Supreme Court Weighs Antitrust Suit Against Apple

The Supreme Court on Monday weighed whether Apple will have to face a lawsuit by consumers who say the App Store's pricing model violates antitrust laws.

The battle centers on Apple's app-store business model, which generally calls for a 70-30 revenue split with developers. (Two years ago, Apple tweaked its formula to allow developers who offer subscriptions to retain 85% of their app's revenue after the first year.)

In a lawsuit brought in 2011, a group of iPhone users allege that Apple's 30% commission from developers gets passed on to consumers. The users argued that Apple was only able to charge the 30% mark-up because it wielded monopoly power over the distribution of iPhone apps.

Apple is arguing that the lawsuit should be dismissed, essentially arguing that app purchasers shouldn't be able to bring antitrust cases that stem from deals between Apple and app developers. Apple draws on a 1977 Supreme Court decision that only “direct” purchasers can sue over antitrust violations.

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In the case of iPhone apps, developers are “direct” purchasers, while consumers are only “indirect” purchasers -- and therefore unable to sue Apple -- the company contends.

“The app developers ... are buying a package of services which include distribution and software and intellectual property and testing,” Daniel Wall, an attorney for Apple, told the Supreme Court Monday morning.

Several justices appeared skeptical of Apple's argument. Justice Sonia Sotomayor specifically questioned whether consumers who purchase apps should be considered “indirect” customers.

“The first sale is from Apple to the customer. It's the customer who pays the 30%,” she told Wall. “Apple took 30% from the customer, not from the developer.”

Justice Elena Kagan made similar comments.

“It just seems to me that when you're looking at the relationship between the consumer and Apple, that there is only one step,” she said. “I pick up my iPhone. I go to Apple's App Store. I pay Apple directly with the credit card information that I've supplied to Apple... From my perspective, I've just engaged in a one-step transaction with Apple.”

At one point in the hearing, Justice Neil Gorsuch appeared to question whether the 1977 decision barring antitrust lawsuits by indirect purchasers was correct. “Indirect purchasers may be better suited to enforce the antitrust laws,” Gorsuch said.

In 2013, U.S. District Court Judge Yvonne Gonzalez Rogers in the Northern District of California dismissed the lawsuit. But a three-judge panel of the 9th Circuit Court of Appeals reinstated the complaint last year. Those judges ruled that Apple was a distributor, and therefore could be sued for allegedly monopolizing the sale of iPhone apps.

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