John Newman: What Democratic contenders are missing in the race to revive antitrust
However, just nine years later, the Supreme Court converted this pro-antitrust holding into an anti-antitrust rule. Illinois Brick Co. v. Illinois involved similar facts. Several manufacturers who allegedly fixed prices sold their goods to an intermediary, who sold them to customers. In Hanover Shoe, the intermediary sued the manufacturer. In Illinois Brick, the customer sued the manufacturers, skipping the intermediary. The customer argued that because the monopoly overcharge was passed on to purchasers, it was entitled to damages.
But this time, the Court ruled for the monopolists. It explained that since Hanover Shoe assigned the antitrust claim to the direct purchaser from the monopolist, there was nothing left to give the customers of the purchaser. If the customers were allowed to sue, liability might be duplicated. The Court dismissed the obvious counterargument—that damages should be shared between the customers and the intermediary according to the extent of harm. Economic theory tells us that the overcharge may sometimes be absorbed by the intermediary, sometimes passed on to customers, and sometimes shared, but that’s hard to define in practice.
Commentators pointed out that this holding made little sense. Usually the customers, not the intermediary, absorb the monopoly overcharge. The new doctrine gave the remedy to the parties least likely to be harmed and withheld it from those most likely to be harmed. And the Court turned out to have been wrong in Hanover Shoe about incentives to sue. Lawyers can organize customers to bring class-action lawsuits. Intermediaries, on the other hand, are usually terrified of monopolist suppliers, and if not, the monopolists can bribe them not to sue by giving them a share of the monopoly profits extracted from consumers.
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But the Supreme Court had moved to the right by 1977, and its rightward trend would continue for years to come. The Illinois Brick rule appealed both to the neoliberalism of the time, which disapproved of antitrust liability, and to the fetish for bright-line rules found among many conservative jurists. Bright-line rules, they argued, make law more predictable by limiting the discretion of government officials, including judges—and diminishing the impact of their liberal biases.
It took the tech revolution to make the flaw in this thinking so obvious, the Court could no longer ignore it.
Apple argued that its App Store customers could not sue it because of Illinois Brick. How could this be? The customers handed over money to Apple in return for access to its apps; this seemed like the direct customer relationship that Illinois Brick had blessed. But Apple argued that Apple’s real customers were the developers, who bought from Apple access to the App Store platform by paying a 30 percent commission based on the price of the app. The customers bought their apps from the developers, not from Apple. Since they were not “direct purchasers” from Apple, they could not sue Apple—only the developers could. (Of course, the developers—whose businesses are dependent on the access to consumers that the App Store provides—had not sued Apple, and have so far shown no inclination to do so.)