Apple v. Pepper Opens Door for a Lawsuit That Apple Will Likely Win

Apple v. Pepper Opens Door for a Lawsuit That Apple Will Likely Win

Today, the Supreme Court ruled 5-4 against Apple, opening the door for a class action lawsuit against Apple related to the App Store. Importantly, the Supreme Court is not ruling that Apple has engaged in anticompetitive behavior. While we believe Apple is operating the App Store in the best interest of consumers, we expect a class action lawsuit to be filed. The suit will likely take many years to litigate and we expect it to result in a ruling favorable to Apple.

The Ruling in Plain English

Today’s ruling was on a case originally started in 2011, Apple v. Pepper. In plain English, the key question of this case was, when you buy an app in the App Store, are you buying it directly from Apple or from the app developer? The ruling determined you are buying the app directly from Apple. This distinction is important because consumers can only bring an antitrust case against a corporation that they buy from directly. Therefore, the ruling opens the door for Apple device owners to sue Apple for anticompetitive behavior.

The Likely Case

Here’s what an anti-competitive case against Apple will look like based on the origins of Apple v. Pepper: Apple only allows iPhone owners to purchase apps through the App Store, and the company takes a 30% cut of revenue generated from sales. Because that 30% cost is passed onto the consumer via higher prices rather than absorbed by the app developer, consumers are “overpaying” for apps and digital goods. Basically, the claim is that Apple’s position as the owner of the App Store and Apple’s control of the device itself has led to anticompetitive practices.

Why We Expect a Favorable Outcome for Apple

We do not believe Apple is engaging in anticompetitive behavior. We see the necessity for Apple to charge developers to operate and maintain a platform and ecosystem. The benefits of a single party operating that platform for developers and, ultimately, consumers, include trust, safety, security, curation, and access to customers.

More About the Case

Apple has been leaning on a 1977 Supreme Court decision known as Illinois Brick that states “indirect purchasers” can’t sue a company for antitrust damages. Apple claimed that individuals are purchasing the apps from developers who are using the App Store platform, so it should be the app developers that are able to sue Apple, not individual consumers. Apple wanted to make that distinction because app developers, who depend on the App Store ecosystem for their business, are much less likely to sue Apple than an iPhone owner.

However, today’s decision means that Illinois Brick is not applicable here. Consumers are direct purchasers and can now sue Apple.

Importantly, today’s decision is not about Apple engaging in anticompetitive behavior. It is just a decision that the Illinois Brick direct-purchaser rule does not bar consumers from suing Apple. It is a return to the status quo that consumers can sue a corporation for antitrust damages. From the opinion: “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 Apple might have. We merely hold that the Illinois Brick direct-purchaser rule does not bar these plaintiffs from suing Apple under the antitrust laws.” 

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