If Apple Loses Its App Store Antitrust Case, What Happens Next?

June 27, 2018 - 5 minutes read

iPhone app developersApple’s notorious for strict regulations; the company only allows its iPhone and iPad customers to access apps from one store (the App Store) that pre-approves apps before publishing them. But this practice is creating an anti-competitive monopoly, says a lawsuit by Apple customers against Apple.

The U.S. Supreme Court has agreed to take over the case that’s been active for almost a decade now. But the court’s not supposed to decide if Apple is, in fact, creating a monopoly; the court is presiding over whether or not this case should even be on trial.

Customers Bear the Cost

This case, Apple v. Pepper, alleges that Apple charges higher-than-necessary prices since they’re the only ones who can sell third-party Apple-compatible software within their App Store. These prices are inflated because iOS developers can only go through the Apple Store to sell their app. Since Apple ultimately takes a 30% cut of the developer’s profits, the developer increases the app’s price even more to generate better profits.

The lawsuit asks Apple to allow third-party iOS apps. Additionally, Apple would be required to repay every iOS user that it’s ever overcharged. The case originally was filed as a bigger antitrust complaint in 2011 by Robert Pepper and three other iPhone owners. They originally alleged that Apple’s exclusive contract with AT&T was causing price hikes, but the case has since changed focus to the App Store.

In 2014, the complaint was dismissed, but in early 2017, a higher court reversed the dismissal. Apple’s now asking for the case to be dismissed again, denying that the App Store is any sort of monopoly.

Important Precedents

The Supreme Court isn’t a stranger to tech lawsuits. In 1977, the court drafted the Illinois Brick doctrine; it says “indirect purchasers” can’t sue a company for antitrust damages. But Apple’s directly selling to the consumer through their App Store, at prices allegedly much higher than necessary.

Apple retorts that users buy directly from the developers, and the developers buy Apple’s software distribution services. This means only developers could sue Apple for anything legitimate; customers aren’t actually the direct buyers, according to Apple. And developers benefit from Apple’s strict regulation of its marketplace, so they’re much less likely to sue Apple.

The 2017 overturned decision alleges that, because Apple is the distributor, they’re the direct connection to the customers. You’re probably realizing that this is an entirely subjective case, with the onus resting on the court to decide if Apple is a direct seller. If Apple’s not the direct seller, the company cannot be sued by customers.

Big Implications

If Apple loses, the company will have to pay customers back for all of the overcharging it carried out. It might even have to change its App Store model to include third-party developed apps, similar to Android. It would send a big message out to other online retailers, particularly those like Etsy and Udemy who sell content generated by non-employees, that price gouging is lawsuit material for customers.

Customers would have greater power over digital products. Platforms would constantly be working on improving the customer experience, lowering prices for consumers, and trying to save falling margins. Tech companies around the world, not just in San Francisco, would ensure their American consumers aren’t feeling a monopoly-like grasp around products being sold.

If Apple wins, meaning the Supreme Court agrees that Apple directly sells to developers and not customers, the case would go back to lower courts, where it might spend more years bouncing between subjective rulings. What are your thoughts on who Apple’s direct customer is? Is it the everyday app consumer, like you or me? Or does Apple sell directly to developers, who then sell their work to customers?

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