US supreme court rules against Apple in App Store dispute

iPhone owners argue Apple’s ‘walled garden’ for apps is anti-competitive

Apple bans customers from buying apps outside its App Store.

Apple bans customers from buying apps outside its App Store.

 

The US supreme court on Monday paved the way for an antitrust lawsuit filed by iPhone owners who argued that Apple’s “walled garden” for apps is anti-competitive.

In a 5-4 decision authored by Justice Brett Kavanaugh, the court said the customers could sue Apple over the 30 per cent commission it charges developers who want to sell apps through its App Store.

The ruling may have far-reaching consequences for Apple, which bans customers from buying apps outside its App Store, and for other companies that operate online marketplaces.

Damages

The question before the court was whether iPhone owners could claim damages for alleged price inflation caused by a 30 per cent commission, even though the fee is levied upon developers, rather than consumers directly.

Mr Kavanaugh wrote that the direct relationship between Apple and its customers was key to the court’s finding that the lawsuit could go ahead.

“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. The iPhone owners pay the alleged overcharge directly to Apple. The absence of an intermediary is dispositive,” he wrote in the court’s majority opinion.

Shares in Apple were down 5.6 per cent at $186.10 (€165.72 ) in early trading on Monday amid wider market weakness. Apple did not immediately return a request for comment.

The case originated with a class-action lawsuit filed in 2011. The plaintiffs, led by Robert Pepper, argued that Apple had unlawfully monopolised the sale of iPhone apps by requiring customers to use its App Store. The lawsuit was thrown out by a district court in California, but that decision was later reversed by the Ninth Circuit appeals court.

In 2017, Apple filed an appeal to the Supreme Court, asking it to block the lawsuit on the basis of a 1977 precedent set in a case called Illinois Brick, which said only the direct buyers of a product could seek triple damages for inflated prices under federal antitrust law.

The company had argued the precedent meant that in this case the plaintiffs should only be able to sue developers, who set the price of their individual apps, rather than Apple itself.

Claims

Mr Kavanaugh, a recent appointee of US president Donald Trump, joined the four liberals on the US high court and said Apple’s arguments were “not persuasive economically of legally”.

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

Mr Kavanaugh’s opinion was opposed by the other conservatives on the court. Justice Neil Gorsuch, another of Mr Trump’s appointees, wrote in the dissenting opinion: “If the commission is in fact a monopolistic overcharge, the developers are the parties who are directly injured by it.”

– Copyright The Financial Times Limited 2019