Justices look skeptically at Apple’s app monopoly

At issue: where buyers can legally aim lawsuits

WASHINGTON – Apple’s pricing policies for iPhone apps bought on its exclusive App Store ran into trouble Monday at the Supreme Court.

The question was whether consumers have the right to sue Apple directly for overcharges, or whether their beef is with app developers who pass along Apple’s 30 percent commission and insistence that prices end in $0.99.

All four liberal justices clearly were skeptical of Apple’s monopoly and were joined at points by three conservatives: Associate Justices Samuel Alito, Neil Gorsuch and Brett Kavanaugh.

“It just seems to me that when you’re looking at the relationship between the consumer and Apple, that there is only one step,” Associate Justice Elena Kagan said in reference to the way purchasers buy apps on their iPhones.

David Frederick, the lawyer representing consumers, argued that “there’s no middleman in this particular transaction” as Apple maintained. The company’s antitrust violation, he said, was the App Store itself.

“They happen to be the largest company in the world, or at least they were some weeks ago,” he said. “And they are able to extract monopoly pricing by virtue of a unique e-commerce monopoly on their App Store.”

Company attorney Daniel Wall contended that under Supreme Court precedent, app developers are the ones setting prices charged to consumers. If the 30 percent commission affects those prices, he said, that’s a matter between Apple and the developers.

But Associate Justice Sonia Sotomayor said the customer pays the commission, adding, “This is a closed loop with Apple as its spoke.”

A federal district judge initially ruled in Apple’s favor, but a panel of the U.S. Court of Appeals for the 9th Circuit in San Francisco overruled that decision last year and held that consumers were direct purchasers of iPhone apps.

If the Supreme Court rules against Apple, consumers then would have standing to sue the company directly in a case potentially affecting millions of iPhone app purchasers. What remains unclear is how many purchasers would qualify as plaintiffs, and how the law’s triple damages for antitrust violations would be apportioned if Apple loses.

Chief Justice John Roberts appeared most sympathetic to Apple’s case during the oral argument. He said both consumers and app developers should not be able to sue the company for the same alleged violation. Gorsuch agreed, saying only one group can claim they are paying the “monopoly rent” that results from Apple’s pricing policies.

But Kagan said consumers’ argument is about higher prices, while developers’ argument would be about lost profits from reduced sales.

The company released a statement Monday in which it heralded the App Store for fueling “competition and growth in app development, leading to millions of jobs in the new app economy and facilitating more than $100 billion in payments to developers worldwide.”

The Trump administration sided with Apple, as did the U.S. Chamber of Commerce and several computer and software industry groups. On the other side were 31 states and groups opposed to antitrust activities.

U.S. Solicitor General Noel Francisco told the justices that Apple’s “monopolistic overcharge” does not compel app developers to charge prices higher than the retail market would support.

“The harm to the consumers here is that they have to pay higher prices for apps,” Francisco said, because “Apple controls the pipeline that connects app makers on the one hand and iPhone users on the other.”

“It just seems to me ... that there is only one step.” Elena Kagan, associate justice, on how apps are bought