In a 5-4 decision on May 13, 2019, the United States Supreme Court held that Apple Inc. must answer a federal antitrust lawsuit charging it with using its monopoly power to overcharge iPhone users for apps on their iPhones. Apple, through its App Store, sells iPhone applications to iPhone owners. The majority of those apps are created by independent developers who Apple charges a 30% commission on every app sale.
Four iPhone owners had sued Apple claiming that it was unlawfully monopolizing the aftermarket for iPhone apps. The District Court dismissed the complaint; however, that dismissal was reversed by the United States Court of Appeals, Ninth Circuit. In its 5-4 decision the Supreme Court affirmed the Ninth Circuit, meaning that Apple must now defend the antitrust lawsuit. The suit alleges that consumers were required to pay higher-than-competitive prices because Apple’s monopoly power enabled it to extract a 30% commission on each app sale and iPhone owners were unable to buy these apps lawfully from anywhere other than Apple’s App Store. The plaintiffs contend in their complaint that in a competitive market they would have been able to choose between the more highly priced applications in the App Store and less costly alternatives from competitors. The 30% commission charged by Apple drove up the price which consumers had to pay for the app, claim the plaintiffs.
Apple’s defense on the motion to dismiss was a technical one. It argued that the prices for the apps were not set by Apple, but rather by the app developers, and therefore they lacked standing to sue Apple directly. Apple relied upon a well-known antitrust precedent, Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), in support of its argument that plaintiffs were not direct purchasers from Apple. In Illinois Brick, the U.S. Supreme Court held that indirect purchasers who are two or more steps removed from the violation in the distribution chain may not sue for antitrust injury. The Illinois Brick Company manufactured and distributed concrete blocks and sold them primarily to masonry contractors who in turn sold masonry structures to general contractors. Those general contractors sold their services for larger construction projects to the state of Illinois, the plaintiff in the Illinois Brick case. The Supreme Court held that Illinois lacked standing to bring an antitrust suit against Illinois Brick Company because it had not purchased the concrete blocks directly from it and that the proper plaintiff to bring such a claim would have been the entity that purchased the bricks from Illinois Brick Company.
In a decision written by recently confirmed Justice Brett Kavanaugh, and joined in by four more liberal justices, Ginsburg, Breyer, Sotomayor and Kagan, the court distinguished Illinois Brick by pointing out that the plaintiffs had purchased the apps directly from the App Store, even if the price of the app had been set by the developer, and therefore the plaintiffs had standing to litigate their monopolization claim. Apple’s stock price declined by more than 5% the day the decision was issued, and the case will be closely followed in the days to come.
Thomas J. McNamara is a Partner in the Commercial Litigation Group at Certilman Balin Adler & Hyman, LLP.