Tuesday, May 14, 2019

Opinion: Apple’s loss at the Supreme Court is ‘a big victory for consumers’ fighting Big Tech’s app and platform monopolies

May 13, 2019 
10:05 p.m. ET
Justices establish that tech platforms can face class-action lawsuits for selling third-party apps

Bloomberg News/Landov Apple sells apps through its App Store, 
taking up to a 30% cut.


The U.S. Supreme Court dealt Apple Inc. a major setback in an eight-year-old lawsuit over the App Store on Monday, but the bigger news is the big effect it could have on Big Tech.

The Supreme Court ruled Monday that plaintiffs have a right to sue Apple AAPL, +0.72%AAPL, +0.72% in a class-action lawsuit that alleges monopolistic behavior in the App Store resulted in overcharging. While the end result for Apple is uncertain for now, the ruling appears to be positive for consumers who buy services on platforms owned by Apple and other tech companies, because it gives them the ability to sue for alleged monopolistic pricing practices.

The case was filed in 2011 by four iPhone users who alleged Apple had unlawfully monopolized “the iPhone apps aftermarket” and that Apple locked iPhone users “into buying apps only from Apple and paying Apple’s 30% fee, even if ” the iPhone owners want to buy them elsewhere.

In Monday’s ruling, the court concluded, “The plaintiffs seek to hold retailers to account if the retailers engage in unlawful anti-competitive conduct that harms consumers who purchase from those retailers. That is why we have antitrust law.”

The fact that Apple was viewed like a retailer is important for how courts treat these types of tech platforms in the future. In its arguments to the Supreme Court, Apple said that developers set the price of their apps, and that a precedent-setting case involving Illinois Brick Co. allows only direct purchasers to sue the party who sets the retail price. Judges, though, saw through the “We’re just here to facilitate” excuses common at Silicon Valley companies that prefer to avoid any culpability or responsibility while taking huge cuts and exercising complete control over their platforms.

“The App Store is considered to be a platform market,” said Donald Polden, professor of law and director of the Center for Global Law and Policy at Santa Clara University, who noted that he and his students had been studying the case in one of his classes. “Amazon AMZN, +0.83% , TicketMaster, they run platform markets. We have a number of tech industries that run on platforms.”

Polden said the decision opens the door to suits against other, similar platforms by consumers, specifically mentioning cases against Live Nation Entertainment Inc.’s LYV, +1.99% TicketMaster.

“It’s a big victory for consumers,” Polden said. “These arguments that ‘we are not the monopolist,’ ‘we don’t set the pricing’ kind of went out the door with this decision this morning.”

“The Supreme Court reaffirmed the straightforward principle that consumers who purchase a monopolized product directly from the alleged monopolist may sue the monopolist to recover the full amount of the overcharge they are forced to pay by reason of the monopoly,” Mark Rifkin, lead counsel for the plaintiffs and a partner with Wolf Haldenstein in New York, said in an email.

For Apple, any financial ramifications could be years away. The ruling sends the case back to lower courts that had originally sided with the iPhone maker, so those following the case said it would likely still be a few more years before the issue was resolved.

“Today’s decision means plaintiffs can proceed with their case in district court. We’re confident we will prevail when the facts are presented and that the App Store is not a monopoly by any metric,” an Apple spokesman said in a statement.

He also said that the vast majority of apps on the App Store are free and Apple gets nothing from them. “The only instance where Apple shares in revenue is if the developer chooses to sell digital services through the App Store,” Apple said.

In the end, though the decision could negatively impact Apple’s large and growing services business, which has been Chief Executive Tim Cook’s favorite talking point as iPhone sales have stagnated, that is anchored by the App Store’s cut of up to 30% of fees developers charge for app purchases and subscriptions. Apple’s app practices have already angered companies that sell through the App Store, including Netflix Inc. NFLX, +0.64% and Spotify Inc. SPOT, +0.25% , the latter of which has officially complained that the cut Apple takes after consumers complete an in-app purchase makes it challenging for companies to compete against Apple.

See also: Netflix is the latest company to try bypassing Apple’s app store

Polden believes the case will result in an ultimate settlement, to avoid a trial. “My guess is it will be 4 to 5 years out before the case is settled,” he said.

Dan Ives, a Wedbush Securities analyst, does not believe Apple will settle but that the case will result in an eventual judgment against Apple in the hundreds of millions of dollars.

“The bigger worry is the M word (monopoly) being used and what this decision could do around altering the structure of the App Store going forward and thus potentially pressure Apple’s piece of the pie on this $15 billion revenue stream,” Ives said in an email. “This is the bigger worry of investors on this front

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