninth Circuits both applied Apple’s definition of the Illinois Brick rule, and in their application of that rule allowed for a purchaser that may have been considered an indirect purchaser to be considered a direct purchaser.[32] It remains to be seen the full extent of Apple will end up becoming, but the cases the followed Apple indicate that as long as the purchaser can be defined as a direct purchaser, then they have standing to claim antitrust violations where they may not have been able to before.[33]

 

[1]Apple Inc. v. Pepper, ___U.S.___ , ___, 139 S. Ct. 1514, 1522 (2019).

[2]Id. at 1521.

[3]15 U.S.C. § 15; Ill. Brick Co. v. Illinois, 431 U.S. 720 (1977)

[4]Id. at 726-727.

[5]Id. at 726.

[6]Id.; see also Hanover Shoe v. United Shoe Machinery Corp., 392 U.S. 481, 494 (1968) (defining the rule for defensive uses of a “pass-on” theory).

[7]Id. (citing Hanover Shoe, 392 U.S. at 494).

[8]Id. at 736.

[9]Id. at 744, 747.

[10]Id.

[11]Apple, 139 S. Ct. at 1522.

[12]Id. at 1517.

[13]Id. at 1521.

[14]Id.

[15]See Cathy Bussewitz & Michael Liedtke, California court rules Uber, Lyft can consider drivers as independent contractors for now, PBS (Aug. 20, 2020) www.pbs.org/newshour/economy/california-court-rules-uber-lyft-can-consider-drivers-as-contractors-for-now (referencing the ongoing legal and political dispute between the State of California and the ride-hailing companies, ,Uber and Lyft, over whether or not Uber and Lift can classify their drivers as independent contractors.); see also Aarti Shahani, The Faceless Boss: A Look Into The Uber Driver Workplace, NPR (June 9, 2017) www.npr.org/sections/alltechconsidered/2017/06/09/531642304/the-faceless-boss-a-look-into-the-uber-driver-workplace (mentioning Uber’s slogan as “Be Your Own Boss”).

[16]Apple, 139 S. Ct. at 1521.

[17]Marion Healthcare, LLC v. Becton Dickinson & Co., 952 F.3d 832, 840 (7th Cir. 2020).

[18]Id. at 836.

[19]Id. at 836-37.

[20]Id. at 841.

[21]Id. at 840.

[22]Id. at 843.

[23]Id. at 841.

[24]933 F.3d 1136 (9th Cir. 2019).

[25]Id. at 1143-44.

[26]Id.; 15 U.S.C. §§ 1, 2.

[27]Sunday Ticket, 933 F.3d at 1156.

[28]Id. (citing Apple, 139 S. Ct. at 1520-21).

[29]Id. at 1157.

[30]Id. at 1158.

[31]In re NFL Sunday Ticket Antitrust Litigation, No. 17-56119, 2019 U.S. App. , LEXIS 30822, at *3 (9th Cir. Oct. 16, 2019), petition for cert. pending sub nom NFL v. Ninth Inning, Inc., ___U.S.___, 140 S. Ct. 1291 (2020).

[32]Marion, 952 F.3d at 841; Sunday Ticket, 933 F.3d at 1158.

[33]Apple, 139 S. Ct. 1522.