Antitrust standing and Kavanaugh-versus-Gorsuch textualism

By | May 15, 2019

As Jonathan has noted, the Supreme Court recently released an interesting antitrust opinion in Apple, Inc. v. Pepper. The majority opinion was written by Kavanaugh and joined by the liberals; the dissent was written by Gorsuch and joined by the remaining conservatives.

In this post, I’ll explore how the Kavanaugh-Gorsuch disagreement relates to textualism. Later, I’ll talk about how this relates to the theory of the firm.

I. The Illinois Brick rule and the basic debate in this case

First, you need to know the basic debate, which is how to characterize the antitrust standing rule of Illinois Brick Co. v. Illinois (1977). (This is statutory standing, not constitutional standing—what in administrative law we call “zone of interests” standing.) Just so you understand the issues involved, let me give a brief overview: Suppose Firms A1, A2, etc. make concrete blocks and sell them to general contractors B1, B2, etc. Then you hire those general contractors for your construction projects. You have a theory that the concrete block manufacturers A1, A2, etc. have violated the antitrust laws (for instance, by conspiring to fix prices); as a result, general contractors B1, B2, etc. have paid excessive prices, and in turn you’ve paid excessive prices for your construction projects. Can you sue the concrete block manufacturers A1, A2, etc.?

Those are essentially the facts of Illinois Brick. The Illinois Brick rule says No. The general contractors B1, B2, etc. are the direct purchasers who directly pay the alleged price surcharge, and they have statutory standing to sue. You, on the other hand, are not a direct purchaser, and your damages are indirect: whether you pay the alleged price surcharge depends on the extent to which B1, B2, etc. have been able to pass on that price increase. So you can’t sue. Remember that this is a rule about standing, i.e. about access to court—you can’t sue even if A1, A2, etc. have really violated antitrust law.

Now Apple, Inc. v. Pepper presents a particular twist on the Illinois Brick facts. In the fact pattern above, there was a clear vertical hierarchy. The A firms sold to the B firms, which in turn sold to you. You had no contact with the A firms: you neither bought from them directly nor paid their allegedly inflated prices.

But what if the firms had a less clear-cut vertical relationship? In Apple, it was apps being sold through Apple’s App Store. When you buy an app, the price is set by the app developer. But you pay the price to Apple directly; Apple passes the money on to the app developers, retaining a 30% commission. The claim was that Apple was improperly using its monopoly power, which made the 30% commission too high. So this disaggregates two aspects of Illinois Brick:

  • Who buys directly from Apple? You do.
  • Who directly pays the alleged inflated fees? The app developers do. (You may indirectly pay more for the apps, but that depends on the extent to which the app developers can pass on the higher commissions.)

If you think the Illinois Brick rule was “Direct purchasers from the alleged violator may sue,” then you’ll probably think the end consumers can sue. That’s the Kavanaugh majority. But if you think the Illinois Brick rule was “Those who directly pay the alleged inflated prices may sue,” then you’ll probably think standing is reserved for the app developers, not the end consumers. That’s the Gorsuch dissent.

I’m not going to resolve that debate here, but I want to raise a number of interesting points. Today’s points relate to how the antitrust statutes relate to textualism.

II. Textualism and the Sherman Antitrust Act

The first point has to do with textualism. Kavanaugh is thought of as a textualist, and so is Gorsuch. How, then, are we to understand their disagreement on the meaning of the Sherman Antitrust Act in this case?

In the first place, the Sherman Act is very short and very old, and for a long time has been understood as a delegation to the judicial branch to develop (common-law-style) workable rules. (The Supreme Court suggested, in National Society of Professional Engineers (1978), that this common-law-style policy development was part of the intent of the original Congress. For my views on such delegations, see my Emory Law Journal article on federal common law and judicial non-delegation, and in particular pp. 1453-56 for the section on the Sherman Act.) A lot of antitrust law, these days, is fairly far removed from any actual text, though one can certainly imagine a more textualist approach.

But this isn’t the whole story, since both Kavanaugh and Gorsuch claim that their respective interpretation has greater textual bona fides.

Kavanaugh (p. 4) points to particular text in the Clayton Act of 1914 (emphasis added):

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, and the cost of suit, including a reasonable attorney’s fee.

“The broad text” of this statute, Kavanaugh wrote, “readily covers consumers who purchase goods or services at higher-than-competitive prices from an allegedly monopolistic retailer.”

Now this isn’t exactly right, because if any person who’s injured can sue the alleged antitrust violator, then we’d have virtually no statutory standing requirements at all (other than the requirement of injury, which is already taken care of by the constitutional standing requirement of injury-in-fact, and the “in his business or property” requirement, which is similar to what we have in RICO standing).

Still, even if pointing to this text doesn’t inexorably lead here to overruling Illinois Brick, at least, in Kavanaugh’s view, it cuts against any attempt to read statutory standing narrowly.

How does Gorsuch get around this? By writing (dissent, p. 9):

The Court even tells us that any “ambiguity” about the permissibility of pass-on damages should be resolved “in the direction of the statutory text”—ignoring that Illinois Brick followed the well-trodden path of construing the statutory text in light of background common law principles of proximate cause.

In other words, the statutory text doesn’t stand alone; you need to interpret statutory text in light of the rest of the legal system that existed at the time of enactment, including “background common law principles.”

How does Gorsuch’s approach square with his textualism? Answer: perfectly well. Eugene writes (in the context of the Hyatt decision) that:

none of the Justices on the Court is a pure textualist. They all consider at least the text, the original meaning, and “historical practice.” And that is in large part because the Constitution is widely understood as having been enacted against a backdrop of established law and practice, and therefore in some measure implicitly adopting aspects of that law and practice, rather than being limited to what is within the four corners of the document.

I agree, except insofar as considering the “backdrop of established law and practice” is labeled a departure from “pure textualis[m].” Thomas in Hyatt (quoting Kennedy in Alden v. Maine) criticizes “ahistorical literalism,” and I’d stick with that formulation. Ahistorical literalism isn’t pure textualism; it’s usually an anti-textualist’s caricature of what textualism requires. The idea that background principles of proximate causation should be read into statutes like the antitrust laws (or RICO, or others) is perfectly good textualism.

Of course, it’s not like Kavanaugh disagrees with the idea that proximate causation is part of the statute. They actually both agree on this score: Kavanaugh says (p. 5) that the statutory text counsels against reading standing narrowly, and that proximate-cause considerations prevent suits by indirect purchasers. Gorsuch says (dissent, p. 2) that proximate-cause considerations prevent going “the next step” after “the overcharging,” which would prevent suits by those who didn’t pay the alleged overcharge. So they agree on proximate cause but disagree on how to characterize the causal chain that eventually needs to be cut—which is the ultimate disagreement in the case. Either way, nobody’s approach here is necessarily inconsistent with textualism (though other approaches play a role here, including precedent and free-floating antitrust policy); someone’s presumably wrong and someone’s right, but these are valid disagreements among textualists.

III. Contraction traction, what’s your fraction?

Finally, please note that Gorsuch is all about using contractions. Scalia was very much against contractions, in his day (not just in his own opinions, but also in others’). Gorsuch embraces them. I’m glad to see this catch on. Bryan Garner approves too, and notes that Kagan has also been using them but only in separate opinions.

Category: Liberty

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