Apple Inc. v. Pepper

Facts

D started selling iPhones and then launched the retail App Store, an electronic store where iPhone owners can purchase iPhone applications from Apple. The App Store now contains about 2 million apps that iPhone owners can download. D does not itself create apps. Independent app developers create apps. Those independent app developers then contract with D to make the apps available to iPhone owners in the App Store. Developers must pay D 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. D pockets a 30 percent commission on every app sale. The App Store is the only place where iPhone owners may lawfully buy apps. In 2011, Ps sued D. They allege that D has unlawfully monopolized “the iPhone apps aftermarket.” Ps alleged that 30 percent commission is “pure profit” for D and, in a competitive environment with other retailers, “D would be under considerable pressure to substantially lower its 30% profit margin.” Ps allege that in a competitive market, they would be able to “choose between D’s high-priced App Store and less costly alternatives.” D asserts that Ps, the consumer-plaintiffs, may not sue D because they supposedly were not “direct purchasers” from Apple under the decision in Illinois Brick. Illinois Brick held that direct purchasers may sue antitrust violators, but also ruled that indirect purchasers may not sue. Illinois Brick held that direct purchasers may sue antitrust violators, but also ruled that indirect purchasers may not sue. The District Court dismissed the complaint. It held that Ps lacked standing under Illinois Brick because Ps failed to qualify as direct purchasers because D’s 30% commission fee was “borne by the developers” and paid to D “from their own proceeds.” The developers, not D, had “set[] the price [consumers] directly paid.” The Ninth Circuit reversed. The court rejected the notion that its standing analysis should turn on “who determines the ultimate price paid by the buyer of an iPhone app,” on whether D received its payment in the form of a markup or a commission, or “on the fact that Ps pay the App Store.” It concluded that Ps were direct purchasers under Illinois Brick because Ps purchased apps directly from D It reasoned that 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. Since Ps purchased directly from D, the alleged monopolist, Ps could sue D for allegedly monopolizing the sale of iPhone apps and charging higher-than-competitive prices. D appealed 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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