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The Supreme Court Will Decide If Apple’s App Store Is a Monopoly
Ann Thai, product manager of the App Store, speaks at WWDC in San Jose, California on June 4, 2018.
Has Apple monopolized the market for iPhone apps? That’s the question at the heart of Apple Inc. v. Pepper, a case the Supreme Court agreed to hear Monday, which could have wide-reaching implications for consumers as well as other companies like Amazon. The dispute is over whether Apple, by charging app developers a 30 percent commission fee and only allowing iOS apps to be sold through its own store, has inflated the price of iPhone apps. Apple, supported by the Trump administration, argues that the plaintiffs in the case—iPhone consumers—don’t have the right to sue under current antitrust laws in the US.
The case marks a rare instance in which the court has agreed not only to hear an antitrust case, but also one where no current disagreement exists in the circuit courts. The outcome could change decades of antitrust legal precedent—either strengthening or weakening consumer protections against monopolistic power. The case also represents a huge source of revenue for Apple; the company raked in an estimated $11 billion last year in App Store commissions alone.
The Illinois Brick Doctrine
At the core of the lawsuit is another Supreme Court case from 1977, Illinois Brick Co. v. Illinois, which established what is known as the Illinois Brick Doctrine. That rule says you can’t sue for antitrust damages if you’re not the direct purchaser of a good or service. If I have a monopoly on bread and the local deli sells you a sandwich, you can’t sue me. It’s just too hard to figure out how much of your sandwich price was inflated due to my illegal activity.
Here’s where things get complicated. Apple isn’t buying apps from developers and then reselling them to consumers. It merely charges a 30 percent commission fee, and only makes them available in its own App Store. Because of that, Apple argues that it’s protected from antitrust lawsuits lodged by consumers because it’s not the direct seller, the developers are. It views the App Store like a mall; it’s merely charging developers rent to sell in it.
“Apple is trying to argue that the consumers don’t have the standing to sue here because the app developers set the price,” says Sandeep Vaheesan, an antitrust lawyer at the Open Markets Institute, a nonprofit that advocates against monopolistic power. “What the consumers are really upset at is how the apps are being priced by developers.”
But the plaintiffs in the suit argue that Apple monopolized the distribution of the apps, not the apps themselves. In a world where app stores could actually compete for developers’ products, the commission rates might be lower, resulting in lower-priced apps. This plays out on Android already; the majority of app downloads go through the Google Play Store, but users can also go to the Amazon Appstore for occasionally discounted apps, or F-Droid for exclusively open source apps.
By comparison, Apple is less like a mall, and more like the only store in town. iOS app developers have to abide by Apple’s lengthy guidelines if they want to sell their products to iPhone consumers and the company can exclusively decide when it doesn’t want certain apps on its phones.
“On the face of it, I certainly think [the plaintiffs] have got a strong case. Whether it’s a winning case, I don’t know yet,” says John Lopatka, an antitrust professor at Penn State Law School and the author of Federal Antitrust Law and The Microsoft Case: Antitrust, High Technology, and Consumer Welfare. “If they lose, it’s because the court is going to want to change to some extent just what this Illinois Brick rule is.” Apple did not return a request for comment.
What Happens If Apple Wins?
In 2013, a district court in California initially sided with Apple, agreeing that the tech giant was shielded by the Illinois Brick Doctrine. But the plaintiffs appealed to the 9th Circuit Court of Appeals, which reversed the lower court’s opinion last year. Now, in a somewhat surprising decision, the Supreme Court will hear the case.
Typically, the Supreme Court looks for disagreement between the lower courts when deciding to take up a case, but here none currently exists. “It’s unusual to take this one because there’s no pressing and strong circuit split on the issue,” Lopatka says.
The case that most closely addresses the same issues is from nearly 20 years ago, when the 8th Circuit Court of Appeals dismissed a lawsuit brought by concertgoers against Ticketmaster. The court ruled that concertgoers weren’t the direct purchaser, the venues were. It agreed that Ticketmaster was just a ticket marketplace, rather than a distribution monopoly.
This time, though, the highest court could rule that Apple is, in fact, a distribution monopoly. A ruling in the plaintiffs’ favor could have serious implications for other tech companies with similar business models, like Amazon, which sells a wide range of products from third-party companies. And it could make it harder for them to argue that they’re merely neutral intermediaries. That means the Illinois Brick Doctrine might get squashed, or significantly altered.
The case is “really significant for platforms in general,” says Vaheesan. “Platforms and other intermediators that rely on a commission-based model might be able to avoid antitrust liability in the form of lawsuits” if Apple wins.
But even if Apple loses, the plaintiffs still face a long, uphill battle. A favorable ruling from the Supreme Court would allow the suit to go to trial, but it may get settled out of court before that even happens. In trial, the plaintiffs would have to face a host of other issues in order to successfully argue that Apple’s App Store really constitutes a monopoly. For example, consumers can buy other kinds of smartphones aside from iPhones, which come with access to other app stores.
“Apple created the iPhone, Apple created the entity that can use apps, has it monopolized anything?” Lopatka says. “Is it fair to say that there is a market in Apple apps, when you can get a Samsung phone or lots of other phones and get different apps? That would be an issue.”
If Apple wins, though, consumers would continue to have one less avenue to legally fight back against increasingly powerful technology corporations.
“This would just be another thumb on the scale in favor of corporate defendants and against antitrust plaintiffs,” Vaheesan says. “It would mean that the DOJ and the FTC would have to do more to compensate for the reduced private enforcement.”
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