Today, in a 5-4 decision in Apple v. Pepper, the Supreme Court affirmed the Ninth Circuit and held that iPhone users are direct purchasers of apps under Illinois Brick Co. v. Illinois (1977). The decision allows a lawsuit, brought by users of Apple’s iPhone who allege that the company is violating federal antitrust laws by requiring them to buy apps exclusively from Apple’s App Store, to move forward.
While a lot of the early coverage describes the decision as a huge blow to Apple and other tech giants, many of the initial reactions – as is often the case following Supreme Court rulings – are either misplaced or overblown. In actuality, the decision was limited to standing, and did not address the central question of whether the App Store violates antitrust law, nor did it address the broader irrelevant question of whether Apple is a monopoly.
Writing for the majority, Justice Kavanaugh makes it clear that this is not a decision on the merits, as he notes on the second page of the opinion that: “At this early pleadings stage of the litigation, we do not assess the merits of the plaintiffs’ antitrust claims against Apple, nor do we consider any other defenses.”
In other words, the Supreme Court only decided who is entitled to sue. Although the plaintiffs prevailed on standing, iPhone users will still need to demonstrate to the lower courts that Apple is in violation of antitrust laws.
As I predicted in an essay earlier this year: “If oral argument is any indication, the plaintiffs are likely to prevail. All four members of the Court’s liberal bloc and at least a couple of the more conservative justices voiced skepticism of Apple’s argument that the instant facts are analogous to Illinois Brick. In that case, contractors purchased bricks from the defendant company and used them in buildings the plaintiffs purchased, but the plaintiffs had no direct contact with the defendant. Unlike those plaintiffs, the plaintiffs here buy apps directly from Apple.”
Apple, on the other hand, argued that it merely acts as an agent or middleman for app developers, as evidenced by the fact that it sells the apps at the prices set by the developers. The only direct purchasers, according to Apple’s argument, are the developers themselves, who pay the company a 30 percent commission for use of the App Store.
The Court’s majority rejected this argument, stressing that iPhone users pay Apple directly and are thus direct purchasers: “The iPhone owners pay the alleged overcharge directly to Apple. The absence of an intermediary is dispositive. Under Illinois Brick, the iPhone owners are direct purchasers from Apple and are proper plaintiffs to maintain this antitrust suit.” Although “[a]ll of that seems simple enough,” Justice Kavanaugh writes, “Apple argues strenuously against that seemingly simple conclusion.” This argument “does not make a lot of sense,” the opinion points out, but it does work to “gerrymander Apple out of this and similar lawsuits.” Apple’s desire to avoid litigation is a possibility that Kavanaugh returns to at several points throughout the opinion.
Justice Kavanaugh also rebuffed some of the concerns raised at oral argument. For example, Chief Justice Roberts voiced concerns about the possibility of duplicative recoveries if both users and developers sue for the same antitrust violation. The majority opinion notes, however, that “the two suits would rely on fundamentally different theories of harm and would not assert dueling claims to a common fund.”
However, the practical reach of the case may be more limited. Although the decision allowed standing, it remains to be seen whether the case against Apple or other potential lawsuits for antitrust damages will prevail on the merits, and, if Apple is held liable, how costly that will be. Therefore, it is fair to say that the Supreme Court did not, in fact, take a bite out of Apple. At least not directly.