Apple must face an antitrust lawsuit brought by consumers who claim the Silicon Valley tech giant has a monopoly over its app store that allows it to overcharge customers.
Monday’s majority decision from the U.S. Supreme Court, written by Justice Brett Kavanaugh, said the plaintiffs are direct purchasers under the court’s Illinois Brick Co. v. Illinois decision, despite claims to the contrary by Apple. Monday’s majority decision upholds a ruling from the U.S. Court of Appeals for the Ninth Circuit, which had overturned a district court.
Illinois Brick held that only the first buyer from an unlawful monopoly can claim treble damages under federal antitrust laws, even if an overcharge has been passed through to indirect or subsequent buyers.
The underlying consumer class action contends Apple’s “wholly-owned, monopoly app store” overcharges for apps and distorts the market at the supply chain and at the retail chain.
“It is undisputed that the iPhone owners bought the apps directly from Apple,” Kavanaugh wrote. “Therefore, under Illinois Brick, the iPhone owners were direct purchasers who may sue Apple for alleged monopolization. That straightforward conclusion follows from the text of the antitrust laws and from our precedents.”
In rejecting Apple’s argument that it’s the app developers who set the price, the majority said the company’s theory would provide a road map for monopolistic retailers or suppliers to evade antitrust claims.
“That restructuring would allow a monopolistic retailer to insulate itself from antitrust suits by consumers, even in situations where a monopolistic retailer is using its monopoly to charge higher-than-competitive prices to consumers,” Kavanaugh wrote. “We decline to green-light monopolistic retailers to exploit their market position in that way. We refuse to rubber-stamp such a blatant evasion of statutory text and judicial precedent.”
Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan joined the majority.
Monday’s decision, which did not address the merits of the underlying claims, came after the justices appeared skeptical of Apple’s claims during oral arguments in November. Apple’s lawyer, Latham & Watkins partner Daniel Wall, told the justices that, although Apple collects a 30 percent commission on each app, the app developers set the sales price. Apple is simply the distributor of the apps.
The only first buyer with standing to sue Apple, Wall argued, is the app developer who pays the 30% commission.
U.S. Solicitor General Noel Francisco supported Apple’s position in the case, Apple v. Pepper.
In dissent, Justice Neil Gorsuch, joined by Justices Clarence Thomas and Samuel Alito and Chief Justice John Roberts, said the majority is recasting Illinois Brick to allow plaintiffs to sue Apple for passing on the cost imposed by developers.
“This replaces a rule of proximate cause and economic reality with an easily manipulated and formalistic rule of contractual privity,” Kavanaugh wrote. “That’s not how antitrust law is supposed to work, and it’s an uncharitable way of treating a precedent which—whatever its flaws—is far more sensible than the rule the Court installs in its place.”
David Frederick, a partner at Kellogg, Hansen, Todd, Figel & Frederick, had the winning argument for the consumer class.