Supreme Court wrestles with consumers' suit over Apple iPhone apps

Supreme Court wrestles with consumers' suit over Apple iPhone apps
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The Supreme Court grappled Monday with whether to allow a consumer class action lawsuit to go forward against Apple over its alleged monopoly on iPhone applications.

The liberal members of the court seemed to side with consumers, who argue they are being directly injured by having to pay more for iPhone apps that are sold exclusively through the technology giant’s App Store.

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Apple takes a 30 percent commission off the top of the apps purchased and lets developers keep the remaining 70 percent. Consumers argue developers are inflating their app prices knowing that Apple keeps 30 percent of each sale. 

“Apple directed anticompetitive restraints at iPhone owners to prevent them from buying apps anywhere other than Apple's monopoly App Store,” David Frederick, a Washington, D.C., attorney representing the consumers, told the justices in court.

“As a result, iPhone owners paid Apple more for apps than they would have paid in a competitive retail market.”

Apple and the U.S. government, which intervened in the case on behalf of the company, said only the app developers and not consumers purchasing apps have the required standing under antitrust laws to sue. 

Justice Sonia Sotomayor, an Obama appointee, questioned that claim, noting that Apple is the one selling the apps to the customer.

“This is a closed loop,” she said.

Apple’s attorney Daniel Wall disagreed. He said the app developer is the first purchaser, not the consumer, because the developer, by contract, agrees to give Apple 30 percent of every app purchased.

Backing up that argument, Solicitor General Noel Francisco said the direct cause of the higher price is the app maker's decision to increase their prices in order to recoup Apple’s charge.

It was a claim Justice Brett KavanaughBrett Michael KavanaughMurkowski celebrates birthday with electric scooter ride Graham urges Trump not to abandon infrastructure talks with Democrats 2020 Dems break political taboos by endorsing litmus tests MORE, a Trump appointee, questioned.

“And how do we know the 30 percent charge is not affecting the price?” he asked.

Apple’s reasoning for why consumers lack standing to sue rests on a case from 1977 known as Illinois Brick v. Illinois in which the court held that damages in antitrust disputes belong only to the immediate victims of the anticompetitive conduct.

But Justice Neil Gorsuch, another Trump appointee who practiced and taught antitrust law, questioned if that legal precedent should be upheld. He noted that the precedent has been questioned by 31 states.

“Shouldn't we question Illinois Brick, perhaps, given the fact that so many states have done so?” he asked.

In a friend of the court brief, the states argued that Illinois Brick should be overturned. Under the Clayton Antitrust Act, they said “any person” who is injured by antitrust law violations can seek damages.

But Francisco argued damages stop at the first step.   

“Here, the first step is the app maker's pricing decision, because the respondents, the consumers, are injured if and only if the app makers decide to increase their prices in order to recoup Apple's.”

Justice Elena Kagan, another Obama appointee, interjected, calling Francisco’s arguments “not intuitive.”

“Look at the relationship between Apple and the consumer,” she said. “There is only one step.”

“I mean, I pick up my iPhone. I go to Apple's App Store. I pay Apple directly with the credit card information that I've supplied to Apple,” she said. “From my perspective, I've just engaged in a one-step transaction with Apple.”

Apple is appealing a 9th Circuit Court ruling which held that consumers can sue whoever delivers goods to them, even if they seek pass-through damages.

Business groups, including the U.S Chamber of Commerce, argued in a brief that a ruling in favor of the consumers in the case could subject electronic marketplaces like Apple’s App Store to a flood of antitrust litigation, harming competition, innovation and consumers.

As of January 2017, the App Store offered 2.2 million apps, according to court filings.

A decision in the case is expected by the end of June. 

--Updated at 2:03 p.m.