Supreme Court Says iPhone Users Can Pursue Antitrust Claims Against Apple Over App Store

Earlier today, the Supreme Court ruled (mostly as expected, though with some caveats) in Apple v. Pepper, a case concerning whether or not iPhone users could sue Apple for antitrust concerning how it controls pricing in the iOS App Store. Most of the news on this focuses either on how this could have a big impact on Apple and other marketplaces, or on how this case (somewhat oddly) split between the two Justices appointed by President Trump, with Justice Kavanaugh writing the majority opinion (joined by Justices Ginsburg, Breyer, Kagan, and Sotomayor) and the dissent written by Justice Gorsuch (joined by Justices Roberts, Thomas and Alito).

It will be interesting to see how this plays out, but my first impression is that this case may not prove to be that big of a deal long term. It is not saying anything, really, concerning whether or not Apple's practices are an antitrust violation. It is merely letting a case go forward. And, to some extent, I think that Justice Gorsuch may be correct that all that this case will end up doing in the long run is getting Apple and other platforms to change their contracts in terms of how the money flow officially goes.

The key in this case is that Apple sought to have the antitrust case tossed, saying that iPhone owners were not the "direct purchasers" from Apple, and thus had no standing to sue. An earlier case, Illinois Brick v. Illinois, said that only direct purchasers could sue for antitrust violations, rather than those further down the supply chain. Here, the majority said that Illinois Brick doesn't exclude iPhone users, because they did, in fact, make the purchase from Apple, and thus were "direct purchasers."

The plaintiffs purchased apps directly from Apple and therefore are direct purchasers under Illinois Brick. 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. We merely hold that the Illinois Brick direct-purchaser rule does not bar these plaintiffs from suing Apple under the antitrust laws.

This does seem fairly straightforward, but Apple's counter-argument was that, as the market controller, it is merely setting the percentage fee that goes back to Apple, and not the actual price of the app:

Apple’s theory is that Illinois Brick allows consumers to sue only the party who sets the retail price, whether or not that party sells the good or service directly to the complaining party. Apple says that its theory accords with the economics of the transaction. Here, Apple argues that the app developers, not Apple, set the retail price charged to consumers, which according to Apple means that the consumers may not sue Apple.

The majority rejects this ruling, saying that it is not actually supported by the law (which says that injured parties can sue), that Apple is stretching the meaning of the Illinois Brick ruling from one about "direct purchasers" to one about "who sets the price," and finally that under Apple's interpretation of the rule, any market operator could strategically structure their market to avoid being liable to any antitrust effort:

...if accepted, Apple’s theory would provide a roadmap for monopolistic retailers to structure transactions with manufacturers or suppliers so as to evade antitrust claims by consumers and thereby thwart effective antitrust enforcement.

The dissent, by Gorsuch, more or less suggests that this ruling, as opposed to the reverse, is actually what will allow market operators to avoid antitrust, just by strategically structuring deals in a different way:

To evade the Court’s test, all Apple must do is amend its contracts. Instead of collecting payments for apps sold in the App Store and remitting the balance (less its commission) to developers, Apple can simply specify that consumers’ payments will flow the other way: directly to the developers, who will then remit commissions to Apple. No antitrust reason exists to treat these contractual arrangements differently, and doing so will only induce firms to abandon their preferred—and presumably more efficient—distribution arrangements in favor of less efficient ones, all so they might avoid an arbitrary legal rule.

This is why, frankly, I'm not convinced this case is that big of a deal, despite some general concerns that people have raised about the ruling. As a gut reaction, it does seem to make sense that those injured by supposedly monopolistic behavior should have the right to sue over that harm, but this ruling seems more technical than anything else, and is fairly early on in the process of what appears to be a very long case that has no end in sight. Apple, and other large companies, would obviously have liked to have seen it go the other way, and to face less of a threat of antitrust lawsuits from the users of the markets they set up, but that, alone, isn't a sensible reason for blocking these cases.

For what it's worth, if I were Apple, I would preempt this issue entirely by no longer requiring that the App Store be the only way to get apps on the phone. Google allows competing marketplaces on Android, but they really don't get much usage -- in part because Google (correctly) notes that you're likely to have better security by going through the official Google Play store, rather than alternatives. However, it has still allowed alternatives, and a few of them (including Amazon's) have been able to build up a niche in the market.