Supreme Court ruling on Apple App Store fee case not expected until mid-2019
Benjamin Schachter of Macquarie Research expects that the Supreme Court's verdict on a long-running suit over developer's fees in the App Store will be heard soon, but the ruling won't come down until early 2019, and any possible financial impact is at least a year away.
As the world turns its eyes Thursday to the hearings in Washington of U.S. Supreme Court nominee Brett Kavanaugh, one analyst is looking ahead to one of the cases the Court will be considering this fall.
The report authored by Schachter notes that the U.S. Supreme Court will hear arguments in Apple v. Pepper, a case concerning the antitrust implications of Apple's App Store fees, as early as the last week of November. However, the analyst notes that the arguments could be pushed back to early 2019.
"In the scenario that Pepper wins (if court rules that consumers are "direct purchasers" with grounds to sue), the case will continue back in the lower courts," the note said. "If Apple wins, it is likely that a similar lawsuit will be filed on behalf of developers, not consumers. We believe that under either scenario, this case will call heightened attention to the issue of App Store economics to investors' analysis, although the Supreme Court decision will not directly impact the model."
The note says that the case could hurt Apple's performance if the decision results in lower rates, although that is several steps away. Macquarie, in the note, did not adjust its price target for Apple, keeping it at $235.
A decision is likely to arrive in the spring or summer of 2019.
The Pepper case was first filed in 2011. The case concerns a group of app developers who believe Apple's App Store fee regime violates antitrust laws. The plaintiffs allege that Apple has engaged in anti-competitive behaviors in taking a cut from developers' sale proceeds. Also at issue in the case is whether companies like Apple can be sued under antitrust law over App Stores, with the plaintiffs potentially awarded treble damages because of the behavior. Google, which has its own version of the App Store, would also be affected by any ruling.
In May, The Department of Justice filed a brief taking Apple's side in the Pepper case. Apple appealed to the Supreme Court after the Ninth Circuit Court of Appeals sided with the plaintiffs, and the court agreed in June to hear the case during its next term.
As the world turns its eyes Thursday to the hearings in Washington of U.S. Supreme Court nominee Brett Kavanaugh, one analyst is looking ahead to one of the cases the Court will be considering this fall.
The report authored by Schachter notes that the U.S. Supreme Court will hear arguments in Apple v. Pepper, a case concerning the antitrust implications of Apple's App Store fees, as early as the last week of November. However, the analyst notes that the arguments could be pushed back to early 2019.
"In the scenario that Pepper wins (if court rules that consumers are "direct purchasers" with grounds to sue), the case will continue back in the lower courts," the note said. "If Apple wins, it is likely that a similar lawsuit will be filed on behalf of developers, not consumers. We believe that under either scenario, this case will call heightened attention to the issue of App Store economics to investors' analysis, although the Supreme Court decision will not directly impact the model."
The note says that the case could hurt Apple's performance if the decision results in lower rates, although that is several steps away. Macquarie, in the note, did not adjust its price target for Apple, keeping it at $235.
A decision is likely to arrive in the spring or summer of 2019.
The Pepper case was first filed in 2011. The case concerns a group of app developers who believe Apple's App Store fee regime violates antitrust laws. The plaintiffs allege that Apple has engaged in anti-competitive behaviors in taking a cut from developers' sale proceeds. Also at issue in the case is whether companies like Apple can be sued under antitrust law over App Stores, with the plaintiffs potentially awarded treble damages because of the behavior. Google, which has its own version of the App Store, would also be affected by any ruling.
In May, The Department of Justice filed a brief taking Apple's side in the Pepper case. Apple appealed to the Supreme Court after the Ninth Circuit Court of Appeals sided with the plaintiffs, and the court agreed in June to hear the case during its next term.
Comments
I know they believe the 30% is onerous, but if they were selling a physical product to physical retailers or distributors, like Ingram Micro-D, what do they think the wholesale price would be? It would be 45% to 55% below list. They would get even less. And even selling virtually, Amazon wouldn't give them a very good deal either. The only thing they'd be able to do to their advantage would be to sell the product themselves without giving Apple a cut, but as I wrote above, Apple would simply change the model and charge royalties and development tool fees.
Developers nowadays have zero clue how us older developers had to do it in the old days. They are more than welcome to get off the iOS train and develop exclusively for Android and see how well that works for them.
This would be like some home based artisan who makes silk scarves walking into Macy’s and setting up a table to sell her scarves. Worse yet, they’d be getting Macy’s to endorse their product, get Macy’s staff to man the booth 24x7, and use their point of sale system. Then expect to get 100% of proceeds.
Not bloody likely.
If Macy's also denied some home-based artisan the opportunity to sell their wares anywhere else and force them to deal ONLY thru Macy's who would take a 1/3 cut for doing so THEN you'd have a decent analogy.
"The extent (if any) to which app purchasers are injured by Apple's allegedly supracompetitive commission, and by its refusal to allow developers to sell iPhone apps through other channels, thus depends on whether those Apple practices have caused developers to increase the prices charged for their apps in the App Store," the US Department of Justice wrote. "To determine whether third-party app developers would have charged lower prices in a hypothetical market in which they were freed from Apple's allegedly unlawful practices, a court would need to conduct precisely the sort of pass-on analysis that the Court in Illinois Brick rejected."
The reason I think this analogy holds up is that, just as the movie theater owns the property within which you’ll be consuming the snack foods, Apple, and not its customers, owns iOS, the property within which apps are run, providing the libraries that get called to access the iPhone and iPad hardware, from sensors to screen. iOS is merely licensed to each user, not sold as the physical iPhone hardware is, and that makes all the difference. You wanna sideload apps, install your own OS on the device, and then have at it. It’s your hardware to do with as you wish; throw it down the stairs too if you like. But if you want access to iOS (if you want access to the big screen theater showing the movie), you are subject to the property rights held by Apple (the movie theater operator/owner).
Judging by the crickets, I assume GatorGuy agrees with you!
I owned a software company for a Mac product during the 1990's and the cost of marketing, staff, accounting, invoicing, production, updates, shipping, manuals, printing, exhibitions, travel, and so on were massive. Far more than the cut Apple takes.
Now as to gatorguy's predictable comments against Apple, I'd point out all the marketing and product awareness gained by using the Apple ecosystem are grounds enough (let alone radarthekat's excellent points) for Apple to demand exclusivity. That's the term, 'exclusivity', agreed to and signed for by all that participate, eyes open. That is in return for all Apple provides. I'd also add, no one is forced to go that route, any developer is perfectly free to go it alone as I had to do and I can tell you had such services been available in the 1990's I'd have bitten Apple's arm off.
SCOTUS accepts very few cases, therefore proving just the opposite of of those professing there's no merit to any of it. Armchair lawyers on some forum are in the same league as armchair CEO's aren't they?
If the SC is concerned about pricing, then a better way to treat the App Store would be as a Public Utility with rate setting and service requirements based on a variety of factors determined by auditing and analysis. Apple gets to keep its walled garden, and developers get the lowest overhead, assuming that the current 30% is actually abusive, which I'm not inclined to believe.
I'm sure the consumer will learn to love that his smartphone "appliance" has less security, and service, with a third party, but savings assured!
There are at least two aspects of this situation which we might try to analogize. First, there's Apple doing certain things trying to prevent app developers from selling iPhone apps outside of the App Store (even if those developers aren't also selling through the App Store). Second, there's Apple not allowing them to sell through the App Store if they also sell outside of the App Store.
With regard to the second, it would be like Macy's not allowing the home-based artisan to sell through Macy's unless they agreed to only sell through Macy's. Generally speaking, Macy's would be allowed to do that. It can refuse to distribute certain products unless it is the exclusive distributor of those products.
With regard to the first, a key here is that we're talking about iPhone apps rather than apps in general. To an extent, Apple impedes developers' abilities to sell iPhone apps other than through the App Store. But in regards that are relevant here, iPhone apps are more analogous to Macy's-branded scarves than to scarves in general. There are reasons why Apple might have the right to limit the distribution, by third parties, of iPhone apps. Macy's, similarly, has the right to limit the distribution, by third parties, of Macy's-branded scarves. The former doesn't have the right to limit the distribution, by third parties, of apps in general. The latter, similarly, doesn't have the right to limit the distribution, by third parties, of scarves in general. The better analogy would be Macy's doing certain things to prevent the home-based artisan from selling Macy's-branded scarves through other channels. Generally speaking, it would be allowed to do that as well.
Going forward the simple fact that a potential candidate is willing to go thru the process might be evidence enough of mental illness and disqualify them. Every character accusation whether accurate or not is enough to impact that person's reputation the rest of their life. Why would anyone go after the job? Seriously.
If this one doesn't go thru, and I don't think it will, it may be years before the Supreme Court has a full representation and that in itself may cause intended consequences.
Anyway, we shouldn't let this stray off-topic and become overtly political. In the case before it we'll all be more familiar with the issues after the parties make their arguments in front of the bench. In the meantime all the analogies and initial reactions we have may have little connection with the actual legal arguments made by the lawyers involved.