“There is no intermediary in the distribution chain between Apple and the consumer. The iPhone owners purchase apps directly from the retailer Apple, who is the alleged antitrust violator.”
— Justice Brett Kavanaugh
“To evade the Court’s test, all Apple must do is amend its contracts.”
— Justice Neil Gorsuch
When Apple launched its App Store in 2009, it immediately set several rules for every app developer that wanted to sell an app to any iPhone user. First, the App could only be sold through the App Store itself — there was, and is, no way to purchase an iPhone app anywhere else. Second, the app can cost as much as the developer might like, but if it isn’t free, the price must end in 99 cents. Third, no matter the price, Apple takes 30% as a commission.
Those rules have remained in place for a decade, but have been the source of an antitrust lawsuit since 2011. Why has the lawsuit gone on so long? And is there any end in sight? Well, those answers are … complicated. But they got quite a bit clearer on Monday when the United States Supreme Court issued a landmark antitrust ruling.
The basic issue boils down like this — 42 years ago the High Court denied the State of Illinois the opportunity to sue a cinder block manufacturer. The claim was that the manufacturer had violated antitrust laws and drove up the price of block that the state was forced to buy. But the High Court ruled that only the party that was directly purchasing the wrongly priced goods could sue. And since the state was buying the block from construction companies, and not from the manufacturer directly, that rule prevented Illinois from being the plaintiff. The state’s antitrust lawsuit died, and the “Illinois Brick” rule has been in place since the Carter administration.
As Justice Brett Kavanaugh put it in his majority opinion, ‘If manufacturer A sells to retailer B, and retailer B sells to consumer C, then C may not sue A. But B may sue A if A is an antitrust violator. And C may sue B if B is an antitrust violator. That is the straightforward rule of Illinois Brick.”
And so, the Apple lawsuit comes down to this question — when we, the iPhone users, buy an app from the App Store, is Apple the retailer (“B”) or the manufacturer (“A”)? If Apple is the retailer, then we the consumers can bring an antitrust lawsuit against them. But if Apple is the manufacturer, and the app developers are the retailer, then only the app developers can sue, and they’re not likely to do so, because they’d like to continue to make money off of their apps.
The case has gone on so long (and will now go on much longer) precisely because of that question. The federal trial court first ruled that Apple was the manufacturer, and the end user iPhone owners could not sure for an antitrust violation. The 9th Circuit Court of Appeals overturned the trial court, and held that Apple was the distributor of the apps since it was the operator of the App Store, and users paid it directly when they purchased apps. That reinstated the lawsuit, and Apple asked the Supreme Court to hear the case next. They agreed last year, and issued their decision on Monday.
The majority opinion was authored by Justice Kavanaugh, and he was joined by justices Breyer, Ginsburg, Kagan and Sotomayor. Justice Gorsuch dissented, joined by the chief justice, and justices Alito and Thomas. The case highlights an interesting voting trend this term. When Justice Kennedy retired, it was widely thought that the chief would now be the swing vote on the court, but Justice Kavanaugh has been the deciding vote in six of the seven 5-4 rulings this term, and has sided with the court’s liberal minority four times. Only time will tell whether that is an anomaly, or whether it is a trend that will continue.
The matter will now go all the way back to the trial court to determine the facts. Do Apple’s rules constitute an antitrust violation? Are they violating federal laws prohibiting an exercise of monopolistic power? It may take years to determine that. But if Apple loses, it could be forced to pay a settlement to every single iPhone user who has ever purchased an app, perhaps one of the largest class action amounts in history.
Maybe it’s time to ask, ‘Hey Siri, is Apple violating antitrust laws?’