Apple has lost a big case at the Supreme Court, which will result in many more lawsuits and potentially kill its monopoly on selling apps for its devices. The 5-4 ruling in Apple v. Pepper surprised some court watchers as Justice Brett Kavanaugh joined the liberals and authored the court’s opinion. The court held that Apple must defend itself against claims it engaged in an illegal monopoly and anticompetitive business practices.
Suit About a Suit
No ruling was made on the merits of the case. The verdict means Apple will have to face the claims in court and not have the case dismissed on procedural grounds. This case is about whether Apple would have to defend itself against such suits in the first place. Some Apple customers thought the company acted illegally in its app pricing and availability and sued. Apple argued that the company was immune from such suits because the app buyers did not buy from Apple but from the app owners.
The Apple app store is the only legal way for owners of its devices to buy and add apps to them. Apple provides approved app sellers space in its virtual store for an annual fee plus a 30% commission on sales. Apple also specifies a minimum app price (99 cents) and all app prices must end in 99 cents. Beyond those restrictions, app pricing is left to the app owners. Customers, Apple claimed, could not sue the company on anticompetitive claims because Apple did not set prices beyond the minimum.
Illinois Brick
The precedent for this issue comes from a 1977 case called Illinois Brick. The State of Illinois sued a brick manufacturer, claiming the manufacturer’s illegal monopolistic and anti-competitive practices forced the state to pay more than it would have otherwise. The problem was, the state purchased zero bricks from Illinois Brick. Instead, Illinois purchased a finished product – the buildings made with bricks -- from a general contractor. The general contractor used masonry contractors, and they purchased the bricks from the manufacturer. Illinois lost its case, and the rule the Supreme Court established in Brick was summarized in the Apple case: “[I]f manufacturer A sells to retailer B, and retailer B sells to consumer C, then C may not sue A. But B may sue A if A is an antitrust violator.”
Apple claimed that the plaintiffs could not sue it, because they are not direct purchasers from Apple. Since app developers, and not Apple, set the retail price (above the minimum), Apple cannot be sued under the standard set in Brick. Apple won in the District Court but lost in an appeal before the Ninth Circuit Court of Appeals, which overturned the lower court ruling and allowed the suit to proceed. The Supreme Court heard the appeal and has now ruled in favor of the App Store customers.
Kavanaugh Votes With Ninth Circuit, Overruling Conservatives
Brett Kavanaugh
Justice Kavanaugh joined Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor, and Elena Kagan in ruling against Apple. Kavanaugh also was given the job of writing the opinion. When the Supreme Court presents its decisions, while each justice may write independently, there is produced (unless the verdict is unanimous) a majority opinion of the court and a dissenting opinion. By custom, the Chief Justice chooses who writes the opinion for the side he rules with, and the senior member of the court in the minority chooses the author of the dissent. Here, Ginsburg, the hero of the radical left, gave the case to the most junior justice and most hated target of the left, Trump appointee Kavanaugh. This is especially interesting to court watchers who are trying to get a sense of how Kavanaugh will rule as a justice, now that constraints he worked under as a Court of Appeals judge are no longer present. Does this mean he might join the liberals in other hot cases the court is considering? Speculators have been fed a high-calorie diet with this assignment.
The court’s opinion claims that Apple wants the justices to rewrite the Illinois Brick standards into a “who sets the price” rule, which it declined to do, stating:
“The plaintiffs seek to hold retailers to account if the retailers engage in unlawful anticompetitive conduct that harms consumers who purchase from retailers. That is why we have antitrust law.”
Gorsuch Against Kavanaugh in Dissent
The dissenters include Chief Justice John Roberts, as well as Justices Samuel Alito, Clarence Thomas, and Neil Gorsuch, another Trump appointee and the second newest member of the court, who was given the honor of writing the opinion. While he concluded his opinion with a customary “I respectfully dissent,” Gorsuch shows little reverence for the judgment of those in the majority.
Justice Neil Gorsuch
Gorsuch said the court created an “easily manipulated and formalistic rule,” and “it’s an uncharitable way of treating a precedent which -- whatever its flaws — is far more sensible than the rule the Court installs in its place.” One of the problems the dissent highlights is that since the app owners may sue Apple for anticompetitive practices as well, the current ruling creates a reality where “Apple might be at risk of duplicative damages awards totaling more than the full amount it collected in commissions.”
Now that the plaintiffs may proceed with their suit against Apple, it will take some time to see if they are successful in their case in chief before we see how damaging the case will be for the computer giant and how many changes will be in store for Apple device app customers. The legacy of this decision may be that Apple device owners can buy their apps legally from other stores. The only thing we can be sure of now is that lawyers have won big here, as the mountain of suits against Apple from customers and app developers will be filed apace. Apple stock was down over 5% on the day’s trading.
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