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Yesterday, the Supreme Court imposed on Apple a major defeat in an antitrust case. A group of iOS users said that Apple had improperly driven application prices with its locked App Store. Apple argued that users did not have the right to sue because they were buying apps from developers rather than Apple. Judge Brett Kavanaugh, speaking on behalf of the majority of the tribunal, disagreed.
The new decision states that app buyers are Apple's direct customers, giving them the right to pursue antitrust action. This has no immediate consequences for Apple because there is still a long legal battle to be waged. But if the case of the claimants continues, it could change the relationship between digital platforms and their users, giving customers the fundamental right to pursue technology platforms for antitrust violations.
What is Apple v. Pepper?
As we already mentioned, Apple v. Pepper is an antitrust lawsuit filed by Robert Pepper in 2011. The plaintiffs in Apple v. Pepper argue that the basic model of Apple's App Store is an illegal monopoly. Apple only provides access to iOS applications through the App Store, and developers must pay a commission of 30%. The complainants claim that these fees are transferred to users, who have nowhere else to buy their apps.
Over the last eight years, Apple has argued that app buyers do not have the legal right to sue. The company invoked a case of the 1970s called Illinois Brick Co. c. Illinois, which prevents "indirect purchasers" from filing lawsuits. Then he claimed that the direct Customers were developers, not users. They are the only ones who have the legal capacity to file a complaint.
A lower court agreed with Apple's interpretation, but the Ninth Circuit Court of Appeals ruled in favor of the plaintiffs and Apple appealed to the Supreme Court. Yesterday, the Supreme Court ruled on this first issue involving Brick of Illinois, confirming the decision of the ninth circuit. So we still do not know if Apple is a monopoly, but we know that customers can take legal action to resolve this issue.
Why did the Supreme Court rule against Apple?
The court (by a majority of 5 to 4) decided that the use of an application store was fundamentally different from the transmission of a product through a traditional supply chain. In Kavanaugh's words:
IPhone owners are not consumers at the bottom of a vertical distribution chain who are trying to sue the manufacturers at the top of the chain. There is no intermediary in the distribution chain between Apple and the consumer. IPhone owners buy apps directly from the Apple retailer, who is the alleged violator of antitrust laws. IPhone owners pay the alleged supplement directly to Apple.
Brick of Illinois was on the traditional commercial supply chains. The state of Illinois has sued a brick business for price pursuit. It argued that the company had sold its product to a general contractor at a premium price, that the general contractor had sold the bricks to another contractor and that this contractor had been hired for a government building project, which cost him more money. The court rejected this long chain of causation and dismissed the complaint.
On the other hand, iPhone users have a clear and direct relationship with Apple. As Judge Elena Kagan said during her closing arguments, consumers benefit from a "one-step deal with Apple" when they buy an app. Apple argued that its commission system always distinguished it from a direct reseller, but the court said it was just about splitting hairs. "Apple's line drawing does not make much sense," wrote Kavanaugh, "other than as a way to gerrymander Apple to get out of this pursuit and the like."
What is happening now?
According to Mark Rifkin, who represents the applicants in Apple v. Pepper, the case is very briefly referred to the ninth circuit. Then he returns to a lower district court where both parties will begin the discovery. In other words, they will look for evidence to argue the monopoly issue.
After that, Apple will have to defend itself against the monopoly charge. The company detailed some arguments in a statement yesterday, stating that "the App Store is a monopoly of any measure". She insists that the App Store lock helps Apple protect the privacy and security of users and that developers can sell the same apps on many different devices – including Android phones, televisions and game consoles.
The complainants, for their part, will argue that these alternatives are of little importance. "The fact that they have a [less than] A smartphone market share of 50% does not mean they do not hold 100% of the distribution of iPhone apps – which they absolutely have, "says Rifkin.
It is also worth mentioning what is do not going on now: any concrete change from Apple. Again, Apple has not been convicted of monopoly and it will probably take years to answer this question. The Supreme Court could even take over the case. A court could issue an injunction during the course of the lawsuit, forcing Apple to change its policies in one way or another. But we are not there yet.
What will happen if Apple loses the file?
The plaintiffs want Apple to offer partial refunds on all paid iPhone apps, as Rifkin says, to compensate "all buyers, wherever they are, who have purchased iPhone apps for their iPhones anytime since the introduction of the phone in 2007 ". They also want Apple to allow an alternative method to buy apps.
Apple could still take these steps in a settlement without losing in court. "If Apple is willing to provide consumers with significant relief that puts an end to the illegal practice and compensates consumers for their harm, we would be foolish not to listen to that kind of approach," says Rifkin. However, this would leave huge legal questions unanswered.
If Apple loses, the ruling could set a precedent that would make it easier to prosecute other platforms for antitrust violations. But the scope of this precedent is unclear. Because iPads and iPhones are uniquely locked devices, the main arguments against Apple may not apply elsewhere. Rifkin uses the Google Play Store as an example of a healthy, non-monopolistic market. Even on a locked gaming console with an online store, there is usually a separate market for physical media. "I think in the real world at least right now, the only company that does business in the same way that Apple is Apple," says Rifkin.
But as physical media become scarce and applications stores become larger, Apple v. Pepper could be more relevant. Microsoft has announced an Xbox without a disk drive, for example, and if its owners can only buy games through a digital store, they could say that Microsoft has an unfair monopoly.
If Apple wins, does this decision still count?
Absolutely. The Supreme Court has just removed a major hurdle to filing an antitrust complaint as a digital platform user, as opposed to a seller or a developer. In turn, this could mean more antitrust lawsuits.
"The person who suffers the most antitrust violations is usually the consumer," says John Bergmayer, lead counsel for Digital Knowledge, a public non-profit organization. "It is very often the people who will have the most interest in taking legal action." On the other hand, developers would risk harming an important relationship if they pursued a platform and they could raise prices to cover inflated costs.
Of course, once this hurdle is lifted, this decision does not make consumers more likely to to win a trial. "It does not say that Apple has or has not violated antitrust law," says John Bergmayer, lead counsel for Digital Knowledge, a nonprofit organization specializing in digital rights. "It just says you can start more lawsuits."
So, will more people start tracking platforms?
It's plausible and not everyone thinks it's a good thing.
Morgan Reed, president of the industry group The App Association, says yesterday's ruling could lead to serious lawsuits that ultimately will not help consumers. Reed points out the Supreme Court's dissenting opinion that Judge Neil Gorsuch said platforms could try to avoid the "direct seller" label with ineffective workarounds, such as forcing developers to manage their own payments, then sending a check to Apple.
On the other hand, if Apple loses Apple v. Pepper, so maybe some platforms should face more lawsuits. "If all of a sudden the plaintiffs win a series of victories against platforms (…), then it shows that this doctrine fundamentally allowed to violate the competition law," says Bergman. "Because this legal doctrine prevented the only party who was really aggrieved from bringing the case to justice."
Is this part of the biggest reaction against technology?
Apple v. Pepper was filed nearly ten years ago, long before recent calls for reform and antitrust. The Supreme Court upheld a decision made in early 2017, which also predates much of the controversy. As we have seen above, this is not a radical rewriting of the antitrust law or a call for the resignation of Apple. And the judgment will not facilitate the prosecution of technology companies for any other reason. This is precisely to establish whether a person has standing to file an antitrust complaint – and not whether it can pursue a platform for dismissal or facilitation of harassment.
Mr. Kavanaugh's choice to join four Liberal judges could theoretically reflect the growing Republican incentive to regulate technology companies: this is the newest judge appointed last year, while reaction in technology was in full swing. But Rifkin insists that this decision is based on a question of interpretation and not partisan politics. "I do not think it's a liberal or conservative problem," he says.
But even if there is no direct link to other issues, Apple vs Pepper is certainly part from an attempt to limit the massive power of some big tech companies. "We've seen explosive growth in the App Store, and that's not just the growth and popularity of iPhone applications. It also reflects the ruthless control of Apple's distribution, "said Rifkin. "The concentration of control in the hands of a single company, be it Apple or any other company, will not only help us prove our thesis, but also demonstrate that it's a bad thing for we. trade and the economy in general. "
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