The US Supreme Court will scrutinize an antitrust lawsuit against Apple, opening the door for the computing giant to escape censure over its app store policies and potentially millions of dollars in claims.
The lawsuit claims that Apple – which has had its fair share of legal challenges from alleged wage fixing to defective keyboards – has a monopoly on the app market, partly demonstrated by the fact it is able to claim a 30 per cent commission on all sold applications.
That monopoly is used to kill off competition, the suit claims, by only allowing apps that are approved by Apple onto the App Store, with Apple insisting on exclusive distribution through its store as a condition of approval.
Interestingly, Apple's legal argument is focused not on the claims of market abuse but that the people who brought the case – customers Robert Pepper, Stephen Schwartz, Edward Hayter and Eric Terrell – do not have legal standing to bring the case because they are not the ones being forced to pay the commission; it's the app developers, and they did not buy anything directly from Apple.
That argument was accepted by a federal district court back in 2013 when it was first brought but rejected on appeal in 2017 when the Ninth Circuit Court of Appeals – based in California – concluded that Apple "was a distributor of iPhone apps, selling them directly to purchasers through its App Store."
That 2017 decision goes against a similar one by the Eighth Circuit – which found that people were buying apps directly from developers, not Apple. In addition, Apple – and the Trump Administration in support of the iGiant – are pointing to a 1977 Supreme Court decision that only direct purchasers can sue under federal antitrust law. The logic at the time was that it would prevent "duplicative recoveries."
That 1977 Supreme Court decision was a long time ago however, and things have changed dramatically with the internet and modern walled-garden app stores.
If the Supreme Court decides that users are buying directly from Apple through its App Store, it will set a new precedent and would like lead to a sea-change in how app stores function, impacting not just Apple but also every other tech giant that has copied the model, including Amazon, Facebook, and Google.
If the case were then to proceed and the plaintiffs win, it would leave Apple open to millions – perhaps tens of millions – of dollars in claims; certainly enough to have an impact on share price. Apple would also have to change its policies for its massive money-earning enterprise.
It could also lead to a situation when alternative app stores are given legal protection, breaking Apple's stranglehold over what is allowed to run on its mobile operating system.
All that is in the future, of course, and assumes that the Supreme Court will agree with the Ninth Circuit that people are effectively buying direct from Apple; something that would require it to reevaluate its 1970s decision. The fact that the Trump Administration is supporting Apple and that Apple can afford the best legal counsel in the country points to an uphill struggle.
Those bringing the case argued in their filing with the Supreme Court that "they purchased software applications through an online store owned by the alleged monopolist, Apple Inc., and paid the entire purchase price for the applications directly to the monopolist, which retained the entire monopoly profit for itself."
Apple said it best however when it argued in its appeal to the Supreme Court that "this is a critical question for antitrust law in the era of electronic commerce." Indeed it is.
The case was just one of five that the Supreme Court decided to hear [PDF] on Monday, rejected dozens of others. It also granted a request by ACT The App Association to file an amicus curiae brief in support of Apple. Apple is the association's largest sponsor and has repeatedly supported it in legal cases.
The case is Apple v. Pepper, 17-204. And the case will be heard by the court in its term starting in October. ®