Supreme Court Deals Blow to Apple in Antitrust Case

In Apple v. Pepper, the Supreme Court ruled that App Store customers have standing to sue the company for antitrust violations.

Anthony Kwan/Bloomberg/Getty Images

On Monday, the Supreme Court of the United States voted to allow a years-long antitrust case against Apple to move forward, despite Apple's objections. The case, Apple Inc. v. Pepper , concerns a group of iPhone users who accuse Apple of driving up the price of apps by charging third-party app developers a 30 percent commission. Apple argued that App Store customers technically buy apps from third-party developers and have no direct purchasing relationship with Apple, and therefore no standing to seek damages from the company. But in a 5–4 decision, written by conservative Justice Brett Kavanaugh, the court voted against Apple, allowing the case to proceed.

"The sole question presented at this early stage of the case is whether these consumers are proper plaintiffs for this kind of antitrust suit—in particular, our precedents ask whether the consumers were 'direct purchasers' from Apple," the decision reads. "It is undisputed that the iPhone owners bought the apps directly from Apple."

The lawsuit, which was first filed in 2011 by lead plaintiff Robert Pepper and three other iPhone users, had been struck down in a district court, only to be revived in the Ninth Circuit, which found that the plaintiffs did, in fact, have standing to sue. Now the case will head back to the district court, where the question of whether Apple violated antitrust law will be resolved.

The decision was hailed by consumer advocates like the Center for Democracy & Technology. "Today, more and more of consumers’ purchases go through platforms, where sellers and buyers meet virtually via technology, instead of in brick-and-mortar stores," Avery Gardiner, CDT’s senior fellow for competition, data and power, said in a statement. "These technologies are evolving fast, and today’s decision shows that antitrust law is—as it should be—flexible enough to address allegations that companies may misuse their market strength in novel ways."

The Supreme Court's decision to allow the case to proceed at all could also have an impact on other companies, like Amazon, that prefer to frame themselves as neutral marketplaces, not direct sellers.

"I would anticipate that plaintiffs lawyers will be looking at this closely and looking at tech companies and internet platforms and thinking about who they might be able to sue now that this uncertainty is gone," says Valarie Williams, a partner at the Atlanta-based law firm Alston & Bird, who specializes in antitrust law.

Issie Lapowsky covers the intersection of tech, politics, and national affairs for WIRED.

The Supreme Court's decision hinges on another 1977 case, Illinois Brick Co. v. Illinois, in which the state of Illinois sued a number of brick manufacturers, accusing them of price fixing. The manufacturers argued that because their direct customers were contractors, not the government, the government couldn't sue them, and the case should be dismissed. The Supreme Court sided with the brick manufacturers, finding that indirect purchasers cannot seek antitrust damages, a principle now known as the Illinois Brick doctrine.

Apple used this same doctrine to argue that the plaintiffs in this case also lacked standing. In oral arguments last fall, a lawyer for Apple argued that because app developers set their own prices, App Store customers are really buying from the developers, not Apple itself. In other words, Apple positioned itself as merely the retail space where app developers pay to set up shop and sell their products. But in their decision the Supreme Court justices rejected this framing, writing that Apple was arguing "strenuously" against a "simple conclusion."

"There is no intermediary in the distribution chain between Apple and the consumer," the decision reads. "The iPhone owners purchase apps directly from the retailer Apple, who is the alleged antitrust violator."

Tech companies and consumer advocates have been watching this case closely, bracing themselves for a ripple effect across the industry. But Williams says the court's decision in this case largely avoids drastic reinterpretation of the law. It does not, for instance, overturn the Illinois Brick doctrine by finding that indirect purchasers of a product have standing to sue for antitrust violations.

"If they had overturned Illinois Brick and allowed indirect purchasers to sue for federal antitrust claims, that would be a huge change," Williams says. Instead, the court merely found that under the law as written, App Store customers do have a direct purchasing relationship with Apple. That's largely because Apple prohibits people from buying iPhone apps anywhere other than its own App Store.

Just because the plaintiffs have proven they have the standing to sue, doesn't mean they'll be able to prove that Apple did, in fact, violate antitrust law. This is its own complex question, and one that Williams says is likely to end in a settlement. It's also a question that European regulators are grappling with, after Spotify made a complaint against Apple to the European Commission earlier this year. Spotify similarly argued that by charging a 30 percent commission on in-app purchases, Apple is abusing its market dominance and requiring app developers to pass those costs on to consumers.

Apple didn't respond to WIRED's request for comment regarding the Supreme Court decision.

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