Yesterday, the Supreme Court gave Apple a big defeat in an antitrust case. A group of iOS users said that Apple had unfairly increased the prices of applications with its App Store blocked. Apple argued that users had no right to sue since they were actually buying developer applications instead of Apple. Judge Brett Kavanaugh, speaking on behalf of the majority of the court, disagreed.
The new ruling establishes that the buyers of applications are direct customers of Apple, which gives them the right to continue with their antitrust case. This has no immediate consequences for Apple because there is still a long legal struggle ahead. But if the plaintiffs' case is upheld, the relationship between the digital platforms and their users could change, giving customers the basic right to sue the technology platforms for violating the antitrust law.
What is Apple v. Pepper ?
As we have mentioned previously, Apple v. Pepper is an antitrust lawsuit filed by Robert Pepper in 2011. The plaintiffs in Apple v. Apple. Pepper argue that the basic application of Apple The store model is an illegal monopoly. Apple only provides access to iOS applications through the App Store, and requires developers to pay a commission of 30 percent. The plaintiffs claim that this fee is transferred to users, who have no where to buy their applications.
For the past eight years, Apple has argued that application buyers do not have the legal right to sue at all. The company invoked a case from the 1970s called Illinois Brick Co. v. Illinois, that prevents "indirect buyers" from filing antitrust suits. He then claimed that Apple's direct customers were developers, not users, so they are the only ones with the legal capacity to file a complaint.
A lower court agreed with Apple's interpretation, but the Ninth Circuit Court of Appeals ruled in favor of the plaintiffs, and Apple took its case to the Supreme Court. Yesterday, the Supreme Court ruled on that initial question related to Illinois Brick that confirmed the decision of the Ninth Circuit. So we still do not know if Apple is a monopoly, but we know that customers can sue to resolve that issue.
Why the Supreme Court ruled against Apple?
The court (in a majority of 5-4) decided that the use of an application store was fundamentally different from passing a product through a traditional supply chain. In the words of Kavanaugh:
iPhone owners are not consumers at the bottom of a vertical distribution chain who try to sue manufacturers at the top of the chain. There is no intermediary in the distribution chain between Apple and the consumer. IPhone owners buy apps directly from retailer Apple, who is the alleged antitrust offender. IPhone owners pay the alleged surcharge directly to Apple.
Illinois Brick referred to traditional commercial supply chains. The state of Illinois sued a brick company for pricing. He argued that the company had sold its product to a general contractor at an inflated price, the general contractor had sold the bricks to another contractor and that the contractor had been hired for a government construction project, costing the government more money . The court rejected this long chain of causality and dismissed the claim.
On the contrary, iPhone users have a clear and direct relationship with Apple. As judge Elena Kagan said in previous oral arguments, consumers get the experience of "a one-step transaction with Apple" when they buy an application. Apple argued that its commission system still distinguished it from a direct seller, but the court said that this was only dividing the hair. "Apple's line drawing does not make much sense," Kavanaugh wrote, "other than as a way to get Apple out of this and other similar demands."
What is happening now?
According to Mark Rifkin, who represents the plaintiffs in Apple v. Pepper the case is turning very briefly to the Ninth Circuit. Then he returns to a lower district court where both parties will begin the discovery. In other words, they will look for evidence to argue the real monopoly issue.
After that, Apple will have to really defend itself against the accusation that it is running a monopoly. The company detailed some arguments in a statement yesterday, stating that "the App Store is not a monopoly by any metrics." He insists that blocking the App Store helps Apple protect the privacy and security of users and that developers can sell the same applications on many different devices, including Android phones, televisions and game consoles.
Meanwhile, the plaintiffs will argue that these alternatives do not matter. "The fact that they have a market share of [less than] 50 percent in smartphones does not mean they do not have a 100 percent share in the distribution of iPhone apps, which is absolutely true," says Rifkin.
It is also worth mentioning what not is happening at the moment: any concrete change of Apple. Again, Apple has not been found guilty of running a monopoly, and it will probably take years to answer that question. The Supreme Court could even take up the case again. A court could issue a court order while the trial is in progress, which requires Apple to change its policies in some way. But we are not at that point either.
What happens if Apple loses the case in general?
The plaintiffs want Apple to offer partial refunds on all paid iPhone applications, as Rifkin says, to compensate "everyone." Buyers, wherever they are, who bought iPhone apps for their iPhones at any time since the phone was introduced in 2007. "They also want Apple to allow some alternative method of buying apps.
Apple could still follow these steps In an agreement without losing in court. "If Apple is prepared to provide significant relief to consumers that puts an end to the illegal practice and compensates consumers for their injury, then it would be foolish not to listen to that kind of approach", However, this would leave unanswered large legal questions.
If Apple loses, the ruling could set a precedent that would make it easier to sue other platforms for antitrust violations, but it is not clear how broad that precedent would be. IPads and iPhones are uniquely blocked devices, so the biggest arguments against Apple may not apply. In other places, Rifkin uses the Google Play Store as an example of a healthy and non-monopolistic market. Even in a locked gaming console with an online store, there is usually a separate market for physical media. "I think in the real world at least now, the only company that does business the way Apple does business is Apple," says Rifkin.
But as physical media becomes rare and the major app stores, Apple v Pepper could be more broadly relevant. Microsoft just announced an Xbox without a drive, for example, and if their owners can only buy games through a digital store, they could say that Microsoft is running an unfair monopoly.
If Apple wins, is this decision still important?  Definitely. The Supreme Court has just eliminated a major obstacle to filing an antitrust lawsuit as a user of the digital platform, unlike a vendor or developer. In turn, that could mean more antitrust prosecutions.
"The person who suffers most of the antitrust violations tends to be the consumer," explains John Bergmayer, senior non-profit digital rights lawyer Public Knowledge. "Those will very often be the people who have the strongest incentives to present cases." In contrast, developers would risk damaging an important relationship if they sue a platform and can raise prices to cover inflated costs.
Of course, once that obstacle is overcome, this decision does not increase the likelihood that consumers will win a claim. "This does not say anything about whether Apple violated the antitrust law," says John Bergmayer, a senior attorney with Public Rights, a nonprofit digital rights organization. "It simply says that more lawsuits can be filed."
So, more people will start demanding platforms?
It's plausible, and not everyone thinks that's a good thing.
Morgan Reed, president of the industry group The App Association, argues that yesterday's ruling could result in onerous demands that ultimately will not help consumers. Reed notes the dissenting opinion of the Supreme Court, where Judge Neil Gorsuch said the platforms could try to avoid the label of "direct seller" with inefficient solutions, such as having the developers handle their own payments and then writing a check to Apple.
On the other hand, on the other hand, if Apple loses Apple v. Pepper then maybe some platforms should face more demands. "If suddenly there are a lot of victories for the plaintiffs against the platforms … then that shows that this doctrine basically allowed violations of the antitrust law," says Bergman. "Because this legal doctrine prevented the only party that was actually injured from bringing the claim."
Is this part of the violent reaction against technology?
Apple v. Pepper was presented almost a decade ago, a long time ago in the face of the recent antitrust reform and regulation calls. The Supreme Court upheld a decision since early 2017, which also predates much of the controversy. As we have discussed previously, this is not a generalized rewrite of the antitrust law or a call to break Apple. And the ruling will also not make it easier to sue technology companies for other reasons.
Kavanaugh's decision to ally himself with four liberal judges could, in theory, reflect a growing republican drive to regulate technology companies: he is the newest judge, appointed last year while the technology reaction was in full swing. But Rifkin insists that this decision was based on a question of interpretation, not on party politics. "I do not think this is a liberal or conservative issue," he says.
But even if there is no direct link to other issues, Apple vs. Pepper is certainly part of an attempt to limit the massive power of some large technology companies. "We've seen explosive growth in the App Store, and that not only reflects the growth and popularity of iPhone apps, it also reflects Apple's fierce control of distribution," says Rifkin. "The concentration of control in the hands of a single company, whether Apple or any other company, will help us not only to prove our case, but could also prove that this is the wrong kind of thing for e-Commerce and the economy in general. "