November 27, 2018
On November 26, the U.S. Supreme Court appeared likely to allow a class-action lawsuit (Apple Inc. v. Pepper) first filed in California in 2011 by a group of iPhone users to proceed against Apple.
According to the SCOTUSblog, the implications of the case could be significant not only for Apple—which could face millions of dollars’ worth of damages if the case is allowed to go forward and the company is found liable—but also for other companies that operate similar “electronic marketplaces.”
Specifically, the case alleges that the Cupertino, California-based tech company has violated federal antitrust laws by monopolizing the market for iPhone software on its App Store and requiring consumers to pay inflated prices. Indeed, the suit claims that Apple not only confines sales of its apps to its own store, but also takes a 30% commission from the purchases.
However, the SCOTUSblog notes, Apple is arguing that the iPhone users don’t have a case at all, because Apple is simply selling the apps to iPhone users at the prices that the app developers have set.
In order for the case to proceed, the Supreme Court first must decide, according to the brief for the case, “Whether there is a compelling reason to review the Ninth Circuit’s determination, in accordance with the well-settled standing requirement of the 1977 suit, Illinois Brick v. Illinois.”
In that 40-year-old U.S. Supreme Court antitrust decision, it was established that “indirect purchases of goods or services along a supply chain cannot seek remedy for antitrust actions committed by the manufacturer or service provider.” Thus, the plaintiffs only would have antitrust standing as “direct purchasers” who were directly overcharged.
The nine justices heard an hour of arguments on Monday. Liberal Justice Elena Kagan, in explaining how an App Store purchase is handled, said, “From my perspective, I’ve engaged in a one-step transaction with Apple,” according to a report by Reuters.
Some conservative justices, including Trump appointee Neil Gorsuch, wondered whether the 1977 ruling was still valid in a modern marketplace.
However, Conservative Chief Justice John Roberts’ questions “suggested he agreed with Apple’s position,” Reuters reported. Roberts expressed concern that, for a single price increase, Apple could be held liable by both consumers and App developers.
The iPhone users, including lead plaintiff Robert Pepper of Chicago, have argued that Apple’s monopoly leads to inflated prices compared to if apps were available from other sources.
Though developers set the prices of their apps, Apple collects the payments from iPhone users—and does keep a 30% commission on each purchase. One area of dispute in the case is whether app developers recoup the cost of that commission by passing it on to consumers. Developers earned more than $26 billion in 2017, a 30% increase over 2016, according to Apple.
The San Francisco-based 9th U.S. Circuit Court of Appeals revived the case last year, finding that Apple was a distributor that sold iPhone apps directly to consumers.
Research contact: @andrew_chung_