                     FOR PUBLICATION

    UNITED STATES COURT OF APPEALS
         FOR THE NINTH CIRCUIT

 IN RE APPLE IPHONE ANTITRUST                    No. 14-15000
 LITIGATION,
                                                  D.C. No.
                                            4:11-cv-06714-YGR
 ROBERT PEPPER; STEPHEN H.
 SCHWARTZ; EDWARD W.
 HAYTER; ERIC TERRELL,                            OPINION
          Plaintiffs-Appellants,

                   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
4       IN RE APPLE IPHONE ANTITRUST LITIGATION

statutory standing under Illinois Brick. We hold that
Plaintiffs are direct purchasers from Apple within the
meaning of Illinois Brick and therefore have standing.

                    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
6       IN RE APPLE IPHONE ANTITRUST LITIGATION

Plaintiffs 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 the majority nevertheless
concluded that plaintiffs were indirect purchasers who lacked
standing under Illinois Brick. Id. at 1171. Using an analysis
keyed to the “antecedent transaction,” the majority concluded
that the ticket buyers were indirect purchasers.

     We disagree with the majority’s analysis in Ticketmaster.
As Judge Morris Arnold pointed out in dissent, the majority’s
“antecedent transaction” analysis has no basis in Supreme
Court precedent. Id. at 1174 (M. Arnold, J., dissenting).
Illinois Brick held that where plaintiffs are in a “direct
vertical chain of transactions” and an intermediary “pass[es]
on” monopolistic overcharges originating further up the
chain, subsequent buyers lack standing. Id. (internal
quotation marks omitted). In Ticketmaster, “[t]he monopoly
product at issue . . . is ticket distribution services, not tickets.”
Id. The distributor who “supplies the product directly to”
plaintiffs, rather than the producer of the product, is the
appropriate defendant in an antitrust suit. Id.

    Apple argues that it does not sell apps but rather sells
“software distribution services to developers.” In Apple’s
view, because it sells distribution services to app developers,
it cannot simultaneously be a distributor of apps to app
purchasers. Apple analogizes its role to the role of an owner
of a shopping mall that “leases physical space to various
stores.” Apple’s analogy is unconvincing. In the case before
us, third-party developers of iPhone apps do not have their
own “stores.” Indeed, part of the anti-competitive behavior
        IN RE APPLE IPHONE ANTITRUST LITIGATION               21

alleged by Plaintiffs is that, far from allowing iPhone app
developers to sell through their own “stores,” Apple
specifically forbids them to do so, instead requiring them to
sell iPhone apps only through Apple’s App Store.

     We do not address the question whether Apple sells
distribution services to app developers within the meaning of
Illinois Brick. If it did, this would necessarily imply that the
developers, as direct purchasers of those services, could bring
an antitrust suit against Apple. But whether app developers
are direct purchasers of distribution services from Apple in
the sense of Illinois Brick makes no difference to our analysis
in the case now before us.

    We do not rest our analysis on the fact that Plaintiffs pay
the App Store, which then forwards the payment to the app
developers, less Apple’s thirty percent commission. Whether
a purchase is direct or indirect does not turn on the formalities
of payment or bookkeeping arrangements. See Freeman v.
San Diego Ass’n of Realtors, 322 F.3d 1133, 1146 (9th Cir.
2003). If Plaintiffs were direct purchasers from Apple solely
because Apple collected their payments, Apple could escape
anti-trust liability simply by tinkering with the order in which
digital banking data zips through cyberspace during a sales
transaction.

    Nor do we rest our analysis on the form of the payment
Apple receives in return for distributing iPhone apps. Apple
does not take ownership of the apps and then sell them to
buyers after adding a markup of thirty percent. Rather, it
sells the apps and adds a thirty percent commission. But the
distinction between a markup and a commission is
immaterial. The key to the analysis is the function Apple
22      IN RE APPLE IPHONE ANTITRUST LITIGATION

serves rather than the manner in which it receives
compensation for performing that function.

    Nor, finally, do we rest our analysis on who determines
the ultimate price paid by the buyer of an iPhone app. In the
case before us, the price is determined as a practical matter by
the app developer who sets a price, to which Apple’s thirty
percent commission is added automatically. Our opinion in
Delaware Valley makes clear that this does not make app
purchasers direct buyers from the app developers. In
Delaware Valley, the price paid by the distributor, O & M, to
the manufacturer, J & J, was determined through a
negotiation between J & J and a GPO of which Bamberg was
a member. Despite the fact that Bamberg, through its GPO,
had a say in the wholesale price charged by J & J to O & M,
to which the distributor added its predetermined markup, we
held that Bamberg was a direct purchaser from O & M. Here,
the case is even stronger in favor of Plaintiffs. Unlike
Bamberg, Plaintiffs have no say whatsoever in determining
the price set by the app developer to which the distributor
adds its predetermined commission.

    Instead, we rest our analysis, as compelled by Hanover
Shoe, Illinois Brick, UtiliCorp, and Delaware Valley, on the
fundamental distinction between a manufacturer or producer,
on the one hand, and a distributor, on the other. Apple is a
distributor of the iPhone apps, selling them directly to
purchasers through its App Store. Because Apple is a
distributor, Plaintiffs have standing under Illinois Brick to sue
Apple for allegedly monopolizing and attempting to
monopolize the sale of iPhone apps.
        IN RE APPLE IPHONE ANTITRUST LITIGATION              23

                         Conclusion

    We conclude that any error, if indeed there was error, in
the district court’s consideration of the merits of Apple’s Rule
12(b)(6) motion to dismiss for lack of statutory standing was
harmless. We conclude further that Plaintiffs are direct
purchasers of iPhone apps from Apple under Illinois Brick
and that they therefore have standing to sue. The district
court dismissed Plaintiffs’ complaint on the ground that they
lacked statutory standing under Illinois Brick. We therefore
reverse and remand for further proceedings.

   REVERSED and REMANDED.
