Supreme Court considers lawsuit against Apple’s App Store

Supreme Court considers lawsuit against Apple’s App Store

By Geoff West   
An iPhone. (Photo courtesy of Apple)

WASHINGTON — Should iPhone customers be allowed to sue Apple for having no other way to buy apps than through the company’s wholly owned App Store?

The U.S. Supreme Court on Monday heard oral arguments in Apple Inc. v. Pepper, a case that pits one of the largest tech companies against its legion of iPhone users, who for years have had only one option to shop and buy third-party iPhone apps: Apple’s App Store.

David Frederick, an attorney representing iPhone users, told the justices Monday that Apple’s App Store has violated U.S. antitrust laws, and that the company should be subject to a class-action lawsuit brought by users against the company.

The alleged monopoly stems from Apple’s ban on third-party developers selling iPhone apps anywhere except on the App Store. In return, Apple receives a 30 percent commission from the developer off each sale.

The practice has created a closed market, Frederick said, that has driven up the cost of apps for iPhone users.

“Apple directed anti-competitive restraints at iPhone owners to prevent them from buying apps anywhere other than Apple’s monopoly App Store,” he said. “As a result, iPhone owners paid Apple more for apps than they would have paid in a competitive retail market … if a competitive market did flourish, the prices that iPhone owners would pay would be lower.”

The question before the court was less about whether Apple’s App Store constitutes a monopoly, however, than if iPhone users have the legal standing to pursue a class-action lawsuit against the company at all.

In 1977, the Supreme Court held in Illinois v. Illinois Brick that only the “first buyer” who is harmed by a monopoly is entitled to damages under the Sherman and Clayton Acts, the federal antitrust statutes. That decision, which sought to simplify the plaintiffs of antitrust lawsuits, barred those who may have been affected downstream from seeking damages.

Since app developers set their own prices on the App Store and sell directly to iPhone users, Apple is neither the buyer nor the seller, said Daniel Wall, an attorney for Apple.

The company is simply providing a delivery service, collecting its commission from the developers, and should not be held liable to whatever costs are passed on to customers from the arrangement, Wall said.

“If app developers do change their prices to pass on some or all of the (commission costs),” Wall said, “that is precisely the kind of damages theory that the Illinois Brick doctrine prohibits.”

Justices Elena Kagan and Sonia Sotomayor appeared unmoved by Apple’s argument that the company isn’t selling to iPhone users.

“It just seems to me that, when you’re looking at the relationship between the consumer and Apple, that there is only one step,” Kagan said. “I mean, I pick up my iPhone. I go to Apple’s App Store. I pay Apple directly with the credit card information that I’ve supplied to Apple. From my perspective, I’ve just engaged in a one-step transaction with Apple.”

“I’m sorry,” Sotomayor said. “The first sale is from Apple to the customer.”

The Supreme Court is expected to issue a ruling by June.

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