Future path of Apple's App Stores at stake in Monday's Supreme Court arguments

Posted:
in General Discussion edited November 26
A contentious class action suit accusing Apple of holding and maintaining a monopoly on app distribution for the iPhone plus overcharging hits the Supreme Court on Monday, with the suit seeking millions of dollars -- and it could potentially have wide-ranging implications industry-wide.




The US Supreme Court will today hear arguments in the case of Apple v Pepper, which maintains that the company has deliberately created a monopoly with the App Store. The claim is that Apple has then also used this monopoly to increase app prices.

The case was originally filed in 2011 with claimants originally suing both Apple and AT&T, which had initially been the exclusive iPhone distributor. The arguments against AT&T were later dropped from the case and later a lower court ruled that plaintiffs were not eligible to sue.

However, in January 2017, the Ninth Court reversed that ruling and allowed the class action to now proceed to the Supreme Court.

What it's about

The case stands or falls on who you are actually buying an app from when you download one to your iOS device. If the courts decide that you're buying from Apple itself, then that company can be accused of antitrust behavior, and penalized accordingly. If this is the ruling, Apple can be argued to have created a monopoly and to be benefiting from it by artificially raising app prices above and beyond what the apps could be sold for without a central app store.

However, if the court agrees with Apple that the company is instead a distributor, everything changes. In that position, Apple connects users with app developers and takes a fee for doing so.

The Ninth Court didn't agree that there's any difference in whether Apple directly sells apps or acts as a distributor.

"The distinction between a markup and a commission is immaterial," ruled the Ninth Court. "The key to the analysis is the function Apple serves rather than the manner in which it receives compensation for performing that function."

That opinion is why the case has now gone to the Supreme Court, which should ultimately rule on it by June 2019.

Pass on

Even if Apple is seen to be a distributor and so not itself charging customers, there is still an argument that Apple may allegedly have been overcharging app developers. Those app developers may then have passed on or passed through these increased fees to customers.

Apple's lawyers refer to this as pass-through but they are citing a 1977 legal case where it was termed pass-on. In that Illinois Brick Co v Illinois case, the Supreme Court decided that only direct purchasers could seek damages.

It did so in part because of what the court then feared would be far-reaching and complex consequences. It would "create a serious risk of multiple liability for defendants," ruled the court. In this current situation, it could have meant that the class would have been able to sue both Apple and the app developers. "Overlapping recoveries would certainly result from the two lawsuits," said the court.

Illinois Bric Co headquarters in 2011 (Credit: Google Maps)
Illinois Brick Co headquarters in 2011 (Credit: Google Maps)


Apple maintains that its case is essentially the same as that 1977 one and in its legal filings even heads its argument "A straightforward application of Illinois Brick bars respondents' damages claim".

Plaintiffs disagree

Consumers headed by Robert Pepper have been joined by 31 States which are urging the Supreme Court both to allow this particular lawsuit and to overturn the Illinois Brick ruling.

In their supporting legal filings, these States argue: "Illinois Brick's predictions [of overlapping lawsuits] have not withstood the test of time Illinois Brick's rule is increasingly difficult to apply in the modern world, with its growing commerce in intangible rights through new platforms."

Lawyer Mark Rifkin, working for the plaintiffs, told Bloomberg that it's a unique situation "Apple has put itself in the distribution chain," he said, "and it makes us deal with Apple in a way no one else does."

Apple has support, too, significantly including the Department of Justice which in May 2018 filed a brief backing the company.

What happens next

If Apple wins, it does so by convincing the court that it can't be the subject of this particular type of damages, only the app developers can. In theory, then, the app developers could be open to being sued. In practice, it's unlikely that anyone will attempt to sue hundreds or thousands of individual app companies, but those developers could sue Apple if they believe they've been overcharged.

A ruling against Apple will likely see unspecified damages levied if Apple loses the resultant case, but more significantly the likelihood of other cases being brought against online and technology companies in similar positions. Plus, it would change the nature of application distribution should Apple, Google, Facebook, and others decide to not be faced with this kind of liability. This will set off probably a decade or more of suits, counter-suits, and appeals.

Either way, the ruling at some point in 2019 isn't the end of the story.


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Comments

  • Reply 1 of 179
    As a developer, I love the single store concept and increased visibility allowing cheaper prices to my constomers because of increased volume. Sounds win-win to me. 
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  • Reply 2 of 179

    ...


    What happens next

    If Apple wins, it does so by convincing the court that it can't be the subject of this particular type of damages, only the app developers can. In theory, then, the app developers could be open to being sued. In practice, it's unlikely that anyone will attempt to sue hundreds or thousands of individual app companies, but those developers could sue Apple if they believe they've been overcharged.

    A ruling against Apple will see unspecified damages levied, but more significantly the likelihood of other cases being brought against online and technology companies in similar positions -- and it would change the nature of application distribution should Apple, Google, Facebook, and others decide to not be faced with this kind of liability. This will set off probably a decade or more of suits, counter-suits, and appeals.

    Either way, the ruling at some point in 2019 isn't the end of the story.


    Keep up with AppleInsider by downloading the AppleInsider app for iOS, and follow us on YouTube, Twitter @appleinsider and Facebook for live, late-breaking coverage. You can also check out our official Instagram account for exclusive photos.
    To be clear, a ruling against Apple won't necessarily see unspecified damages levied (and it certainly won't see unspecified damages levied by the ruling itself). The Supreme Court is dealing with a threshold issue here, i.e. whether the plaintiffs have (statutory) standing to sue Apple. If the Supreme Court's decision goes against Apple, that will just mean that the plaintiffs can proceed with their antirust suit. They would still need to win that suit and, if they did, the appeals which might follow.
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  • Reply 3 of 179
    I would add that I would be surprised if the Supreme Court ruled against Apple in this case.
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  • Reply 4 of 179
    crowleycrowley Posts: 5,606member
    I don't understand the overcharging angle.  Can someone who does maybe break it down into who has been overcharged for what and why that would be illegal?
    StrangeDaysforgot usernamedysamoriabaconstangradarthekat
  • Reply 5 of 179
    I think App Store is about security. You could have number of stores but iOS security will not allow to install App that was not examined. It is one of core features of platform why people buy iPhones. .
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  • Reply 6 of 179
    avon b7avon b7 Posts: 2,891member
    I'm for choice in distribution models and less power for store controllers.

    I'd like to see developers have the option to opt out of the App Store if it suits their needs and for Apple to have less say on what is 'acceptable' or not. Likewise, choice would then extend to the end user.
  • Reply 7 of 179
    avon b7 said:
    I'm for choice in distribution models and less power for store controllers.

    I'd like to see developers have the option to opt out of the App Store if it suits their needs and for Apple to have less say on what is 'acceptable' or not. Likewise, choice would then extend to the end user.
    The open web exists for that. The App Store should be apple controlled.
    n2itivguyredgeminipafotoformatStrangeDaysmwhitemagman1979mdriftmeyerbaconstangspinnydberndog
  • Reply 8 of 179
    Take the Alex Jones Info Wars app for instance. Apple doesn't want Info Wars in the app store for hate speech. This is an example of why Apple should allow developers to host their apps from their website. If I want to download Info Wars, I should be allowed to download it from infowars.com if App doesn't like the app. This is what I call a violation of the Antitrust Act.
    randominternetpersonbitmodspinnyd
  • Reply 9 of 179
    avon b7 said:
    I'm for choice in distribution models and less power for store controllers.

    I'd like to see developers have the option to opt out of the App Store if it suits their needs and for Apple to have less say on what is 'acceptable' or not. Likewise, choice would then extend to the end user.
    I don't understand why there is any anti-trust in cases like this, when Android exists. Microsoft was under scrutiny because they were so dominant by market share. Everyone who buys an iPhone knows that they have to use the App Store to get apps. And everyone knows that, they can either jailbreak (if they so please, there are even services that will do it for you), or they can buy one of many many android phones that are just fine, and that don't have the same app store restrictions.

    It just feels like everyone who buys into Apple, either as a consumer getting an iPhone, or an app developer making an app for iPhone, they go in with their eyes wide open. Everyone since the dawn of the App Store has known that it's the only shop for apps, and that Apple charges developers a percent. If you look at the Mac side of things, the "pass-on" has always been obvious in iOS. A Mac App bought outside the store is often less expensive than the same Mac App bought in the store. Obviously, because of pass-on.
    lkruppn2itivguyrandominternetpersonnetmageStrangeDaysuraharajony0
  • Reply 10 of 179
    crowleycrowley Posts: 5,606member
    avon b7 said:
    I'm for choice in distribution models and less power for store controllers.

    I'd like to see developers have the option to opt out of the App Store if it suits their needs and for Apple to have less say on what is 'acceptable' or not. Likewise, choice would then extend to the end user.
    The open web exists for that. The App Store should be apple controlled.
    And why not allow third-party app stores at the user's risk?
    OutdoorAppDeveloperbitmod
  • Reply 11 of 179
    crowley said:
    I don't understand the overcharging angle.  Can someone who does maybe break it down into who has been overcharged for what and why that would be illegal?
    The plaintiffs claim that they are paying an overcharge to Apple as a result of Apple's anticompetitive conduct, i.e. Apple not allowing developers to sell their apps in other ways. The plaintiffs' argument is that they are buying apps directly from Apple, not indirectly from app developers.

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  • Reply 12 of 179
    avon b7 said:
    I'm for choice in distribution models and less power for store controllers.

    I'd like to see developers have the option to opt out of the App Store if it suits their needs and for Apple to have less say on what is 'acceptable' or not. Likewise, choice would then extend to the end user.
    The open web exists for that. The App Store should be apple controlled.
    Apple wants to hoard as much money as possible, which is why they make it nearly impossible for the average user to side load apps. Controlling what I can or can’t do with my phone...pfft.
    bitmod
  • Reply 13 of 179
    rcfarcfa Posts: 729member
    I wish Apple the best, but this suit, they should lose, or else consumers’ rights are a thing of the past.
    Someone who is in a position of gatekeeper who also actively lobbies the providers of the goods for which he acts as gatekeeper, and restricts what the apps may do, has way too much power.
    If there were multiple AppStores, with different policies, and consumers had the choice of which store or which policies they want to subscribe to, that’s different.
    But Apple not only helps and promotes users getting screwed (e.g. by pushing developers towards the subscription model), it lowers the value of devices people already paid for, e.g. by revoking users’ and apps’ access to MAC addresses, rendering network admin apps for iOS close to useless.
    For these things to stop, there needs to be competition, and there’s none.
    avon b7
  • Reply 14 of 179
    jdgazjdgaz Posts: 320member
    I think the walled garden is a benefit.
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  • Reply 15 of 179
    croprcropr Posts: 863member
    frantisek said:
    I think App Store is about security. You could have number of stores but iOS security will not allow to install App that was not examined. It is one of core features of platform why people buy iPhones. .
    That Apple is approving/checking apps before they are allowed to put on the App Store is a great thing, but it is not necessarily related to the distribution model which is the core question here.   With digital signatures it is technically very easy to set up a system where Apple approves apps before the apps are distributed/hosted via a non Apple app store. 

    edited November 26 avon b7forgot username
  • Reply 16 of 179
    steven n. said:
    As a developer, I love the single store concept and increased visibility allowing cheaper prices to my constomers because of increased volume. Sounds win-win to me. 
    Apple developers should band together and file amicus briefs with the court in support of Apple. 

    This frivolous lawsuit is an insult and dangerous to the earnings potential for all Apple developers.
    n2itivguynetmagemwhiteJWSCmagman1979
  • Reply 17 of 179
    croprcropr Posts: 863member
    jdgaz said:
    I think the walled garden is a benefit.
    For Apple it is, for the user this is unclear, for the developer it is definitely not
    dysamoriadasanman69
  • Reply 18 of 179
    crowley said:
    avon b7 said:
    I'm for choice in distribution models and less power for store controllers.

    I'd like to see developers have the option to opt out of the App Store if it suits their needs and for Apple to have less say on what is 'acceptable' or not. Likewise, choice would then extend to the end user.
    The open web exists for that. The App Store should be apple controlled.
    And why not allow third-party app stores at the user's risk?
    Because you know that users will do all kinds of stupid things, and then throw a class action suit at Apple for having a product that breaks when people do stupid sh*t with it.

    Also, they'll waste resources by showing up to all kinds of support forums and stores claiming that they have NOOOOOOOOOOO IDEA how someone possibly could have installed the "how to make money for free/bitcoin-miner"-maleware on their phone, and claim that it must have been Apple failing to protect them; and that therefor Apple should replace their broken 3 year old device with a brand new phone, or else they'll tell AAAAAAAALL THEIR FRIENDS to never buy Apple products again. #wannabeinfluencer

    People, that's why we can't have any nice things, because people straight up mess things up for the rest of us.  :(
    lkruppn2itivguynetmageRayz2016melodyof1974StrangeDaysMisterKitbaconstangspinnyd
  • Reply 19 of 179
    Johan42 said:
    avon b7 said:
    I'm for choice in distribution models and less power for store controllers.

    I'd like to see developers have the option to opt out of the App Store if it suits their needs and for Apple to have less say on what is 'acceptable' or not. Likewise, choice would then extend to the end user.
    The open web exists for that. The App Store should be apple controlled.
    Apple wants to hoard as much money as possible, which is why they make it nearly impossible for the average user to side load apps. Controlling what I can or can’t do with my phone...pfft.
    If you want to damage your phone with harmful apps, go right ahead. You know good and well that this is really about people who are interested in loading up on stolen content.
    edited November 26 baconstang
  • Reply 20 of 179
    Mike WuertheleMike Wuerthele Posts: 3,701administrator
    Take the Alex Jones Info Wars app for instance. Apple doesn't want Info Wars in the app store for hate speech. This is an example of why Apple should allow developers to host their apps from their website. If I want to download Info Wars, I should be allowed to download it from infowars.com if App doesn't like the app. This is what I call a violation of the Antitrust Act.
    Yeah, this isn't a violation of the Antitrust act. There are potentially other issues with this, but antitrust isn't one of them.
    netmagemelodyof1974dysamoriamuthuk_vanalingamjimh2baconstangmagman1979unsui_grep
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