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Clayton Antitrust Act and Sherman Antitrust Act — Antitrust Trade
and Regulation — Antitrust Standing — Apple Inc. v. Pepper
Antitrust standing doctrine has remained in uneasy repose since the
Court’s decision in Illinois Brick Co. v. Illinois , 1 over four decades ago. 2
Under Illinois Brick , standing to sue for violation of federal antitrust
law had been reserved exclusively to those parties who purchased di-
rectly from price-setting monopolists. 3 Indirect purchasers, who trans-
acted with these direct purchasers rather than with the monopolist itself,
had no standing, even if the direct purchaser “passed on” the full cost of
the monopolistic overcharge in the form of higher prices. 4 The Court
prohibited these pass-through arguments because it judged itself ill-
suited to efficiently determine what parts of an overcharge are passed
on at any given stage in the chain of distribution. 5 The Court also wor-
ried that allowing pass-through arguments would undermine deter-
rence, as indirect purchasers, who could not sue as effectively as direct
purchasers, would be able to claim a portion of what would previously
have gone to direct purchasers in a successful suit. 6 Despite “fire-
storm[s]” of public controversy, 7 Illinois Brick still stands.
Last Term, in Apple Inc. v. Pepper , 8 however, the Supreme Court
held that app purchasers could sue Apple for an allegedly anticompeti-
tive commission it charged to app developers, who set the prices that
app purchasers paid. 9 In Apple , traditional concerns of efficiency and
deterrence 10 were eclipsed by a strong focus on victim compensation.
Viewed from this perspective, Apple signals a willingness to revisit the
foundations of Illinois Brick and sets the stage for its overruling.
1 431 U.S. 720 ( 1977 ).
(^2) Illinois Brick was a manufacturer and distributor of concrete blocks; Illinois Brick sold these blocks to masonry contractors; and the masonry contractors sold them to general contractors, who, finally, used them to construct buildings for the State of Illinois. Id. at 726. (^3) Id. at 734 – 36. The Court held that the State of Illinois had no standing to sue Illinois Brick
because it was too far too removed from Illinois Brick in the chain of distribution. Id. at 732 – 36. (^4) Id. at 730. (^5) Id. at 746 – 47. (^6) Id. (^7) William N. Eskridge, Jr., Overriding Supreme Court Statutory Interpretation Decisions , 101 YALE L.J. 331 , 365 ( 1991 ). (^8 139) S. Ct. 1514 ( 2019 ). (^9) Id. at 1518 – 19. (^10) See, e.g. , Illinois Brick , 431 U.S. at 732, 746; Hanover Shoe, Inc. v. United Shoe Machin. Corp., 392 U.S. 481, 492–94 ( 1968 ).
2019 ] THE SUPREME COURT –– LEADING CASES 383
Every year, owners of iPhones collectively download billions of apps
worldwide. 11 These apps are available to owners of the iPhone exclu-
sively through Apple’s App Store. 12 They are rapidly becoming an in-
tegral part of Apple’s business model.^13 The overwhelming majority of
these apps are created by third-party developers.^14 In exchange for ac-
cess to the App Store, third-party developers pay Apple a $ 99 annual
membership fee and agree to allow Apple to keep a 30 % commission on
all sales of their apps through the Store. 15 The sale price itself is deter-
mined by app developers, the only constraint being that the price end in
99 cents. 16 The plaintiffs in this legal action were a class of app
purchasers, claiming that Apple’s 30 % commission fee was “su-
pracompetitive,” possible only because Apple had monopolized the
“market for distributing software applications that can be downloaded
on the iPhone,” with the result that consumers “paid more for their
iPhone apps than they would have paid in a competitive market.” 17 Un-
der section 4 of the Clayton Act, plaintiffs sought treble damages. 18
Apple filed a motion to dismiss, arguing that the plaintiffs lacked stand-
ing because they did not qualify as direct purchasers. 19
The district court granted Apple’s motion to dismiss. 20 Writing for
the court, Judge Rogers held that the plaintiffs lacked standing under
Illinois Brick. 21 The court began by reasoning that, under Illinois
Brick , the plaintiffs’ status as direct or indirect purchasers is generally
dispositive: direct purchasers, the first purchasers in the distribution
chain, may sue, whereas indirect purchasers, who bear any overcharges
direct purchasers pass on through higher prices, may not. 22 Applying
these definitions, the court found that the plaintiffs failed to qualify as
direct purchasers because Apple’s 30 % commission fee was “borne by
(^11) Mansoor Iqbal, App Download and Usage Statistics ( 2019 ) , BUS. OF APPS (last updated Aug. 7 , 2019 ), https://www.businessofapps.com/data/app-statistics/ [https://perma.cc/QP4R-QNYS]. (^12) Jefferson Graham, Imagine Apple’s App Store with No Walled Garden , USA T ODAY (May 14 , 2019 , 3 : 33 PM), https://www.usatoday.com/story/tech/talkingtech/ 2019 / 05 / 14 /what-if-apple-ios- store-had-lower-prices-more-competition/ 3667008002 / [https://perma.cc/4XVF-7738]. (^13) See Prachi Bhardwaj & Shayanne Gal, The App Store Has Made Apple at Least $ 40 Billion
in Revenue Since It Was Created 10 Years Ago Today , BUS. I NSIDER (July 10 , 2018 , 4 : 44 PM), https://www.businessinsider.com/app-store-apple- 40 -billion-dollars-revenue-ten-years-charts- 2018 – 7 [https://perma.cc/ZC74-W3Q2]. (^14) Iqbal, supra note 11. (^15) Apple , 139 S. Ct. at 1519. (^16) Id. (^17) In re Apple iPhone Antitrust Litig., No. 11 -cv- 06714 , 2013 WL 6253147 , at *1–2 (N.D. Cal. Dec. 2 , 2013 ) (quoting the Second Amended Complaint). (^18) See In re Apple iPhone Antitrust Litig., 846 F. 3 d 313 , 320 ( 2017 ). (^19) Apple , 139 S. Ct. at 1521 – 22. (^20) Apple iPhone Antitrust Litig. , 2013 WL 6253147 , at * 1. (^21) Id. at * 6. (^22) Id. at * 3.
2019 ] THE SUPREME COURT –– LEADING CASES 385
anything forbidden in the antitrust laws may sue... the defendant.’” 38
Emphasizing the breadth of the terms “any person” and “injured,” the
Court found the statutory language expansive enough to “readily cover[]
consumers” in plaintiffs’ position.^39 As for precedent, the Court inter-
preted Illinois Brick as “establish[ing] a bright-line rule” 40 –– “if manu-
facturer A sells to retailer B, and retailer B sells to consumer C, then C
may not sue A. But B may sue A if A is an antitrust violator.” 41 For
the Court, the application of this rule was likewise straightforward ––
because “[t]he iPhone owners pay the alleged overcharge directly to
Apple,” no intermediaries intervene between monopolist and consumer,
removing any obstacle to consumer standing. 42 Finally, the Court re-
jected Apple’s price-setting rule as an elevation of form over substance
that would “gerrymander Apple out of this and similar lawsuits.” 43 The
Court found that under a price-setting rule, Apple would escape liability
for conduct economically indistinguishable from what –– in the markup
context –– is presently recognized as paradigmatically anticompetitive
behavior. 44
The Court also defended its holding in terms of the three primary
goals underlying Illinois Brick : “( 1 ) facilitating more effective enforce-
ment of antitrust laws; ( 2 ) avoiding complicated damages calculations;
and ( 3 ) eliminating duplicative damages.” 45 As for improving enforce-
ment, the Court stated that depriving consumers of standing “makes
little sense and would directly contradict the longstanding goal of effec-
tive private enforcement and consumer protection in antitrust cases.” 46
The Court then forcefully rejected the notion that damages calculations
would be significantly more complex than those the Court routinely
performs in “retailer markup case[s].”^47 Finally, the Court dismissed
worries about duplicative damages as founded upon a misconception
about the economic relations between Apple, developers, and consum-
ers. 48 Apple can be understood as a “bottleneck monopolist [and] mo-
nopsonist.” 49 As such, consumers and developers would sue Apple un-
der distinct “theories of harm,” with no risk of duplicative damages. 50
(^38) Id. at 1520 (quoting ch. 323 , § 4 , 38 Stat. 730 , 731 ( 1914 ) (current version at 15 U.S.C.
§ 15 (a) ( 2012 ))). (^39) Id. (^40) Id. (^41) Id. at 1521. (^42) Id. (^43) Id. at 1522 – 23. (^44) Id. at 1523 – 24. (^45) Id. at 1524. (^46) Id. (^47) Id. (^48) Id. at 1524 – 25. (^49) Id. at 1525. (^50) Id.
386 HARVARD LAW REVIEW [Vol. 133 : 382
Justice Gorsuch dissented.^51 He balked at the majority’s “bright-line
rule” interpretation of Illinois Brick ,^52 on the grounds that it “replace[d] a
rule of proximate cause and economic reality with an easily manipulated
and formalistic rule of contractual privity.” 53 The dissent read Illinois
Brick through the lens of Hanover Shoe v. United Shoe Machinery Corp. 54
In Hanover Shoe , a distributor of shoes sued the monopolist manufac-
turer of vital shoe-making machinery. 55 To limit its damages, the mo-
nopolist argued that the distributor had passed off a portion of its over-
charges to consumers, and so had itself borne only some of the injury. 56
The Hanover Shoe Court rejected this argument, the Apple dissent ar-
gued, to avoid “the sort of problems traditional principles of proximate
cause were designed to avoid”: “nearly insuperable” questions about an
intermediate entity’s capacity to pass on overcharges. 57 For the dissent,
Illinois Brick was merely “the other side of the coin,” a precedent that
applied the same proximate-cause principles to offensive claims as
Hanover Shoe had applied to defensive ones. 58
Applying this understanding, the dissent found that because
“[p]laintiffs 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,” their theory of harm relied upon “exactly the
kind of ‘pass-on theory’ Illinois Brick rejected.” 59 By treating formal
relationships as fundamental, the dissent argued, the majority courted
the exact problems that Illinois Brick had solved. 60 Because “Apple
charged only one commission on each sale,” Justice Gorsuch wrote, sep-
arate suits from consumers and developers would necessarily expose
Apple to liability for duplicative damages. 61 Determining what share of
these damages belong to which party would require burdensome pass-
through calculations.^62 Furthermore, Justice Gorsuch continued, reducing
Illinois Brick to a bright-line rule counterproductively privileges form
over substance: Apple could simply restructure its business so that con-
sumers are in privity with app developers instead. 63 The dissent, there-
fore, chastised the Court for trading an “intelligible, principled, [and]
(^51) Id. (Gorsuch, J., dissenting). Justice Gorsuch was joined by Chief Justice Roberts and Justices
Thomas and Alito. (^52) See id. at 1521 (majority opinion). (^53) Id. at 1526 (Gorsuch, J., dissenting). (^54 392) U.S. 481 ( 1968 ). (^55) Id. at 483 – 84. (^56) Id. at 487 – 88. (^57) Apple , 139 S. Ct. at 1526 (Gorsuch, J., dissenting). (^58) Id. at 1526 – 27. (^59) Id. at 1528. (^60) Id. at 1529 – 30. (^61) Id. at 1529 n. 3. (^62) Id. at 1529. (^63) Id. at 1529 – 30.
388 HARVARD LAW REVIEW [Vol. 133 : 382
The Court’s holding in Hanover Shoe compromised corrective jus-
tice to promote judicial efficiency and deterrence. There, the Court
stated that the need to deter efficiently barred monopolist defendants
from asserting pass-through defenses. 71 Without pass-through analysis,
however, it is practically impossible to know how much of the over-
charge the consumer-plaintiff has absorbed as injury. 72 A prohibition
on pass-through defenses, then, inflates the damages successful plaintiffs
receive. This willingness to award successful plaintiffs more than they
deserved violates corrective justice. Caught in this dilemma, the
Hanover Shoe Court chose efficiency and deterrence over corrective
justice. 73
In Illinois Brick , the Court reaffirmed Hanover Shoe ’s willingness
to sacrifice corrective justice for deterrence and judicial efficiency. As
Hanover Shoe barred defensive pass-through arguments, Illinois Brick
barred their offensive use. 74 If, therefore, Hanover Shoe compromised
corrective justice by providing “middlemen” plaintiffs with too much,
Illinois Brick compromised it by providing the ultimate consumers with
too little –– in fact, with nothing. 75 As Professors Daniel Berger and
Roger Bernstein write: “[ Illinois Brick ] seemed to swing the pendu-
lum... the Court sacrificed compensation... at the altar of... coun-
tervailing policies.” 76
Yet applying the principles of Hanover Shoe to reach a parallel con-
clusion on the facts of Illinois Brick was not logically necessary, 77 but
rather a consequence of value-laden commitments. By prohibiting pass-
through defenses, the Court in Hanover Shoe ensured that antitrust vi-
olators would keep less than they deserved, and that victims would re-
ceive more than they deserved. This arrangement violates corrective
justice vis-à-vis the wrongdoer, because a defendant unable to assert
pass-through defenses will be liable to the first purchaser for the full
amount of the overcharge and then again to every subsequent over-
charged purchaser.
(^71) Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481 , 492 – 94 ( 1968 ). (^72) See William M. Landes & Richard A. Posner, Should Indirect Purchasers Have Standing to Sue Under the Antitrust Laws? An Economic Analysis of the Rule of Illinois Brick, 46 U. C HI. L. REV. 602 , 615 – 21 ( 1979 ). (^73) For competing views on the tension between deterrence and compensatory justice, compare
Landes & Posner, supra note 72 , with Robert G. Harris & Lawrence A. Sullivan, Passing on the Monopoly Overcharge: A Comprehensive Policy Analysis , 128 U. PA. L. R EV. 269 ( 1979 ). (^74) See Illinois Brick Co. v. Illinois, 431 U.S. 720 , 724 – 26 , 735 ( 1977 ). (^75) See Ronald W. Davis, Indirect Purchaser Litigation: ARC America ’s Chickens Come Home
to Roost on the Illinois Brick Wall , 65 A NTITRUST L.J. 375 , 389 – 90 ( 1997 ); see also Andrew I. Gavil, Antitrust Remedy Wars Episode I: Illinois Brick from Inside the Supreme Court , 79 S T. JOHN ’ S L. R EV. 553 , 575 – 613 ( 2005 ) (reviewing internal deliberation of Justices). (^76) Daniel Berger & Roger Bernstein, An Analytical Framework for Antitrust Standing , 86 YALE
L.J. 809 , 872 ( 1977 ). (^77) See Thomas W. Dunfee, Privity in Antitrust: Illinois Brick v. Illinois, 16 A M. BUS. L.J. 107 ,
111 – 12 ( 1978 ).
2019 ] THE SUPREME COURT –– LEADING CASES 389
Adding Illinois Brick to Hanover Shoe did not restore corrective
justice; it merely changed the type of violation. By prohibiting pass-
through offenses, the Court eliminated a source of double damages lia-
bility. The Court provided this protection to wrongdoers, however,
through a standing rule that ensured many victims would receive less
than they deserved. While the balance under Hanover Shoe alone
tipped too far against wrongdoers, then, the balance under Hanover
Shoe cum Illinois Brick tipped too far against victims.
These two ways of failing to achieve corrective justice are qualita-
tively different, and reasonable people with divergent normative com-
mitments could disagree on which was worse, and by how much. If, for
example, one believed that undercompensating victims were a graver
evil than exposing monopolist wrongdoers to excessive damages, by such
a margin as to render the gains to deterrence and efficiency inadequate,
then one could affirm Hanover Shoe while repudiating the addition of
Illinois Brick. 78 Hanover Shoe entails Illinois Brick only on the con-
troversial premise that the gains to efficiency and deterrence compensate
for the moral gap, if any, between a regime that errs on the side of mo-
nopolist wrongdoers and one that errs on the side of consumer victims. 79
This premise is normative, not analytic.
Justice Brennan’s Illinois Brick dissent represented an alternative
vision of antitrust values, according to which corrective justice, and spe-
cifically victim compensation, dominates judicial efficiency and deter-
rence. 80 It is a vision reproduced –– at times with uncanny accuracy ––
by Justice Kavanaugh. Though the Court, before Illinois Brick , had
never previously relied on a close reading of the Clayton Act, Justice
Brennan interrogated the statutory text first. 81 He attended especially
to its “any person who shall be injured” language, and found therein the
right for all, and “especially for consumers,” to seek a “remedy” for an-
titrust-related injuries. 82 Justice Kavanaugh began the same way and
drew the same conclusions from the same statutory language. 83 He then
forged further along the same path, by stating that the text’s remedial
focus should be a hermeneutic for interpreting ambiguous precedent, 84
an advance that would no doubt have pleased the author of the Illinois
Brick dissent.
(^78) One can imagine a Rawlsian “maximin” argument for this position. See J OHN RAWLS , A
THEORY OF JUSTICE 130 – 152 (rev. ed. 1999 ). (^79) Cf. Edward D. Cavanagh, Illinois Brick : A Look Back and a Look Ahead , 17 L OY.
CONSUMER L. R EV. 1 , 43 – 44 ( 2004 ). (^80) See Barak D. Richman & Christopher R. Murray, Rebuilding Illinois Brick : A Functionalist
Approach to the Indirect Purchaser Rule , 81 S. CAL^.^ L.^ R^ EV.^69 ,^77 (^2007 ). (^81) Illinois Brick Co. v. Illinois, 431 U.S. 720 , 748 ( 1977 ) (Brennan, J., dissenting). (^82) Id. at 748 , 754. (^83) See Apple , 139 S. Ct. at 1520. (^84) Id. at 1522.
2019 ] THE SUPREME COURT –– LEADING CASES 391
reweighted the competing policy considerations in favor of victim
compensation.
Given the prevalence of state-level Illinois Brick repealers, the ad-
vent of parens patriae , and the increasing sophistication of economic
methods suitable for pass-through calculations, this reorientation of
fundamental values signals the unraveling of Illinois Brick. The
ascendancy of a procompensation framing of antitrust standing inclines
toward the express allowance of offensive pass-through arguments.
This inclination is more likely to become manifest than in the past given
practical developments since Illinois Brick. 94 Far from settling the
debate over antitrust standing, the Court's holding in Illinois Brick
provoked a public controversy that included no less than a “decade of
congressional hearings.” 95 One consequence was states’ enactment of
Illinois Brick repealers –– statutes meant to override the precedent for
state courts. 96 In the face of an extensive record of state court adjudi-
cations, it becomes increasingly implausible for federal courts to insist
the necessary damages calculations pose insuperable difficulties. 97 De-
velopment of more sophisticated economic instruments is also believed
to provide much improved prospects for damages calculations. 98 Sec-
ond, state Attorneys General’s capacity to bring a suit on behalf of nu-
merous aggrieved consumers under parens patriae is just the sort of pro-
cedural device that would alleviate concerns that insufficient
consolidation of claims would vitiate deterrence. 99
Justice Kavanaugh did not mention any of these developments ex-
plicitly in his Apple opinion, instead portraying the Court’s reasoning as
furthering the primary goals underlying Illinois Brick. However, a
closer analysis of the opinion reveals a reweighting of traditional anti-
trust values more closely aligned with Justice Brennan’s dissent in
Illinois Brick. This inversion of values in Apple , together with the de-
velopments in legislation and economic models since 1977 , under-
scores the present fragility of Illinois Brick.
(^94) See generally Kevin J. O’Connor, Is the Illinois Brick Wall Crumbling? , 15 A NTITRUST 34 ( 2001 ). (^95) See generally Eskridge, supra note 7 , at 365. (^96) See Davis, supra note 75 , at 375 – 76. (^97) See Brief of Antitrust Scholars, supra note 90 , at 26 – 30. (^98) Id. (^99) See Davis, supra note 75 , at 385 n. 46.
