High Court Debates Who Can Sue Apple for Alleged App Store Monopoly

Consumers have the right to sue for damages involving Apple’s alleged App Store monopoly (see 1811050033), liberal Supreme Court justices suggested Monday during oral argument in Apple v. Robert Pepper, docket 17-204. Conservative justices warned against allowing both developers and consumers to pursue potentially duplicative compensation. But Justice Brett Kavanaugh appeared to side with Pepper.

Apple charges developers a 30 percent commission for App Store sales, a cost opponents argue is passed on to consumers. At question is whether iPhone owners can sue even if damages are based on prices ultimately set by the developers, who could be considered the more immediate victims. Developers have never sued Apple for the commission structure, but a consumer group led by Pepper is fighting for the right to sue instead. The 9th U.S. Circuit Court of Appeals previously found iPhone app customers are Apple’s direct purchasers and have the right to sue, reversing a district court decision.

Chief Justice John Roberts questioned the legitimacy of both the developer and the consumer having the ability to sue from a single price increase found to be an antitrust violation. Illinois Brick Co. v. Illinois prevents multiple parties from seeking “duplicative” compensation. There’s only one alleged monopoly profit earned, and developers absorb that monopoly “rent” in this case, said Justice Neil Gorsuch. “That's the economic problem that I'm stuck with.” Kavanaugh said Brick may let “any person injured” sue for antitrust violation damages.

The case is “dramatically different” from Brick, said Justice Sonia Sotomayor. She suggested Apple created a “closed loop,” resulting in higher prices for the first purchaser: the consumer. Apple’s commission is possible only because of the company’s market power, which influences the developer’s price, argued Justice Elena Kagan. The question is what would be the price in a more competitive market, Sotomayor said. This case differs from Brick because there's no vertical supply chain monopoly in question, said Justice Stephen Breyer.

The first purchasers are the developers, said Apple attorney Daniel Wall, of Latham & Watkins, because they agree to pay the commission through a contract with Apple. Initial harm concerns the transaction between Apple and the developer, Solicitor General Noel Francisco argued in favor of Apple, calling the developer the price-setting party. The fundamental change in the nature of the transaction is created by the party that sets the final price, he said. Because the developer suffers the initial harm, it has full right to the claim, Francisco argued.

​​​​​​​Apple’s monopoly reduces consumer choice, Pepper attorney David Frederick, of Kellogg Hansen, argued. “Consumers cannot buy an app anywhere other than Apple's 100 percent-owned monopoly App Store." He said the app developer’s claim differs from the consumer’s because the former seeks lost profit, not costs incurred due to artificial prices increases. As Kagan summarized, two people can sue because Apple is dealing with two different groups, and each has a separate claim based on the market. Frederick called the price-setter “irrelevant.” What’s at issue is that there’s an antitrust violation, and that violation distorts consumer prices in a noncompetitive market, he said.