tv Apple Inc. v. Pepper Oral Argument CSPAN December 8, 2018 12:04am-1:09am EST
movie and i called jimmy stewart, who was a republican and he autographed a poster for me which we auctioned off at my in san antonio. i had a friend pay $1000 for it, that was the biggest contribution we had so far. he has the poster at his house today. that brings back happy memories too. >> representatives lamar smith saturday atcapuano 8:00 p.m. eastern on c-span and c-span.org. listen on the free c-span radio app. announcer 2: the supreme court heard oral arguments for apple inc. v. pepper, which could decide if a group of iphone app purchasers could sue apple for antitrust damages over its apple store and pricing scheme. this is one hour.
>> the argument first this morning in case 17204. apple inc. v. pepper. >> thank you mr. chief justice and may i please the court. the only damages in this monopolization is in a 30% commission that apple charges developers, which allegedly causes those of developers to increase prices. the case is barred by the brick doctrine, because they pricing decisions are necessarily in a causal chain that links the commission to any consumer damages. if the commission increases beyond the competitive level, developers do not change their apps prices. consumers suffer no damages. if app developers do change their prices to pass on some or all of the overcharge, that is precisely the kind of damages
theory the brick doctrine prohibits. >> in your view, is there any first buyer in this picture? >> there are two different buyers. there the app developers who by contract with apple are buying a package of services which include distribution and software and testing and so forth. the plaintiffs in this case are the buyer of the apps themselves that are made with the package of goods and services. >> my question was, within illinois brick, is there in this case anyone who would qualify as first buyer? with a standing to sue apple. >> without a doubt. developers are the ones who in the first instance pay the 30% commission. it is important to root the analysis in the common ground which has been conceded, that
the only damages there he is based upon that 30% commission. that is charged by contract between apple and the developers and it is deducted from whatever price the developer chooses to set. subject to only the minimal restrictions. >> i am sorry, the first sale is from apple to the customer. it is the customer who pays the 30%. >> but there has always been a transaction between apple and the developer before that, which has the pricing decision of what the developer is going to do on account of the 30% commission. >> can i ask you something more generally? that was a case of a vertical monopoly. concrete block person manufacturer monopolizes the next intermediate market, who then sells to a customer.
this is not quite like that. this is dramatically different. this is a closed loop. >> it is a closed loop, but in terms of the injury theory, which is an issue -- >> there are not claiming to 30% is their injury. they are claiming their injury is the suppression of a cheaper price. it doesn't have to be 30%. they are not seeking 30% of sales. they have to go out and prove at the next step how without this monopoly they would have paid less. it could be as little as a penny or nothing, or it could be something more. the point is, this closed loop with apple as its spoke, they are the first purchaser of that 30% markup. >> no, they're not. the first purchaser is clearly the app developer, who by contract agrees that every time it puts a positive price on an
app, it will allow apple to take 30% of it. >> apple gets 30% from the customer, not from the developer. >> apple collects the funds, but even the ninth circuit agreed that the payment flow is immaterial to the illinois brick issue. >> i don't think that is true, even if they concluded. i would have thought it would be antitrust for at least 100 years. what you do is you look to see who you claim as a monopoly. if that is true, they can raise prices to some people and lower them to others. if you are injured because you paid them more, the monopolist, you can collect. if you are injured because they forced your price down and you are supplier, you can collect damages. end of theory.
i don't see anything in illinois brick that conflicts with that. >> everything in illinois brick conflicts with that. the emphasis in all three of the court's decisions on defenses and damages theories, that is what the doctrine disallows. >> it says -- i don't mean to interrupt you but i don't want you to miss the point i am making. bill, whoth buys from bought from the monopolist, then we have something indirect. but if joe smith bought from the monopolist, that is a simple theory. i can't find a reason or any case law or anything i have ever learned anything that would conflict with that. i want you to tell me what. >> what conflicts with that is that the alleged monopolization over distribution function, allegedly first manifests in a
30% commission. consumers do not pay the 30% commission. there was an effort in the district court to argue that apple added that, but that was abandoned. what we have here instead is a damaged theory that runs through the independent pricing decision of the app developers. >> does your answer depend on what you said, that the alleged monopolization is in the distribution function? because i understood the respondents now to be saying, that is wrong. the alleged monopolization is in the apps themselves. in other words, the consumer says you have a monopoly on apps. you might also have a monopoly on the distribution function, which the app developers had to live with, but you have a monopoly on apps, which the consumers have to live with. responding to the justice, you
said it is because the alleged monopoly is the distribution function, but i don't think that is correct. >> two points. first of all, it is correct. the complaint repeatedly alleges in paragraph 3, 8, and 53 that this is a case about a distribution market. it has always been about a distribution market and it necessarily is, because there is no good faith allegation that apple monopolizes the apps as software. it is simply the pipeline, the sale of the apps which is alternatively described in this case as either distribution or as the so-called aftermarket, which is simply limiting that to ios apps. >> there are enough a lot of words in this case that i tend to have trouble understanding. one is two-sided market, so i go by simple analogy. if bill buys from the monopolist, he is a direct purchaser. if bill buys from sam who buys from the monopolist, he is an
indirect purchaser. anyone can understand that. when i get into what i think of as jargon, i begin to think, suppose i were advising the united fruit company. i have a great idea. you won't have to torpedo the boats of your competitors anymore. here's what you do. what you do is you buy from the farmers and you tell the farmers what you will pay is a very low price plus 30% commission and then when you sell to consumers throughout the world, you charge them that 30% commission, which they say is a higher price and if you are united fruit, you don't become a monopolist. now i think i'm advising jay rockefeller. i would give him the same advice. i give the same advice to a distribution company. you see the point.
>> the difference here is that there is no third-party intermediary that is setting the price and exercising its independent determination as to whether any or all of the initial overcharge is going to manifest itself in the app price. that is why i started with the hypothetical of, imagine the price today is competitive. the 30% is a competitive price and a goes up by 10 points tomorrow. no consumer is injured, unless the apps prices change. the apps prices have to change, and they only change by virtue of a decision which implicates everything this court talked about in illinois brick. >> i think you are avoiding the question a bit. the questions that are being put to you by my colleagues are really, what was illinois brick
about? was it about a vertical supply chain or instead was it about a pass-through theory? in the fact of illinois brick and in the facts of all the illinois brick cases we have discussed, you had both. you didn't have to separate the two. now here, you don't have both, because this is not a vertical supply chain, but there still is a pass-through mechanism. then the question is, does illinois brick apply to that or not? i think what justice breyer was suggesting is as long as it is not that vertical supply chain where the person is not buying from the monopolist himself, here the person is transacting with the monopolist. that is what separates this case from illinois brick and makes it entirely different, notwithstanding that there is some kind of pass-through mechanism involved. >> i agree that the key is
deciding what illinois brick was about. was it simply a formalistic case about vertical chains or was it about pass-through? in answering that question, i would begin with a case about a pass on defense and about the difficulties and the potential complication of antitrust litigations. the framing of the question in illinois brick by this court, which says having already found that we will not allow a pass on defense, we are now confronted with the question to allow a pass on to be used offense of lee. it was 100% about pass on. the vertical chain was the factual setting of the case and respondent's arguments would have this court believe that the factual setting is the substance of the court's reasoning.
>> can i ask you what is troubling me about your position. illinois brick was not about economic theory. it was about the court's -- the basis for the decision was not economic theory. the court's calculation for what makes an effective and efficient litigation scheme. maybe your answer to this question is the validity of illinois brick is not before us. i really wonder whether in light of what has happened is since then, the court's evaluation stands up. take the third point it makes about the direct purchasers are in the best position to sue. if we look at this case, how many app developers are there whose apps are sold at the apple store? >> tens of thousands. >> has any one of them ever sued? >> none have ever sued. there have been plenty of
disputes, but none has ever gone to litigation. no state or federal antitrust agency has ever sued either. we do not take the absence of litigation as evidence of an oppressed developer community that cannot speak for itself. the fact of the matter is that nowadays, major companies suing their suppliers happens all of the time. the idea that it doesn't, which was decried as fanciful, has proven to be, because it happens all of the time. >> along those lines, i take your point that illinois brick might be read about the economic formalities, whether it is a sales agent or a formal purchase between the manufacturer and distributor. antitrust normally accounts for
economics. i take your point. building on what justice alito had in mind, illinois brick has been questioned by 31 states before this court. you're asking us to extend illinois brick. admittedly, only because of a contractual formality and the economic realities are the same. i will spot you all of that for this question. why should we build on illinois brick? shouldn't we question illinois brick, given the fact that so many states have done so? they have repealed it. there have not been a huge number of reported problems with indirect and direct purchasers receiving double recovery, one of the problems that illinois brick built on. the other problem is that direct purchasers don't always sue as there is a threat that monopolists will share the rents with the direct purchasers. indirect purchasers may be better suited to enforce the antitrust laws.
a long windup. there's the pitch. >> a few things. first of all, it is an enormously complicated and controversial issue what to do with the illinois brick doctrine. you can see this in this case, you had states saying repeal and plaintiffs through the american antitrust institute say don't repeal it. there have been on the order of 17 efforts in congress to have it changed. not once has it ever gone to the floor. it is a quintessentially controversial political issue which belongs across the street, not here. >> why's that so, if the court created the doctrine in the first place? >> i don't think it is fair to say the court created it. the court applied the foundational principle of all section four jurisprudence, which is a proximate cause principle of damage is going past the first step. it dealt with that in the
context of the potential for duplicate it pass through overcharge claims, which are a unique trouble in antitrust. it is not a general problem of damage theories, open you have overcharge cases -- and this gets to the point of duplicate recovery -- it is not hypothetical, it is mathematical. the first purchaser gets 100% of the overcharge, anything else that gets added onto that is necessarily duplicative, and that is what happened in the district courts. you get direct purchasers suing on whatever theory optimizes their level of recovery. i would like to reserve the rest of my time and turn it over to the solicitor general. >> thank you, counsel. general francisco, mr. chief justice, and may it please the court, i would like to begin
where mr. wall left out. i think it just as many of the questions that have been asked. at bottom, illinois brick properly understood prohibit pass-through and reflect the basic application of the background principles of proximate cause that this court generally reads into statutes of this sort. in particular, the rules that damages stop at the first step. here the first step is the app makers pricing decision, because the consumers are injured if and only if the app makers decide to increase their prices in order to recoup -- >> i have to say i find that a not intuitive argument. it just seems to me that when you're looking at the relationship between the consumer and apple, that there is only one step. i pick up my iphone, i go to the app store, i pay apple directly with a credit card that i have supplied to apple. from my perspective, i have just engaged in a one step
transaction with apple. when i come in and say apple is a monopolist and apple is charging a super competitive price by extracting a commission that it can only extract because of its market power, there is my one step. >> i understand that, but in proximate cause, the issue is not transactional proximity. the issue is proximity between the illegal conduct on the one hand and the injury to consumers on the other hand. apple's monopolistic overcharge is not the direct cause of higher prices. the direct cause of the higher prices is the app makers decision to increase prices in order to recoup them. >> how do we know that, given that apple operates as a retailer in many respects here? how do we know that the 30% charge is not affecting the price?
in the same way that any retailer that adds 30% would affect the ultimate price paid by the consumer. >> you don't know for sure, but that is the whole point. app makers set the final price, they have a choice to make. they either absorb the overcharge and keep prices the same, in which case the consumers are not harmed at all, or the increase prices to recoup the overcharge, in which case the app makers are also harmed as they face a drop in sales as a result of increased prices. >> consumers are harmed then, too. >> yes, your honor, and that is the whole point of illinois brick. you have part of the harm going to the initial party bearing the brunt of the overcharge exhibits pricing decisions, that is the whole claim. >> we have ambiguity into what bet means and shouldn't that
interpreted by looking at the text of the statute? >> yes, your honor, and what i think that illinois brick reflects is the interpretation that this case is involved in, including the rico and lexmark cases. you interpret a proximate cause to be built into the statute. >> does it make a difference that apple is influencing prices? you are suggesting the developers are setting prices independently. but i will give you two ways in which that is not true. the first way is the $.99 charge. you might say that doesn't matter, because it could be $.99 or $100.99. but these are all low-priced products for the most part. so saying the price needs to end in the number 99 is saying a lot about the fact that you can't
charge $.32. the entire allegation is that apple is a monopolist on both sides of the market. it is able to dictate to developers whatever price wants and it isc able to dictate to consumers what the nature of the sale is going to be. in that event, it seems as though apple happened to set up this commission that puts it in illinois brick, but it could have done 1000 other things that are the same that would have taken it out of the illinois brick rule. >> let me take this point in turn. first the $.99 pricing policy. first i will point out is -- first i will point out that it is not in the complaint. i don't think it changes the fact that the app makers still control the overall price to the extent that respondents are harmed are based on a pass through.
if i go to an auction house and have to bid on $10 agreement, nobody thinks the auction house is setting the price. here -- >> but if you have to bid in $10 increments and the true alternative prices are $3, $5, and $7, then you are setting the price. >> that is my second point. here injury is based on pass-through, because app makers are going to round up or down. if they round down, they are not injured. if they round up, consumers are injured as a result of pass-through. it is that intermediate in pricing decision that we think principles --ose >> the problem is that they are not measuring damages by that. as i understand, they are saying it is not the 30%, it is what the price would be if we could buy apps outside of this closed loop. it could be, theoretically, a
lot higher than the markup. it could well be within it. the point is that that 30% or whatever that figure is is not the measure of our damages. as i understand, they are saying that developers may have their own claim, their damages likely have to stay within the 30%, but we don't measure our damages by that. >> respectfully, i will disagree with that and in explaining it, i think i can also answer the second part of your question. the harm to the consumers here is that they have to pay higher prices for apps and the reason they have to pay higher prices for apps is because apple controls the pipeline that connects app makers and iphone users and the way the exploit that pipeline through their allegedly monopoly is by charging that 30% commission.
the only reason consumers are harmed here in the form of paying higher prices is because the app makers decide to increase their prices in order to recoup that. to your question, the reason why this makes it different than your hypothetical of bill buys from sam and you have transactional proximity is because the question isn't proximity between the parties transacting with one another's, , but proximity between the antitrust violation and the harm to consumers in the form of higher prices. >> i wouldn't have thought that was the antitrust violation. i would think the violation is having enormous pricing power achieved by not patents or skilled force, but anti-competitive or more restrictive than necessary practices. alcoa did not charge higher than competitive prices and that is
why he said of the easy life, not necessarily higher prices is the reward, often of monopoly. i would have thought it is a matter for proof. at the damages stage, whether apple has extracted higher than competitive prices from this -- those particular people or whether they have just had the easy life. i don't think that is the stage we are at in this case. if you say right, right, right, they must win. >> what i wanted to say is for theorye ellen i bricked -- the illinois brick theory doesn't apply across the board. it does apply when somebody is bringing in overcharge theory. where you have that kind of overcharge.
you have that kind of overcharge theory, what illinois brick says is, if there is injury in the form of higher prices in the monopolist violation in the form of the commission. whenever the price setter is someone other than the monopolist, it is never the monopolist's overcharge that is the direct cause of the injury. >> but if apple bought the apps from the app developer and then added 30% to it and sold it to the consumer, you would agree that a claim could lie there? >> i want to make sure understand hypothetical. >> if apple is buying the app from the app developer for a price, apple is then adding 30% to the price and selling it to the consumer, the consumer alleges that apple is doing that as a result of monopolistic behavior, does the claim lie? >> yes, but you could not sue
apple if they are not the price setting party. but the app maker is. that is why the key is who sets the price and it is hard to manipulate under our role. under our rule, you have to change the party that has authority to set the price and that is a fundamental change in the transaction itself. >> thank you, counsel. thank you mr. chief justice and may i please the court, apple directed and ike competitive restraint at iphone owners to prevent them from buying apps anywhere other than apple's monopoly app store. as a result, iphone owners paid apple more for apps than they would have paid in a competitive retail market. under this court's precedents, i
found owners have a cause of action under section four of the clayton act directly against apple for those charges. the court of appeals should be affirmed for three reasons. illinois brick is a bright line rule that respondents easily satisfy. apple directed its monopoly abuses at respondents. it is appropriate that respondents can sue apple for their damages as a result of those violations. third, apple seeks to expand and modify the bright line rule of illinois brick to deny indisputably the direct purchasers and antitrust remedy and to change the rule into a standard inquiry that will be hard to apply at the pleading stage. if i can return to the first point, the direct purchaser rule
is a redline role. this court said so in illinois brick and importantly, a case that has not been discussed today, in which the court said illinois brick is a bright line rule for direct purchasers, notwithstanding the economics that go into that. utilicorp was a case that protected the defendants who were asserting that there was a break in the link of the chain. this case is the flipside of that to protect plaintiffs who directly purchase from the alleged antitrust violator and are claiming damage as a result of the violation. >> there is one antitrust violation, which is the 30% increase that apple imposes when it sells the apps. >> wrong. this is important for the court to understand. . the antitrust violation is the monopoly app store. consumers cannot buy an app
anywhere other than apple's 100% owned monopoly app store. >> when it comes to the 30% increase, you're saying the purchasers under your theory are harmed by that and can recover damages for that. and also that the developers are harmed by that and they can recover damages for it as well. in other words, to the extent it might be said that apple is a two-sided market, they are subject to suit on both sides of the market for a single antitrust price increase that they are alleged to have imposed. >> mr. chief justice, i think that your question gets to the core of a lot of the confusion here. by having a wholly owned monopoly app store, apple is able to distort the market and t the supply chain, and the retail chain for consumers. we represent a consumer iphone
owners, suing only for the damages that we incurred. that is the higher than what a competitive market price would be for apps. our measure of damages is not necessarily the 30%. the 30% is simply proof that apple is acting as a monopolist, because it extracts -- >> i understand your claim on your side of the market, but you do think that the developers have a claim as well, don't you? >> it is not the same. it is a different claim. >> for the same price increase. that, mr.isagree with chief justice. apple is the supplier of the apps. if they have a claim, it is that apple has distorted the market for the supply of apps in a way that hurts app developers ' profits. their argument would be, if we weren't suffering under the one
monopoly store constraint, we might be able to charge a different price lower than $.99 and be able to get a direct purchase from an iphone. >> i think you are just saying is the measure of damages would be different between the two sides of the market. >> they would be different damages. >> you are saying, the consumer says i am paying a higher price for the product. it might be the entire 30% commission or some portion that is super competitive, but i am paying a higher price. the app developer says, that is irrelevant to me. i don't have to buy the product. what is relevant to me is, fewer people are buying my apps and that represents some amount of lost profit. those two things are not -- it is true that two people are being able to sue because apple is in transaction with both of these people and each of them has a gripe against how apple has structured the market, but the damages are different. one is a measure of lost
profits which may or may not exist, the other is i am paying too much. >> that is the theory, but is that your claim? i thought this was all about the 30%? >> the other side has been trying to make the case about the 30% -- >> so 30% has nothing to do with this? >> what the 30% is is an allegation that apple is monopolizing the sale of apps. we know that because they can extract 30% on every sale, which only a monopolist could do. if 30% is not a measure of damages, i'm not aware of any case from this court that says you have to plead antitrust damages with particularly, but because of the ability to extract a monopoly rent, we can say in good faith that we are paying more than we would pay than if a competitive market existed. >> i think you would agree that there can only be one monopoly rent and the question is who is
paying it? it might be spread between direct and indirect purchasers. it might be spread between app makers and purchases of apps. desegregating that is the question we have been wrestling with. here is where i am stuck. you say that illinois brick is a bright line rule. premised on the existence of a contractual relationship between the buyer, and the intermediate seller. there has to be that kind of relationship, rather than a sales agency relationship like we have here. antitrust doesn't usually depend upon contractual formalities. it usually depends on underlying economics. i have a hard time distinguishing this case from illinois brick and the question of economic pass through and the question it presents. the possibility that the
intermediate purchaser may absorb the monopoly rent and not pass it along. that raises the question, i will raise it briefly, whether illinois brick is correct. i am really curious why you don't make that argument. there is a whole bunch of things for you to chew on. >> i will try to chew on them succinctly. we're not asking that because we clearly meet the bright line rule. >> it seems to me it is an argument in the law of contracts rather than antitrust. help me out with economics. >> we pay money, apple never shared that money with any middleman. illinois brick is a case about a middleman. there is no middleman here. we paid the money, apple kept 30% of it.
>> that is based on the form of the relationship. talk to me about the possibility that the app producer might absorb the rent. >> if i can try to answer your question with a hypothetical and if the court would indulge me, suppose that a competitive market, the price for a app was $.90. we would all agree, i think, that the consumer can sue for the nine cent differential. >> i understand that. let's put that aside. >> that aside, let's look at it from the developer's perspective. if they had a claim, and i'm not saying they do, but if they had a claim, they would need to show the difference between the profits that they would have achieved in the monopoly app store versus the profits they would have achieved at a competitive market price. that depends on three factors. one is the difference in sales
that they would achieve between $.99 and $.90. the second is how their sales differences would affect revenue and the third is whether the commission was 30% in a competitive market. if you take my have with article, the damages for the developer, there are three possibilities. one is that it is zero. if the commission went to 22% in a competitive market, the developer takes home $.70, just as it does with apples 30% and a $.99 monopoly market. a 22% commission, the developer has zero damages. the developer would have positive damages if the commission were zero, because then the app developer sustained damages of $.20. the developer would make the $.90 in a competitive market instead of the $.70 that apple
is now passing along by virtue of the monopoly market. the damages would be negative if in a competitive market the 30%commission's stayed at because they're the benefits that would be achieved by the monopoly price of $.99 gives the developer an extra eight cents per transaction. in that way, the developer has a different claim that is based on lost profits. that would be irrespective of whether the buyer of the app, the consumer, sustains damage for the nine cents. you can run these out, get your law clerks out to run the different scenarios. it always works the same way. >> unless we are prepared to overrule, this wasn't our case. alcoa, i think all you have to show is that they have monopoly power. and two, they achieved it
through more restrictive than necessary practices. in your case, and there is only one monopoly profit to be earned, so you would have a different question when you get to the damages stage. the different question is, how did they divide that monopoly profit? you would like to show that they got some of it from consumers. that is for a later proceeding. you're adding one thing. one of the things that we want to use in order to prove that they do have monopoly power, i.e., the price to raise -- power to raise price significantly above a competitive level, is they charge so much money. that is just a piece of evidence. agreeing that there is only one monopoly profit, as to who got what.
have i stated that correctly? >> yes you have. the question is who gets to complain about the monopoly app store? we say as the buyers of the apps from the monopoly app store, there is no form or function, no contract issues creating a different form versus function problem. we are paying the money, they are keeping it and we take we -- think we are paying more than we would have to if their market was competitive. >> they say would be different if apple purchased the apps from the app developer then added 3% 0% on the sale. why is that different? >> it is relevant who sets the price so long as what the violation is leads to higher prices that the consumers have to pay. that is what the violation is. that is how we are harmed. in the very hypothetical that
you pose, the solicitor general concedes we are direct procedures in a situation where they set the price and tack on 30% by virtue of monopoly power. it is no different here, if you think about it in terms of what is actually going on. suppose apple dropped its commission from 30% to 20% but maintained the price restriction of a $.99 app. from the consumer's perspective, we're still overpaying for the app. under that hypothetical, apple simply gives the developer more money but that does not affect consumer welfare. >> the general said that if in fact apple bought these products from suppliers then added 30%, that would be a classic antitrust violation. you are saying that is basically
what they are doing anyway. let's take the reverse. they collected money from you and paid all of it over to the developer and then told the developer, give us 30% of that. would you then still be a direct purchaser? >> we would still be direct purchasers if we are buying it from apple, then apple is engaging in the form over function situations in terms of how the money gets moved around. i think in that situation, we are still directly purchasing and able to complain about apple's violation and i think we have to keep the idea that apple is still operating a monopoly app store. it is different than if there were a grocery store chain that monopolized the sale of all vegetables. if that is the only place you could buy vegetables, we would
say that that monopoly store was able to control prices and affect output. that is basically what is happening. >> i think the question requires further exploration. are we in danger of incentivizing a restructuring of contracts here so that all that apple does this make you purchase directly from the app provider and it then returns the profit to apple later? if that is all we are doing, then what is the point of illinois brick? you still haven't explained why they are not asking to overturn illinois break when 31 states are. -- illinois brick when 31 states are. >> i represent the consumers in this case, and they have no beef with illinois brick. we think we are direct purchasers, we satisfy the rule,
we come within the bright line, that is ok with us. what the court decides to do with illinois brick's were you go to a different situation. on your other point, it is the other side that is asking for the opportunity to use contracts in order to distort or recharacterize matters in ways that avoids the illinois brick bright line. >> i believe the economics underlying the two arrangements are similar. hard to establish. i've not heard you make the argument why. let's posit that it really is about form. >> i think in that hypothetical, i would be prepared to say if we were playing the developer directly in the developer could set any price, the app developer operating in a free market can set whatever it wants to set,
then apple comes after the app developer and says, the consumer bought it through our store, we want whatever we want, that becomes not a problem with the consumer, that becomes a problem between the developer and apple. >> so pricing control is really important to proximate cause? >> pricing control is not important to proximate cause in the sense that, under direct proximate cause, we are buying the app directly from the developer and a key part of my answer was the app developer can set that price competitively in a competitive market. what arrangements happen between apple exercising its monopoly control through the app store and the supplier is not something we are approximately affected by. >> your point was that the other side is putting form over the
reality. >> that's correct. they are doing it in a way that is particularly standardless. because with the court in utilicorp held is that even when it is absolutely clear 100% of the overcharge is going from the natural gas supplier through the utility directly to the consumer, this court held, no. we are going to keep the bright line rule. only the utility gets to complain about the natural gas overcharge. it was that bright line rule that the court said is going to apply and the reason is exactly for the point that you made. it is about judicial administration at the pleading stage. we are trying to figure out who has the claim and who can complain about the antitrust. that is clearly consumers, because we are paying apple the money to receive the app.
to finish off the point, what the other side is asking is that instead of having a bright line rule, it is a very fuzzy rule, if they don't have a test for what constitutes a pass-through or a test that applies when there is no middleman and there is no middleman in this transaction. it is directly between the phone owner and apple. you are going to have to figure out, do they get one group for this case only? they happened to be the largest company in the world or they were some weeks ago, and they are able to extract monopoly pricing by virtue of a unique e-commerce monopoly on their app store. >> what concerns me is that it doesn't seem to be based on the way in which this claim was understood by the lower courts. maybe they misunderstood.
the opening line of the order granting apple's motion to dismiss the second complain in the district court is that apple has engaged in antitrust conduct by collecting 30% of the price. the district court's missed it, respectfully. >> can you point to me where in the opinion they understood your claim in the way that you have characterized this morning? >> they said on page 21a that this is simply about a monopoly distribution and it is a sample case as a result. if you look at the bottom of 21a, the very last paragraph, our analysis was compelled by hanover shoe, illinois brick, utilicorp with a manufacturer or producer on one hand and distributor on the other. apple is a distributor of the iphone apps selling them
directly to purchasers through its app store. because of that, we have a standing to complain that they are the seller of the app. it is a very simple case, viewed through that lens. i accept that there have been a lot of arguments in this idea about the 30% has led to a lack of clarity, but i think the position we have written in our brief is the best articulation of the underlying theory and that is that the apple monopoly app store overcharges iphone owners for apps. >> the rule of the $.99 requirement is what? would your theory be the same if no such requirement existed or would it not? >> it would still be an overcharge case, because the theory is that if you have to buy only from the monopoly, you
are paying more than you would if there was a discount apps warehouse or you could buy directly from the developer. our assertion is that with multiple suppliers of the apps, we would be able to buy them at a lower price. >> what is the significance of that in the $.99 rule? the significance is that it informs the price elevation and the price over charge. it also informs that contrary to apple's assertion, they are not the agent of the app developers. they put that in the contract. that is where you get to the form over substance problem. at $.99 they are telling the app developer, we are foreclosing from you 99% of all pricing options. >> if that is significant, why didn't you included in the complaint? >> because it is not significant from this perspective and that is that with a monopoly store,
overcharged at relatively simple. they brought up the $.99 in the brief. i think it is an page nine where they raise the $.99 issue. we were thinking about what the implications of that war, it became clear to us that it meant the app developer couldn't possibly be -- >> seems like you need to come up with a new litigation three. eory. >> we are at the pleading stage. >> should we be addressing that? >> they brought up the $.99. it was not us. our point was that, when they raised the $.99, it is somehow proof that the developer gets a second price, we say is actually irrelevant for the reasons i have stated.
secondly it is just wrong. if you are constraining what 99% of price options are, that it is what it is, it has the effect of raising the price. >> it is going to add to damages, correct? >> it could add to damages or it could subtract from damages. we don't know. what we know is what the price is in a noncompetitive market and we will have to have experts assess what the damages would be in a competitive market. >> the theory does not depend on the $.99? >> the theory of damages or violation? the theory of the violation is the owned app store as the place to sell apps. that is what the violation is here. how you calculated damages is you look at the overcharge based on what the monopoly is selling the app for versus what it would be sold for in a competitive market.
the antitrust scholars go through a lot of the pricing scenarios that you have explored and they make clear that it is a matter of function. the monopoly seller is extracting an overcharge from the direct purchasers. >> if this case were to go to trial, as class action, would every app purchaser potentially be entitled to three times the 30% overcharge or would it depend on a particular app? >> your honor, i don't know you the answer to your question fully. i have not thought about how the
experts are going to try to prove it. what i would say is that what will likely happen is that because there are apps that are sold at $.99, a huge number of them are free, huge number also sold at $.99, some other strata is sold for $1.99 or $2.99 and i had not put my head around how you would carve up the damages. the idea of the clayton act is that damages are designed to deter antitrust violations. this court has made clear that the point of having that deterrent is to avoid having the monopolist act in a way that it is not penalized for its behavior. if you were to suppose it is a single damages problem, it would be easy for monopolists to act and if they get caught, they can pay over what they caused in
damage. the idea behind the clayton act is designed to deter actions like this. that is why apple cannot point to another e-commerce distributor that does what it does. in every other instance, there is an alternative to buying the product and in fact, apple doesn't even do this with its own computer software and we have pleaded that in the we say that if you buy software, you can buy it open-source and you do not have to buy it from apple's monopoly chain. the iphone monopoly app store is a unique feature of the e-commerce setting. apple has found ways to limit the opportunity of a competitive market to flourish if a competitive market did flourish, the competitive market did for price that iphone owners
pay would be lower. thank you. >> thank you, counsel. three minutes, mr. wall. >> thank you, mr. chief justice. i think i need to begin with the experience i had in its case for the first nine years and it was about the 30% commission. case r the first nine years and it was about the 30% commission. the key allegation is the root of a damages theory, which maintains that the 30% commission is a monopoly price. it is called a super competitive price. it is a root of a damages theory , not just in part or on the periphery, but entirely. on pages in opposition five and 12 makes this unmistakably clear. on page five, the brief in opposition states, respondents seek damages based solely on the 30% markup. whatever other attributes of the case one may want to talk about that mike jewry to the liability
theory -- one might want to talk about that might contribute to the liability theory. apple had in every room with an iphone owner a provision that you can sue, you can't sue, you have to go to an arbiter one by one, then apple would be home free. >> we do not have a provision. there shall be litigation in the northern district of california -- >> i know you don't, but suppose you did. case, then ere the this would be a matter for arbitration. i don't think it changes with the legal question. this case out e f this court, put it in an
arbitor forum with a single complainant. it would, that's not this case. there is no concern about this in this case. point i want to duplicitous s possibility. e didn't hear about loss of profits claims based upon monopsony. wouldper is, if they sued sue over the same 30% mark-up. any claim by the apps developers, a claim by the apps onelopers, even if they had would not overlap the 30% purchasers,d by apps rather it is the same piece of pie.30% what is illinois brick about, t's about not having that portionment fight.
they admitted to the time that this case was on this court's all about anis was apportionment fight between the developers. is the betterhich rule, the formalistic rule or suggest antive rule, i that the formalistic rule is one that is subject to manipulation. the substantive rule that asks is your damages theory a pasion focuses on what is of economic substance. the ere that's what district court judge did, in a atient but persistent manner, she required them to say what is your theory? j-1137-143, you see the transcript of the district court finally at j.a.141 r 143 rather, they said their theory is that because of the commission, the developer would make up the app. that is a classic overcharge case. now to be sure in a new setting setting.s a new world
it's not the brick and mortar setting of the three cases that court has decided before, but it is the same economics the same d have outcome prohibiti papadopoulosgeorge sits down for an interview with the special counsel russia investigation. watch this american priority live at 1:15 p.m. eastern here on c-span. at 8:00 p.m. eastern, conversations with two retiring members of congress, lamar smith of texas, retiring after 32 years in the house, and michael cap alano of massachusetts, defeated in the
democratic primary. >> you faced a contentious primary this year. do that surprising? -- did that surprising? >> -- surprise you? >> not at all. my constituents are angry. they're angry at the democratic party for not standing up for things. they are angry at the way donald trump has governed. everybody looks at it as partisanship because it's the shorthanded way to say it. but they forget we have a republican governor in the most democratic state in the country and he's one of the most popular governor in the country and just had an overwhelming victory. partisanship is not it. it's part of it but it's how you do it. my constituents are angry, upset, wants change. not everybody is going to
remember the jimmy stewart movie of that title but i shamelessly played on that team -- theme when i ran for congress and we had bumper stickers that said, send mr. smith to washington. and more on that, we decided it might be an interesting idea to try to auction off a poster from mr. smith poster of goes to washington. i called jimmy stewart, who was a republican, and he autographed a poster for me, which we auctioned off in san antonio. paid a friend plate -- $1000 for that poster. he has the autograph to jimmy stewart poster at his house today. and so that brings back happy memories, too. >> representative lamar smith and michael cap 10 saturday at 8:00 p.m. eastern on c-span and c-span.org and listen on the
free c-span radio app. fbi directorr james comey talks briefly to reporters following his testimony on a range of issues behind closed doors. he announced he agreed to return for another interview on monday, december 17. yes. you take ey will questions? hello, you guys, hello. you.hank >> after full day of questioning