Apple, Angry Birds, and Antitrust: The Direct Purchasing Requirement’s Survival

Blog Post | 108 KY. L. J. ONLINE | Sept. 5, 2019

Apple, Angry Birds, and Antitrust: The Direct Purchasing Requirement’s Survival

 Jacob Sherman[1]

In 2018, Google Play Store users downloaded 75.5 billion apps while App Store users downloaded 29.6 billion apps.[2]Google Play Store users may have downloaded twice as many apps as App Store users, but the App Store almost doubled Google Play Store’s revenue.[3] Last year, the Google Play Store made $24.8 billion in revenue while the App Store made $46.6 billion in revenue.[4]  The disparity in revenue, Killian Bell argues, is twofold.[5] First, it is easier to download and install pirated games on Android (the operating system that houses the Google Play Store), so many developers charge nothing for their apps.[6] Second, users of iOS (the operating system that houses the App Store) are more willing to pay for their downloads.[7] At least, some of them are. 

In 2011, four iPhone owners sued Apple Inc., the owner of the App Store, alleging the company unlawfully monopolized who could sell apps.[8] The plaintiffs argue that “they have ‘paid more for their iPhone apps than they would have paid in a competitive market.’” [9] Apple attempted to dismiss the case, arguing the plaintiffs did not have standing under Illinois Brick because they were not direct purchasers.[10]

Earlier this year, the Supreme Court held that the plaintiffs were direct purchasers.[11] Kavanaugh, writing for the five Justice majority, reasoned that the plaintiffs were direct purchasers because they bought apps directly from Apple.[12] To do so, Kavanaugh relied on the facts of Illinois Brick.[13]

 In Illinois Brick, the state of Illinois sued the Illinois Brick Company alleging the company fixed prices.[14] Illinois Brick was a brick manufacturer and distributor.[15] Primarily, Illinois Brick Company sold bricks to masonry contractors.[16]The masonry contractors would then submit bids to general contractors.[17] Finally, the general contractors would submit bids to Illinois.[18] The court held that Illinois could not bring an antitrust claim, only a direct purchaser could do so.[19]For Justice Kavanaugh, Illinois Brick created a simple rule. Direct purchasers have standing.[20]

Apple and the dissent argue that Illinois Brick’s reasoning prohibits consumers down the chain of consumption—to whom the overcharges are passed—from suing.[21] Apple maintains the defendants are downstream purchasers for two factual reasons.[22] First, independent developers set the app price, not Apple.[23] Second, Apple takes a 30% cut of the price.[24] These facts combined mean developers, in theory, could pass on the cost to consumers.[25]

The majority rejects Apple’s pass on argument for three reasons. [26] First, permitting another set of plaintiffs to sue makes antitrust enforcement easier.[27] Second, the difficulty in determining costs should not prohibit this plaintiff from suing.[28] Third, Illinois Brick did not bar different classes of injured parties from suing, it only barred indirect purchasers.[29] In other words, Apple cannot rid itself of a monopoly suit just by claiming it is potentially liable for a monopsony suit.[30] After rejecting Apple’s argument, the court held that the plaintiffs are direct purchasers.[31]

 While Illinois Brick was upheld, the direct purchasing requirement may be nearing its end.[32] Justice Gorsuch, and 30 states as amici, reasoned that Illinois Brick may not further antitrust policy.[33] However, before Illinois Brick is overturned, Gorsuch has a few questions.[34] Apple Inc. v. Pepper may clearly determine whether the plaintiffs are direct purchasers, but the future for online retailers and Illinois Brick is murky.[35]

 [1] Staff Editor, Kentucky Law Journal, Volume 108; J.D. Candidate, The University of Kentucky College of Law (2021).

[2] Killian Bell, App Store Made Almost Twice as Much as Google Play in 2018, Cult of Mac.com (January 18, 2019, 6:15 AM) https://www.cultofmac.com/601492/app-store-google-play-revenue-2018/.

[3] Id.

[4] Id. 

[5] Id.

[6] Id.

[7] Id.

[8] Apple Inc. v. Pepper, 139 S. Ct. 1514, 1519 (2019).

[9] Id.

[10] Id. 

[11] Id.

[12] Id. at 1520.

[13] See id. at 1521-22.

[14] Illinois Brick Co. v. Illinois, 431 U.S. 720, 726-27 (1977).

[15] Id. at 726. 

[16] Id.

[17] Id.

[18] Id.

[19] Pepper, 139 S. Ct. at 1521.

[20] Id. 

[21] Id. at 1525-26 (Gorsuch, J., dissenting).

[22] Id. at 1521-22 (majority opinion); Pepper, 139 S. Ct. at 1527-28 (Gorsuch, J., dissenting).

[23] Pepper, 139 S. Ct. at 1527-28 (Gorsuch, J., dissenting).

[24] Id.

[25] Id. at 1528. 

[26] Id. at 1524 (majority opinion). 

[27] Id. 

[28] Id.

[29] Id. at 1525.

[30] Id. 

[31] Id. 

[32] See id. at 1530-31 (Gorsuch, J., dissenting). 

[33] Faegre Baker Daniels, Future of Antitrust Class Actions Foreshadowed in Apple Inc. v. Pepper, JD Supra.com (May 24, 2019, 11:45 AM) https://www.jdsupra.com/legalnews/future-of-antitrust-class-actions-21288/.

[34] Id.

[35] Daniels, supra note 33.