Written By Stefani Joslin
On Monday, June 18, the United States Supreme Court decided that it will hear arguments regarding allegations that Apple’s iPhone customers are paying high prices for apps.
In 1977, the Supreme Court ruled in Illinois Brick Co. v. Illinois that only direct purchasers, not purchasers who buy products further downstream, may sue under the federal antitrust law. Today, four Apple iPhone customers are seeking damages alleging that Apple has violated antitrust law by “monopolizing the app market”.
The case stems from a lawsuit that was initiated in California seven years ago. Prior to bringing this to the Supreme Court, a federal court decided that the company could not be sued by consumers since the consumers were not directly overcharged. The panel stated that Apple was merely serving as a distributor and selling the apps directly to customers and only pocketing a part of the apps’ profits. In 2017, the 9th U.S. Circuit Court of Appeals reversed the decision, reasoning that consumers had a right to sue since the consumers were buying the apps through Apple’s App Store. Apple had won the initial suit.
Seven years ago, Robert Pepper and three other iPhone users initiated this lawsuit in federal court in Oakland, California and sought class action status. The suit accused Apple of monopolizing the iPhone app market and selling the apps at a high cost to its customers by only approving apps if the developers agreed to allow the apps to be exclusively distributed within the App Store. This fight is threatening to expose not only the Apple company but also its technology industry peers to antitrust scrutiny. According to these plaintiffs, Apple has “total control” over games and other offerings that are within the App Store.
On June 18th, 2018, the Supreme Court decided that the case will be taken from the 9th U.S. Circuit Court of Appeals. The lawsuit stated that when Apple customers purchase an app from the App Store, “the price includes a 30 percent markup that goes to Apple.”. Apple’s argument is that the company does not actually sell the apps, but rather acts as a “middle man” between the app developers and consumers.
Apple has argued that it cannot be sued due to the fact the commission is levied by the app developers, not by the consumers bringing suit. Other companies, such as Google, Amazon, and Facebook may also be affected from the aftermath of this lawsuit. According to Apple, “[t]his is a critical question for antitrust law in the era of electronic commerce”.
What Could Happen Next
If the Court decides in Apple’s favor, the case could open the door for companies to run similar online marketplaces and have these types of interactions with customers through third-party sellers. The Supreme Court will hear arguments in the case, titled Apple v. Pepper, 17-204, during its upcoming nine-month October term.
Debra Cassens Weiss, Can IPhone users sue Apple for charges to app developers? Supreme Court to decide, ABA Journal (June 18, 2018, 3:06PM).
Greg Stohr, Apple Gets U.S. Supreme Court Review on iPhone App Fee Suit, Bloomberg, (June 18, 2018, 9:31AM).
Ann E. Marimow, Supreme Court to consider cases on the seizure of a $40,000 Land Rover, iPhone apps, and a moose hunter, The Washington Post (June 18, 2018).
Supreme Court to Take Up Apple iPhone App Lawsuit, NBCDFW, (June 18, 2018, 9:26AM).