WASHINGTON, D.C.—On Monday, the United States Supreme Court (SCOTUS) dealt a heavy blow to Apple in its anti-trust case, ruling 5-4, that App Store customers have “standing” to sue Apple for antitrust violations—an issue which has been pending before the High Court since November 2018.
“Standing” is the legal capacity for which a party is able to bring a suit.
In state courts, a state’s statute will determine what constitutes “standing” in that particular court—usually providing requirements for plaintiffs to meet in order to bring suit. Typically, this revolves around a plaintiff sustaining or possibly sustaining direct injury or harm, and that harm being redressable.
At the federal level, individuals cannot simply sue on the ground that they are upset with the law. Under Article III of the U.S. Constitution, federal courts only have the authority to resolve “actual disputes.”
In Lujan v. Defenders of Wildlife, the SCOTUS created a three-prong test which helps determine whether a party has standing to sue:
- Was there an “injury in fact?”, meaning that the injury is of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent;
- Was there a “causal connection” between the injury and the conduct being brought before the Court?; and
- Would a favorable decision likely redress the injury?
Breaking Down ‘Apple, Inc. v. Pepper’
If there is anything you take away from this case, it’s that this marks a rare occurrence in which the Court has agreed to not only hear an antitrust case, but also one in which there is no current disagreement among the circuit courts.
The class-action lawsuit is centered around the commission fees Apple takes on sales in its App Store. The company charges up to a 30 percent commission fee to developers who sell their products through its store, barring them from selling their app on any other store.
The App Store’s revenue, as of January, is around $50 billion, paying out almost $120 billion to app makers since 2008. Back in 2017, the company said its App Store has generated more than 1.5 million American jobs in software design and development.
While in its early stages, the final ruling on this lawsuit will set antitrust legal precedent—which could either strengthen or weaken consumer power against monopolistic power.
For years, consumers and competitors have wondered whether Apple, Inc. has in fact monopolized the market for iPhone apps.
Competitors have accused the tech giant of using its App Store to harm its rivals. That’s why companies like Spotify, Netflix, Amazon, and others have encouraged their customers to subscribe to their services directly from their website.
At the heart of this case, consumers question whether Apple in charging app developers a 30 percent commission fee, and only allowing iOS apps to be sold through its own store, has caused the price of iPhone apps to increase.
However, Apple’s main argument is that the plaintiffs in this case have no standing, or right to sue under current U.S. antitrust laws, because app developers set the price, not Apple.
As it sits, the law has been fairly clear over the years, especially with respect to standing in antitrust cases.
Antitrust laws, or competition laws, were created by the U.S. government to protect consumers from predatory business practices. This helps to ensure and maintain fair competition.
In 1980, Congress passed the first antitrust law, the Sherman Act, hoping to preserve free and unfettered competition as the general rule of trade. In 1914, Congress passed both the Federal Trade Commission Act, which eventually created the FTC, and the Clayton Act.
Per the FTC, these acts are defined as follows:
The Sherman Act outlaws “every contract, combination, or conspiracy in restraint of trade,” and any “monopolization, attempted monopolization, or conspiracy or combination to monopolize.”
Long ago, the Supreme Court decided that the Sherman Act does not prohibit every restraint of trade, only those that are unreasonable. For instance, in some sense, an agreement between two individuals to form a partnership restrains trade, but may not do so unreasonably, and thus may be lawful under the antitrust laws. On the other hand, certain acts are considered so harmful to competition that they are almost always illegal. These include plain arrangements among competing individuals or businesses to fix prices, divide markets, or rig bids. These acts are “per se” violations of the Sherman Act; in other words, no defense or justification is allowed.
Federal Trade Commission Act
The Federal Trade Commission Act bans “unfair methods of competition” and “unfair or deceptive acts or practices.”
The Supreme Court has said that all violations of the Sherman Act also violate the FTC Act.
The Clayton Act
The Clayton Act addresses specific practices that the Sherman Act does not clearly prohibit, such as mergers and interlocking directorates (that is, the same person making business decisions for competing companies). Section 7 of the Clayton Act prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.”
As amended by the Robinson-Patman Act of 1936, the Clayton Act also bans certain discriminatory prices, services, and allowances in dealings between merchants.
The Clayton Act was amended again in 1976 by the Hart-Scott-Rodino Antitrust Improvements Act to require companies planning large mergers or acquisitions to notify the government of their plans in advance.
The Clayton Act also authorizes private parties to sue for triple damages when they have been harmed by conduct that violates either the Sherman or Clayton Act and to obtain a court order prohibiting the anticompetitive practice in the future.
These acts, with revisions, are still in effect today.
State Antitrust Laws
On the other hand, most states have their own antitrust laws, which are enforced by the states attorney general or private plaintiffs.
As it applies to Apple’s case, the state law at issue is the Illinois Brick Doctrine, which came about from the 1977 Supreme Court case, Illinois Brick Co. v. Illinois.
Under the doctrine, an individual cannot sue for antitrust damages if they are not the direct purchaser of a good or service.
Apple has continued to argue that its protected from antitrust laws because it is not the direct seller of these apps—the developers are. In its perspective, the App Store is like a mall—merely charging “rental space” to developers to sell their apps in.
The plaintiffs, however, argue that Apple has continued to monopolize the distribution of the apps, not the apps themselves. In other words, Apple isn’t just a mall, it’s the only mall in town. In order for iOS app developers to find a place in the App Store, they have to abide by Apple’s guidelines, leaving the discretion for the types of apps in the store, up to Apple.
So, what happens in the end? This case is extremely important for online platforms across the board which rely on commission-based models, hoping to avoid antitrust violations.
If the plaintiffs here were to win, where the SCOTUS rules that Apple is in fact a distribution monopoly, this will set legal precedent for antitrust cases. Additionally, successful antitrust plaintiffs are entitled to triple damages, under the Clayton Act, making the stake Apple has in this, enormous.
Ultimately, this could overrule the Illinois Brick Doctrine, or at least, modify it. Regardless, a victory for the plaintiffs would still leave an uphill battle for arguments in trial.
Why? Consumers can still technically purchase other smartphones, which have access to other online stores—for Android, it’s the Google PlayStore, and for Windows devices, it’s the Microsoft Store. So, is the iOS App Store really a monopoly?
Here’s my take—I think consumers still have a choice in some respect, however small it may be.
With any Android device you buy, there is a default setting that restricts users from downloading applications from unauthorized third parties (those developers who are not officially sponsored by the PlayStore). However, users have the ability to toggle that switch off, at their own risk, opening their device up to the very real potential that they will download malicious software at some point, causing their device to restart, slow down, or even freeze.
Apple, on the other hand, prevents this from the get go, requiring every developer to abide by its terms, or go somewhere else.
Apple created the iPhone and essentially, the first virtual store where mobile applications could be purchased, has it really monopolized the market? If Apple does come out on top, consumers unfortunately take a hit, because it’s another roadblock where big tech giants come out on top, dominating the market.
Welcome to corporate America.