The Evolution of Antitrust Doctrine After Ohio v. Amex and the Apple v. Pepper Decision That Should Have Been

• Publication year: 2021
• Citation: Vol. 98

98 Nebraska L. Rev. 425. The Evolution of Antitrust Doctrine After Ohio v. Amex and the Apple v. Pepper Decision That Should Have Been

The Evolution of Antitrust Doctrine After Ohio v. Amex and the Apple v. Pepper Decision That Should Have Been

Geoffrey A. Manne & Kristian Stout(fn*)

ABSTRACT

If the Supreme Court's recent decision in Apple Inc. v. Pepper (Apple) had hewed to the precedent established by Ohio v. American Express Co. (Amex), it would have begun its antitrust inquiry with the observation that the relevant market for the provision of app services is an integrated one, in which the overall effect of Apple's conduct on both app users and app developers must be evaluated. A crucial implication of the Amex decision is that participants on both sides of a transactional platform are part of the same relevant market, and the terms of their relationship to the platform are inextricably intertwined.

We believe the Amex Court was correct in deciding that effects falling on the "other" side of a tightly integrated, two-sided market from challenged conduct must be addressed by the plaintiff in making its prima facie case. But that outcome entails a market definition that places both sides of such a market in the same relevant market for antitrust analysis.

As a result, the Amex Court's holding should also have required a finding in Apple that an app user on one side of the platform who transacts with an app developer on the other side of the market, in a transaction made possible and directly intermediated by Apple's App

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Store, is similarly deemed to be in the same market for standing purposes.

Under the proper conception of the market, it is difficult to maintain that either side does not have standing to sue the platform for alleged anticompetitive conduct relating to the terms of its overall pricing structure, whether the specific terms at issue apply directly to that side or not. Both end users and app developers are "direct" purchasers from Apple-of superficially different products, but in a single, inextricably interrelated market. Both groups should have standing and should be able to establish antitrust injury-harm to competition-by showing harm to either group, as long as they can establish the requisite interrelatedness of the two sides of the market.

As we discuss, such a result would have been consistent with the way antitrust doctrine has long evolved-in both its substantive and its procedural aspects-to reflect new economic knowledge, particularly with respect to such "nonstandard" business models.

TABLE OF CONTENTS

I. Introduction .......................................... 427
A. Ohio v. American Express Co. and Apple Inc. v. Pepper : A Failure of Antitrust Doctrinal Evolution . 430

II. The Nexus Between Procedure and Substance in Antitrust Law ........................................ 431
A. Quick Look and the Evolution of the Standards of Antitrust Review .................................. 433
B. The Interplay of Procedure and Substance in the Doctrines of Antitrust Standing .................... 435
1. Antitrust Injury and Antitrust Standing ....... 435
2. The Indirect Purchaser Doctrine ............... 438

III. Nonstandard Contracts and Antitrust Doctrine: Accommodating the Economics of Two-Sided Markets in Antitrust Procedure ................................... 440
A. The Basic Economics of Two-Sided Markets ........ 441
B. Amex, Market Definition, and Effects Analysis ..... 442
1. Implications for the Consideration of "Out-of-Market" Effects ................................ 443
C. The Relationship Between Market Definition and Standing .......................................... 445

IV. The Court's Failure to Incorporate the Economics of Two-Sided Markets in Its Apple Inc. v. Pepper Decision .............................................. 446
A. Campos v. Ticketmaster and the Error of Doctrinal Formalism ........................................ 449
1. The Consequences of the Formalistic Applicationof Illinois Brick to New Business Models ....... 452

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V. What the Proper Procedural Analysis in Apple Inc. v.Pepper Would Have Looked Like ...................... 454
A. Procedure Does Not Determine Substantive Outcomes ......................................... 456

VI. Conclusion ............................................ 459

I. INTRODUCTION

Courts adopt and apply antitrust procedure in the shadow of substantive theory. Procedural rules, especially those affecting the production and persuasiveness of evidence, map onto (or should map onto) economic theory, incorporating and defining presumptions and burdens that reflect the underlying theory and the evidence required to prove or refute it. As scholars, courts, and practitioners better understand evolving theories of harm and apply them to novel circumstances, the process of antitrust adjudication changes-or should change-along with substance.

As the doctrines and jurisprudence of antitrust law have evolved in their uniquely common lawlike manner,(fn1) courts have expanded and contracted the scope of substantive liability as economic and judicial learning have developed. Thus, for example, courts have progressively shifted their treatment of resale price maintenance from one of per se illegality to virtual per se legality as their understanding of its economic implications has evolved.(fn2) The effect is to shape not only the contours of available arguments in court, but the procedures by which they are introduced and proven. The latter determines outcomes at least as much as the former.

Antitrust deeply depends upon evidence and expert theory in a way that perhaps no other area of law does. The statutes are terse and vague,(fn3) and courts fill in their content by identifying theories of economic harm and by assessing the empirical and theoretical economic consequences of business conduct. The primacy, and fluidity, of economic learning and evidentiary interpretation mean that procedural rules with respect to the admissibility and probative value of evidence, and the burdens of persuasion and proof, are of central importance. So too are mechanical rules respecting the requirements for the demonstration of harm, the ultimate consequence of which may be a determi-

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nation of the level of evidence required. Crucially, because these levers define the scope of permissible and prohibited conduct, they generally map onto economic understandings as well.

Thus, courts generally require antitrust plaintiffs to define the relevant market for analysis not only to circumscribe the amount of evidence and the complexity of its evaluation, but also to align the claimed injury with economic understanding-in this case, to ensure that the evidence presented and the court's analysis reflect an economically relevant set of products, consumers, sellers, and commercial dynamics.

Similarly, courts have: introduced antitrust injury requirements;(fn4) created a distinction between "direct" and "indirect" purchasers;(fn5) established a "single entity" defense;(fn6) further limited the scope of market definition;(fn7) and created the idea of "cluster markets" to capture a group of conceptually related products and services,(fn8) among other things. While each of these doctrines arguably presents a "procedural" rule,(fn9) each also affects the amount or type of evidence required. For example, courts frame antitrust injury as a standing requirement, but establishing standing entails an added burden of proof of injury for private plaintiffs to make out their prima facie case. So important are procedure and the shifting of burdens of proof to defining and refining the content of antitrust law that, not coincidentally, some of the most important principles in civil procedure generally have been developed in the antitrust context.(fn10)

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Many of these doctrines are thus anchored against antitrust's evidentiary burden-shifting framework. Even the per se doctrine may be seen as both a substantive and an evidentiary rule: once courts have enough economic theory and judicial experience to establish that certain conduct is more likely than not anticompetitive, the per se rule alleviates future plaintiffs' burdens of production. Thus, in the case of naked price fixing, where "there is no [activity] which could be made more efficient by price fixing . . . [t]here is . . . no likelihood of any consumer benefit flowing from their agreement."(fn11) Economic knowledge informs that the conduct is unlikely to have procompetitive benefits. Thus, it is proscribed per se, but the per se proscription also carries with it an evidentiary benefit: such conduct undertaken in the absence of market power is unlikely to cause harm, but, nevertheless, evidence of market power is not required to make out a per se case. "To make market power always an essential element of illegality would introduce the complexities of market definition into every government prosecution and effectively destroy the advantages of the per se rule in making rapid and widespread enforcement of the law possible."(fn12)

The error-cost framework with which these doctrines generally comport entails consideration of both accuracy and judicial economy,(fn13) and the levers that adjust one similarly adjust the other. Thus, the doctrines that constitute these levers vary, overlap, and interrelate in ways that allow more fine-grained adjustments reflecting both evidentiary considerations as well as substantive certainty.

An important...