High Court Prepares for Argument Concerning Apple App Store Distribution

The Supreme Court will hear argument Nov. 26 in Apple v. Robert Pepper, with implications for app stores. The conservative majority figures to favor Apple interests, stakeholders told us. Justices will decide whether Apple customers can sue for antitrust damages in a case, docket 17-204 (see 1810100058), stemming from a lawsuit claiming Apple has a monopoly through its App Store. Apple, which collects a 30 percent commission on apps purchased, limits iOS users to installing apps through that store, unless they jailbreak their phones, voiding warranty. Pepper argued this anticompetitive model lets developers pass added costs onto users. App developers benefit greatly from the App Store, given the booming app economy, and the liability and security protections the store offers, Pepper argued, making it unlikely developers will challenge Apple’s model.

No developer has challenged the company’s distribution policies, Apple noted, defending a “historically innovative and successful” app distribution system. “Developers understand and have shared in the explosion of output, procompetitive benefits, and efficiencies of the iOS ecosystem, which last year alone generated $26.5 billion for iOS developers.” Illinois Brick, preventing indirect purchasers from seeking certain antitrust damages passed on by third parties, doesn't support Pepper’s theory of “pass-through” injuries, Apple argued.

With the addition of Justice Brett Kavanaugh, there's a “pronounced hostility” toward Pepper’s argument, said Sandeep Vaheesan, legal director for Open Markets Institute, which filed a brief in favor of Pepper. If Apple wins, implications for the online platform economy are “significant,” Vaheesan told us, saying it would bolster antitrust defenses for platforms like Amazon. If Apple loses, its opponents still face steep odds of winning antitrust claims, he said.

Siding with Apple, the Computer & Communications Industry Association argued the pass-through harm argument leads to duplicative damages in conflict with Illinois Brick (see 1810020047), a view endorsed by BSA|The Software Alliance. Verizon doesn't take a side, suggesting courts shouldn't rely on precedent when considering the uncharted territory of two-sided platforms: “Courts should consider the developing scholarly authority and engage with the complexities of two-sided platforms rather than simply reverting to existing precedent, which may not apply appropriately to two-sided platforms.”

Apple’s use of an “agency model should not insulate it from monopolization claims by customers,” the American Antitrust Institute argued. Some big app developers think the 30 percent commission Apple collects is excessive, General Counsel Richard Brunell noted. He likened Apple’s app distribution model to Walmart selling retail online and marking up prices.

The court's decision also could have implications for Google Play, said International Center for Law & Economics Associate Director Kristian Stout. “Impact would depend on the extent to which class-action lawyers think they could use a win in this case to go after platform-based firms where those firms claim not to be directly pricing to consumers.”