Supreme Court rules iPhone users can sue Apple over App Store prices

The Supreme Court on Monday said that iPhone users can proceed with a class-action lawsuit against Apple over its control of app sales in a ruling that could threaten the company’s exclusive marketplace of third-party software.

A group of consumers had sued Apple, claiming that the company’s monopoly over its App Store led to inflated app prices. Apple disputed the legality of the suit, arguing the consumers had no standing to sue the company because it merely operated the App Store as an intermediary between users and the developers who make and sell apps.

Justice Brett Kavanaugh wrote the opinion for the 5-4 decision, surprising many by breaking with his conservative colleagues and siding with the court’s liberal justices.{mosads}

The Supreme Court had ruled in the 1977 case Illinois Brick Co. v. Illinois that only “direct purchasers” of products have standing to bring antitrust lawsuits. In his decision, Kavanaugh rejected Apple’s argument that it was the app developers, and not the company operating the App Store, that sold the programs directly to users.

“Apple’s theory would provide a roadmap for monopolistic retailers to structure transactions with manufacturers or suppliers so as to evade antitrust claims by consumers and thereby thwart effective antitrust enforcement,” Kavanaugh wrote.

Leading the dissent for the four conservatives was Justice Neil Gorsuch — who, like Kavanaugh, is a Trump appointee. Gorsuch argued that if Apple’s App Store practices are indeed monopolistic, then it would be the app developers who are harmed and have standing to sue and not the consumers.

Gorsuch was joined by Chief Justice John Roberts and Justices Samuel Alito and Clarence Thomas.

Apple charges developers a 30 percent fee for sales through the App Store but allows the developers to set the prices. The plaintiffs argued that the arrangement makes apps on Apple’s marketplace more expensive than they would be in a more competitive environment.

The justices did not address the merits of the plaintiffs’ case against Apple, but the ruling allows the case to advance through a federal district court.

“In this case, unlike in Illinois Brick, the 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,” Kavanaugh wrote.

“There is no intermediary in the distribution chain between Apple and the consumer. The iPhone owners purchase apps directly from the retailer Apple, who is the alleged antitrust violator,” he continued. “The iPhone owners pay the alleged overcharge directly to Apple.”

The four plaintiffs, led by Robert Pepper, filed their lawsuit in 2011.

The Justice Department filed a brief in support of Apple last year, arguing that an appellate decision siding with consumers “creates uncertainty” for the entire e-commerce industry.

Apple in a statement denied that the App Store was a monopoly.

“Today’s decision means plaintiffs can proceed with their case in District court. We’re confident we will prevail when the facts are presented and that the App Store is not a monopoly by any metric,” the company said in a statement to The Hill.

“We’re proud to have created the safest, most secure and trusted platform for customers and a great business opportunity for all developers around the world. Developers set the price they want to charge for their app and Apple has no role in that,” the statement added.

“The vast majority of apps on the App Store are free and Apple gets nothing from them. The only instance where Apple shares in revenue is if the developer chooses to sell digital services through the App Store.”

Ed Black, the president and CEO of the Computer & Communications Industry Association, a trade group which filed a brief in support of Apple, called the ruling “disappointing.”

“We are concerned that the outcome of this ruling expands a previous ruling (Illinois Brick’s), and increases liability risks for multi-sided business models,” Black said in a statement. “The decision may unintentionally expose businesses offering digital platform services to unintended liability.”

The decision comes as Apple and other tech companies face growing antitrust scrutiny over the way they operate their platforms. The high court provided a rare win for antitrust reformers, who see large tech companies as a unique threat to competition and consumers.

“I think it’ll have clear implications for tech companies,” said Sandeep Vaheesan, the legal director at the Open Markets Institute, which filed an amicus brief in the case in support of Pepper.

Vaheesan applauded the majority opinion for recognizing that the Sherman Act of 1890, the nation’s first federal antitrust law, gave consumers the right to bring lawsuits against alleged monopolies.

Apple, Vaheesan said, is “really the giant sitting between the two ends of the market.”

The music streaming service Spotify filed an antitrust complaint against Apple in the European Union alleging that the company’s 30 percent commission on app sales is effectively a tax on a company that is competing with Apple Music, its own streaming service.

“Apple operates a platform that, for over a billion people around the world, is the gateway to the internet,” Spotify CEO Daniel Ek said in a blog post in March. “Apple is both the owner of the iOS platform and the App Store—and a competitor to services like Spotify.

“In theory, this is fine,” Ek added. “But in Apple’s case, they continue to give themselves an unfair advantage at every turn.”

Apple did not immediately respond when asked for comment. Apple shares were down more than 5 percent for the day.

Updated at 4 p.m.