Kavanaugh joins liberal bloc to side with consumers in Apple iPhone antitrust case

Apple Inc. will have to face antitrust claims over its mobile application store, a divided U.S. Supreme Court has ruled, setting new precedent clarifying who can sue over monopolistic practices in the digital age.

Writing for a narrow majority, Justice Brett M. Kavanaugh said iPhone owners could pursue claims against the Silicon Valley technology giant for allegedly fixing prices on its application market, shooting down an argument advanced by Apple's lawyers that software developers who technically set prices were the more appropriate target for litigation.

"It is undisputed that the iPhone owners bought the apps directly from Apple," Kavanaugh wrote, joined by Justices Ruth Bader Ginsburg, Stephen G. Breyer, Sonia Sotomayor and Elena Kagan. "Therefore, under Illinois Brick, the iPhone owners were direct purchasers who may sue Apple for alleged monopolization."

The 1977 precedent outlines who may sue over price fixing schemes, barring consumers somewhat removed from the distribution tree from bringing antitrust claims.

Daniel M. Wall, a partner at Latham & Watkins LLP representing Apple, had argued a more nuanced approach focused on the flow of money was required in the case.

The application creators' pricing decisions were responsible for consumer damages, he told the justices in November, meaning iPhone buyers were wrong to target Cupertino-based Apple as a monopolistic power.

U.S. Solicitor General Noel Francisco sided with Apple, arguing the consumers in the case were not direct purchasers.

A putative class of iPhone owners sued the company in 2011, arguing that by taking a 30% cut of all applications developed by independent companies but sold though its online store, Apple was artificially raising the price of the products.

U.S. District Judge Yvonne Gonzalez Rogers dismissed the case, but the 9th U.S. Circuit Court of Appeals revived it in 2017, siding with the class.

A dissent, written by Justice Neil M. Gorsuch and joined by Chief Justice John G. Roberts Jr. as well as Justices Clarence Thomas and Samuel A. Alito Jr., characterized the majority's opinion as overly simplistic. Apple Inc. v. Pepper, 2019 DJDAR 3951 (U.S. May 13, 2019)

"This replaces a rule of proximate cause and economic reality with an easily manipulated and formalistic rule of contractual privity," Gorsuch wrote, grounding his reasoning in common law principles of proximate cause. "That's not how antitrust law is supposed to work."

Adopting that theory would have significantly changed how lower courts apply Illinois Brick, several antitrust lawyers said Monday.

"[Apple's application store] is a unique market in a historical context," noted antitrust attorney Michael E. Klenov, a partner at Korein Tillery. "But it's not so unique in the context of the modern digital economy ... and today's decision extends the traditional analysis under Illinois Brick to digital economic transactions."

Monday's decision did not weigh in on the merits of the case. Attorneys for the putative class will now have to prove to a federal judge that the 30% cut model constitutes a monopolistic practice that artificially inflates prices.

David C. Frederick, a partner at Kellogg, Hansen, Todd, Figel & Frederick PLLC who represented the class, expressed confidence in the merits of the suit.

"We're gratified the Supreme Court today recognized the right of consumers to sue Apple for the damages they sustain from Apple's monopoly control over the distribution of applications on iPhones. The decision is important for upholding consumer protections against the dangers of monopoly retailers like Apple," he said in an email Monday.

"Apple's monopoly control has distorted the prices for apps and it's time for that abuse of monopoly power to end," he added.

Wall, Apple's lawyer, did not respond to a request for comment by press time.