Supreme Court Extends Antitrust Protections to App Store Customers

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Monopoly Board via Wikimedia Commons user fir0002

On Monday, the U.S. Supreme Court ruled that consumers who buy apps through the Apple app store are direct purchasers and may seek antitrust relief under well-settled law. On the one hand, the decision carries major implications not only for Apple, but also for other companies that host app stores, and antitrust law in other contexts. On the other hand, it represents not a new jurisprudential doctrine, so much as the application of well-established law to a novel factual context presented by app stores.

Monday’s decision affirmed the Illinois Brick framework under federal law, while announcing that consumers who purchase apps from app stores are in fact direct purchasers for the purposes of antitrust analysis, not indirect purchasers as Apple had claimed. As a result, the suit against Apple can continue.

Since 1977, courts have deemed suits by indirect purchasers to be outside the bounds of antitrust law. In Illinois Brick Co. v. Illinois, the Supreme Court heard claims from the state of Illinois, which alleged harms from a price-fixing conspiracy among brick manufacturers who sold to masonry contractors with whom, in turn, the state government contracted for new construction projects. The Court held that only the masonry contractors enjoyed a right to challenge the alleged price-fixing conspiracy, whereas an indirect purchaser of downstream products (in that case, the state government plaintiff) did not have standing to bring a lawsuit.

The Illinois Brick rule has often been used to shut the courthouse doors to everyday consumers, preventing them from challenging anti-competitive conduct. Often, the intermediate purchasers, like the contractors in Illinois Brick, are less motivated to bring a lawsuit, and the price-fixing or other illegal conduct goes unchallenged. Many state courts and legislatures have ruled that the Illinois Brick doctrine doesn’t apply to their state’s own antitrust laws.

Monday’s decision affirmed the Illinois Brick framework under federal law, while announcing that consumers who purchase apps from app stores are in fact direct purchasers for the purposes of antitrust analysis, not indirect purchasers as Apple had claimed. As a result, the suit against Apple can continue.

Software developers who wish to sell apps in the Apple App Store can set their own prices, but Apple charges a 30 percent fee on all sales. The plaintiffs argued that Apple’s fees make apps more expensive than they would be in a competitive—rather than exclusive—marketplace. The justices didn’t rule on whether Apple’s conduct violated the antitrust laws, but they ruled that the plaintiffs are direct purchasers, and that their suit should proceed in the district court.

The Court’s 5-4 opinion was written by new Justice Brett Kavanaugh, who joined the Court’s moderate justices, rather than the conservative colleagues with whom he usually votes.

If the courts go on to rule that Apple’s 30% commission on app sales violates the antitrust laws, it could open the door for more third-party software marketplaces for mobile applications. It could also lead to more choices of app markets in the Android world. Many app developers (including EFF) and users have chafed under the seemingly arbitrary restrictions imposed by app stores, so this case could have wide-ranging effects.

We are glad to see the Supreme Court empower antitrust enforcement, especially given the general trend over the past generation towards limiting antitrust law. While the Apple case remains unresolved and will continue, Monday’s decision ensures that iOS users will enjoy access to the courts, and that companies crafting platforms can’t abuse monopoly power to extract higher returns while enjoying immunity from suits by consumers.

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