KMK Law Complex Litigation Blog

The Ninth Circuit recently issued a decision that increases the level of antitrust risk exposure faced by companies. 

In Pepper v. Apple, Inc. (In re Apple iPhone Antitrust Litig.), plaintiffs filed a putative class action against Apple alleging antitrust violations relating to the monopolization of iPhone applications (“Apps”).  No. 14-15000, 2017 U.S. App. LEXIS 577, at *3-7 (9th Cir. Jan. 12, 2017).  In particular, plaintiffs challenged the legality of Apple receiving a 30% commission for each third-party App sold in the App store – arguing that Apple’s policy of prohibiting developers from selling their Apps through other channels was anti-competitive and in violation of antitrust laws. Id. at *3-4.  The district court dismissed the case for lack of statutory standing, holding that plaintiffs were indirect purchasers from Apple. I d. at *8; see Illinois Brick Co v. Illinois, 431 U.S. 720 (1977).

Applying the standard set forth in Illinois Brick, the Ninth Circuit reversed the district court’s decision – holding that plaintiffs were, in fact, direct purchasers from Apple and therefore have standing to bring the antitrust suit.  Id. at *27.  The court rejected Apple’s argument that it is not a distributor of Apps, but merely a seller of “software distribution services to developers,” akin to that of a shopping mall owner leasing out space to different stores.  Id. at *24.  The court also emphasized that its analysis is not determined by logistical details such as payment arrangements, form of payment, or which entity sets the price.  Id. at *25-26  Instead, the court conducted a straightforward analysis focusing on the “fundamental distinction between a manufacturer or producer, on the one hand, and a distributor, on the other.”  Id. at *27.  Here, because Apple distributes iPhone Apps directly to purchasers via its App Store, plaintiffs satisfied the ‘direct purchaser’ standing requirement under Illinois Brick.  Id.

Most interestingly, the Ninth Circuit expressly rejected the Eighth Circuit’s analysis in Campos v. Ticketmaster Corp., 140 F.3d 1166 (8th Cir. 1998), creating a split between the two circuit courts.  Id. at *23.  In Ticketmaster, plaintiffs alleged antitrust violations against Ticketmaster for monopolistic practices relating to its ticket distribution services and fees.  140 F.3d at 1168-69.  The Eighth Circuit held that that the plaintiffs lacked standing under Illinois Brick to sue Ticketmaster for damages.  Id. at 1174.  The court reasoned that “[a]n indirect purchaser is one who bears some portion of a monopoly overcharge only by virtue of an antecedent transaction between the monopolist and another, independent purchaser.” Id. at 1169.  Therefore, because plaintiffs only purchased Ticketmaster’s services because of the ‘antecedent transaction’ between the concert venue and Ticketmaster, the plaintiffs were not direct purchasers.  Id. at 1171.

The Pepper decision increases antitrust risk exposure by setting forth a less-rigorous and less-scrutinized standard for establishing standing under the Clayton Act.  Indeed, classes of consumers previously believed to lack standing may now have a stronger foothold in asserting antitrust claims against companies.  In light of the Ninth Circuit’s decision, companies are well-advised to both reevaluate and reassess their business operations and antitrust risk.