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High court decision in Apple class action case may have wide implications

High court decision in Apple class action case may have wide implications

The U.S. Supreme Court’s eventual ruling on the issue of whether Apple Inc. can be subjected to class action lawsuits over the sale of iPhone apps could have wide implications for e-commerce firms, legal experts say.

The high court last week agreed to consider the January 2017 ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in In Re: Apple iPhone Antitrust Litigation, Robert Pepper et al. v. Apple Inc., in which the court overturned a lower court ruling and said Apple must proceed with the litigation. The plaintiffs are seeking treble damages under the Clayton Antitrust Act of 1914.

Some experts believe the Supreme Court may overturn the 9th Circuit ruling because the U.S. Solicitor General, which was invited to submit a brief by the court, disagrees with the decision.

At issue in the 9th Circuit ruling is whether consumers can be considered indirect purchasers of the iPhone apps developed by third parties, and therefore disqualified from pursuing class action litigation. Experts say other major firms, including Amazon Inc., Google L.L.C., eBay Inc. and online travel reservation firms, could be drawn into similar federal litigation if the 9th Circuit ruling is upheld.

Plaintiffs in the Apple case, who say they purchased iPhones and iPhone applications between 2007 and 2013, charge that the Cupertino, California-based firm monopolized the iPhone app market, according to the 9th Circuit ruling.

Apple prohibits app developers from selling iPhone apps through channels other than its store, threatening to cut off sales by any developer who violates its rules and iPhone owners with voiding their warranties if they download unapproved apps, according to the ruling.

The question before the court was whether, under a 1977 ruling by the U.S. Supreme Court in Illinois Brick Co. v. Illinois, consumers could only be considered indirect consumers of the apps, and therefore barred from pursuing their litigation. A unanimous three-judge appellate panel held the plaintiffs were direct consumers and could proceed.

“Apple is a distributor of the iPhone apps, selling them directly to purchasers through its App Store,” the ruling concludes. “Because Apple is a distributor, Plaintiffs have standing under Illinois Brick to sue Apple for allegedly monopolizing and attempting to monopolize the sale of iPhone apps.”

As the ruling notes, its decision disagrees about this issue with a 1998 ruling by the 8th U.S. Circuit Court of Appeals in St. Louis in Campos v. Ticketmaster, involving concert ticket purchasers who sued West Hollywood, California-based Ticketmaster Corp., alleging it was a monopoly supplier.

In its amicus brief urging the Supreme Court to take the case, the Trump administration states the 9th Circuit departs from the high court’s precedents and “in allowing respondent’s respondents’ treble-damages claim to go forward, the court of appeals rejected the Eighth Circuit’s view on an important question of federal antitrust law.”

The case’s significance is “the Supreme Court is going to be looking at the way that companies actually do business” as intermediaries in this modern economy, said Alden L. Atkins, a partner with Vinson & Ellis L.L.P. in Washington, D.C. “You’ve got a lot of companies that are acting as intermediaries between two people, and actually aren’t selling anything, and the Supreme Court is going to take a look at the realities of this and decide how this case and how antitrust law applies to it,” he said.

“The betting is normally, when the Supreme Court takes a case, it’s because they have a problem with the decision of the court below,” so “the Supreme Court might be inclined to reverse,” but it is hard to say how the court will rule, Mr. Atkins said.

Mr. Atkins said the ruling could affect companies including Inc. and eBay Inc., which also act as intermediaries between the product producer and consumer, and online travel companies that sell tickets on behalf of airlines’ behalf.

Bruce D. Sokler, a member of law firm Mintz Levin Cohn Ferris Glovsky & Popeo P.C. in Washington, said the case is “potentially significant, both for Apple, depending on how it turns out, and also if the Supreme Court decides to reassess the current rules on standing for direct and indirect purchasers.”

Apple’s App Store is a “walled garden,” and “those walls might be breached.” He added the ruling could apply to other companies as well, and “I would assume that we’ll see a fair number of amicus briefs come in on both sides of the issue.”

Jonathan M. Jacobson, a partner with Wilson Sonsini Goodrich & Rosati P.C. in New York, said while the circuit conflict makes the Supreme Court’s review of the issue unsurprising, a broader issue is that while federal law prohibits antitrust litigation again indirect purchasers, 26 states allow it. “Unfortunately, that is not the issue raised in the lower courts, and so will not be part of the court’s decision,” he said.

“At some point, either Congress or the courts must face this issue because the way indirect purchase litigation is conducted today is really a mishmash, and is creating all sorts of problems for companies,” Mr. Jacobson said.


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