© Reuters. FILE PHOTO: Customers walk past an Apple logo inside of an Apple store at Grand Central Station in New YorkBy Andrew Chung
WASHINGTON (Reuters) – The U.S. Supreme Court on Monday gave the go-ahead for a lawsuit by consumers accusing Apple Inc of monopolizing the market for iPhone software applications and forcing them to overpay, rejecting the company’s bid to escape claims that its practices violate federal antitrust law.
Apple shares (NASDAQ:) fell more than 5% after the justices, in a 5-4 ruling, upheld a lower court’s decision to allow the proposed class action lawsuit to proceed. The plaintiffs said the Cupertino, California-based technology company required apps be sold through its App Store and extracted an excessive 30 percent commission on purchases.
Conservative Justice Brett Kavanaugh, an appointee of President Donald Trump, joined the court’s four liberal justices to rule against Apple and wrote the decision.
Apple shares were trading down more than $10 at $186.84 by mid-morning.
Explaining the ruling from the bench, Kavanaugh said, “Leaving consumers at the mercy of monopolistic retailers simply because upstream suppliers could also sue the retailers would directly contradict the longstanding goal of effective private enforcement in antitrust cases.”
The company, backed by the Trump administration, argued that it was only acting as an agent for app developers, who set their own prices and pay Apple’s commission. Apple had argued that a Supreme Court ruling allowing the case to proceed could pose a threat to e-commerce, a rapidly expanding segment of the U.S. economy worth hundreds of billions of dollars in annual sales.
The dispute hinged in part on how the justices would apply a decision the court made in 1977 to the claims against Apple. In that case, the court limited damages for anti-competitive conduct to those directly overcharged rather than indirect victims who paid an overcharge passed on by others.
Noting that they pay Apple – not an app developer – whenever buying an app from the App Store, the iPhone users who brought the case said they were direct victims of the overcharges. Apple said the consumers were indirect purchasers, at best, because any overcharge would be passed on to them by developers.
Developers earned more than $26 billion in 2017, a 30 percent increase over 2016, according to Apple.
The plaintiffs, including lead plaintiff Robert Pepper of Chicago, filed the suit in a California federal court in 2011, claiming Apple’s monopoly leads to inflated prices compared to if apps were available from other sources. They were supported by 30 state attorneys general, including from Texas, California and New York.
Apple, which was also backed by the U.S. Chamber of Commerce business group, sought to dismiss the case, arguing that the plaintiffs lacked the required legal standing to bring the lawsuit.
After a federal judge in Oakland, California threw out the suit, the San Francisco-based 9th U.S. Circuit Court of Appeals revived it in 2017, finding that Apple was a distributor that sold iPhone apps directly to consumers.
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