Supreme Court May Rule Against Apple in Highly-Watched Class Action Lawsuit

Should the case go to trial, Apple – and many other online marketplaces – could face a tough time at court.

The Supreme Court has agreed to hear an antitrust case against Apple.

Robert Pepper, a Chicago resident, first filed a class-action lawsuit in 2011.  He alleges Apple has created a monopoly.  iPhone users can only purchase apps directly through the App Store.  The company takes a 30% cut on sales of apps, games, movies, songs, and subscriptions sold on the platform.  Apple also exerts a lot of control over the process, including forcing developers to price their products ending in .99.

A federal judge first dismissed the lawsuit in Oakland, California.  Consumers, the judge stated, don’t purchase the apps and other items directly.  Apple charges developers, not consumers, the higher fees.  The Ninth Circuit Court of Appeals in San Francisco overturned the dismissal.  Apple classifies as a distributor, ruled the court, as it sells iPhone apps directly to consumers.

Today, Supreme Court justices heard arguments in the case.

Citing a 1977 ruling, Apple has stated the Supreme Court has previously limited damages for antitrust conduct to ‘direct,’ overcharged consumers instead of ‘indirect’ victims who paid an overcharge passed onto others.  The company insists it only serves as an agent for developers who sell directly to consumers.

Furthermore, argues Apple, the lawsuit could have dangerous ramifications for the e-commerce industry.  E-commerce remains a growing market in the US, reaching $452 billion in sales last year.  StubHub, Amazon, and eBay are among the companies who use an ‘agent-based sales model.’   Should the Supreme Court rule against Apple, people would sue these companies, leading to a “quagmire” courts seek to avoid.

Critics, including watchdog organizations, have long criticized the agent-based sales model.  Should the Supreme Court rule against consumers, they argue, “monopolistic conduct could expand unchecked.”

Sandeep Vaheesan, Legal Director for the Open Markets Institute, explained,

A lot of tech platforms will start making the argument that consumers don’t have standing to bring antitrust suits against us.

Vaheesan added a ruling in Apple’s favor could leave consumers without legal standing against online marketplaces and distribution platforms.

The Supreme Court has “[signaled] sympathy for consumers.”  Two conservative judges – Samuel Alito and Neil Gorsuch – suggested the Supreme Court may have to review the 1977 ruling.

A ruling against Apple would send the case to trial.  The company’s shares fell sharply earlier today on Wall Street before ultimately recovering.

If the case goes to trial, and Apple loses, it could have a damning effect on the company.  Should courts ultimately side with consumers, the company may have to take extra measures, including providing other marketplaces on iOS. In the long run, this would hurt developers.  Last year, they earned over $26 billion in 2017 on the App Store, up 20% from 2016.

The Supreme Court is expected to issue its final ruling at the end of June next year.