Apple’s hopes to get an App Store antitrust lawsuit dismissed have fallen flat, with the US Supreme Court giving the go-ahead to a case alleging the iOS software download store is, indeed, a monopoly situation. The lawsuit, Apple v. Pepper, saw four iPhone owners sue the Cupertino company, arguing that the App Store allows Apple to unfairly control software prices by virtue of it being the only official place to download titles.
Apple, unsurprisingly, didn’t agree. It insisted that App Store customers were those of third-party developers using the download store to sell their titles, rather than direct Apple customers.
It was an argument that convinced the District Court initially, but the Ninth Circuit Court of a Appeals overturned that. The case moved up to the Supreme Court, which announced its ruling today. Unfortunately for Apple, it’s not good news for the firm.
In a 5-4 decision, which saw controversial Justice Brett Kavanaugh join his liberal counterparts on the bench, the Court disagreed with Apple’s assertion that App Store shoppers weren’t its direct customers. “We disagree,” Kavanaugh wrote in the Opinion of the Court. “The plaintiffs purchased apps directly from Apple and therefore are direct purchasers under Illinois Brick.”
Illinois Brick was a ruling in a 1977 case, which saw the government of Illinois filing a suit against eleven concrete brick manufacturers, alleging that they had conspired around price fixing while selling materials to the state. Although the eleven firms had just settled with the US government over price fixing, the Supreme Court decided against Illinois’ claims. It argued that indirect victims of a price-fixing conspiracy would not have a basis for suing over antitrust violations for raised prices.
Apple’s argument in this case was that the precedent of Illinois Brick applied today. The Supreme Court, though, threw out that argument. “Unlike the consumer in Illinois Brick,” it writes, “the iPhone owners here are not consumers at the bottom of a vertical distribution chain who are attempting to sue manufacturers at the top of the chain. The absence of an intermediary in the distribution chain between Apple and the consumer is dispositive.”
It’s the structure of the App Store which is stinging Apple here. The Supreme Court upheld the Ninth Circuit’s stance that, because iPhone owners pay Apple for apps from the App Store, they are a direct customer of the Cupertino firm. The Ninth Circuit argued that Illinois Brick’s precedent only prevented consumers from suing alleged monopolists that are two or more steps removed in a vertical distribution chain.
What this isn’t, however, is any sort of judgement on whether the allegations of antitrust behavior and anti-competitive pricing are sound. Indeed, Justice Kavanaugh goes out of his way to highlight the fact that it’s early days on that front.
“At this early pleadings stage of the litigation, we do not assess the merits of the plaintiffs’ antitrust claims against Apple, nor do we consider any other defenses Apple might have,” the judge writes. “We merely hold that the Illinois Brick direct-purchaser rule does not bar these plaintiffs from suing Apple under the antitrust laws.”
Update: Apple has issued the following statement:
“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.
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 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.
Developers have a number of platforms to choose from to deliver their software — from other apps stores, to Smart TVs to gaming consoles – and we work hard every day to make our store is the best, safest and most competitive in the world”