Earlier this year, the U.S. Supreme Court appeared to allow a lawsuit proceed against Apple, Inc., accusing the company of breaking federal antitrust laws by monopolizing the market. The allegations are that iPhone monopolized the market for its software applications and caused consumers to overpay. After an hour of oral arguments in an appeal by a California-based technology company Cupertino, the justices decided to revive a proposed class-action lawsuit filed in California federal court in 2011 by a group of iPhone consumers seeking monetary damages.
The Court’s Reasoning
The case may be based on how the justices apply one of the Court’s prior decisions from 1997 to claims against Apple. In that case, the Court limited damages for anti-competitive conduct to those who were directly overcharged instead of indirect victims that paid an overcharged passed on by others.
Apple, and the U.S. Solicitor General, argued that consumers were not directly affected by purchasing the apps from the company. Attorneys for the iPhone users argue that Apple’s monopoly causes inflated prices in comparison to if the apps were sold through other sources.
How it Works
While app developers set their own prices for their apps, Apple collects the payments from iPhone uses and keeps a 30% commission on every transaction. One issue in dispute is whether or not the app developers recuperate the commission charged by passing on the costs to consumers. According to Apple, app developers earned more than $26 billion in 2017 – a 30% increase over the prior year’s revenues.
The Lawsuit
The California class-action lawsuit alleged Apple violated federal antitrust laws by mandating apps be sold through the company’s App Store while taking 30% commission from the app purchases. Apple sought to have the antitrust lawsuit dismissed, arguing the plaintiffs lacked legal standing to bring the claims. A California federal judge in Oakland dismissed the lawsuit, holding that iPhone consumers were not direct purchasers because the app developers passed on the higher fees to them. The 9th U.S. Circuit Court of Appeals, based in San Francisco, revived the class action lawsuit last year holding Apple was a distributor that sold iPhone apps directly to its consumers.
