UPDATED 12:31 EDT / MAY 13 2019

POLICY

Ruling against Apple, Supreme Court allows App Store antitrust lawsuit to go ahead

The U.S. Supreme Court today ruled that a long-running antitrust lawsuit against Apple Inc. can proceed, setting the stage for what will likely be the tech industry’s most closely watched legal battle in recent memory.

The justices decided 5-4 to reject the company’s appeal to have the case, known as Apple v. Pepper, thrown out. The suit was originally filed back in 2011 by a group of iPhone owners who took issue with the 30% fee Apple levies on app purchases in the App Store. According to the plaintiffs, the commission amounts to an unfair use of monopoly power because it forces developers to raise prices for users.

The Supreme Court avoided taking a side on the monopoly claim. The Justices only reaffirmed an earlier Ninth Circuit Court of Appeals decision that found the plaintiffs have grounds to sue despite the Illinois Brick Doctrine, a legal principle Apple’s lawyers used as the basis for their argument to dismiss the case.

Illinois Brick Co. v. Illinois was the Supreme Court case in the early 1970s that established that only direct purchasers of goods can pursue antitrust claims against the manufacturer. Apple asserted that buying apps on the App Store doesn’t amount to a direct purchase since users technically buy the software from developers. The marketplace, the company contended, merely serves the role of a broker.

The Supreme Court strongly disagreed in the ruling. Writing for the majority, Justice Brett Kavanaugh stated that “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.”

The decision will have major implications for Apple further down the line if the plaintiffs eventually win the suit. A court decision against the iPhone maker could potentially order it to compensate the users who are deemed to have been overcharged as a result of the 30% commission. Such a ruling would require the company to shell out hundreds of millions of dollars in damages, if not more.

The news sent Apple’s shares down nearly 6% today. The Nasdaq exchange on which Apple trades fell 3.4% on news that China is upping tariffs in the ongoing trade war with the United States.

Macquarie Research (USA) Inc. said in note to clients this morning that it was already expected three distinct pressures to push the app fee lower: competition, legal and regulatory. “We believe pressure is building across all three factors,” the firm said.

Apple v. Pepper may soon be followed by additional litigation over the commission. Last week, it was reported that the European Union will open an investigation into the company over a recent antitrust complaint by Spotify Technology SA that criticized, among others, the App Store fee.

The tech industry will likely be closely following Apple v. Pepper. A ruling against Apple could potentially have implications for other companies that operate digital marketplaces, particularly Google LLC, which also takes a 30% cut on Play Store app purchases. But the search giant is in a somewhat different legal position since it doesn’t block users from buying apps on external marketplaces.

Photo: Pixabay

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