FOR PUBLICATION
`
`UNITED STATES COURT OF APPEALS
`FOR THE NINTH CIRCUIT
`
`IN RE APPLE IPHONE ANTITRUST
`LITIGATION,
`
`ROBERT PEPPER; STEPHEN H.
`SCHWARTZ; EDWARD W.
`HAYTER; ERIC TERRELL,
`Plaintiffs-Appellants,
`
`No. 14-15000
`
`D.C. No.
`4:11-cv-06714-YGR
`
`OPINION
`
`v.
`
`APPLE INC.,
`
`Defendant-Appellee.
`
`Appeal from the United States District Court
`for the Northern District of California
`Yvonne Gonzalez Rogers, District Judge, Presiding
`
`Argued and Submitted February 10, 2016
`San Francisco, California
`
`Filed January 12, 2017
`
`Before: A. Wallace Tashima and William A. Fletcher,
`Circuit Judges, and Robert W. Gettleman,* District Judge.
`
`Opinion by Judge W. Fletcher
`
`* The Honorable Robert W. Gettleman, United States District Judge
`for the Northern District of Illinois, sitting by designation.
`
`
`
`UNITED STATES COURT OF APPEALS
`FOR THE NINTH CIRCUIT
`
`IN RE APPLE IPHONE ANTITRUST
`LITIGATION,
`
`ROBERT PEPPER; STEPHEN H.
`SCHWARTZ; EDWARD W.
`HAYTER; ERIC TERRELL,
`Plaintiffs-Appellants,
`
`No. 14-15000
`
`D.C. No.
`4:11-cv-06714-YGR
`
`OPINION
`
`v.
`
`APPLE INC.,
`
`Defendant-Appellee.
`
`Appeal from the United States District Court
`for the Northern District of California
`Yvonne Gonzalez Rogers, District Judge, Presiding
`
`Argued and Submitted February 10, 2016
`San Francisco, California
`
`Filed January 12, 2017
`
`Before: A. Wallace Tashima and William A. Fletcher,
`Circuit Judges, and Robert W. Gettleman,* District Judge.
`
`Opinion by Judge W. Fletcher
`
`* The Honorable Robert W. Gettleman, United States District Judge
`for the Northern District of Illinois, sitting by designation.
`
`
`
`2
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`SUMMARY**
`
`Antitrust
`
`The panel reversed the dismissal for lack of statutory
`standing of an antitrust complaint alleging that Apple, Inc.,
`monopolized and attempted to monopolize the market for
`iPhone apps.
`
`Plaintiffs argued that Fed. R. Civ. P. 12(g)(2) barred
`Apple from raising in its fourth Rule 12 motion to dismiss a
`statutory standing defense omitted from prior motions to
`dismiss. Agreeing with the Third and Tenth Circuits, the
`panel held that as a reviewing court, the court of appeals
`should generally be forgiving of a district court’s ruling on
`the merits of a late-filed Rule 12(b)(6) motion. The panel
`concluded that any error in the district court’s consideration
`on the merits of Apple’s Rule 12(b)(6) motion to dismiss was
`harmless.
`
`Disagreeing with the Eight Circuit’s analysis in a similar
`case, the panel held that the plaintiffs were direct purchasers
`of iPhone apps from Apple, rather than the app developers,
`and therefore had standing to sue under Illinois Brick Co. v.
`Illinois, 431 U.S. 720 (1977). The panel concluded that
`Apple was a distributor of iPhone apps, selling them directly
`to purchasers through its App Store. The panel remanded the
`case for further proceedings.
`
`** This summary constitutes no part of the opinion of the court. It has
`been prepared by court staff for the convenience of the reader.
`
`
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`3
`
`COUNSEL
`
`Mark C. Rifkin (argued), Alexander H. Schmidt, and Michael
`Liskow, Wolf Haldenstein Adler Freeman & Herz LLP, New
`York, New York; Francis M. Gregorek and Rachele R.
`Rickert, Wolf Haldenstein Adler Freeman & Herz LLP, San
`Diego, California; for Plaintiffs-Appellants.
`
`Daniel M. Wall (argued), Christopher S. Yates, and Sadik
`Huseny, Latham & Watkins LLP, San Francisco, California;
`J. Scott Ballenger, Latham & Watkins LLP, Washington,
`D.C.; for Defendant-Appellee.
`
`OPINION
`
`W. FLETCHER, Circuit Judge:
`
`In their current complaint, Plaintiffs allege that they
`purchased iPhones and iPhone applications (“apps”) between
`2007 and 2013, and that Apple has monopolized and
`attempted to monopolize the market for iPhone apps. In
`ruling on Apple’s fourth motion to dismiss, the district court
`held that Plaintiffs lacked antitrust standing under Illinois
`Brick Co. v. Illinois, 431 U.S. 720 (1977).
`
`We must decide two questions. First, we must decide
`whether Rule 12(g)(2) barred the district court from
`considering on the merits Apple’s fourth motion to dismiss,
`brought under Rule 12(b)(6), in which Apple contended that
`Plaintiffs lack statutory standing under Illinois Brick. We
`conclude that the district court may have erred in considering
`this motion on the merits, but that its error, if any, was
`harmless. Second, we must decide whether Plaintiffs lack
`
`
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`tatutory standing under Illinois Brick. We hold that
`Plaintiffs are direct purchasers from Apple within the
`meaning of Illinois Brick and therefore have standing.
`
`4 s
`
`I. Factual Allegations
`
`The following factual narrative is drawn from Plaintiffs’
`current complaint. Because the district court dismissed
`Plaintiffs’ suit under Rule 12(b)(6) for failure to state a claim,
`we take as true all plausible allegations.
`
`Apple released the iPhone in 2007. The iPhone is a
`“closed system,” meaning that Apple controls which apps—
`such as ringtones, instant messaging, Internet, video, and the
`like—can run on an iPhone’s software. In 2008, Apple
`launched the “App Store,” an internet site where iPhone users
`can find, purchase, and download iPhone apps. Apple has
`developed some of the apps sold in the App Store, but many
`of the apps sold in the store have been developed by third-
`party developers. Apple earns a commission on each third-
`party app purchased for use on an iPhone. When a customer
`purchases a third-party iPhone app, the payment is submitted
`to the App Store. Of that payment, 30% goes to Apple and
`70% goes to the developer.
`
`Apple prohibits app developers from selling iPhone apps
`through channels other than the App Store, threatening to cut
`off sales by any developer who violates this prohibition.
`Apple discourages
`iPhone owners from downloading
`unapproved apps, threatening to void iPhone warranties if
`they do so.
`
`
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`5
`
`II. Procedural History
`
`The procedural history of this case is complex. We
`describe as much of the history as is necessary to resolve the
`procedural question before us. Four named plaintiffs filed a
`putative antitrust class action complaint (“Complaint 1”)
`against Apple on December 29, 2011. Counts I and II of
`Complaint 1 alleged monopolization and attempted
`monopolization of the iPhone app market by Apple. Count
`III alleged a conspiracy between Apple and AT&T Mobility,
`LLC (“ATTM”) to monopolize the voice and data services
`market for iPhones. Plaintiffs alleged that they had purchased
`iPhones, but did not allege that they had ever purchased, or
`attempted to purchase, iPhone apps. On March 2, 2012,
`Apple moved to dismiss the entire complaint under Rule
`12(b)(7) for failure to join ATTM as a defendant. This
`motion to dismiss was mooted when the district court
`consolidated the action with another action.
`
`Seven named plaintiffs, including the original four
`plaintiffs, then filed a consolidated putative class action
`complaint (“Complaint 2”) against Apple on March 21, 2012.
`The allegations in Complaint 2 were essentially the same as
`those in Complaint 1, and the same three Counts were
`alleged. None of the named plaintiffs alleged that they had
`bought, or attempted to buy, an iPhone app. ATTM was not
`added as a defendant. On April 16, 2012, Apple moved again
`to dismiss the entire complaint under Rule 12(b)(7) for failure
`to join ATTM as a defendant. In the alternative, it moved to
`dismiss Count III under Rule 12(b)(6) for failure to state a
`claim for conspiracy between Apple and ATTM. The district
`court granted without prejudice the motion to dismiss the
`entire complaint, even though Counts I and II alleged no
`wrongdoing by ATTM. The court specifically ordered
`
`
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`6 P
`
`laintiffs either to add ATTM as a defendant or to forgo
`Count III. It denied without prejudice Apple’s motion to
`dismiss Count III under Rule 12(b)(6) on the ground that, in
`the absence of ATTM, the motion was premature.
`
`Plaintiffs filed an amended consolidated complaint
`(“Complaint 3”) on September 28, 2012. Complaint 3 was
`essentially the same as Complaint 2, except that Count III
`was now labeled as “Preserved for Appeal.” None of the
`named plaintiffs alleged that they had ever purchased, or
`sought to purchase, iPhone apps, and ATTM was not named
`as a defendant. On November 2, 2012, Apple moved under
`Rule 12(f) to strike Claim III on the ground that ATTM had
`still not been named as a defendant. As part of the same
`motion, Apple moved to dismiss Counts I and II under Rule
`12(b)(1) for lack of Article III standing, and under Rule
`12(b)(6) for lack of statutory standing under Illinois Brick.
`This was the first time Apple had moved to dismiss Counts I
`and II. Relying on Rule 12(g)(2), Plaintiffs opposed Apple’s
`motion to dismiss under Rule 12(b)(6) on the ground that
`Apple had not moved to dismiss these claims under Rule
`12(b)(6) in its two previous motions under Rule 12.
`
`The district court granted the Rule 12(f) motion to strike
`Count III. The district court also granted the Rule 12(b)(1)
`motion to dismiss Counts I and II for lack of subject matter
`jurisdiction, holding that Plaintiffs lacked Article III standing
`to bring those counts because Plaintiff failed to allege that
`they had purchased or attempted to purchase an iPhone app.
`The court declined to rule on the Rule 12(b)(6) motion to
`dismiss under Illinois Brick, concluding that, in the absence
`of an alleged Article III injury, any ruling would be advisory.
`The district court dismissed with leave to amend.
`
`
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`7
`
`Plaintiffs filed a second amended consolidated complaint
`(“Complaint 4”) on September 5, 2013. Complaint 4 alleged
`only the iPhone app monopolization claims, which had been
`Counts I and II of all of the earlier complaints. For the first
`time, Plaintiffs alleged that they had purchased iPhone apps,
`thereby alleging sufficient injury under Article III to support
`Counts I and II. Complaint 4 added the following allegation
`specifically addressed to statutory standing under Illinois
`Brick
`
`When an iPhone customer buys an app from
`Apple, it pays the full purchase price,
`including Apple’s 30% commission, directly
`to Apple. . . . Apple sells the apps (or, more
`recently, licenses for the apps) directly to the
`customer, collects the entire purchase price,
`and pays the developers after the sale. The
`developers at no time directly sell the apps or
`licenses to iPhone customers or collect
`payments from the customers.
`
`On September 30, 2013, Apple filed a motion to dismiss
`under Rule 12(b)(6), contending that Plaintiffs lacked
`statutory standing under Illinois Brick. The district court
`agreed and dismissed Complaint 4 with prejudice. Plaintiffs
`timely appealed.
`
`III. Standard of Review
`
`We review de novo alleged errors of law in interpreting
`Rule 12. See Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d
`970, 973 (9th Cir. 2010). We review de novo dismissals for
`failure to state a claim under Rule 12(b)(6). Carlin v.
`DairyAmerica, Inc., 705 F.3d 856, 866 (9th Cir. 2013).
`
`
`
`8
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`IV. Discussion
`
`Plaintiffs make three arguments on appeal, of which we
`need to reach only two. First, Plaintiffs argue that Rule
`12(g)(2) barred Apple from raising its Illinois Brick statutory
`standing defense in its fourth Rule 12 motion to dismiss, and
`that the district court erred in deciding the motion on the
`merits. Second, Plaintiffs argue that the district court erred in
`characterizing them as indirect purchasers from Apple, and
`therefore without statutory standing under Illinois Brick. We
`address these two arguments in turn.
`
`A. Late-filed Motions to Dismiss under Rule 12(b)(6)
`
`Rule 12(g)(2) provides, “Except as provided in Rule
`12(h)(2) or (3), a party that makes a motion under this rule
`must not make another motion under this rule raising a
`defense or objection that was available to the party but
`omitted from its earlier motion.” The consequence of
`omitting a defense from an earlier motion under Rule 12
`depends on type of defense omitted. A defendant who omits
`a defense under Rules 12(b)(2)-(5)—lack of personal
`jurisdiction, improper venue, insufficient process, and
`insufficient service of process—entirely waives that defense.
`Fed. R. Civ. P. 12(h)(1)(A). A defendant who omits a
`defense under Rule 12(b)(6)—failure to state a claim upon
`which relief can be granted—does not waive that defense.
`Rule 12(g)(2) provides that a defendant who fails to assert a
`failure-to-state-a-claim defense in a pre-answer Rule 12
`motion cannot assert that defense in a later pre-answer motion
`under Rule 12(b)(6), but the defense may be asserted in other
`ways. Fed. R. Civ. P. 12(h)(2).
`
`
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`9
`
`Our sister circuits disagree about the proper interpretation
`and application of Rule 12(g)(2). The Seventh Circuit has
`held that Rule 12(g)(2) does not foreclose a motion to dismiss
`under Rule 12(b)(6) when there has been a previous motion
`to dismiss under Rule 12. See Ennenga v. Starns, 677 F.3d
`766, 773 (7th Cir. 2012) (“Rule 12(g)(2) does not prohibit a
`new Rule 12(b)(6) argument from being raised in a
`successive motion.”). The Seventh Circuit misunderstands
`Rule 12, reading Rule 12(h)(1) to provide the only sanction
`for failure to raise a Rule 12 defense in a prior motion under
`the Rule. It is true that Rule 12(h)(1) singles out several Rule
`12 defenses for an especially severe sanction. If a defense
`under Rule 12(b)(2)-(5) is not asserted in the first Rule 12
`motion to dismiss, Rule 12(h)(1) tells us that the defense is
`entirely waived. But Rule 12(h)(2) provides a less severe
`sanction for failure to assert a defense under Rule 12(b)(6).
`If a failure-to-state-a-claim defense under Rule 12(b)(6) was
`not asserted in the first motion to dismiss under Rule 12, Rule
`12(h)(2) tells us that it can be raised, but only in a pleading
`under Rule 7, in a post-answer motion under Rule 12(c), or at
`trial. See, e.g., English v. Dyke, 23 F.3d 1086, 1091 (6th Cir.
`1994) (correctly describing the operation of the rule).
`
`The Third and Tenth Circuits have read Rule 12 correctly,
`but have been very forgiving of a district court’s failure to
`follow Rule 12(g)(2). See Leyse v. Bank of Am. Nat. Ass’n,
`804 F.3d 316, 321–22 (3d Cir. 2015) (“So long as the district
`court accepts all of the allegations in the complaint as true,
`the result is the same as if the defendant had filed an answer
`admitting these allegations and then filed a Rule 12(c) motion
`for judgment on the pleadings, which Rule 12(h)(2)(B)
`expressly permits.”); Albers v. Bd. of Cty. Comm’rs of
`Jefferson Cty., Colo., 771 F.3d 697, 704 (10th Cir. 2014)
`(“[W]hether the district court dismissed the complaint based
`
`
`
`10
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`on a motion under Rule 12(b)(6) or rule 12(c) makes no
`difference for purposes of our review. Therefore, any
`procedural error that may have been been committed would
`be harmless and does not prevent us from reaching the merits
`of the district court’s decision.”).
`
`We agree with the approach of the Third and Tenth
`Circuits. We read Rule 12(g)(2) in light of the general policy
`of the Federal Rules of Civil Procedure, expressed in Rule 1.
`That rule directs that the Federal Rules “be construed,
`administered, and employed by the court and the parties to
`secure the just, speedy, and inexpensive determination of
`every action and proceeding.” Fed. R. Civ. P. 1. Denying
`late-filed Rule 12(b)(6) motions and relegating defendants to
`the three procedural avenues specified in Rule 12(h)(2) can
`produce unnecessary and costly delays, contrary to the
`direction of Rule 1.
`
`District courts in this circuit and others are well aware of
`this. For example, as the late Judge Pfaelzer recently wrote:
`
`Rule 12(g) is designed to avoid repetitive
`motion practice, delay, and ambush tactics. If
`the Court were to evade the merits of
`Defendants’ . . . defenses here, Defendants
`would be required to file answers within 14
`days of this Order. They would presumably
`assert [the same defenses] in those answers.
`Defendants would then file Rule 12(c)
`motions, the parties would repeat the briefing
`they have already undertaken, and the Court
`would have to address the same questions in
`several months. That is not the intended
`
`
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`11
`
`effect of Rule 12(g), and the result would be
`in contradiction of Rule 1’s mandate[.]
`
`Allstate Ins. Co. v. Countrywide Fin. Corp., 824 F. Supp. 2d
`1164, 1175 (C.D. Cal. 2011) (citations omitted); see also
`Banko v. Apple, Inc., No. 13-02977 RS, 2013 WL 6623913,
`at *2 (N.D. Cal. Dec. 16, 2013) (internal quotations omitted)
`(“Although Rule 12(g) technically prohibits successive
`motions to dismiss that raise arguments that could have been
`made in a prior motion . . . courts faced with a successive
`motion often exercise their discretion to consider the new
`arguments in the interests of judicial economy.”); Davidson
`v. Countrywide Home Loans, Inc., No. 09-CV-2694-IEG
`JMA, 2011 WL 1157569, at *4 (S.D. Cal. Mar. 29, 2011)
`(internal quotations omitted) (“Rule 12(g) applies to
`situations in which a party files successive motions under
`Rule 12 for the sole purpose of delay[.]”); Doe v. White, No.
`08-1287, 2010 WL 323510, at *2 (C.D. Ill. Jan. 20, 2010)
`(citing the “substantial amount of case law which provides
`that successive Rule 12(b)(6) motions may be considered
`where they have not been filed for the purpose of delay,
`where entertaining the motion would expedite the case, and
`where the motion would narrow the issues involved.”).
`Moore’s Federal Practice endorses this approach. See 2-12
`Moore’s Federal Practice - Civil § 12.23 (“[B]ecause [a
`12(b)(6) defense] is so basic and was not waived, [a district]
`court might properly entertain a second motion if it were
`convinced it was not interposed for delay and that addressing
`it would expedite disposition of the case on the merits.”).
`
`Recognizing the practical wisdom of these district courts,
`and of the Third and Tenth Circuits, we conclude that, as a
`reviewing court, we should generally be forgiving of a district
`
`
`
`12
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`court’s ruling on the merits of a late-filed Rule 12(b)(6)
`motion. With that in mind, we turn to the case now before us.
`
`Apple’s first two motions to dismiss under Rule 12(b)(7),
`directed to Complaints 1 and 2, were designed to force
`Plaintiffs to add ATTM as a necessary and indispensable
`party under Rule 19. These were appropriate motions, given
`that Count III alleged a conspiracy between Apple and
`ATTM to monopolize voice and data services, and given that
`Plaintiffs had sufficiently alleged Article III injury to make
`that claim. After Plaintiffs filed Complaint 3, which had been
`amended to recognize the success of Apple’s motions under
`Rule 12(b)(7), Apple moved again to dismiss. It now moved
`for the first time to dismiss Counts I and II, relying on Rules
`12(b)(1) and 12(b)(6). A Rule 12(b)(1) motion to dismiss for
`lack of subject matter jurisdiction, including for failure to
`allege injury sufficient for Article III standing, may be made
`at any time. See F. R. Civ. P. 12(b)(1) and 12(h)(3). Apple’s
`earlier Rule 12 motions to dismiss thus in no way foreclosed
`its late-filed motion to dismiss Counts I and II for lack of
`Article III standing. The district court granted Apple’s Rule
`12(b)(1) motion to dismiss. It refused to decide Apple’s Rule
`12(b)(6) motion to dismiss for lack of statutory standing on
`the ground that, in the absence of an Article III case or
`controversy, a ruling on the motion would be an advisory
`opinion.
`
`Complaint 4 realleged Counts I and II, and finally alleged,
`for the first time, that Plaintiffs had purchased iPhone apps.
`That is, Complaint 4 finally alleged sufficient injury to confer
`Article III standing to support Counts I and II. Apple moved
`to dismiss for the fourth time, this time only under Rule
`12(b)(6) for lack of statutory standing under Illinois Brick.
`
`
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`13
`
`Apple’s motions to dismiss for lack of standing under
`Rule 12(b)(6), made in its third and fourth motions to dismiss
`under Rule 12, may not have been late-filed within the
`meaning of Rule 12(g)(2). Indeed, there is an argument that
`Apple’s motion to dismiss Complaint 3 under Rule 12(b)(6),
`made as part of its third Rule 12 motion to dismiss, was not
`late but premature. At that point, Plaintiffs had not alleged
`injury sufficient to confer subject matter jurisdiction over
`Counts I and II. For that reason, the district court properly
`refused to rule on Apple’s Rule 12(b)(6) motion, holding that,
`in the absence of an allegation of Article III standing, any
`ruling would be advisory. See Steel Co. v. Citizens for a
`Better Env’t, 523 U.S. 83 (1998). The district court was
`willing to decide Apple’s Rule 12(b)(6) motion to dismiss for
`lack of statutory standing only when Plaintiffs finally alleged,
`in Complaint 4, sufficient injury to confer Article III standing
`to bring the challenged counts.
`
`Even if we assume arguendo that Apple’s motion to
`dismiss under Rule 12(b)(6), made in its fourth Rule 12
`motion, was late, any error by the district court in considering
`the motion on the merits was harmless. First, the four
`motions to dismiss, culminating in the motion to dismiss
`Complaint 4 under Rule 12(b)(6), do not appear to have been
`filed for any strategically abusive purpose. Apple promptly
`moved to dismiss each of Plaintiffs’ four complaints.
`Apple’s first two motions to dismiss were made on March 2
`and April 16, 2012, immediately after the filing of Plaintiffs’
`first two complaints. Plaintiffs filed Complaint 3 on
`September 28, 2012. Apple moved to dismiss under Rules
`12(b)(1) and 12(b)(6) on November 2, 2012. Plaintiffs filed
`Complaint 4 on September 5, 2013. Apple moved to dismiss
`under Rule 12(b)(6) on September 30, 2013. We recognize
`that Apple could have moved, along with its motion to
`
`
`
`14
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`dismiss for failure to join ATTM under Rule 12(b)(7), to
`dismiss Counts I and I for lack of subject matter jurisdiction
`under Rule 12(b)(1). If that motion had been made and
`granted, Plaintiffs would likely have amended their complaint
`earlier to allege purchases of iPhone apps. But we see no
`harm to Plaintiffs caused by Apple’s delay in making its Rule
`12(b)(1) motion. Second, resort to any of the three default
`alternatives specified in Rule 12(h)(2)—a pleading under
`Rule 7(a), a post-answer motion to dismiss on the pleadings
`under Rule 12(c), or a defense asserted at trial—would have
`substantially delayed resolution of the Illinois Brick statutory
`standing question, and would have done so for no apparent
`purpose. The district court’s decision on the merits of
`Apple’s Rule 12(b)(6) motion materially expedited the
`district court’s disposition of the case, which was a benefit to
`both parties.
`
`We therefore conclude that any error committed by the
`district court in ruling on Apple’s motion to dismiss under
`Rule 12(b)(6) for lack of statutory standing under Illinois
`Brick, if indeed there was error, was harmless. We now turn
`to the merits of the district court’s decision.
`
`B. Standing Under Illinois Brick
`
`1. The Direct-Purchaser Rule
`
`Under § 4 of the Clayton Act, “any person who shall be
`injured in his business or property by reason of anything
`forbidden in the antitrust laws may sue . . . and shall recover
`threefold the damages by him sustained[.]” 15 U.S.C.
`§ 15(a). Notwithstanding the statutory term “any person,” the
`Supreme Court has limited those who may sue for antitrust
`damages. The general rule is that only “the overcharged
`
`
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`15
`
`direct purchaser, and not others in the chain of manufacture
`or distribution,” has standing to sue. Illinois Brick Co. v.
`Illinois, 431 U.S. 720, 729 (1977).
`
`The rule originated in Hanover Shoe v. United Shoe
`Machinery Co., 392 U.S. 481 (1968). Hanover, a shoe
`manufacturer, alleged that the United Shoe Machinery
`Corporation had used its monopoly over shoe-manufacturing
`machinery to lease machines to Hanover at supracompetitive
`rates. Id. at 483–84. United argued that Hanover had no
`legally cognizable injury under the antitrust laws because it
`had passed any illegal overcharge on to its customers. Id. at
`491. The Court rejected United’s “defensive” use of the pass-
`on theory. For purposes of antitrust damages, the Court held,
`the direct purchaser is injured by the full amount of the
`overcharge irrespective of who ultimately bears the cost of
`that injury. Id. at 494.
`
`The Court gave two reasons for its holding. First, the
`dollar figures necessary to demonstrate that an intermediary
`has avoided economic injury by passing an overcharge onto
`his customers were,
`the Court
`found, “virtually
`unascertainable.” Id. at 493. A litigant would need to show,
`among other things, that the intermediary raised the price of
`his product as a result of the illegal overcharge; that the
`higher price charged by the intermediary did not affect the
`intermediary’s profits by reducing the volume of sales; and
`that the intermediary could not or would not have raised its
`price absent the overcharge. The challenges to making such
`a showing, the Court observed, would “normally prove
`insurmountable.” Id. Second, if an antitrust violator were
`permitted to defend against suit by showing that the
`intermediary passed
`the alleged overcharge onto
`its
`customers, those customers would logically be entitled to
`
`
`
`16
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`damages for any portion of the overcharge they paid. In
`many cases, however, there would be a large number of
`customers, each of whom would have “only a tiny stake in a
`lawsuit,” and who, in the view of the Court, would thus have
`“little interest in attempting a class action.” Id. at 494. As a
`result, according to the Court, antitrust violators would
`“retain the fruits of their illegality because no one . . . would
`bring suit against them.” Id.
`
`Nine years after Hanover Shoe, the Supreme Court
`rejected an attempt to use the pass-on theory “offensively.”
`In Illinois Brick, 431 U.S. 720 (1977), the State of Illinois
`sued a concrete block manufacturer for allegedly fixing the
`price of concrete blocks. The manufacturer had sold the
`blocks to masonry contractors who had used the blocks to
`build masonry structures. The masonry contractors sold the
`structures to general contractors who put the structures in
`buildings they sold to the State. The State alleged that the
`contractors had passed on the manufacturer’s illegal
`overcharge at both stages of the distribution chain, driving up
`the State’s costs by $3 million.
`
`The Supreme Court refused to recognize the passed-on
`overcharges as a basis for antitrust standing. As in Hanover
`Shoe, the challenges of tracing the effects of an overcharge at
`each stage of a distribution chain were, in the Court’s view,
`insurmountable. Even if indirect purchasers could meet these
`challenges, sorting out the complicated variables would clog
`the courts with protracted and expensive litigation. Id. at 732.
`And even then problems of administrability and enforcement
`would remain. Allowing an indirect purchaser to sue for
`whatever portion of an overcharge it was assessed would
`either “create a serious risk of multiple liability for
`defendants,” id. at 730, or reduce the effectiveness of antitrust
`
`
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`17
`
`laws by diluting the share of damages better-situated direct
`purchasers might secure by bringing suit. Id. at 731–35.
`
`The Supreme Court has reaffirmed the Hanover
`Shoe/Illinois Brick rule in a case where the practical
`considerations that gave rise to the rule were not nearly as
`compelling as in the two foundation cases. In Kansas v.
`UtiliCorp United, Inc., 497 U.S. 199 (1990), customers of
`public utilities sued natural gas producers for alleged
`violations of Section 4 of the Clayton Act. Plaintiffs
`conceded that they were direct purchasers from the public
`utilities and indirect purchasers from the producers. But they
`argued that the direct purchasers, because they were regulated
`public utilities, had the incentive and ability to build into their
`pricing structure their entire cost of purchasing natural gas.
`Id. at 205. On the other side of the coin, because they were
`public utilities, they had the obligation to pass on the entirety
`of any cost savings resulting from a reduced purchasing cost.
`Id. at 212. Therefore, the complications in determining the
`amount of illegal overcharge that had been, or could be,
`passed on that had so concerned the Court in Hanover Shoe
`and Illinois Brick were largely absent. The Court nonetheless
`applied the direct/indirect purchaser rule, holding that “[i]n
`the distribution chain,” the customers were “not the
`immediate buyers from the alleged antitrust violators.”
`UtiliCorp, 497 U.S. at 207.
`
`The transactions in Hanover Shoe and Illinois Brick have
`the same structure. In both cases, a monopolizing or price-
`fixing manufacturer sold or leased a product to an
`intermediate manufacturer at a supracompetitive price. The
`intermediate manufacturer (in Illinois Brick, two intermediate
`manufacturers) then used that product to create another
`product, which was ultimately sold to the consumer. The
`
`
`
`18
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`details in UtiliCorp are different, but the basic structure is the
`same. In UtiliCorp, a monopolizing producer sold a product
`to a distributor at an allegedly supracompetitive price. The
`distributor then sold the product to the consumer. In all three
`cases, the consumer was an indirect purchaser from the
`manufacturer or producer who sold or leased the product to
`the intermediary. The consumer was a direct purchaser from
`the intermediate manufacturer (Hanover Shoe and Illinois
`Brick) or from the distributor (UtiliCorp). The consumer did
`not have standing to sue the manufacturer or producer, but
`did have standing to sue the intermediary, whether the
`intermediate manufacturer or the distributor.
`
`2. Plaintiffs Are Direct Purchasers
`
`The question before us is whether Plaintiffs purchased
`their iPhone apps directly from the app developers, or directly
`from Apple. Stated otherwise, the question is whether Apple
`is a manufacturer or producer, or whether it is a distributor.
`Under Hanover Shoe, Illinois Brick, and UtiliCorp, if Apple
`is a manufacturer or producer from whom Plaintiffs
`purchased indirectly, Plaintiffs do not have standing. But if
`Apple is a distributor from whom Plaintiffs purchased
`directly, Plaintiffs do have standing.
`
`We do not write on a clean slate in this circuit. In
`Delaware Valley Surgical Supply, Inc. v. Johnson & Johnson,
`523 F.3d 1116 (9th Cir. 2008), plaintiff Bamberg County
`Memorial Hospital & Nursing Center (“Bamberg”) brought
`suit against Johnson & Johnson (“J & J”) alleging that J & J
`“impermissibly leveraged its monopoly power in sutures to
`create a monopoly” in the market for endomechanical
`products. Id. at 1118. Bamberg did not purchase medical
`supplies directly from J & J. Instead, a group purchasing
`
`
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`19
`
`organization (“GPO”), of which Bamberg was a member,
`negotiated purchasing contracts with J & J and a distributor,
`Owens & Minor (“O & M”). J & J and O & M, in turn, had
`a distributorship agreement specifying that O & M would pay
`J & J the price negotiated by the GPO. Bamberg would
`purchase from O & M, paying O & M this price plus a set
`percentage markup. Pursuant to this agreement, J & J
`supplied products to the distributor, O & M, which in turn
`sold and delivered the products to Bamberg, at a price equal
`to the cost O & M paid for the products plus the set markup
`determined by a contract between O & M and Bamberg. Id.
`at 1119.
`
`Applying the “straightforward,” “bright line” rule of
`Illinois Brick, we held in Delaware Valley that Bamberg was
`an indirect purchaser from J & J, the manufacturer, and a
`direct purchaser from O & M, the distributor. Id. at 1122,
`1120. That Bamberg and J & J had a contract setting the
`wholesale price of the products, and that the price Bamberg
`paid O & M was “set, in part, by an agreement negotiated . . .
`on behalf of Bamberg” with J & J were not determinative. Id.
`at 1122. The determinative fact was that O & M was a
`distributor who sold the products directly to Bamberg.
`Because Bamberg bought directly from O & M, the
`distributor, it lacked standing to sue J & J, the manufacturer.
`The necessary corollary of Delaware Valley is that Bamberg
`would have had standing to sue O & M, the distributor.
`
`The Eighth Circuit has considered a transaction closely
`resembling the transaction in the case before us. In Campos
`v. Ticketmaster Corp., 140 F.3d 1166 (8th Cir. 1998),
`plaintiffs alleged that Ticketmaster used its monopolistic
`control over concert ticket distribution services to charge
`supracompetitive fees for those services. The majority in
`
`
`
`20
`
`IN RE APPLE IPHONE ANTITRUST LITIGATION
`
`Ticketmaster held that a party’s status as a “direct” or
`“indirect” purchaser turned on whether “an antecedent
`transaction between the monopolist and another, independent
`purchaser” absorbed or passed on all or part of the monopoly
`overcharge. Id. at 1169. Plaintiffs bought concert tickets
`directly from Ticketmaster, but
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