The Recorder: ‘Apple v. Pepper’ Will Enhance Private Antitrust Enforcement by Confirming Bright-Line Rule of ‘Illinois Brick’

(The Recorder)  Partner Steven Williams and Senior Associate Jiamie Chen of the Joseph Saveri Law Firm today authored the following article for The Recorder entitled, “‘Apple v. Pepper’ Will Enhance Private Antitrust Enforcement by Confirming Bright-Line Rule of ‘Illinois Brick.'”

On May 13, 2019, the Supreme Court handed down its order in Apple Inc. v. Pepper, 587 U.S. ___ (2019), resolving once and for all widespread speculation as to a potential seachange in antitrust private enforcement.

The Court unambiguously reaffirmed its prior holdings in Hanover Shoe and Illinois Brick, and, by extension, the past four decades of antitrust enforcement jurisprudence that developed from that framework. In particular, the Court emphasized the brightness of the Illinois Brick bright-line test as well as its driving rationale—facilitating private antitrust enforcement.

Moreover, the Court resisted Apple and the dissent’s attempts to shift the focus of antitrust cases from enforcing antitrust laws and protecting antitrust victims to vague and ethereal concepts of economic theory.

And, while Apple and the dissent bemoan the complexity of modern antitrust cases, the Court recognized that some amount of case complexity in determining damages does not, and should not, allow antitrust violators to hold up Illinois Brick as a “get-out-of-court-free card.”  After all, it has long been the law that “[w]here the tort itself is of such a nature as to preclude the ascertainment of the amount of damages with certainty, it would be a perversion of fundamental principles of justice to deny all relief to the inured person, and thereby relieve the wrongdoer from making any amend for his acts.”  Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555 (1931). For that reason, it has never been required that an antitrust plaintiff prove damages with “exactness and precision.”

Indeed, a recent empirical study of antitrust cases shows that the existing private enforcement framework, even with case complexities, is in fact both efficient and effective.

A Bright(er)-Line Test

Rather than nuancing its opinion or limiting its holdings to the specific case facts, the Court doubled down on the brightness of the Illinois Brick bright-line test. The Court emphasized both its straightforward concept and application. Clarity in the rules applying to antitrust cases will not only enhance private enforcement, but also provide greater predictability to all parties.

The Court’s analysis of the plaintiffs’ Illinois Brick standing is as simple and straightforward as the rule itself: “It is undisputed that the iPhone owners bought apps directly from Apple. Therefore, under Illinois Brick, the iPhone owners were direct purchasers who may sue Apple for alleged monopolization.”  “The absence of an intermediary” between the plaintiffs and the alleged antitrust violator, the Court held, “is dispositive.”  Justice Kavanaugh, writing for the majority, stated that this “straightforward conclusion follows from the text of the antitrust laws”—broadly written to allow suit by “any person” who has been “injured” by an antitrust violator—“and from our precedents”—reiterating that “Illinois Brick established a bright-line rule” that allows suit by “the immediate buyers from the alleged antitrust violators.”

In fact, the Pepper majority opinion is even more clear than Illinois Brick in at least two ways. First, the Court granted certiorari on the issue presented as “[w]hether consumers may sue for antitrust damages anyone who delivers goods to them, even where they seek damages based on prices set by third parties who would be the immediate victims of the alleged scheme” and answered in the affirmative. Illinois Brick had no need to, and did not, address the application of the bright-line rule to situations where the party who delivers the goods did not set the price of the goods. Second, and relatedly, Pepper clarified that, “[t]o the extent that Illinois Brick leaves any ambiguity about whether a direct purchaser may sue an antitrust violator, we should resolve that ambiguity in the direction of the statutory text.”  Thus, under Pepper, the broad language of Clayton Act § 4 means that anyone who purchased directly from an antitrust violator can sue the violator for antitrust damages regardless of any arrangements between the violator and other actor(s) relating to the subject of the antitrust violations. And, read with Hanover Shoe, Pepper also provides for such lawsuits without regard to any arrangements between the direct purchaser and other actor(s) relating to the subject of the antitrust violations.

Priority on Antitrust Enforcement

The majority opinion spent not one word addressing amicus briefs from the DOJ, the Chamber of Commerce, 31 states Attorneys General, and others, who expressed concerns about applying Illinois Brick to today’s business world, raised issues about the doctrine itself, or even argued for its abrogation.

Rather than entertain modifying, let alone overruling, Illinois Brick, the Court emphasized that its holding in Pepper keeps faith with the driving rationale behind Illinois Brick:

Illinois Brick, as we read the opinion, was not based on an economic theory about who set the price. Rather, Illinois Brick sought to ensure an effective and efficient litigation scheme in antitrust cases. To do so, the Court drew a bright line that allowed direct purchasers to sue but barred indirect purchasers from suing. When there is no intermediary between the purchaser and the antitrust violator, the purchaser may sue. The Illinois Brick bright-line rule is grounded on the “belief that simplified administration improves antitrust enforcement.”

As the Court made clear, the rationale behind Illinois Brick was antitrust enforcement [1]. In fact, at least one member of the dissent, Justice Alito, embraced the Pepper majority’s view about Illinois Brick’s rationale at oral argument:

JUSTICE ALITO: Mr. Wall could I ask you about what troubles me about your position, and—and that is this: Illinois Brick was not about economic theory. It was about the Court’s—court’s—the basis for the decision was not economic theory, as I read the case. It’s the Court’s calculation of what makes for an effective and efficient litigation scheme.

And the Illinois Brick simplified bright-line framework has in fact provided for efficient and effective private enforcement of antitrust law.

The 2018 Antitrust Annual Report: Class Action Filings in Federal Court by Huntington National Bank and the University of San Francisco School of Law empirically evaluated federal antitrust class action cases from 2013-2018. According to the Report, antitrust enforcement data shows that the private enforcement system is both efficient and effective, notwithstanding the “complex [causation] inquiry” and “difficult questions” the dissent says may be raised in antitrust enforcement cases. For example, the case data shows that over 65% of federal antitrust cases were resolved within five years of filing, and that the average (mean) settlement amount per case varied annually between about $24 million to $42 million, reflecting significant recoveries for antitrust victims.

The Pepper Court also warned, accurately, that adopting Apple and the dissent’s approach would “gut” Illinois Brick and its goal of ensuring an effective and efficient litigation scheme to improve antitrust enforcement. Indeed, as the Court pointed out, “Apple’s rule would elevate form (what is the precise arrangement between manufacturers or suppliers and retailers?) over substance (is the consumer paying a higher price because of the monopolistic retailer’s actions?).”

Justice Gorsuch, writing for the dissent, accuses the majority of “replac[ing] a rule of proximate cause and economic reality with an easily manipulated and formalistic rule of contractual privity.”  Not so. Instead of giving way to economic theory, on which few economists or experts ever agree, the Pepper majority squarely focused on the economic reality that antitrust law is intended to address: whether the consumer paid a higher price because of an antitrust violator’s unlawful conduct. The focus is, and has always been, on antitrust enforcement.

As the Supreme Court reasoned in Illinois Brick and now reaffirmed in Pepper, the indirect purchaser doctrine is a straightforward bright-line rule intended to facilitate effective and efficient antitrust enforcement litigation. And empirical data confirms that this framework, which provides certainty and clarity as to who are direct purchasers allowed to sue for antitrust damages, in fact performs as Court intended. Unsurprisingly, the Court embraced rather than discarded well-functioning precedent. As the Pepper Court recognized, “[t]he plaintiffs seek to hold retailers to account if the retailers engage in unlawful anticompetitive conduct that harms consumers who purchase from those retailers. That is why we have antitrust law.”  And that is why the Supreme Court got it right.

Endnote:

[1] At oral argument, Justice Ginsburg asked counsel for Apple whether Apple had any arbitration clauses in their user or app developer agreements. She likely knew the answer was “no.”  Her question pointed out the continuing erosion of Seventh Amendment jury trial rights and weakening of all civil enforcement that has resulted from the expansion of unfair arbitration agreements between massive, powerful companies and corporate employers on one side and individual consumers and employees on the other who have no bargaining power and cannot participate in the modern world without waiving their rights.