February 06, 2019

The U.S. Supreme Court could soon make it much more complicated to litigate price-fixing lawsuits, including major class actions, if the justices reverse a 1977 precedent that limits indirect purchasers' ability to bring antitrust claims.

Sometime this session, the justices will issue their opinion in Apple Inc. v. Robert Pepper et al., the tech giant's bid to undo a Ninth Circuit decision reviving a suit from consumers who accused Apple of monopolizing the app market. The company argues that for the purposes of this case, the consumers should be considered indirect purchasers because they don't buy apps directly from developers but from Apple's App Store.

The ramifications of the case could go well beyond the fate of the app store if the court directly addresses Apple's assertion that the case is barred by the high court's 1977 ruling in Illinois Brick v. Illinois, which limited the antitrust claims that indirect purchasers can bring. The largely cooperative relationship between direct and indirect purchasers in price-fixing class actions could be in for a jolt if the Supreme Court takes on that relationship directly as it considers the app store case.

While many think the high court's opinion will avoid Illinois Brick entirely, dozens of states have pushed for the justices to overturn the precedent, which has generally limited federal antitrust claims under the Sherman and Clayton acts to "direct" purchasers of the price-fixed product or service, not "indirect" buyers further down the chain. The high court imposed the limitation to avoid overcomplicating litigation and to help shield antitrust defendants from multiple layers of potential liability arising from the same conduct.

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The scope of any change from tossing the precedent would depend on how the justices tackle it, attorneys noted. Perhaps most important to any repercussions would be the fate of another key antitrust precedent, the 1968 decision in Hanover Shoe v. United Shoe Machinery, which holds that antitrust defendants cannot assert as a defense that plaintiffs passed on any overcharges to their customers.

Asciolla argues that it's not clear the justices would tackle Hanover Shoe even if they overturn Illinois Brick. If Hanover Shoe is left intact but Illinois Brick is overturned, Asciolla said it could make the different types of classes antagonistic as they battle over the same pot of money.

"That's less than ideal," he said.

Although he envisions solutions that could keep the different classes from fighting over the damages, he predicts they would be a burden to courts. One possibility could be for direct purchasers to pursue claims under a theory of lost profit while indirect buyers seek damages based on overcharges.

According to Asciolla, the different classes would likely be able to agree on the overall amount of overcharges.

"Where they probably would not agree is how it's apportioned," he said.

Disputes over apportionment may necessitate a third party, after any settlement, to split up the award pie, he said. He cautioned, however, that matters get far more complicated if there's no settlement, with apportionment potentially requiring its own phase of trial in an extra layer of complexity.

Benjamin D. Brown, Cohen Milstein Sellers & Toll PLLC's antitrust practice co-head, said, "It's challenging to track the ripples of overcharges through the economy and through different levels of distribution." 

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Brown worries in particular that a removal of Illinois Brick, when coupled with an increasingly high bar for class certification that could be further raised if judges are concerned with determining damages, would make it harder for private antitrust enforcement to continue effectively at all.

"If classes can't be certified, most cases can't be brought as a practical matter," he said.

But Brown said there's not much likelihood of a reversal. Federal lawmakers have tried repeatedly to overturn Illinois Brick at the national level only for those efforts to sputter in Congress, he said, and the Supreme Court generally takes such inaction as a strong counterweight in favor of maintaining old decisions.

"If there was a need for a change in policy, from a pragmatic perspective, you would expect the Congress to take action," Brown said.

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