The US Supreme Court has ruled that a major lawsuit against Apple and its App Store with potentially far-reaching ramifications could move forward, affirming the Ninth Circuit’s ruling.
As a result, customers are now free to sue the Cupertino company over the App Store fees. To get you up to speed, the plaintiffs in the case argue that Apple’s commission rates are higher than they would be in a competitive market, leading to inflated prices.
As Business Insider laid out, the court’s ruling was narrow.
The justices didn’t decide whether Apple had a monopoly, whether it was abusing it or what the penalty would be for doing so. Instead, they simply ruled the consumers had a right to sue Apple and their case could proceed. But that ruling is a significant setback to Apple, because it increases the likelihood that the case will actually go to trial.
Here’s Apple’s response in full:
Today’s decision means plaintiffs can proceed with their case in District court. We’re confident we will prevail when the facts are presented and that App Store is not a monopoly by any metric.
We’re proud to have created the safest, most secure and trusted platform for customers and a great business opportunity for all developers around the world. Developers set the price they want to charge for their app and Apple has no role in that. That vast majority of apps on App Store are free and Apple gets nothing from them. The only instance where Apple shares in revenue is if the developer chooses to sell digital services through the store.
Developers have a number of platforms to choose from to deliver their software — from other apps stores, to Smart TVs to gaming consoles — and we work hard every day to make our store is the best, safest and most competitive in the world.
In a nutshell, the anti-trust suit alleges that the store is a monopoly because App Store is the only place for iOS customers to download apps. Apple only allows apps to be sold on the store (excluding side-loading) and charges a 30 percent commission which drops to 15 percent in the case of subscriptions after the first full year of uninterrupted service.
That plaintiffs argue that developers are forced to inflate the prices. Spotify, for instance, charges a 30 percent higher fee through App Store to account for Apple’s commission).
From CNBC’s report:
In this case, however, several consumers contend that Apple charges too much for apps. The consumers argue, in particular, that Apple has monopolized the retail market for the sale of apps and has unlawfully used its monopolistic power to charge consumers higher-than competitive prices.
Wait, wait, I’m confused. Why would an iPhone user be permitted to drag Apple to court over app prices which are set by third parties anyway, not Apple itself? After all, it’s the developer who would be the immediate victim of the alleged offense, not the end user, right?
A claim that a monopolistic retailer (here, Apple) has used its monopoly to overcharge consumers is a classic antitrust claim. But Apple asserts that the consumer plaintiffs in this case may not sue Apple because they supposedly were not ‘direct purchasers’ from Apple under our decision in Illinois Brick Co. v. Illinois, 431 U. S. 720.
We disagree. 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. We affirm the judgment of the U. S. Court of Appeals for the Ninth Circuit.
The Supreme Court’s full ruling is embedded below, via MacRumors.
The suit disregards the fact that this is Apple’s store and Apple’s rules. Another flawed argument is that Apple also dictates the price of apps in the store. That’s not true: developer are free to set the prices themselves, and Apple doesn’t take a cent from free apps.
Bloomberg argues that the ruling could add to pressures the company has been facing to cut the App Store commission. “Lawyers pressing the case have said they will seek hundreds of millions of dollars on behalf of overpaying consumers,” Bloomberg has it.
At any rate, Apple’s surprise defeat in the Supreme Court could spell trouble for Tim Cook’s turnaround plan. As you know, the management is attempting to transform Apple into a services company and App Store is a linchpin of the services business.
KeyBanc Capital Markets forecast that App Store alone will account for 12 percent of Apple’s total gross profit this year. Should Tim Cook & Co be forced to eventually reduce the App Store fees significantly, the company’s services business would without a doubt suffer a major setback, thereby hurting the company’s overall revenue and profits.