In Apple Case, It’s Kavanaugh vs. Gorsuch

Raise your hand if you predicted that Brett Kavanaugh and Neil Gorsuch would write dueling opinions in a major Supreme Court case this term, and that Kavanaugh would be joined by the Court’s four liberals.

Of course you didn’t. Yet that’s exactly what happened on Monday in Apple v. Pepper, in which the Kavanaugh-led majority allowed an antitrust lawsuit against Apple to proceed. While the litigation still has a long way to go, the ruling will help American consumers enforce competition laws at a moment when the country may be more dominated by corporate monopolies than at any time in the past century. Kavanaugh, in other words, just helped strike a modest blow for the little guy.

The question in Apple was whether iPhone owners have the right to sue the tech giant for overcharging for apps. Apple maintains a monopoly over app sales by requiring developers to sell them through the App Store—and taking a 30 percent cut of all sales. The plaintiffs allege that, by imposing that commission, Apple is illegally charging higher prices than it would if the app market were truly competitive.

According to Apple, however, the lawsuit should be dismissed because it’s app developers, not iPhone customers, who pay the commission. For support, it pointed to a 1977 precedent, Illinois Brick Co. v. Illinois. The state of Illinois had brought an antitrust case against brick manufacturers for price-fixing. The manufacturer sold bricks to masons, who worked for contractors, who performed jobs for the state government. Illinois argued that the high prices charged by the manufacturer got passed down through this chain all the way to the end customer—the state—and that it therefore had the right to sue under the Clayton Antitrust Act, which gives legal standing to “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws.”

The Court disagreed. In essence, it held that letting anyone in the distribution chain sue the monopolist at the top would be too complicated for courts to handle, because multiple buyers in the chain might sue for the same overcharge and it would be too hard to figure out who was entitled to what share. Instead, the Court decided to establish a simple rule: only the “direct purchaser” can sue a monopolistic seller for overcharging.

That decision was questionable. (Indeed, thirty states and the District of Columbia filed an amicus brief in Apple urging the Court to overrule it, pointing out that they have decades of experience sorting out these supposedly impossible questions under state law). “Any person” would seem to mean, well, any person. Moreover, the Court’s rule is likely to limit legal standing to parties who are the least likely to sue. Suppose one producer controls the supply of computer chips, which it sells to computer manufacturers at inflated prices. Those companies would likely pass the higher price along to people who buy computers, meaning only the final customers are harmed. But under the Court’s rule, only the computer manufacturers—who aren’t being harmed and thus have no incentive to sue—are allowed to bring an antitrust case against the chip supplier.

Still, Illinois Brick remains the law. And according to Apple, it bars the current litigation because, when it comes to the 30 percent commission, iPhone users aren’t direct purchasers.

Kavanaugh wasn’t buying that argument. Unlike in Illinois Brick, iPhone users aren’t at the end of a long distribution chain. “The iPhone owners purchase apps directly from the retailer Apple, who is the alleged antitrust violator,” he wrote. “The iPhone owners pay the alleged overcharge directly to Apple.” Thus, he concluded in an admirably straightforward opinion, iPhone customers count as direct purchasers for the purposes of the Illinois Brick rule.

That seems pretty intuitive—after all, when you buy an app, it’s Apple, not the developer, who charges your credit card. But Gorsuch, in his dissent, more or less accused Kavanaugh of being too literal. Sure, iPhone owners technically buy apps directly from Apple. But, Gorsuch argued, from an economic perspective they are more like the state of Illinois in the Illinois Brick case. “Plaintiffs can be injured only if the developers are able and choose to pass on the overcharge to them in the form of higher app prices that the developers alone control,” he wrote.

But it simply isn’t true that the developers control the price. Not only is it inevitable that the 30 percent commission will increase end prices, but Apple also explicitly requires all app prices to end in $.99. Gorsuch’s suggestion that developers have control is reminiscent of the sort of divorced-from-reality economic theorizing that conservative judges used in the late 20th century to fundamentally undermine antitrust law. (Example: charging below cost to drive competitors out of business is irrational, so it must never happen. Tell that to Amazon and Uber.)

What makes Kavanaugh’s opinion so encouraging, and surprising, is that he avoided that type of reasoning in favor of common sense. “Illinois Brick, as we read the opinion, was not based on an economic theory about who set the price,” he wrote, but rather on concerns about practicality. Barring iPhone owners from suing Apple, he went on, “would directly contradict the longstanding goal of effective private enforcement and consumer protection in antitrust cases.”

Kavanaugh’s opinion in Apple doesn’t mean he’s suddenly an anti-monopoly crusader, but it suggests that he may be more open than his conservative colleagues to reconsidering the Court’s relentlessly pro-monopoly drift. Last year, for example, the Court’s conservative majority—which at the time still included Anthony Kennedy, whom Kavanaugh would eventually replace—rejected a challenge to American Express’s practice of making merchants agree not to encourage customers to use rival credit cards. These so-called “anti-steering agreements” look like a clear example of anti-competitive behavior. But the Court ruled that the plaintiffs would have to prove that the agreements injured cardholders, not just merchants. The decision reflected an extremely narrow view of antitrust law as concerned only with consumer prices.

Kavanaugh, by contrast, seems aware that competition policy is also about protecting competitors. In Apple, he observed that app developers and iPhone owners could each have their own independent claims against Apple, since the company acts as both buyer and seller: “A retailer who is both a monopolist and a monopsonist may be liable to different classes of plaintiffs—both to downstream consumers and to upstream suppliers—when the retailer’s unlawful conduct affects both the downstream and upstream markets.” There is thus a sliver of hope that Kavanaugh won’t allow the Court to extend its reasoning in the American Express decision to future cases that involve companies that serve as a bridge between merchants and consumers—like, say, Amazon.

Of course, Apple v. Pepper is only one ruling. Just a few weeks ago, Kavanaugh joined the other conservatives in a decision limiting workers’ right to bring class action suits against their employers—the latest in a long line of anti-consumer and anti-worker decisions by the Roberts Court. And all signs point to him sticking with his tribe in the weightiest cases this term, including those dealing with partisan gerrymandering and the Trump administration’s efforts to add a citizenship question to the U.S. Census.

Still, the undermining of antitrust enforcement by the Supreme Court since the late 1970s, which played a major role in the staggering rise of corporate concentration, is one of the least appreciated and most consequential victories of the conservative legal movement. If Kavanaugh, the archetypal product of that movement, proves willing to deviate somewhat from its dogma on antitrust, the consequences could be significant. And if there were ever a time to appreciate small victories, it’s now.

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Gilad Edelman

Gilad Edelman is the executive editor of the Washington Monthly.