Legal Docket: Suing tech companies

NICK EICHER, HOST: It’s Monday morning, start of a new work week for The World and Everything in It. Today is the 3rd of December, 2018. Good morning to you, I’m Nick Eicher.

MARY REICHARD, HOST: And I’m Mary Reichard.

The Supreme Court handed down a ruling in the very first case it heard this term.

Maybe this’ll remind you what the case is about.

AUDIO: [Sound of Dusky Gopher frog]

EICHER: Yes! The Dusky Gopher Frog.

REICHARD: Right. It’s on the endangered species list and needs ephemeral ponds to perpetuate the dwindling species. That’s why the Fish and Wildlife Service deemed 1,500 acres of private land in Louisiana as critical habitat.

Problem is, the frog hasn’t lived there in decades, and the land needs lots of modification to return it to suitable habitat for the Dusky Gopher Frog. And the big question had to do with the effect on landowners, and who has to pay for modifications.

EICHER: The justices ruled unanimously to send the case back to lower court.

What the lower court will have to do is have another look at the agency decision to designate that private land as critical habitat. Which from the frog’s perspective, doesn’t bode well. But landowners are happy with it.

Time now for today’s oral arguments?

REICHARD: Yep, it’s time. I have two cases, both of them class actions.

No. 1 has a snappy name: Apple v. Pepper.

Apple’s the digital products company. Pepper is Robert Pepper, and he’s lead plaintiff on behalf of all iPhone users. And there are a lot of them. iPhones are the only ones with iOS, and that’s about 40 percent of the U.S. market’s operating systems. Android has the other 60 percent.

Pepper alleges that Apple has a monopoly. If you own an iPhone and want to buy an app for it, you have no option but to buy it from the online App Store.

Now, Apple develops some of its own apps. But most are created by some third party developers. And Apple takes a 30 percent commission for each of those sales.   

Pepper says that’s anti-competitive. iPhone users wind up paying for that commission with higher app prices. And then Apple keeps all those monopoly profits for itself.

But the question before the justices is actually pretty narrow. That is, can iPhone and iPad users who buy apps from the App Store sue Apple for alleged antitrust violations?

The past ruling at the heart of this case came in 1977, called Illinois Brick. It says a buyer can’t sue someone earlier in the supply chain for anti-competitive behavior, just because higher prices sooner or later got passed on to him. To sue for anti-competitiveness, the injured person has to be a direct purchaser.

And so the fight became: who is the direct purchaser here? The iPhone user who buys the apps from Apple, or the app developer who pays to feature a product in the Apple Store?

Here’s how the iPhone owners’ lawyer David Frederick put it:

FREDERICK: Apple directed anti-competitive restraints 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, iPhone owners have a cause of action under Section 4 of the Clayton Act directly against Apple for those over-charges.

REICHARD: So keep that bright-line rule in place with that old ruling, he argued. Because Apple directed its monopoly abuse at the iPhone users, it’s only right those users can sue Apple for damages.

That argument seemed to hold the allegiance of most justices. Listen as Justice Stephen Breyer simplified things in this comment to Apple’s lawyer, Daniel Wall.

BREYER: There are an awful lot of words in this case that I tend to have trouble understanding. One is two-sided market. Another is a lot that you used. So I go by a simply analogy: If Bill buys from a monopolist, he is a direct purchaser. If Bill buys from Sam, who buys from the monopolist, he’s an indirect purchaser. Anyone can understand that.

REICHARD: Therefore, the guy with the iPhone is the direct purchaser who can sue Apple for antitrust violations.

But Apple lawyer Wall redirected the justices to what the court already decided:

WALL: Now, to be sure, in a new setting. It’s not the brick-and-mortar setting of the three cases that this court has decided before. But it is the same economics that should have the same outcome prohibiting pass-through damages claims.

“Pass-through damages,” meaning that ultimate purchaser of goods who pays higher prices because of something that happened earlier in the supply chain.

Apple doesn’t set the app prices, Wall argued, so if anyone can sue Apple, it ought to be the app developers.

But Justice Elena Kagan returned to the “who is the direct buyer” idea.

KAGAN: 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 mean, I pick up my iPhone, I go to Apple’s App Store, I pay Apple directly with credit card information that I’ve supplied to Apple. From my perspective, I’ve just engaged in a one-step transaction with Apple.

REICHARD: That’s how the 9th Circuit Court of Appeals reasoned in its ruling against Apple. It just didn’t buy the company’s argument that it only took commissions from app developers and didn’t add fees to consumers. iPhone users are direct consumers, plain and simple.

Overall, the justices seemed sympathetic to the iPhone consumers. That would permit the antitrust case to proceed against Apple.

Today, Apple’s app fee structure is different, but the consequences of this case will affect digital platforms across the board. Politicians and citizens alike are looking for ways to reduce the concentrated power in tech companies. A broader anti-competitive atmosphere would do that, but it’ll be a major disruptor for the entire digital industry.

This final case today involves another behemoth in the tech industry, Google.

In 2013, Google agreed to pay $8-and-a-half million to settle a class action. The allegation was that Google had breached users’ privacy rights. That, by disclosing to third parties what search terms internet users had used.

But members of the class? Whose rights were violated? They got absolutely nothing from that settlement. Who did? I’ll give you two seconds to guess.

Pity the lawyer who had to respond to this question from Justice Samuel Alito.

ALITO: How can you say that it makes any sense? … At the end of the day, what happens? The attorneys get money, and a lot of it. The class members get no money whatsoever. And money is given to organizations that they may or may not like and that may or may not ever do anything that is of even indirect benefit to them. So how can such a system be regarded as a sensible system?

REICHARD: If you want actual figures, the lawyers got over $2 million. A million went for administrative costs. And that left less than a dime per member by the time it was spread out across everyone in the class. The rest of that settlement money— over $5 million—went to some charitable organizations the class members didn’t even choose.

Now, there’s a legal doctrine lurking here. It’s called the cy pres doctrine. C-Y P-R-E-S. Cy pres. Typically, it lets a court direct money from someone’s estate after they die to people or causes the deceased would probably like, if for some reason the designated beneficiary can’t be reached.

That cy pres doctrine has been used with class-action settlements, too. But it’s fraught with self serving behavior, as humans are wont to engage in.

And here we have some refreshing alignments between liberal and conservative. Listen to Justice Breyer echoing what Justice Alito found to smell bad:

BREYER: What’s happening in reality is the lawyers are getting paid. And they’re making sometimes quite a lot of money for really transferring money from the defendant to people who have nothing to do with it.

REICHARD: And then this jovial exchange, when Justices Kagan and Neil Gorsuch had the same idea.

KAGAN: Mr. Frank-

GORSUCH: I’m sorry.

KAGAN: Sorry. No, go ahead.

GORSUCH: Oh, please go ahead.

KAGAN: No.

ROBERTS: Justice Kagan.

KAGAN: I was just going to change the subject. (laughter)

GORSUCH: So was I. (laughter) Jurisdiction?

KAGAN: Yes.

GORSUCH: Go for it. (laughter)

KAGAN: May I ask you, Mr. Frank, to address the standing issue in this case…

REICHARD: “Standing,” meaning, who’s injured here and who can bring the lawsuit. Earlier, Justice Ruth Bader Ginsburg asked what the injury to the class members really is, given that they only lost pennies, not dollars, in the settlement.  

But Justice Kavanaugh echoed what I think most of us would think about our own internet searches.

KAVANAUGH: Isn’t that an injury, disclosure of what you searched? I don’t think anyone would want the disclosure of everything they searched for disclosed to other people. That seems a harm. It may or may not be a cause of action, but it’s a harm.

REICHARD: In other words: Every move you make, every claim you stake, Google’s watching you?

Well, I think it’s safe to say the justices aren’t impressed with the way the doctrine of cy pres is being used.

At least two possibilities I see for the court here: rule the doctrine can’t be used this way, or maybe decide the plaintiffs here have no standing to sue because the damages are miniscule.

ROBERTS: Thank you, Counsel. The case is submitted.

REICHARD: And that’s this week’s Legal Docket.  

MUSIC: [I’ll Be Watchin’ You — The Police]

(AP Photo/Manuel Balce Ceneta) In this Oct. 4, 2018 photo, the U.S. Supreme Court is seen at sunset in Washington. 

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