June 18, 2018 / 7:24 PM / 10 months ago

In Apple case, SCOTUS will decide how old-school antitrust doctrine applies to e-commerce

(Reuters) - The U.S. Supreme Court agreed Monday to review a decision by the 9th U.S. Circuit Court of Appeals that allowed consumers to sue Apple for allegedly using its monopoly power as the sole distributor of iPhone apps to drive up app prices. The case, as you can see from Apple’s petition for Supreme Court review, asks the justices to decide how the court’s precedent in 1977’s Illinois Brick v. Illinois – which blocks federal-law antitrust damages claims by downstream purchasers – applies to electronic marketplaces in which companies such as Apple, Amazon, eBay and Facebook act as a conduit between buyers and sellers.

Apple’s lawyers at Latham & Watkins told the Supreme Court that this case is no less than a crucible for e-commerce, which is “deeply threatened” by the 9th Circuit’s ruling. The U.S. solicitor general, who filed a brief backing Apple’s request for review, said the government is also worried the 9th Circuit ruling, if it stands, will squelch the rise of e-commerce platforms that operate like Apple’s App Store.

In the telling of Apple and the government, the 9th Circuit mistakenly concluded that Apple acts as a distributor, selling apps directly to consumers who, in turn, remit payment to Apple. Apple and the SG contend that’s a mischaracterization of the relationship between Apple, app developers and consumers. They argue that Apple is a mere facilitator of app developers’ sales to consumers. Developers set prices for their own products, Apple says, and pay Apple a 30 percent fee for acting as their agents. According to Apple, it’s not responsible for allegedly overpriced apps because it doesn’t set the prices. (I’m drastically oversimplifying, but that’s the essence of the argument.)

“The 9th Circuit has approached this case as if all commerce fits the traditional resale distribution model, where the party who delivers goods is also the party who sets the price the consumer pays,” Apple said in its petition for certiorari. “But increasingly this is a world of electronic commerce based on electronic marketplaces that - like Apple’s App Store - are structured around an agency or consignment sales model where the marketplace sponsor has nothing to do with the pricing of the goods it sells.”

Apple’s contention is that the 9th Circuit botched the application of old-fashioned antitrust doctrine from Illinois Brick and its 1968 predecessor, Hanover Shoe v. United Shoe Machinery, to the modern electronic marketplace. The appeals court fundamentally misunderstood, according to Apple, that e-commerce represents a new kind of supply chain in which companies like Apple are not traditional distributors, even though they provide the link between buyers and sellers. The company contends the 8th Circuit better understood these relationships when it ruled in 1998’s Campos v. Ticketmaster that concertgoers who bought tickets via Ticketmaster are indirect purchasers so, under Illinois Brick, they could not sue the ticket distributor.

Obviously, we’re going to hear a lot more about the merits of the Apple and DOJ arguments against the 9th Circuit’s interpretation, but I’m still wondering why other e-commerce companies didn’t file amicus briefs backing Apple’s petition for review. If, as Apple said in its brief, the 9th Circuit ruling opens a Pandora’s box of potential liability to indirect purchasers, you’d think other electronic marketplace platforms would have told the Supreme Court they’re worried. They didn’t. The only amicus briefs, aside from the Justice Department brief, were from the App Association, a trade group for app developers that echoed Apple’s depiction of the App Store as an agent for app developers and the Washington Legal Foundation, a business-friendly think tank.

Mark Rifkin of Wolf Haldenstein Adler Freeman & Herz, counsel of record on the Apple consumers’ brief opposing Supreme Court review, told me Apple has overhyped the case – and that the absence of amici proves it. “There’s really not much to see here,” he said. “Apple is a monopolist. A consumer who buys directly from a monopolist has standing to sue.” Rifkin said e-commerce doesn’t change the basic rule that consumers at the end of a tainted supply chain can sue the distributor that sold them overpriced products. “We’ve been scratching our heads trying to figure out why this is a different paradigm,” he said. (Rifkin said David Frederick of the recently renamed Kellogg Hansen Todd Figel & Frederick will be on the Apple consumers’ merits briefs.)

I had a feeling back in January 2017, when the 9th Circuit issued its ruling in the Apple antitrust case, that the decision was going to be controversial, given the 9th Circuit’s acknowledgment of a split with the 8th Circuit. Monday’s cert grant certainly vindicates that instinct. But I was wrong when I predicted hot amicus action in the case. If Apple is right on the merits, I’d like to see its e-commerce competitors and colleagues step up to say so.

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