Supreme Court Weighs Whether Apple’s App Store Is a Monopoly

Looming Supreme Court ruling could impact antitrust enforcement for years.

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Nov 26 2018, 9:29pm

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The Supreme Court this week heard the latest arguments in a longstanding lawsuit accusing Apple of operating a locked down, price-gouging monopoly in the form of its App Store. A ruling in the case would not only open the door to users suing Apple for its iOS walled garden, but could impact antitrust enforcement over tech giants for years to come.

Back in 2011, Robert Pepper and three other iPhone owners sued Apple as part of a much broader antitrust lawsuit. The plaintiffs claimed that Apple had erected an unfair monopoly over the cell phone market—first by striking a five-year exclusive sales agreement with AT&T—and by requiring users only buy and installed “authorized” apps via the App Store.

While the cell carrier exclusivity part of the lawsuit was ultimately thrown out back in 2013, the Apple App Store monopoly fight has stumbled through the court system ever since.

Apple won a judgment against Pepper and had the case dismissed back in 2014, only to have it resurface again after the Ninth Circuit Court of Appeals reversed that decision in early 2017. As a result, the Supreme Court began hearing oral arguments Monday morning.

The premise of the case is simple: plaintiffs claim that forcing consumers to buy apps exclusively from the App Store significantly drives up costs for consumers, largely courtesy of the 30 percent commission Apple charged app makers. Users who want to install “unauthorized” apps need to jailbreak their device, potentially voiding the warranty.

Apple has long argued that its control over the app store helps protect user security by keeping malware under control. That said, Apple’s often bizarre and inconsistent app approval process has often been the stuff of legend. Some apps are frequently banned for no coherent reason, and others that compete with Apple’s own products have been mysteriously delayed.

Plaintiffs have argued that users ultimately wound up paying hundreds of millions of dollars more for apps “than they would have paid in a competitive market.”

While some press reports suggested that the Justices appeared open to consumer concerns about Apple’s gatekeeper power during Monday morning’s initial oral arguments, those opinions may not actually be reflected in their final ruling, John Bergmeyer, a lawyer for consumer group Public Knowledge told Motherboard.

“The tenor of the questions at oral argument doesn’t always reflect what will be in the opinion,” he noted. “Even if Apple loses on this issue, it doesn’t mean it’s liable for anything; it just means that the plaintiffs can sue,” Bergmeyer added.

To prevent that from happening, Apple lawyers this week leaned heavily on past Supreme Court cases (most notably Illinois Brick and Hanover Shoe) to argue that “indirect purchasers” can’t sue a company for antitrust damages. Apple has argued that app prices are set by third-party software developers, not Apple, and that users are flee to roam to other platforms.

But groups like the American Antitrust Institute have argued in court filings that Apple isn’t just some apathetic third-party, and developers aren’t likely to sue Apple for fear of getting on the industry giant’s bad side. Plaintiffs have also argued that Apple “controls all aspects of the sale of apps through the App Store, including the prices at and terms on which apps are sold.”

While antitrust is often viewed as a replacement for other forms of regulatory oversight (like net neutrality or meaningful privacy laws), the government’s antitrust power has slowly but surely been weakened by years of steady corporate lobbying, as was made evident recently by the government’s well-criticized failure to prevent AT&T from acquiring Time Warner.

Should Apple win here, that trend is only likely to continue. Should users be allowed to sue and Apple is found to operate a monopoly in violation of the Clayton Antitrust Act, it could apply pressure on other companies to behave more ethically, Bergmeyer argued.

“If this case leads to more choice without compromising security, that would be good for consumers,” Bergmeyer said. “Also, if this case just means more challenges to, and oversight of platform practices, that could be good for consumers too, as companies might be a little more careful in setting their policies.”

A Supreme Court ruling in Apple Inc. v. Pepper isn’t expected until sometime next Spring.