Supreme Court Says iPhone Users Can Pursue Antitrust Claims Against Apple Over App Store

from the could-get-intereseting dept

Earlier today, the Supreme Court ruled (mostly as expected, though with some caveats) in Apple v. Pepper, a case concerning whether or not iPhone users could sue Apple for antitrust concerning how it controls pricing in the iOS App Store. Most of the news on this focuses either on how this could have a big impact on Apple and other marketplaces, or on how this case (somewhat oddly) split between the two Justices appointed by President Trump, with Justice Kavanaugh writing the majority opinion (joined by Justices Ginsburg, Breyer, Kagan, and Sotomayor) and the dissent written by Justice Gorsuch (joined by Justices Roberts, Thomas and Alito).

It will be interesting to see how this plays out, but my first impression is that this case may not prove to be that big of a deal long term. It is not saying anything, really, concerning whether or not Apple's practices are an antitrust violation. It is merely letting a case go forward. And, to some extent, I think that Justice Gorsuch may be correct that all that this case will end up doing in the long run is getting Apple and other platforms to change their contracts in terms of how the money flow officially goes.

The key in this case is that Apple sought to have the antitrust case tossed, saying that iPhone owners were not the "direct purchasers" from Apple, and thus had no standing to sue. An earlier case, Illinois Brick v. Illinois, said that only direct purchasers could sue for antitrust violations, rather than those further down the supply chain. Here, the majority said that Illinois Brick doesn't exclude iPhone users, because they did, in fact, make the purchase from Apple, and thus were "direct purchasers."

The plaintiffs purchased apps directly from Apple and therefore are direct purchasers under Illinois Brick. 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. We merely hold that the Illinois Brick direct-purchaser rule does not bar these plaintiffs from suing Apple under the antitrust laws.

This does seem fairly straightforward, but Apple's counter-argument was that, as the market controller, it is merely setting the percentage fee that goes back to Apple, and not the actual price of the app:

Apple’s theory is that Illinois Brick allows consumers to sue only the party who sets the retail price, whether or not that party sells the good or service directly to the complaining party. Apple says that its theory accords with the economics of the transaction. Here, Apple argues that the app developers, not Apple, set the retail price charged to consumers, which according to Apple means that the consumers may not sue Apple.

The majority rejects this ruling, saying that it is not actually supported by the law (which says that injured parties can sue), that Apple is stretching the meaning of the Illinois Brick ruling from one about "direct purchasers" to one about "who sets the price," and finally that under Apple's interpretation of the rule, any market operator could strategically structure their market to avoid being liable to any antitrust effort:

...if accepted, Apple’s theory would provide a roadmap for monopolistic retailers to structure transactions with manufacturers or suppliers so as to evade antitrust claims by consumers and thereby thwart effective antitrust enforcement.

The dissent, by Gorsuch, more or less suggests that this ruling, as opposed to the reverse, is actually what will allow market operators to avoid antitrust, just by strategically structuring deals in a different way:

To evade the Court’s test, all Apple must do is amend its contracts. Instead of collecting payments for apps sold in the App Store and remitting the balance (less its commission) to developers, Apple can simply specify that consumers’ payments will flow the other way: directly to the developers, who will then remit commissions to Apple. No antitrust reason exists to treat these contractual arrangements differently, and doing so will only induce firms to abandon their preferred—and presumably more efficient—distribution arrangements in favor of less efficient ones, all so they might avoid an arbitrary legal rule.

This is why, frankly, I'm not convinced this case is that big of a deal, despite some general concerns that people have raised about the ruling. As a gut reaction, it does seem to make sense that those injured by supposedly monopolistic behavior should have the right to sue over that harm, but this ruling seems more technical than anything else, and is fairly early on in the process of what appears to be a very long case that has no end in sight. Apple, and other large companies, would obviously have liked to have seen it go the other way, and to face less of a threat of antitrust lawsuits from the users of the markets they set up, but that, alone, isn't a sensible reason for blocking these cases.

For what it's worth, if I were Apple, I would preempt this issue entirely by no longer requiring that the App Store be the only way to get apps on the phone. Google allows competing marketplaces on Android, but they really don't get much usage -- in part because Google (correctly) notes that you're likely to have better security by going through the official Google Play store, rather than alternatives. However, it has still allowed alternatives, and a few of them (including Amazon's) have been able to build up a niche in the market.

Filed Under: antitrust, app store, brett kavanaugh, direct purchaser, ios, neil gorsuch, standing, supreme court
Companies: apple


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  1. identicon
    Anonymous Coward, 13 May 2019 @ 2:07pm

    Amazon Kindle pays 70 percent on e-books priced $2.99-9.99, and 35 percent otherwise. I always thought this was a vertical antitrust violation.

    reply to this | link to this | view in thread ]

  2. identicon
    Shmerl, 13 May 2019 @ 2:16pm

    Great!

    Can anyone now blast Apple on anti-trust grounds, for banning competing browsers in their store?

    reply to this | link to this | view in thread ]

  3. icon
    Thad (profile), 13 May 2019 @ 2:35pm

    Re: Great!

    1. They ban competing rendering engines, which isn't quite the same thing as competing browsers.
    2. That has absolutely nothing to do with this ruling.

    reply to this | link to this | view in thread ]

  4. identicon
    Shmerl, 13 May 2019 @ 2:40pm

    Banning competing engines = banning browsers, not much of a difference, since technology support in browsers depends on the engine. So when Apple want to sabotage universal adoption of certain technology (such as DASH for video streaming), then can avoid implementing needed components on the client side in their engine, forcing everyone who wants to target iOS (a sizable chunk of the Web market) to support their streaming tech.

    So you can clearly see, how using control over the browser engines in the store gives them anti-competitive control which extends way beyond it.

    This ruling can at least clear the way to blast Apple for good for this crooked practice.

    reply to this | link to this | view in thread ]

  5. identicon
    Anonymous Coward, 13 May 2019 @ 3:32pm

    Re:

    I just want to be able to run software that I make and compile on MY phone without having to pay Apple $99/year for the privilege.

    But Apple will be very reticent to go this route, as controlling the signing chain is what controls their support costs and garden security.

    Just look at their existing compromise: they allow enterprise certificates to deploy to enterprise stores, where large customers can deploy their own software outside the App Store.

    And what happens? Rogue Chinese enterprises use their certificates to sign third party software, sometimes including malware, spyware and deceptive software.

    This isn't an easy problem to fix.

    reply to this | link to this | view in thread ]

  6. icon
    Thad (profile), 13 May 2019 @ 3:37pm

    Re:

    Banning competing engines = banning browsers, not much of a difference, since technology support in browsers depends on the engine.

    Yes, technology support depends on the engine.

    But if you think there's "not much of a difference" among different browsers that use the same rendering engine, well, if you think frontends are insignificant, you've picked the wrong guy to say that to. I'm a frontend developer. I happen to think frontends are kind of important.

    So you can clearly see, how using control over the browser engines in the store gives them anti-competitive control which extends way beyond it.

    I don't disagree. But that doesn't mean that there's "not much of a difference" across different Webkit-based browsers.

    This ruling can at least clear the way to blast Apple for good for this crooked practice.

    It really, really doesn't. Did you read the article? This ruling established that end users (not just software publishers) have standing to sue Apple because they are buying software from Apple. "Buying" being the operative word; the ruling specifically concerns software purchases, not software that is given away for free (as in beer).

    The ruling specifically concerns end users' right to sue Apple for pricing decisions, and hinges on users paying Apple for apps. It does not "clear the way" for anything except customers suing a seller for pricing.

    That doesn't mean that browser developers can't sue Apple for the restrictions it places on browser development. They certainly can, if they choose to, though as far as I know none of them have in the US (though a company called Nexedi sued in France; that was in October 2016, and I can't find any more recent information on the suit, so I'm not sure if it's still ongoing). This ruling didn't say anything about developers' and publishers' standing to sue Apple; that was never in question.

    Are you perhaps suggesting that this ruling means an end user could now sue Apple for forcing Webkit on developers? Because it doesn't establish that, either. It establishes that end users can sue Apple over pricing; it doesn't say anything about suing over features. I suspect end users would have a much harder time establishing standing over App Store policies that aren't based on price, or indeed based directly on end users' interactions with Apple at all.

    reply to this | link to this | view in thread ]

  7. identicon
    Shmerl, 13 May 2019 @ 4:51pm

    Re: Re:

    You missed the point. Since it's already considered a monopoly abuse for something, Apple can't get away with excuses that there is competition for other things. Paying for it or not has nothing to do with the basics of the competition law. Apple do harm competition. Q.E.D.

    reply to this | link to this | view in thread ]

  8. identicon
    Anonymous Coward, 13 May 2019 @ 5:09pm

    habeas corpus

    What exactly was Apples's alleged AntiTrust crime here?

    Why can't Apple charge whatever it wants for its services and products?

    Plenty of strong competitors out there in the smartphone/tablet/app market.
    What did you do before Apple existed?
    If you don't like Apple policies -- go elsewhere.

    Any perceived 'lock' that Apple has on its market niche is purely a function of consumers liking its stuff.

    reply to this | link to this | view in thread ]

  9. icon
    Thad (profile), 13 May 2019 @ 5:32pm

    Re: Re: Re:

    Since it's already considered a monopoly abuse for something

    No, it isn't.

    This ruling did not establish monopoly abuse by Apple. It established that App Store users have standing to sue Apple for antitrust violations related to the App Store. The Court did not rule on the suit, it merely allowed it to move forward.

    Stop talking and read the fucking article. It's entirely clear at this point that you haven't read past the headline, because all this is explained literally in the first sentence.

    reply to this | link to this | view in thread ]

  10. identicon
    Shmerl, 13 May 2019 @ 7:40pm

    Re: Re: Re: Re:

    Read again. If court considers it's valid to sue Apple for anti-trust violations, others can sue for their violations related to browser monopoly as well. Let them. Someone should seriously should stop this garbage.

    reply to this | link to this | view in thread ]

  11. icon
    Darkness Of Course (profile), 14 May 2019 @ 1:20am

    So, let the devs pay for the servers and storage

    Modern consumers are really ignorant asses when it comes to technology. Charge the devs for the storage space, the network bandwidth, and the processing to deliver their app. That way, apple gets paid even when the app is free.

    As to these clowns, their solution already exists:
    Buy an Android phone.
    Side load the apps on your iPhone.
    Acquire a developers license and install anything you want.
    Buy an Android phone and shut up!

    The real reason for this class action is to get money from apple because they have buckets of it. Past that, it's BS, it has always been BS, and it will ultimately fail.

    The current app pricing is < $8. Ooh, apple's stealing big bucks from everyone. Let's sue!

    reply to this | link to this | view in thread ]

  12. icon
    Jeremy Lyman (profile), 14 May 2019 @ 6:53am

    Re: habeas corpus

    This suit is essentially from people so deep in vendor lock-in that they can't see a world without it. That's why I ran as fast as I could when I realized what Apple was doing.

    reply to this | link to this | view in thread ]

  13. identicon
    TFG, 14 May 2019 @ 7:12am

    Re: Re: Re: Re: Re:

    Read again. This ruling allows a specific case to go forward by ruling that the people who are currently suing are direct purchasers and therefore have standing. It's very narrow.

    It doesn't have anything to say about whether they can be sued over the rendering engine.

    That isn't to say that they can't be sued over the rendering engine, or that they shouldn't. It just means that this ruling is irrelevant to that question.

    reply to this | link to this | view in thread ]

  14. icon
    profssrfink (profile), 14 May 2019 @ 9:25am

    cooler heads

    Thanks for taking the time to write up an even-keeled take on this subject. There is no doubt a lot of butt-hurt people out there looking to scapegoat Apple for something terrible, so it seems like anytime Apple ends up in the news everyone and their mom runs out to give their misinformed 2-cents.

    Apple has consistently grown its App Store and revenues year after year, and they did that in the face if reducing commissions.

    I can see the other side here. People love their iPhones. Why wouldn't you. And they want a more open environment to use that device. I don't think Apple is being nefarious with its practices but its certainly not an idiot and will take what the market will give it. If App Store revenues are up and up and up and devs keep making apps that sell in that marketplace then their behavior won't drastically change year over year.

    Apple is very sensitive to the developer community. Back in the day, literally nobody made apps for macOS. Their whole approach to developing has catered to bringing on developers and getting them to buy into the ecosystem. Do I agree with every aspect of it? No. But Apple has spent a lot of money and time developing APIs and engines for app developers to use to quickly move app ideas out into the market. This is often overlooked. Yes it sucks to have to use Xcode when you're favorite IDE is [insert here]. And yes you need to own a Mac to run it.

    So parts of their system need to be opened up a little. But claiming Apple has done "damage" to you, the app buyer, is a bit of a stretch. You aren't entitled to Apple's tech. Using an app on an iPhone comes with its baggage. If you don't like that, there are alternatives. And I bet if you allowed this whole thing to play out like some would like, those alternatives would prove to be swamps of despair that will only lead to major security, billing, and distribution issues that will make life for those clamoring for the change wish it had never come.

    That being said I hope a middle ground is struck. I hope we do see some software markets come alive that allow for some apps that don't "clash" with Apple's own offerings and get struck down on that basis. I, for one would live to see a Steam market for games :)

    reply to this | link to this | view in thread ]

  15. identicon
    Anonymous Coward, 14 May 2019 @ 9:49am

    Re: Re: Great!

    That has absolutely nothing to do with this ruling.

    That's not quite true. Consumers who bought alternate browsers can now allege antitrust harm from a lack of rendering-engine competition. (I expect browser-makers would have a stronger case.)

    reply to this | link to this | view in thread ]

  16. identicon
    Anonymous Coward, 14 May 2019 @ 11:32am

    Re: Re: Re: Great!

    People pay for browsers?

    reply to this | link to this | view in thread ]

  17. identicon
    Anonymous Coward, 14 May 2019 @ 11:34am

    Re: habeas corpus

    Good question, pharma seems to charge what ever they want and nothing happens ... why not some app?

    There used to be laws about price gouging but I guess they are not enforced.

    reply to this | link to this | view in thread ]

  18. icon
    Zof (profile), 14 May 2019 @ 12:01pm

    Ah, coming to Techdirt for that hard hitting no holds barred....

    Oh... oh... it's an Apple story.

    Your arms must get so tired from carrying all that water.

    reply to this | link to this | view in thread ]

  19. icon
    Zof (profile), 14 May 2019 @ 12:05pm

    "Google are monsters! Chrome is a monopoly!"

    reply to this | link to this | view in thread ]

  20. identicon
    Anonymous Coward, 14 May 2019 @ 1:18pm

    Re: Re: Re: Re: Great!

    Yeah, probably not. Did the Court's decision hinge on money? Even downloading a free app is a transaction with Apple, and might be enough to gain antitrust standing.

    reply to this | link to this | view in thread ]


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