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In the case of Apple Inc. v. Pepper, the iPhone users argue that this commission on sales through the App Store was passed along to consumers which is an unfair use of monopoly power. The lawsuit was first filed in 2011 by lead plaintiff Robert Pepper and three other iPhone users.
Apple claimed that only app developers, and not users, should be able to bring such a lawsuit. The company said that consumers were buying their apps from developers— not from Apple. And it was the developers who were setting the prices. However, the court disagreed and in a 5–4 decision, written by Justice Brett Kavanaugh, the court voted against Apple, allowing the case to proceed.
At the core of the lawsuit is another Supreme Court case from 1977, Illinois Brick Co. v. Illinois, which established the Illinois Brick Doctrine which says that you can’t sue for antitrust damages if you’re not the direct purchaser of a good or service. Apple had initially argued that the iPhone owners could not sue because they were not direct purchasers from Apple under Illinois Brick Doctrine. The District Court had agreed to Apple’s decision, but the Ninth Circuit reversed, concluding that the iPhone owners were direct purchasers because they purchased apps directly from Apple.
“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 opinion, authored by Justice Kavanaugh, read.
Kavanaugh’s opinion was joined by Justices Ruth Bader Ginsburg, Stephen Breyer, Elena Kagan, and Sonia Sotomayor. The dissent was written by Justice Neil Gorsuch, President Trump’s appointee to the high court. Gorsuch’s opinion was joined by Justices Clarence Thomas, Samuel Alito and Chief Justice John Roberts.
This decision is a big blow to how Apple operates. The company’s stock is down by more than 5% since Monday. This lawsuit can potentially disrupt Apple’s sales ecosystem and hit the company with millions of dollars in penalties. The decision could also have ramifications on how other tech giants like Google and Amazon operate. This is considering the fact that after this ruling, users of electronic marketplaces can now bring antitrust suits against companies that operate online stores even if they are buying from a third-party seller.
Apple has released an official statement post this lawsuit:
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 the best, safest and most competitive in the world.
You can read the Supreme court’s opinion here.