The Supreme Court is letting an Apple antitrust lawsuit proceed. The nation’s biggest court rejected Apple’s argument that iOS App Store users aren’t really its customers. I’ll wait for you to stop laughing.
The Supreme Court upheld the Ninth Circuit Court of Appeals’ decision in Apple v. Pepper, agreeing in a 5-4 decision that Apple app buyers could sue the company for allegedly driving up prices. “Apple’s line-drawing does not make a lot of sense, other than as a way to gerrymander Apple out of this and similar lawsuits,” wrote Justice Brett Kavanaugh.
Apple had claimed its iOS users were technically buying apps from developers, while developers themselves were Apple’s App Store customers. This is the crux of Apple antitrust lawsuit defense. Since they don’t sell their apps to Apple, there is nothing for the customers to sue Apple for. But in today’s decision, the Supreme Court determined that this logic doesn’t apply to Apple.
The court is careful to note that this is an “early stage” of the case, so there’s no ruling on whether Apple actually does have an unlawful monopoly in the App Store. But its decision could have larger ramifications for customers who want to sue any app seller for antitrust violations, and it sets the stage for a major battle between Apple and some angry customers.
Apple v. Pepper claims that by requiring iOS users to buy apps through its official App Store and charging developers a 30 percent commission, Apple is adding a mandatory fee that developers logically pass on to customers. “A claim that a monopolistic retailer (here, Apple) has used its monopoly to overcharge consumers is a classic antitrust claim. But Apple asserts that the [iOS users] in this case may not sue Apple because they supposedly were not ‘direct purchasers’” writes Kavanaugh. “We disagree. The plaintiffs purchased apps directly from Apple and therefore are direct purchasers.”
In the original Illinois Brick case, that Apple claims is their legal defense against users suing them, a court ruled that a brick manufacturer couldn’t be sued by someone who paid a separate contractor to build a structure with those bricks. As to say, offering an app to iOS customers through the App Store is a component and not the means. However, if you want an app offered to iOS consumers, you NEED to offer it through the app store.
But “iPhone owners are not consumers at the bottom of a vertical distribution chain who are attempting to sue manufacturers at the top of the chain.” Apple, Kavanaugh’s ruling concluded, was simply using rhetorical tricks to claim it wasn’t a direct seller — and those tricks could let other companies evade legitimate antitrust claims.
If Apple does ultimately lose this case, it could have to repay anyone who was “overcharged” thanks to its App Store markup — or even open up the iOS walled garden. Apple has made other legal arguments to fight this outcome. It’s argued, for example, that customers are free to buy apps through other app stores on other mobile operating systems. But the Supreme Court explicitly isn’t addressing these arguments yet.
Unlike Google’s app store, you can download apps without going through the app store. Apple’s high revenue sharing demands is well known. When they offered Apple News+, many major news outlets refused to take part of their service, since Apple requires 50% of the initial revenue. Netflix wants customers to sign up for their service through the web and log into it through their iOS device to avoid playing the 50% fee to Apple.
Another indicator that Apple actually runs the Apple Store is that developers have specific specifications to have an app within the app store. Apple tries to say that they don’t force anyone to download apps from their App Store. Yet, iOS devices don’t allow you to download off-App Store apps. They claim they can go to Android, but they are drawing a fine line argument. It’s as if McDonald’s says you don’t have to buy McDonald’s food when you’re in a McDonald’s franchise. Apple antitrust lawsuit will most likely get struck down in its court case, but it should be interesting.