Apple’s hopes to get an App Store antitrust lawsuit dismissed have fallen flat, with the US Supreme Court giving the go-ahead to a case alleging the iOS software download store is, indeed, a monopoly situation. The lawsuit, Apple v. Pepper, saw four iPhone owners sue the Cupertino company, arguing that the App Store allows Apple to unfairly control software prices by virtue of it being the only official place to download titles.
Apple, unsurprisingly, didn’t agree. It insisted that App Store customers were those of third-party developers using the download store to sell their titles, rather than direct Apple customers.
It was an argument that convinced the District Court initially, but the Ninth Circuit Court of a Appeals overturned that. The case moved up to the Supreme Court, which announced its ruling today. Unfortunately for Apple, it’s not good news for the firm.
In a 5-4 decision, which saw controversial Justice Brett Kavanaugh join his liberal counterparts on the bench, the Court disagreed with Apple’s assertion that App Store shoppers weren’t its direct customers. “We disagree,” Kavanaugh wrote in the Opinion of the Court. “The plaintiffs purchased apps directly from Apple and therefore are direct purchasers under Illinois Brick.”
Illinois Brick was a ruling in a 1977 case, which saw the government of Illinois filing a suit against eleven concrete brick manufacturers, alleging that they had conspired around price fixing while selling materials to the state. Although the eleven firms had just settled with the US government over price fixing, the Supreme Court decided against Illinois’ claims. It argued that indirect victims of a price-fixing conspiracy would not have a basis for suing over antitrust violations for raised prices.
Apple’s argument in this case was that the precedent of Illinois Brick applied today. The Supreme Court, though, threw out that argument. “Unlike the consumer in Illinois Brick,” it writes, “the iPhone owners here are not consumers at the bottom of a vertical distribution chain who are attempting to sue manufacturers at the top of the chain. The absence of an intermediary in the distribution chain between Apple and the consumer is dispositive.”
It’s the structure of the App Store which is stinging Apple here. The Supreme Court upheld the Ninth Circuit’s stance that, because iPhone owners pay Apple for apps from the App Store, they are a direct customer of the Cupertino firm. The Ninth Circuit argued that Illinois Brick’s precedent only prevented consumers from suing alleged monopolists that are two or more steps removed in a vertical distribution chain.
What this isn’t, however, is any sort of judgement on whether the allegations of antitrust behavior and anti-competitive pricing are sound. Indeed, Justice Kavanaugh goes out of his way to highlight the fact that it’s early days on that front.
“At this early pleadings stage of the litigation, we do not assess the merits of the plaintiffs’ antitrust claims against Apple, nor do we consider any other defenses Apple might have,” the judge writes. “We merely hold that the Illinois Brick direct-purchaser rule does not bar these plaintiffs from suing Apple under the antitrust laws.”
Apple is yet to comment on the ruling.