Amicus Curiae Brief — Apple Inc. v. Pepper, 138 S. Ct. 351 (2017) (No. 17-204)

No. 17-204

IN THE

Supreme Court of the Anited States

APPLE INC.,

Petitioner,

Vv.

ROBERT PEPPER, et al,

Respondents.

On Writ of Certiorari

to the United States Court of Appeals

for the Ninth Circuit

BRIEF OF ANTITRUST SCHOLARS AS

AMICI CURIAE IN SUPPORT OF RESPONDENTS

ERIc A. POSNER LAUREN M. WEINSTEIN

MOLOLAMKEN LLP Counsel —

300 North LaSalle St. ROBERT K.

Suite 5350 WILLIAM J. COOPER

Cc IL, 60654 MOLOLAMKEN LLP

(312) 5 The Watergate, Suite 660

600 New -, Ave., N.W.

Wi .C. 20087

(ate) ESE 2000

lweinstein@mololamken.com

Counsel for Amici Curiae

WALSON-EPES PRINTING Co., Inc. — (202) 789-0096 — WasHiNGTON, D.C. 20002

Interest of Amici Curiae

Summary of Argument

Argument

I.

Il.

Il.

TABLE OF CONTENTS

Healthy Market Competition Depends on

Private Antitrust Enforcement

A. Private Actions Are Crucial to

Successful Enforcement of the

Antitrust Laws

B. Private Actions Are

Particularly

Important in Light of Increasing

Market Concentration

Extending /Uinois Brick To Bar Suits

by Certain Direct Purchasers Would

Cripple Private Antitrust Enforcement.......

A. Petitioner’s Proposed Rule Would

Threaten To Eliminate Enforce-

ment by the Only Parties with

Incentives To Sue

B. Petitioner’s Proposed Rule Would

The Rationales Underlying /Uinois Brick

Do Not Support Its Further Expansion ......

A. State-Law Antitrust Litigation

Has Largely Eliminated Many of

the Benefits /Uinois Brick Was

Intended To Provide

(i)

13

14

15

19

ii

TABLE OF CONTENTS—Continued

Page

B. Courts Are Now Well-Equipped

To Address Damages-Allocation

Problems 26

30

Conclusion

TABLE OF AUTHORITIES

CASES

Am. Needle, Inc. v. Nat'l Football League,

560 U.S. 183 (2010)

Page(s)

Arizona v. Shamrock Foods Co.,

729 F.2d 1208 (9th Cir. 1984)

459 U.S. 519 (1983)

Blue Cross & Blue Shield United of Wis. v.

Marshfield Clinic,

65 F.3d 1406 (7th Cir. 1995)

In re Brand Name Prescription Drugs

Antitrust Litig., 123 F.3d 599

(7th Cir. 1997)

California v. ARC Am. Corp.,

490 U.S. 93 (1989)

15

Campos v. Ticketmaster Corp.,

140 F.3d 1166 (8th Cir. 1998)

16

Conwood Co. v. U.S. Tobacco Co.,

290 F.3d 768 (6th Cir. 2002)

Corr. Servs. Corp. v. Malesko,

534 U.S. 61 (2001)

Dickson v. Microsoft Corp.,

309 F.3d 193 (4th Cir. 2002)

Eleven Line, Inc. v. N. Tex. State Soccer

Ass'n, 213 F.3d 198 (5th Cir. 2000).............

In re Fla. Microsoft Antitrust Litig.,

No. 99-27340, 2002 WL 31423620

(Fla. Cir. Ct. Aug. 26, 2002)

iv

TABLE OF AUTHORITIES—Continued

Page(s)

Fontana Aviation, Inc. v. Cessna Aircraft

Co., 617 F 2d 478 (7th Cir. 1980) 17

FTC v. Actavia, Inc.,

570 U.S. 136 (2013) 5 oe

Gordon v. Microsoft Corp..,

No. 00-5994, 2001 WL 366432

(Minn. Dist. Ct. Mar. 30, 2001) 28

Hanover Shoe, Inc. v. United Shoe

Mach. Corp., 392 U.S. 481 (1968) ........... 1, 15, 27

Hawaii v. Standard Oil Co.,

405 U.S. 251 (1972) 13

Il. Tool Works Inc. v. Indep. Ink, Inc.,

547 U.S. 28 (2006) 5

Il. Brick Co. v. Illinois,

431 U.S. 720 (1977) passim

Kansas v. UtiliCorp United Inc.,

497 U.S. 199 (1990) 25

Leegin Creative Leather Prods., Inc. v.

PSKS, Inc., 551 U.S. 877 (2007) 2,23

Loeb Indus., Inc. v. Sumitomo Corp.,

306 F.3d 469 (7th Cir. 2002) 20, 21

Lowell vy. Am. Cyanamid Co.,

177 F.3d 1228 (11th Cir. 1999) 17

Med. Sav. Ins. Co. v. HCA, Inc.,

No. 2:04-CV-156, 2005 WL 1528666

(M.D. Fla. Jun. 24, 2005) 20

In re Mercedes-Benz Anti-Trust Litig.,

364 F. Supp. 2d 468 (D.N.J. 2005) 20

In re Microsoft Corp. Antitrust Litig.,

218 F.R.D. 449 (D. Md. 2003) 19

Vv

TABLE OF AUTHORITIES—Continued

Page(s)

Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985)................. 10

N.C. State Bd. of Dental Exam’rs v. FTC,

135 S. Ct. 1101 (2015) 3

Ohio v. Am. Express Co.,

138 S. Ct. 2274 (2018) 2

Paper Sys. Inc. v. Nippon Paper Indus. Co.,

281 F.3d 629 (7th Cir. 2002) 11

Reiter v. Sonotone Corp.,

442 U.S. 330 (1979) 10

In re S.D. Microsoft Antitrust Litig.,

657 N.W.2d 668 (S.D. 2003) 28

State Oil Co. v. Khan,

522 U.S. 3 (1997) 23

United States v. Microsoft,

253 F.3d 34 (D.C. Cir. 2001) 18

Zenith Radio Corp. v. Hazeltine Research,

Inc., 395 U.S. 100 (1969) 10

STATUTES

An Act To Protect Trade and Commerce

Against Unlawful Restraints and

Monopolies, 26 Stat. 209 (1890) i)

Clayton Antitrust Act of 1914, Pub. L.

No. 63-212, 38 Stat. 730 9, 11

15 U.S.C. § 15a) 9, 11

15 U.S.C. § 15a 11

15 U.S.C. § 16a) 9

Class Action Fairness Act of 2005, Pub. L.

No. 109-2, 119 Stat. 4 25

28 U.S.C. § 1332(d) 25

vi

TABLE OF AUTHORITIES—Continued

Page(s)

Cal. Bus. & Prof. Code § 16750(a) vs 25

OTHER AUTHORITIES

Am. Antitrust Inst., Comments of the

American Antitrust Institute Working

Group on Remedies to the Antitrust

Modernization Commission

(June 17, 2005), https-//govinfo.library

remedies pdf/AAI Remedies.pdf occ... 17

Antitrust Modernization Comm’n, Report

Phillip E. Areeda & Herbert Hovenkamp,

et al., Antitrust Law (4th ed. 2014) ........... passim

Leonardo J. Basso & Thomas W. Ross,

Measuring the True Harm from Price-

Fiaing to Both Direct and Indirect

Purchasers, 58 J. Indus. Econ. 895

(2010) 28

Joseph P. Bauer, The Stealth Assault on

Antitrust Enforcement: Raising the

Barriers for Antitrust Injury and

Standing, 62 U. Pitt. L. Rev. 437 (2001)......... 16

Roger D. Blair & Jeffrey L. Harrison,

Reexamining the Role of Illinois Brick

in Modern Antitrust Standing Analysis,

68 Geo. Wash. L. Rev. 1 (1999) 17, 28

Jan Boone & Wieland Miller, The

Mstribution of Harm in Price-Fixing

Cases, 30 Int’! J. Indus. Org. 265 (2012) .......... 28

Robert H. Bork, The Antitrust Paradox

(2d ed. 1993) 11

vii

TABLE OF AUTHORITIES—Continued

Page(s)

William Breit & Kenneth G. Elzinga,

Antitrust Enforcement and Economic

Efficiency: The Uneasy Case for Treble

Damages, 17 J.L.. & Econ. 329 (1974) ............. 10

Edward D. Cavanagh, Illinois Brick: A

Look Back and a Look Ahead, 17 Loy.

Consumer L. Rev. 1 (2004)

John M. Connor & Robert H. Lande, Not

Treble Damages: Cartel Recoveries

Are Mostly Less Than Single

Damages, 100 lowa L. Rev.

1997 (2015) 13

Andrew I. Gavil, Thinking Outside the

Illinois Brick Box: A Proposal for

Reform, 76 Antitrust L.J. 167

(2009) 16, 17, 26

yustavo Grullon, et al, Are U.S.

Industries Becoming More

Concentrated? (Social Science

Research Network, Working Paper,

June 2018) «

Martijn A. Han, Maarten P. Schinkel &

Jan Tuinstra, The Overcharge as a

Measure for Antitrust

(Amsterdam Ctr. for Law & Econ.,

&

Economist’s Perspective (Max Planck

Inst. for Research on Collective Goods,

Working Paper No. 2006-22,

Sept. 2006) 29

viii

TABLE OF AUTHORITIES—Continued

Page(s)

Hindelang Criminal Justice Research

Ctr., Univ. at Albany, Sourcebook of

Criminal Justice Statistics Online:

Antitrust Cases Filed in U.S. District

Courts (2012), https://www.albany

.edu/sourcebook/pdf/t5412012.pdf............. 12

Herbert Hovenkamp, The Rationalization

of Antitrust, 116 Harv. L. Rev. 917

(2003) 16, 18

Earl W. Kintner & Joseph P. Bauer,

et al., Federal Antitrust Law (1980) ............ 10, 27

Robert H. Lande, et al, Benefits from

Private Antitrust Enforcement: An

Analysis of Forty Cases, 42 U.S.F.

ns BRR. GIR i rrencsceresnstenseenmsnesesseeseessseneses 12

Mark A. Lemley & Christopher R. Leslie,

Antitrust Arbitration and Illinois

Brick, 100 Iowa L. Rev. 2115 (2015)................ 29

Jan De Loecker & Jan Eeckhout,

The Rise of Market Power and the

Macroeconomic Implications

(Nat'l Bureau of Econ. Research,

Ramona Mateiu, In re Microsoft Corp.

Antitrust Litigation, 17 Berkeley

Tech. L.J. 295 (2002) 18, 19

Mem. from the Antitrust Modernization

Comm’n Staff to All Comm’rs

(May 4, 2006), https://govinfo.library

-unt.edu /ame/pdf/meetings/Civ Rem-

IndP_DiseMemo060504-fin. pdf. 16

ix

TABLE OF AUTHORITIES—Continued

Page(s)

Barak D. Richman & Christopher R.

Murray, Rebuilding Illinois Brick: A

Functionalist Approach to the Indirect

Purchaser Rule, 81 8. Cal.

L. Rev. 69 (2007) 17, 28, 29

Maarten Pieter Schinkel, et al , /Uinois

Walls: How Barring Indirect Purchaser

Suits Facilitates Collusion, 39 RAND J.

Econ. 683 (2008) 17, 18

Carl Shapiro, Antitrust in a Time of

Populism, Int’! J. Indus. Org.

(forthcoming 2018) 13

Steven Shavell, Foundations of Economic

Analysis of Law (2004) ——

Statistica, www.statistica.com 14

U.S. Courts, Table C-2A,

files/data_tables/jb c2a 0930.2017.pdf........... 12

U.S. Dep’t of Justice, Antitrust Div.

Workload Statistics F'Y 2008-2017,

https://www. justice.gov/atr/file/788426/

download 12

Frank Verboven & Theon van Dijk, Cartel

Damages Claims and the Passing-On

Defense, 57 J. Indus. Econ. 457 (2009)............ 28

ROBERT PEPPER, et al,

Respondents.

On Writ of Certiorari

to the United States Court of Appeals

for the Ninth Circuit

BRIEF OF ANTITRUST SCHOLARS AS

AMICI CURIAE IN SUPPORT OF RESPONDENTS

INTEREST OF AMICI CURIAE'

Amici curiae are leading scholars with decades of ex-

perience in antitrust law and economics. They have stud-

ied and written numerous articles, book chapters, and

other papers about Hanover Shoe, Inc. v. United Shoe

Machinery Corp., 392 U.S. 481 (1968); [Uinois Brick Co.

v. Illinois, 431 U.S. 720 (1977); or other significant anti-

' No counsel for a party authored this brief in whole or in part; no

such counsel or party made a monetary contribution intended to

fund the preparation or submission of the brief; and no person other

than amici and their counsel made such a contribution. Letters con-

senting to the filing of this brief have been filed with the Clerk.

2

trust cases, as well as the policy effects of those decisions

on markets. Amici thus have a strong interest in the

sound development of antitrust law.

Joseph P. Bauer is a Professor Emeritus of Law at

Notre Dame Law School. An expert in the field of anti-

trust, Professor Bauer is the co-author of the Kintner

and Bauer Federal Antitrust Law treatise. He is a

member of the Advisory Board of the American Antitrust

Institute, and he has served as a consultant to the Feder-

al Trade Commission’s Bureau of Competition and as a

member of the Association of American Law Schools’ An-

titrust Section Executive Committee. Professor Bauer

has testified on numerous occasions before Senate and

House committees and subcommittees and in judicial

proceedings.

Herbert Hovenkamp is the James G. Dinan University

Professor at the University of Pennsylvania Law School

and the Wharton School. Long recognized as a leading

antitrust scholar, Professor Hovenkamp has published

scores of books, articles, and other writings in the field,

including the seminal Philip E. Areeda and Herbert

Hovenkamp antitrust treatise, Antitrust Law, which this

Court has cited on numerous occasions. See, e.g., Ohio v.

Am. Express Co., 138 S. Ct. 2274, 2284 (2018); Am. Nee-

dle, Inc. v. Nat'l Football League, 560 US. 183, 190-191

& n2 (2010); Leegin Creative Leather Prods. Inc. v.

PSKS, Inc., 551 U.S. 877, 894 (2007).

Rebecca Haw Allensworth is a Professor of Law at

Vanderbilt Law School. She teaches and writes about

antitrust law, with a particular emphasis on occupational!

licensing. She has received the Jerry S. Cohen Memorial

Fund Writing Award for groundbreaking antitrust schol-

arship, and this Court has cited her work in the field. See

3

N.C. State Bd. of Dental Exam’rs v. FTC, 135 S. Ct. 1101,

1116 (2015).

Darren Bush is a Professor of Law at the University

of Houston Law Center. His scholarship focuses on the

intersection of regulation and antitrust, and he is the co-

author of a popular antitrust casebook, Free Enterprise

and Economic Organization: Antitrust. Professor Bush

has served as a Trial Attorney in the Department of Jus-

tice’s Antitrust Division, and he has testified on antitrust

matters before congressional committees and federal

commissions.

Peter C. Carstensen is a P fessor of Law Emeritus at

the University of Wisconsin Law School and serves as a

Senior Fellow of the American Antitrust Institute. Prior

to entering academia, he worked for the Antitrust Divi-

sion of the U.S. Department of Justice.

Edward C. Cavanagh is a Professor of Law at St.

John’s School of Law. He has lectured and published

widely in the areas of antitrust and complex litigation.

He has held various leadership positions within the

American Bar Association’s Antitrust Section and has

served as chair of the New York State Bar Association

Antitrust Section.

Andrew Chin is a Professor of Law at the University

of North Carolina School of Law. His primary research

interests include antitrust and intellectual property law.

His scholarship has explored the application of antitrust

principles to innovative computer technology markets.

Nicholas Economides is a Professor of Economics at

the New York University Leonard N. Stern School of

Business. He has published more than 100 academic ar-

ticles on topics including antitrust and oligopoly. He has

a special interest in high-tech industries.

4

Andrew I. Gavil is a Professor of Law at the Howard

University School of Law. He has written and lectured

extensively on various aspects of antitrust law, policy,

and litigation, and he has authored two major articles on

[Uinois Brick. He is the lead author of an antitrust case-

book (Antitrust Law in Perspective) and a former Direc-

tor of the Office of Policy Planning at the Federal Trade

Commission.

Jeffrey L. Harrison is a Professor of Law at the Uni-

versity of Florida’s Levin College of Law. Professor

Harrison holds a Ph.D. in Economics and Business Ad-

ministration in addition to a law degree and has authored

numerous books and articles on antitrust and the eco-

nomic analysis of law, including analyses of the direct-

purchaser rule.

Thomas J. Horton is a Professor of Law at the Uni-

versity of South Dakota School of Law. Professor Hor-

ton spent 28 years as an antitrust litigator, including for

the Antitrust Division of the U.S. Department of Justice.

He has testified on antitrust issues before the House

Subcommittee on Regulatory Reform, Commercial, and

Antitrust Law, and he is an Advisory Board member of

the American Antitrust Institute.

Max Huffman is a Professor of Law at the Indiana

University Robert H. McKinney School of Law. Profes-

sor Huffman was formerly a trial attorney with the Anti-

trust Division of the U.S. Department of Justice. He is a

co-editor of the Kintner and Bauer Federal Antitrust

Law treatise and frequently writes and speaks on anti-

trust and consumer-law topics.

John B. Kirkwood is a Professor of Law at Seattle

University School of Law. He is a Senior Fellow of the

American Antitrust Institute and an Adviser to the Insti-

tute of Consumer Antitrust Studies, and he sits on the

5

Executive Committee of the Antitrust and Economic

Regulation Section of the Association of American Law

Schools.

Marina Lao is the Edward S. Hendrickson Professor

of Law at the Seton Hall University School of Law. She

has written, lectured, and commented extensively on an-

titrust law and policy. Professor Lao has served as a Tri-

al Attorney in the Department of Justice’s Antitrust Di-

vision and as Director of the Office of Policy Planning at

the Federal Trade Commission.

Christopher Leslie is a Chancellor’s Professor of Law

at the University of California, Irvine School of Law. His

scholarship focuses on antitrust law, especially its inter-

section with intellectual-property issues. He is a co-

author of the leading /P and Antitrust treatise, which

this Court has cited on numerous occasions. See, eg.,

FTC v. Actavis, Inc., 570 U.S. 136, 155 (2013); J. Tool

Works Inc. v. Indep. Ink, Inc., 547 U.S. 28, 43 n.4 (2006).

Barak Richman is the Edgar P. and Elizabeth C. Bart-

lett Professor of Law and Business Administration at

Duke University School of Law. His primary research

interests include antitrust law and economics.

Chris Sagers, a nationally recognized expert on Amer-

ican competition policy, is the James A. Thomas Profes-

sor of Law at Cleveland State University. He has testi-

fied before Congress and the Antitrust Modernization

Commission and is a co-author of The Law of Antitrust.

He is a member of the American Law Institute and a

Senior Fellow of the American Antitrust Institute.

Tim Wu is the Silver Professor of Law, Science, and

Technology at Columbia Law School. He is a leading

scholar in the fields of antitrust, intellectual property,

and communications law. In addition to his scholarship,

6

Professor Wu has served as an advisor to the Federal

Trade Commission and the White House National Eco-

nomic Council.

Amici respectfully submit this brief to emphasize the

important policy ramifications of the issues presented.

The views expressed are those of the individual amici

and not of their affiliated organizations.

SUMMARY OF ARGUMENT

For over forty years, this Court’s decision in /linois

Brick Co. v. IUinois, 431 U.S. 720 (1977), has prohibited

indirect purchasers—ze., those who do not transact di-

rectly with an alleged antitrust violator—from bringing

treble-damages suits under the Clayton Act. Petitioner

seeks a novel expansion of that rule. In petitioner’s view,

even those who buy goods or services directly from an

antitrust violator should not be permitted to sue that vio-

lator for damages if a third party had some role in setting

the price they paid. That expansion would unduly re-

strict private treble-damages actions—a key element of

the enforcement regime Congress designed.

I. The Sherman Act created a private right of action

allowing parties injured by violations to sue for treble

damages. The Clayton Act contains a similar provision.

Those provisions reflect Congress’s intent that private

actions would form a central component of enforcement

of the antitrust laws. In keeping with that design, private

parties file the vast majority of antitrust actions.

Maintaining robust private enforcement of the anti-

trust laws is even more important in the current market.

The last several decades have seen rising concentra-

tion—and decreasing competition—across nearly all in-

dustries, creating opportunities for abuse of market pow-

er and antitrust violations. The markets in which Apple

7

participates are no exception: The mobile app, smart-

phone, personal computing, operating system, and mobile

operating system markets are all highly concentrated,

with Apple holding significant market share.

II. Petitioner’s proposed expansion of /lWinois Brick

threatens the private enforcement regime Congress de-

signed. This Court has long emphasized the importance

of ensuring that some party with an incentive to sue is

able to seek enforcement of the antitrust laws. Those

concerns are justified: The number of parties with incen-

tives to sue monopolists like Apple is already limited.

Some commercial purchasers fear disrupting vital supply

relationships. Others have no economic incentive to sue

because antitrust violators share monopoly profits with

them. Expanding the direct-purchaser rule as petitioner

suggests would further limit the pool of potential plain-

tiffs, threatening to eliminate private enforcement alto-

gether for certain violations.

Petitioner’s rule would also draw arbitrary distinctions

between direct purchasers. Petitioner claims that /li-

nois Brick requires the selection of one appropriate

plaintiff. But this Court has never announced such a

rule. Court after court has recognized that, where an an-

titrust violator directly harms multiple parties in differ-

ent markets, each victim may be a direct purchaser who

may sue for the distinct harm it suffered. Arbitrarily ex-

cluding one set of direct purchasers threatens under-

deterrence in an era when multisided markets are in-

creasingly common.

Petitioner’s theory would further undermine enforce-

ment by permitting monopolists and cartelists to avoid

liability through clever transaction structuring. Econom-

ically identical transactions could be recast to vest sole

“direct purchaser” status in the party least likely to sue.

8

Retaining this Court’s bright-line /Winois Brick rule—in

which any party that transacts directly with an antitrust

violator may sue for damages—would avoid such games-

manship.

Ill. Expanding /Winois Brick as petitioner requests

would make even less sense in light of developments over

the intervening decades. This Court adopted the direct-

purchaser rule based on perceived difficulties in appor-

tioning overcharges and the potential for duplicative re-

coveries. But over the decades since, state law has

evolved to permit indirect-purchaser actions that are

barred under federal law, and those cases are routinely

heard in federal court. Courts will thus confront such is-

sues regardless of what the Court decides in this case.

Advances in economic analysis also mitigate many of

the Court’s concerns in /llinois Brick. That decision

sought to simplify damages calculations in light of the

primitive state of econometric methodology at the time.

But advances in econometrics over the last forty years

have made it relatively straightforward for economists to

determine antitrust damages in complex commercial en-

vironments where multiple parties interact. Courts rou-

tinely apply those methods of calculating damages with-

out significant difficulty. For that reason too, there is no

justification for further expanding /UWinois Brick.

ARGUMENT

This private antitrust suit falls squarely within the

traditional class of direct-purchaser actions permitted

by [Uinois Brick Co. v. Ilinois, 431 U.S. 720 (1977). Pe-

titioner acknowledges that “Apple distributes”—<e.,

sells—“apps ‘directly’ to consumers via the App Store.”

Pet. Br. 34. But petitioner nonetheless asserts that those

customers are not direct purchasers for purposes of /ll:-

nois Brick because—contrary to the well-accepted inter-

9

pretation of that decision—the immediate buyer of a

product does not qualify as a direct purchaser if a third

party is “setting the price.” /d. at 37. According to peti-

tioner, because developers rather than Apple set the

price for apps in the App Store, the customers who buy

those apps directly from Apple are not direct purchasers

and therefore cannot seek damages for Apple’s anticom-

petitive conduct. See id. at 37-38.

The rule that petitioner seeks is not an interpretation

of [lUinois Brick but an expansion of it. Petitioner invites

the Court to adopt a rule that certain consumers, al-

though direct purchasers, cannot sue for damages if a

third party was involved in setting the price for the prod-

uct. That extension of /Uinois Brick would severely limit

the pool of potential private enforcers and, in many

cases, eliminate private enforcement altogether.

1}. HEALTHY MARKET COMPETITION DEPENDS ON

PRIVATE ANTITRUST ENFORCEMENT

A. Private Actions Are Crucial to Successful

Enforcement of the Antitrust Laws

From the outset, Congress designed the antitrust laws

to rely on private enforcement to deter anticompetitive

behavior. As originally enacted, the Sherman Act pro-

vided that any person “injured in his business or proper-

ty” by a violation could “sue therefor * * * and shall re-

cover threefold the damages by him sustained, and the

costs of suit.” An Act To Protect Trade and Commerce

Against Unlawful Restraints and Monopolies, §7, 26 Stat.

209, 210 (1890). That provision now appears as Section 4

of the Clayton Act, while Section 5 expressly grants pre-

clusive effects in private actions to prior judgments ob-

tained by the United States. See Clayton Antitrust Act

of 1914, Pub. L. No. 63-212, §§ 4, 5, 38 Stat. 730, 731 (cod-

ified at 15 U.S.C. §§ 15(a), 16(a)).

10

The antitrust laws thus seek to promote competition

by creating a two-track enforcement regime, with private

actions “supplementiing] public enforcement, which is

inevitably selective.” 2A Phillip E. Areeda & Herbert

Hovenkamp, et al, Antitrust Law %9330b, at 41 (4th ed.

2014); see also 1 Earl W. Kintner & Joseph P. Bauer, et

al, Federal Antitrust Law §4.18, at 241-242 (1980)

(Sherman Act “surpassed the common law” by creating a

private right of action for treble damages). “The interest

in wide and effective enforcement has * * * , for [over] a

century, been vindicated by enlisting the assistance of

‘private Attorneys General,’” and this Court has “always

attached special importance to their role because ‘every

violation of the antitrust laws is a blow to the free-

enterprise system envisaged by Congress.’” Mitsubishi

Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.

614, 653-654 (1985) (alteration omitted) (quoting Hawaii

v. Standard Oil Co., 405 U.S. 251, 262 (1972)); see also

Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979) (“[T}he

leading proponents of the legislation perceived the tre-

ble-damages remedy * * * as a means of protecting con-

sumers * * * .”); JIL Brick, 431 U.S. at 745 (noting the

“longstanding policy of encouraging vigorous private en-

forcement of the antitrust laws”).

Private enforcement is crucial “not merely to provide

private relief” to injured consumers but also “to serve

*** the high purpose of enforcing the antitrust laws.”

Zenith Radio Corp. v. Hazeltine Research, Inc., 395 US.

100, 130-131 (1969); see William Breit & Kenneth G. El-

zinga, Antitrust Enforcement and Economic Efficiency:

The Uneasy Case for Treble Damages, 17 J.L. & Econ.

329, 329 (1974) (private enforcement actions are “the

strongest pillar” and “foundation” of antitrust law (quo-

tation marks omitted)). While government regulators

11

may seek to enjoin antitrust violations, only private par-

ties may seek treble damages. See 15 U.S.C. §§ 15(a),

15a. That remedy is critical to ensuring adequate deter-

rence. By “generat{ing] a powerful financial incentive for

injured persons to detect, disclose, attack, and end viola-

tions of the antitrust laws,” the threat of treble damages

“offset{s] the probability that a secret violation may not

be detected and prosecuted.” 2A Areeda & Hovenkamp,

supra, 1330b, at 40-41.

Indeed, absent the threat of treble damages, defend-

ants would often have strong incentives to violate the an-

titrust laws and simply pay any penalty imposed. “For

example, if damages for cartel price fixing were limited

to the overcharge, prospective cartel members would

think it profitable to enter the cartel if there is any sub-

stantial likelihood that they would not be caught,” be-

cause, “[a]t worst, they would merely have to pay back

the cartel’s illegal earnings.” 2A Areeda & Hovenkamp,

supra, 1330b, at 40.”

Private parties are also more likely than the govern-

ment to have information about antitrust violations, and

are thus in a better position to detect violations. See Pa-

per Sys. Inc. v. Nippon Paper Indus. Co., 281 F.3d 629,

632-633 (7th Cir. 2002) (allowing private plaintiffs “to col-

lect the full overcharge, trebled, creates powerful incen-

tives to investigate and file suit” because “(firms that

deal directly with * * * manufacturers are apt to know

the most about the inc ustry’s behavior and thus are in

* Preserving effective private enforcement is especially important in

price-fixing cases—the core of anticompetitive conduct and the con-

text in which /Uinois Brick arose. Even antitrust skeptics agree

that the per se rule against price-fixing has made “enormous” “con-

tributions to consumer welfare over the decades.” Robert H. Bork,

The Antitrust Paradox 263 (2d ed. 1993).

12

the best position to detect cartels”); Steven Shavell,

Foundations of Economic Analysis of Law 578-581

(2004) (discussing government and private incentives to

sue in tort-litigation context). “Private enforcement thus

increases the likelihood that a violator will be found out,

and greatly enlarges the penalties and thereby helps dis-

courage illegal conduct.” 2A Areeda & Hovenkamp, su-

pra, 1330b, at 41.

Consistent with Congress’s two-track enforcement

structure, today most antitrust enforcement actions are

brought by private parties rather than regulators. Pri-

vate litigation accounted for about 90% of antitrust filings

in federal court each year between 1975 and 2012. See

Hindelang Criminal Justice Research Ctr., Univ. at Al-

bany, Sourcebook of Criminal Justice Statistics Online:

Antitrust Cases Filed in U.S. District Courts (2012),

https://www.albany.edu/sourcebook/pdf/t5412012.pdf;

compare U.S. Courts, Table C-2A, http-//www.uscourts

.gov/sites/default/files/data_tables/jb c2a_ 0930.2017.pdf

(approximately 650-700 civil antitrust filed in fed-

eral courts per year from 2013 to 2017), with U.S. Dep’t

of Justice, Antitrust Div. Workload Statistics FY 2008-

2017, at 56, https:/Awww.justice.gov/atr/file/788426/

download (approximately 40-110 civil and criminal cases

filed by DOJ Antitrust Division per year from 2008 to

2017).

Empirical studies have confirmed that those private

enforcement actions are effective in deterring anticom-

petitive behavior. See, e.g., Robert H. Lande, et al, Ben-

efits from Private Antitrust Enforcement: An Analysis

of Forty Cases, 42 U.S.F. L. Rev. 879, 893-894 (2008)

(“(P}rivate litigation provides more than four times the

deterrence of the criminal fines * * * .”). That result is

unsurprising. As this Court has explained, government

13

regulators may obtain only “one injunction” against a vio-

lator. Hawaii v. Standard Oil Co. of Cal., 405 U.S. 251,

261 (1972). But “(t]he position of a defendant faced with

numerous claims for damages is much different.” bid.’

B. Private Actions Are Particularly Important in

Light of Increasing Market Concentration

Rigorous private enforcement is all the more im-

portant today because of increasing concentration across

a wide variety of industries. Recent studies provide

strong evidence that the American economy has become

significantly less competitive.

From 1997 to 2014, the average Herfindahl-Hirsch-

man Index (“HHI”), a measure of market concentration,

increased from just under 800 to almost 1200—a nearly

50% increase. Gustavo Grullon, et al, Are U.S. Indus-

tries Becoming More Concentrated? 8-9, 48 (Social Sci-

ence Research Network, Working Paper, June 2018).

HHI increased in 80% of all industries, and in some, the

increase was massive. See id. at 11.

The markets in which Apple transacts are no excep-

tion. The mobile app store market appears to be a duo-

* Concerns that private antitrust actions lead to excessive damages,

overdeter, or duplicate government actions are unfounded. The

most careful research suggests the opposite: Plaintiffs are normally

undercompensated. See, eg., John M. Connor & Robert H. Lande,

Not Treble Damages: Cartel Recoveries Are Mostly Less Than Sin-

gle Damages, 100 Iowa L. Rev. 1997, 1998 (2015) (finding that most

victims receive damages less than the overcharge). Conversely, sta-

tistical evidence shows that government agencies have underen-

forced antitrust laws by failing to block mergers that proved to have

anticompetitive effects. See Carl Shapiro, Antitrust in a Time of

Populism, Int’ J. Indus. Org., at 25 (forthcoming 2018) (observing

that there is “little evidence that mergers increase efficiency through

rationalization of production across plants or through savings in ad-

ministrative costs” despite agency enforcement).

14

poly occupied by Apple and Google, and with respect to

iPhone owners who seek to purchase apps, Apple’s app

store is effectively a monopoly. The smartphone market

is dominated by only six manufacturers, including Apple.

Eighty percent of the U.S. market for personal comput-

ers is shared by five firms, including Apple. Apple and

Microsoft share approximately ninety percent of the U.S

market for computer operating systems. And Apple and

Google share virtually 100% of the U.S. market for mo-

bile operating systems.‘

Other measures confirm the reduction in competition.

“Markups”—the amount by which a firm sets prices

above marginal cost—have risen precipitously. From

1980 to 2014, the average markup across the United

States economy nearly quadrupled from 18% to 67%. See

Jan De Loecker & Jan Eeckhout, The Rise of Market

Power and the Macroeconomic Implications 2 (Nat’! Bu-

reau of Econ. Research, Working Paper No. 23687, Aug.

2017). In that environment, the need for effective private

enforcement is even more acute.

Il. EXTENDING ILLINOIS Brick To Bar Surrs By

CERTAIN DIRECT PURCHASERS WOULD CRIPPLE

PRIVATE ANTITRUST ENFORCEMENT

Given the importance of private antitrust actions in

Congress’s enforcement scheme and the increasing

threat of market concentration, it is all the more im-

portant to secure effective remedies for injured consum-

ers. Petitioner’s theory, however, would have precisely

the opposite effect: By arbitrarily treating certain direct

* The data in this paragraph is from Statistica, an analytics software

package that provides market research information. See Statistica,

www .statistica. com (last visited Sept. 25, 2018).

15

purchasers as if they were indirect purchasers, it would

seriously undermine effective enforcement.

A. Petitioner's Proposed Rule Would Threaten To

Eliminate Enforcement by the Only Parties

with Incentives To Sue

In Hanover Shoe, Inc. v. United Shoe Machinery

Corp., 392 U.S. 481 (1968), this Court expressed concern

that antitrust violators could “retain the fruits of their

illegality” if “no one was available who would bring suit

against them.” /d. at 494. The Court was so concerned

with preserving the effectiveness of private actions that it

was willing to allow direct purchasers to sue for the en-

tire overcharge despite the possibility that they might

have passed on a portion to their customers. See id. at

48S, 494.

In [linois Brick, the Court recognized that “direct

purchasers sometimes may refrain from bringing a tre-

ble-damages suit for fear of disrupting relations with

their suppliers,” although it concluded “on balance” that

vesting the entire damages remedy in direct purchasers

would encourage vigorous enforcement. 431 U.S. at 746.

In striking that balance, the Court remained “concerned

not merely that direct purchasers have sufficient incen-

tive to bring suit under the antitrust laws * * * but rather

that at least some party have sufficient incentive to bring

suit.” California v. ARC Am. Corp., 490 U.S. 98, 102 n.6

(1989) (emphasis added) (describing /Utnois Brick); see

Il. Brick, 431 U.S. at 745-746 (“[T}he longstanding policy

of encouraging vigorous private enforcement of the anti-

trust laws supports our adherence to the Hanover Shoe

rule, under which direct purchasers * * * are permitted

to recover the full amount of the overcharge.” (citation

omitted)).

16

Those concerns were well-founded. Many direct pur-

chasers are “highly unlikely to sue” because they think

they would be better off permitting an antitrust violation

to continue rather than risking their relationship with the

alleged violator. Herbert Hovenkamp, The Rationaliza-

tion of Antitrust, 116 Harv. L. Rev. 917, 941 (2003).

Where an upstream party has market power—always the

case with a monopolist—its customers may have “few, if

any, alternative sources of supply,” and will thus be “re-

luctant to risk their relationships with suppliers by initi-

ating major antitrust litigation against them.” Andrew I.

Gavil, Thinking Outside the Illinois Brick Boz: A Pro-

posal for Reform, 76 Antitrust L.J. 167, 192 (2009). By

artificially narrowing the class of direct purchasers, peti-

tioner’s rule would seriously aggravate those concerns.

Petitioner asserts that it is “highly unlikely” that “de-

velopers may be afraid to sue Apple.” Pet. Br. 32 n.13.

But experience suggests the opposite. In Campos v.

Ticketmaster Corp., 140 F 3d 1166 (8th Cir. 1998), for ex-

ample, after the Eighth Circuit dismissed a suit by con-

cert-ticket purchasers on grounds similar to those peti-

tioner advances here, the concert venues never sued

Ticketmaster. See Joseph P. Bauer, The Stealth Assault

on Antitrust Enforcement: Raising the Barriers for An-

titrust Injury and Standing, 62 U. Pitt. L. Rev. 437, 447

(2001) (“The consequence of the Eighth Circuit’s holding

was that the only private parties who had any incentive to

bring a lawsuit, and any basis for asserting that they

were harmed, were barred from bringing a treble dam-

age action.”). Other examples abound. See, eg., Mem.

from the Antitrust Modernization Comm’n Staff to All

Comm'rs 13 (May 4, 2006), https-//govinfo.library.unt.edu

/ame/pdf/meetings/CivRem-IndP_DiseMemo060504-fin

._pdf (citing cases brought by indirect purchasers where

17

no direct purchaser or government agency sued); Am

Antitrust Inst., Comments of the American Antitrust In-

stitute Working Group on Remedies to the Antitrust

Modernization Commission 19 (June 17, 2005), https-//

govinfo.library.unt.edu/amc/publice studies fr28902/

remedies pdf/AAI Remedies.pdf (discussi.g another

case in which “no direct purchaser * * * hajd] sued in the

two years since the case was filed by indirect purchas-

ers”); see also Gavil, supra, at 191 n.73 (similar).

Moreover, whether or not developers would “fear”

bringing a lawsuit, a monopolist like Apple can remove

any incentive to sue simply by sharing a portion of the

monopoly profits. See Barak D. Richman & Christopher

R. Murray, Rebuilding Illinois Brick: A Functionalist

Approach to the Indirect Purchaser Rule, 81 S. Cal. L.

Rev. 69, 94 (2007). “[AJn upstream cartel can prevent

private litigation as long as it assures that its direct pur-

chasers downstream benefit more from the existence of

the cartel than they can claim antitrust damages for,” so

that “(t]he cartel is effectively shielded from exposure

through private litigation * * * .”. Maarten Pieter Schin-

kel, et al, Illinois Walls: How Barring Indirect Pur-

chaser Suits Facilitates Collusion, 39 RAND J. Econ.

683, 684-685 (2008). The benefits from acquiescing in a

monopolist’s conduct may be particularly easy to accept

when the purchaser can simply foist off any overcharges

on another party to the transaction. See Roger D. Blair

& Jeffrey L. Harrison, Reexamining the Role of Illinois

Brick in Modern Antitrust Standing Analysis, 68 Geo.

Wash. L. Rev. 1, 33 (1999) (direct purchaser’s motivation

to sue can depend on ability to pass on overcharge).°

* Courts have held that /Uimois Brick does not bar suits by indirect

purchasers where “the manufacturer and the intermediary are both

alleged to be co-conspirators.” Fontana Aviation, Inc. v. Cessna

18

Monopolists, for example, can ration sales among pur-

chasers, creating artificial scarcity and allowing favored

purchasers to reap some of the monopoly profits through

higher prices. See Schinkel, et al, supra, at 685. Econ-

omists have suggested that De Beers used just such a

rationing system to insulate itself from price-fixing liabil-

ity, “offerjing] sorted bundles of rough diamonds to a

small group of selected clients” who would then process

and resell those diamonds. /d. at 695. No private party

filed an antitrust case against De Beers until after the

Department of Justice brought its own case. See ibid.

Microsoft’s agreements with purchasers likewise al-

lowed it to maintain its monopoly on Intel-compatible op-

erating systems. See United States v. Microsoft, 253

F 3d 34 (D.C. Cir. 2001) (affirming finding that Microsoft

illegally maintained monopoly). The main direct pur-

ing relationship{[s| with Microsoft,” Hovenkamp, supra,

at 941, and lacked alternative suppliers, see Ramona Ma-

teiu, In re Microsoft Corp. Antitrust Litigation, 17

Berkeley Tech. L.J. 295, 307-308 (2002). In exchange for

agreeing to exclusionary provisions in their contracts

with Microsoft, the manufacturers “received various ben-

efits, including discounts, cooperation in development,

and greatly enhanced computer sales via the continuous

Aircraft Co., 617 F 2d 478, 481 (7th Cir. 1980); see also Lowell v. Am.

OCyanamid Co., 177 F 3d 1228, 1222 (11th Cir. 1999) (“IUinois Brick

does not apply to a single vertical conspiracy where the plaintiff has

purchased directly from a conspiring party in the chain of distribu-

tion.”); Arizona v. Shamrock Foods Co., T29 F 2d 1208, 1212-1213

(9th Cir. 1984) (similar). But monopolists can discourage suits by

sharing benefits from the illegal behavior with their counterparties

without expressly colluding with them. See Schinkel, ef al, supra, at

685.

19

upgrading” demanded by Microsoft’s hardware require-

ments. 2A Areeda & Hovenkamp, supra, 1346f, at 196;

see also Dickson v. Microsoft Corp., 309 F.3d 193, 222

(4th Cir. 2002) (Gregory, J., dissenting) (noting allega-

tions that “Microsoft shared some of the monopoly prof-

its with the [original-equipment manufacturers]”). Un-

surprisingly, even after a successful government en-

forcement action, no original-equipment manufacturer

sued Microsoft. See In re Microsoft Corp. Antitrust

Litig., 218 F.R.D. 449, 451 (D. Md. 2008); 2A Areeda &

Hovenkamp, supra, 1346f, at 196 n.46. One manufactur-

er even urged Texas not to join the federal government’s

case. See Mateiu, supra, at 309 n.115.

By stretching /Uinois Brick so it blocks damages suits

by large categories of injured consumers despite the fact

that they are direct purchasers, petitioner’s rule would

seriously aggravate the problem of insulating antitrust

violations from liability because no party would have an

incentive to sue.

B. Petitioner’s Proposed Rule Would Create Arbi-

trary Distinctions Among Direct Purchasers

Petitioner’s rule would also lead to arbitrary distinc-

tions. It would allow certain direct purchasers to pursue

a claim while denying any remedy to other direct pur-

chasers, without any adequate justification for the dis-

parate treatment.

As petitioner acknowledges, the App Store is a two-

sided platform that sells to two different markets. See

Pet. Br. 7-8 (“Apple structured the App Store as aj | * * *

two-sided marketplace for connecting developers and

consumers.”). Apple sells distribution services upstream

to developers, and it sells apps downstream to consum-

ers. Respondents are suing with respect to the down-

stream overcharge; they are not seeking damages for any

20

upstream overcharge that developers may pass on to

consumers. The fact that both overcharges may be re-

flected in the ultimate price, and that this price is set by

the developer, is irrelevant to consumers’ status as direct

purchasers under /Uinois Brick.

Petitioner claims that /Uinois Brick requires courts to

find the “one appropriate plaintiff group among the cate-

gories of possible plaintiffs.” Pet. Br. 32. But /Uinois

Brick has no such requirement. Multiple plaintiffs or

groups of plaintiffs may sue antitrust violators so long as

they are all direct purchasers.

Courts have repeatedly held that, where multiple par-

ties transact with the antitrust violator in different mar-

kets (for example, both upstream and downstream),

there can be multiple direct purchasers. See, e.g., Loeb

Indus., Inc. v. Sumitomo Corp., 306 F.3d 469, 481 (7th

Cir. 2002) (“(D}ifferent injuries in distinct markets may

be inflicted by a single antitrust conspiracy * * * .”); Jn

re Mercedes-Benz Anti-Trust Litig., 364 F. Supp. 2d 468,

482 (D.N.J. 2005) (lessees and leasing companies could

both sue car dealerships for artificially inflating prices of

leased vehicles, but for different damages); see also Blue

Cross & Blue Shield United of Wis. v. Marshfield Clinic,

65 F.3d 1406, 1414 (7th Cir. 1995) (affirming judgment in

favor of insurance company that paid providers while

noting that, if patients were the ones who paid the fees,

they would be the ones who could sue); Med. Sav. Ins. Co.

v. HCA, Inc., No. 2:04-CV-156, 2005 WL 1528666, at *8

(M.D. Fla. Jun. 24, 2005) (patients were “direct purchas-

ers” because they paid overcharges to healthcare provid-

er, even though insurers also paid portion of bill).

IUinois Brick applies only where “Party A, the anti-

trust violator, sells to Party B, and then Party C, a down-

stream purchaser from B, seeks to recover the implicit

21

overcharges that B passed on to C.” Loeb Indus., 306

F.3d at 482. If Party A sells most of its widgets directly

to Party B for retail distribution, but also sells some

widgets directly to consumers (Party C), both parties

would be direct purchasers entitled to sue for their own

distinct injuries. Nothing in /Winois Brick permits a

court to pick only “one” of those direct purchasers and

deem that party the “appropriate plaintiff.” Pet. Br. 32.

That developers rather than Apple may set the price

for apps is not an adequate justification for depriving

consumers of their right to sue for damages. Whether or

not Apple participates in the pricing decision (for exam-

ple, by requiring all prices for apps to end in “.99”), con-

sumers are still harmed when they purchase an app di-

rectly from Apple at a price that has been inflated by

Apple’s own anticompetitive conduct. The damages rem-

edy is compensation for the harm that consumers suf-

fered as a result of Apple’s antitrust violations. There is

no reason why that compensation should depend on the

precise mechanism by which the anticompetitive price

was set.

Arbitrarily excluding certain direct purchasers from

the damages remedy, moreover, would result in under-

deterrence. Congress imposed a treble-damages remedy

to ensure a strong disincentive for antitrust violations. If

a violator was required to compensate only some of the

direct purchasers harmed by its violations, it would face

liability less than three times the total damage it caused,

impairing the deterrent effect of the remedy. For that

reason too, allowing only a subset of direct purchasers to

sue Apple for the anticompetitive harm it caused would

be contrary to Congress’s design.

22

C. Extending Illinois Brick Would Enable Mono-

polists To Manipulate Transactions To Avoid

Liability

Petitioner’s theory would not only undermine en-

forcement by diluting the effectiveness of the treble-

damages remedy. It would also enable violators to avoid

liability altogether by structuring their transactions in

ways that exploit the proposed rule.

Suppose, for example, that a manufacturer sold widg-

ets to retailers, which in turn resold them to consumers.

If the retailers colluded amongst themselves to fix prices,

the consumers could sue the retailers to seek compensa-

tion for any overcharges they paid. The consumers

would be direct purchasers of the retailers, and thus the

suit would be permitted by /Winois Brick.

Under petitioner’s theory, however, nothing would

prevent the retailers from avoiding liability simply by re-

structuring the form of the transactions. Instead of pur-

chasing widgets from the manufacturer, the retailers

could claim they were providing “distribution services” to

the manufacturer. On that theory, the consumers would

be only indirect purchasers, and any suit would be barred

by /Uinois Brick.

The retailers would not even have to change the eco-

nomic substance of the relationship to advance such an

argument. In the ordinary case, the retailer might pay

the manufacturer $10 for the widget and then resell it for

$13. If the retailer wanted to recharacterize the transac-

tion as a sale of “distribution services,” it could collect

$13 from the consumer, return $10 to the manufacturer,

and keep the $8 difference as its fee for distribution ser-

vices. The economic substance would be the same. Yet

the retailers could pick whether they wanted the manu-

facturer or the consumer to be their “direct purchaser”—

23

presumably informed by their estimation of which party

was less likely to sue.

Nothing in those scenarios turns on which party sets

the price for the products. If the retailer is a monopolist

and the manufacturer faces a competitive market, the

price paid by the consumer will be the manufacture:’s

marginal cost ($10) plus the amount that reflects the re-

tailer’s monopoly power ($3)—$13 total. The retailer

would be free to structure the transaction so that either

the manufacturer or the retailer would set the price. The

retailer could buy the product from the manufacturer for

$10 and set the retail price at $13. Or the retailer could

sell “distribution services” to the manufacturer for $3, in

which case the manufacturer would set the price at $13 to

cover its cost. The economic substance would be identi-

cal; once again, the only difference would be how the

transaction is characterized.

Indeed, under petitioner’s proposed expansion of /li-

nois Brick, if a distributor sold goods subject to a resale

price maintenance agreement (an agreement “under

which manufacturers or suppliers set the minimum re-

sale prices to be charged by their distributors,” State Oil

Co. v. Khan, 522 U.S. 3, 11 (1997)), the distributor could

escape liability to its customers by arguing that the cus-

tomers are indirect purchasers because someone else

(the manufacturer or supplier) set the price for the

goods. Petitioner’s rule thus incentivizes the use of po-

tentially anticompetitive agreements as a means to evade

liability. See Leegin Creative Leather Prods. Inc. v.

PSKS, Inc., 551 U.S. 877, 892 (2007) (explaining potential

anticompetitive effects of resale price maintenance

agreements).

Perhaps a court would reject such obvious evasions,

even under petitioner’s theory, in the context of a tradi-

24

tional distribution chain. But the opportunities for ma-

nipulation are greatly enhanced in the context of more

to exist here. See Pet. Br. 35. Apple sells distribution

services to developers, and it sells apps to consumers. If

Apple can reclassify parties as direct or indirect purchas-

ers based simply on how it chooses to characterize the

transaction and structure the price-setting process, it will

have every incentive to structure the transaction in a way

that impedes private enforcement of the antitrust laws.

The traditional bright-line “direct purchaser” rule

avoids those problems. The relationship between con-

sumers and Apple bears all the indicia of a traditional di-

rect-purchaser relationship. Consumers “enter” (ie,

open and browse through) Apple’s retail store, which is

entirely controlled by Apple, not app developers. Apple

collects products obtained from manufacturers (ce., app

developers) and displays them in a manner that enables

consumers to compare and evaluate them. Apple then

administers the transaction with the consumer, collecting

money and “delivering” (ie., giving access to) the prod-

uct. The transaction is governed by a legally enforceable

contract between Apple and the consumer. Respondents

thus directly transact with Apple and are “direc: pur-

chasers” under /Uinois Brick.

Ill. THE RATIONALES UNDERLYING ILLINOIS BRICK Do

Not SuPPort ITs FURTHER EXPANSION

While expanding /Uinois Brick as petitioner proposes

would seriously impair enforcement of the antitrust laws,

it would do little to advance the purposes of the doctrine.

The rationales underlying /Uenois Brick have eroded in

the four decades since the case was decided. They do not

support its further expansion. See Corr. Servs. Corp. v.

Malesko, 534 U.S. 61, 75 (2001) (Scalia, J., concurring)

25

(doctrine undermined by subsequent developments

should not be expanded).

A. State-Law Antitrust Litigation Has Largely

Eliminated Many of the Benefits [Uinois Brick

Was Intended To Provide

Illinois Brick sought to “eliminate the complications

of apportioning overcharges between direct and indirect

purchasers” and to “eliminate multiple recoveries.”

Kansas v. UtiliCorp United Inc., 497 U.S. 199, 208, 212

(1990). Since /Uinois Brick was decided, however, devel-

opments in state antitrust laws have fundamentally al-

tered the antitrust landscape.

In the years following /linois Brick, many States

“began passing /lUlinois Brick ‘repealers’—that is, stat-

utes that specifically authorize[ | indirect purchasers to

recover damages under state antitrust laws.” Antitrust

Modernization Comm’n, Report and Recommendations

268 (Apr. 2007) (“AMC Report”); see, eg., Cal. Bus. &

Prof. Code § 16750(a). In other States, courts interpreted

existing laws to reach the same result. See AMC Report,

supra, at 268-269. Today, “more than two-thirds of the

States have authorized the use of pass-on analysis to ap-

portion damages under their own antitrust laws.” U.S.

Br. 18. Litigation under those laws “has become increas-

ingly common, especially since the mid-1990s.” AMC

Report, supra, at 269.

Some state-law antitrust suits remain in state court.

But many are litigated in federal court through diversity

or supplemental jurisdiction, particularly since Congress

enacted the Class Action Fairness Act of 2005. See 28

U.S.C. §1332(d); see also, eg., In re Brand Name Pre-

scription Drugs Antitrust Litig., 123 F 3d 599, 607 (7th

Cir. 1997) (Alabama-law indirect purchaser action re-

moved to federal court on basis of diversity jurisdiction).

26

Accordingly, “federal courts now regularly entertain

*** issues involving passing-on under state law, which

they are precluded from hearing under federal law by

IUinois Brick.” Edward D. Cavanagh, Illinois Brick: A

Look Back and a Look Ahead, 17 Loy. Consumer L. Rev.

1, 2 (2004).

Petitioner's proposed expansion of /llinois Brick

would thus do little to advance the doctrine’s rationale.

Even if this Court accepts the argument that Apple’s cus-

tomers are indirect purchasers (despite purchasing di-

rectly from Apple), the majority of those customers

would still have equivalent remedies under state law, and

many of those disputes would wind up in federal court

regardless. The expansion that petitioner seeks would

thus do little to relieve federal courts of supposedly com-

plex apportionment issues and purported problems of

duplicative recovery.

If anything, expanding /Uinois Brick would exacer-

bate the problems this Court sought to mitigate. Such an

expansion would further increase the wedge between

federal and state law. The result would be an increase in

complexity. See Gavil, supra, at 188 (differences between

state and federal standing rules increase complexity).

That would hardly serve this Court’s goal of keeping an-

titrust litigation “within judicially manageable limits.”

Associated Gen. Contractors of Cal. v. Cal. State Council

of Carpenters, 459 U.S. 519, 543 (1983).

B. Courts Are Now Well-Equipped To Address

Damages-Allocation Problems

At the same time state law has evolved to erode /li-

nois Brick’s asserted benefits, economic analysis has ad-

vanced to eliminate many of the complications this Court

perceived. Fifty years ago, this Court wrote that deter-

mining the effects of a monopolistic overcharge at differ-

27

ent levels of a distribution chain was a “task [that] would

normally prove insurmountable.” Hanover Shoe, 392

U.S. at 498. The same concern drove the holding nine

years later in /Uinois Brick. See 431 U.S. at 725 n.3, 731-

732. But economic analysis has far advanced in the years

since. For that reason too, the Court should not expand

[Uinois Brick as petitioner urges.

The Court was concerned in /linois Brick that com-

puting passed-on overcharges would require assessing

demand and supply elasticities in combination with a host

of complicated variables influencing pricing decisions.

See 431 U.S. at 741-743. But “that is not the typical way

in which passed-on damages are computed in litigation.”

2A Areeda & Hovenkamp, supra, 1346k, at 219. Experts

typically calculate overcharges using the “generally ac-

cepted” “yardstick” or “before-and-after” methods. Con-

wood Co. v. U.S. Tobacco Co., 290 F 3d 768, 798 (6th Cir.

2002); see, e.g., Eleven Line, Inc. v. N. Tex. State Soccer

Ass'n, 213 F.3d 198, 207 (5th Cir. 2000) (“(T]he two most

common methods of quantifying antitrust damages are

the ‘before and after’ and ‘yardstick’ measures.”); see al-

so 11 Kintner & Bauer, supra, §79.1, at 107-108 (describ-

ing both methods). The “yardstick” method compares

prices paid by the plaintiff to prices paid by a comparable

firm unaffected by the antitrust violation. See 2A Areeda

& Hovenkamp, supra, 1392f, at 383-384; 11 Kintner &

Bauer, supra, $79.1, at 108-109 & nn.80-81 (collecting

cases). The “before-and-after” method compares the

plaintiff’s prices paid before and after the monopolization

or price-fixing activity. See 2A Areeda & Hovenkamp,

supra, 1392e, at 382-383; 11 Kintner & Bauer, supra,

§79.1, at 107 & nn.76-78 (collecting cases). Those meth-

ods permit computation of the price the plaintiff would

have paid but for the anticompetitive conduct “without

28

reference to the amount ‘passed on’ by the intermediary.”

2A Areeda & Hovenkamp, supra, 1346k, at 220-221; see

also Richman & Murray, supra, at 98; Blair & Harrison,

supra, at 29.

State courts have relied on economic analyses based

on those methods to certify indirect-purchaser classes

despite arguments that calculating damages would be too

difficult. See, eg., In re Fla. Microsoft Antitrust Litig.,

No. 99-27340, 2002 WL, 31423620, at *8-10 (Fla. Cir. Ct.

Aug. 26, 2002) (yardstick analysis would permit reason-

able estimate of indirect-purchaser damages); Gordon v.

Microsoft Corp., No. 00-5994, 2001 WL, 366432, at *11-12

(Minn. Dist. Ct. Mar. 30, 2001) (similar). A “large majori-

ty of courts considering the issue” have rejected “pass-

through and overcharge arguments” against class certifi-

cation. Jn re S_D. Microsoft Antitrust Litig., 657 N.W 2d

668, 679 (S.D. 2008) (collecting cases).

There is now a broad consensus in the literature that

standard econometric methods are fully capable of allo-

cating damages among multiple parties injured by a sin-

gie antitrust violation. See, eg., Jan Boone & Wieland

Miller, The Distribution of Harm in Price-Fizxing Cas-

es, 30 Int'l J. Indus. Org. 265, 273-274 (2012) (developing

framework for apportioning harm due to price-fixing);

Leonardo J. Basso & Thomas W. Ross, Measuring the

True Harm from Price-Fizing to Both Direct and Indi-

rect Purchasers, 58 J. Indus. Econ. 895, 920 (2010) (out-

lining statistical method as an “alternative to actually

trying to estimate the degree of pass-through and the

subsequent harm further downstream”); Frank Ver-

boven & Theon van Dijk, Cartel Damages Claims and

the Passing-On Defense, 57 J. Indus. Econ. 457, 481-483

29

(2009) (applying model to 1980s and 1990s European vit-

amin cartel).°

Courts and scholars have thus “developed a sophisti-

cated body of law and economic thought on the problem

of computing downstream overcharges,” albeit “primarily

in state, rather than federal, antitrust cases.” Mark A.

Lemley & Christopher R. Leslie, Antitrust Arbitration

and Illinois Brick, 100 lowa L. Rev. 2115, 2119-2120

(2015). Courts have “exhibited a capacity to handle suits

from indirect purchasers and to calculate pass-on dam-

ages.” Richman & Murray, supra, at 99.

Courts and economists are similarly capable of esti-

mating damages in a case like this. While this case would

require the calculation of the harm caused to a direct

purchaser on one side of a two-sided market, rather than

the harm caused to an indirect purchaser in a distribution

chain, the econometric methods developed to address the

latter problem are more than adequate to address the

former. For that reason as well, the complications the

Court perceived in /Ulinois Brick are no justification for

expanding the doctrine to cover various categories of di-

rect purchasers.

* See also Martijn A. Han, Maarten P. Schinkel & Jan Tuinstra, The

Overcharge as a Measure for Antitrust Damages (Amsterdam Ctr.

for Law & Econ., Working Paper No. 2008-08, 2008) (concluding that

courts need not calculate and apportion direct-purchaser over-

CONCLUSION

The judgment of the United States Court of Appeals

for the Ninth Circuit should be affirmed.

Respectfully submitted.

Eric A. POSNER LAUREN M. WEINSTEIN

MOLOLAMKEN LLP Counsel of Record

300 North LaSalle St. ROBERT K. KRY

Chicago, IL, 60654 WILLIAM J. COOPER

(312) 450-6715 MOLOLAMKEN LLP

The Watergate, Suite 660

600 New Hampshire Ave., N.W.

Washington, D.C. 20037

(202) 556-2000

lweinstein@mololamken.com

Counsel for Amici Curiae

OCTOBER 2018