How Apple’s Supreme Court loss could change the way you buy apps

Illustration by Alex Castro / The Verge

Yesterday, the Supreme Court handed Apple a major defeat in an antitrust case. A group of iOS users claimed Apple had unfairly driven up app prices with its locked-down App Store. Apple argued that the users had no right to sue since they were actually buying apps from developers instead of Apple. Justice Brett Kavanaugh, speaking for a majority of the court, disagreed.

The new ruling establishes that app buyers are Apple’s direct customers, giving them the right to proceed with their antitrust case. This doesn’t have any immediate consequences for Apple because there’s still a long legal fight ahead. But if the plaintiffs’ case holds up, it could change the relationship between digital platforms and their users, giving customers the basic right to sue tech platforms for violating antitrust law.

What is Apple v. Pepper?

As we’ve mentioned before, Apple v. Pepper is an antitrust lawsuit filed by Robert Pepper in 2011. The plaintiffs in Apple v. Pepper argue that Apple’s basic App Store model is an unlawful monopoly. Apple only provides access to iOS apps through the App Store, and it requires developers to pay a 30 percent commission. The plaintiffs claim this fee gets passed on to users, who have nowhere else to buy their apps.

For the past eight years, Apple has argued that app buyers don’t have the legal right to sue at all. The company invoked a 1970s case called Illinois Brick Co. v. Illinois, which prevents “indirect purchasers” from filing antitrust suits. Then it claimed that Apple’s direct customers were developers, not users, so they’re the only ones with legal standing 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 took its case to the Supreme Court. Yesterday, the Supreme Court ruled on that early question involving Illinois Brick, upholding the Ninth Circuit’s decision. So we still don’t know whether Apple is a monopoly, but we know that customers can sue to settle that question.

Why did the Supreme Court rule against Apple?

The court (in a 5-4 majority) decided that using an app store was fundamentally different from passing a product down a traditional supply chain. In Kavanaugh’s words:

iPhone owners are not consumers at the bottom of a vertical distribution chain who are attempting to sue manufacturers at the top of the chain. There is no intermediary in the distribution chain between Apple and the consumer. The iPhone owners purchase apps directly from the retailer Apple, who is the alleged antitrust violator. The iPhone owners pay the alleged overcharge directly to Apple.

Illinois Brick was about traditional commercial supply chains. The state of Illinois sued a brick company for price-fixing. It argued that the company had sold its product to a general contractor at an inflated price, the general contractor had sold the bricks to another contractor, and that contractor had been hired for a government construction project, thus costing the government more money. The court rejected this long chain of causality and threw out the claim.

By contrast, iPhone users have a clear and direct relationship with Apple. As Justice Elena Kagan said during earlier oral arguments, consumers get the experience of “a one-step transaction with Apple” when they buy an app. Apple argued that its commission system still distinguished it from a direct seller, but the court said this was just splitting hairs. “Apple’s line-drawing does not make a lot of sense,” wrote Kavanaugh, “other than as a way to gerrymander Apple out of this and similar lawsuits.”

What’s happening now?

According to Mark Rifkin, who represents the plaintiffs in Apple v. Pepper, the case is getting very briefly kicked back to the Ninth Circuit. Then it goes back to a lower district court where both parties will start discovery. In other words, they’ll look for evidence to argue the actual monopoly question.

After that, Apple will have to actually defend itself against the charge that it’s running a monopoly. The company detailed some arguments in a statement yesterday, asserting that “the App Store is not a monopoly by any metric.” It insists that locking down the App Store helps Apple protect users’ privacy and security and that developers can sell the same apps on lots of different devices — including Android phones, TVs, and gaming consoles.

The plaintiffs, meanwhile, will argue that these alternatives don’t matter. “The fact that they have a [less than] 50 percent market share of smartphones doesn’t mean they don’t have a 100 percent share of the distribution of iPhone apps — which they absolutely do,” says Rifkin.

It’s also worth mentioning what’s not happening right now: any concrete changes from Apple. Again, Apple hasn’t been found guilty of running a monopoly, and it will probably take years to answer that question. The Supreme Court might even take up the case again. A court could issue an injunction while the trial proceeds, requiring Apple to change its policies in some way. But we’re not to that point yet, either.

What happens if Apple loses the overall case?

The plaintiffs want Apple to offer partial refunds on all paid iPhone apps, as Rifkin puts it, to compensate “all the purchasers, wherever they may be, who bought iPhone apps for their iPhones at any time since the phone was introduced in 2007.” They also want Apple to allow some alternative method of buying apps.

Apple could still take these steps in a settlement without losing in court. “If Apple is prepared to provide meaningful relief to consumers that ends the unlawful practice and compensate consumers for their injury, then we would be foolish not to listen to that kind of an approach,” says Rifkin. However, this would leave huge legal questions unanswered.

If Apple does lose, the ruling could set a precedent that would make it easier to sue other platforms for antitrust violations. But it’s not clear how broad that precedent would be. iPads and iPhones are uniquely locked-down devices, so the biggest arguments against Apple might not apply elsewhere. Rifkin uses Google’s Play Store as an example of a healthy and non-monopolistic marketplace. Even on a locked-down gaming console with one online store, there’s typically a separate market for physical media. “I think in the real world right now at least, the only company that does business the way Apple does business is Apple,” says Rifkin.

But as physical media grows rare and app stores more important, Apple v. Pepper could be more broadly relevant. Microsoft just announced an Xbox without a disc drive, for instance, and if its owners can only purchase games through one digital store, they could claim Microsoft is running an unfair monopoly.

If Apple wins, does this ruling still matter?

Definitely. The Supreme Court just removed a huge hurdle to filing an antitrust lawsuit as a digital platform user, as opposed to a seller or developer. In turn, that could mean more antitrust prosecutions.

“The person that bears the brunt of antitrust violations tends to be the consumer,” explains John Bergmayer, senior counsel at digital rights nonprofit Public Knowledge. “Those very often are going to be the people who have the strongest incentives to bring cases.” By contrast, developers would risk damaging an important relationship if they sue a platform, and they can raise prices to cover inflated costs.

Of course, once that hurdle is cleared, this ruling doesn’t make consumers more likely to win a lawsuit. “This doesn’t say anything about whether or not Apple did violate antitrust law,” says John Bergmayer, senior counsel at digital rights nonprofit Public Knowledge. “It just says you can bring more lawsuits.”

So will more people start suing platforms?

It’s plausible, and not everyone thinks that’s a good thing.

Morgan Reed, president of industry group The App Association, argues that yesterday’s ruling could result in onerous lawsuits that won’t ultimately help consumers. Reed points to the Supreme Court’s dissenting opinion, where Justice Neil Gorsuch claimed platforms might try to avoid the “direct seller” label with inefficient workarounds, like making developers handle their own payments and then write a check to Apple.

The point of Illinois Brick was to make sure that companies wouldn’t face multiple unexpected antitrust suits from different parties. So today’s decision “may unintentionally expose businesses offering digital platform services to unintended liability,” says Ed Black, president and CEO of the Computer & Communications Industry Association.

On the other hand, if Apple loses Apple v. Pepper, then maybe some platforms should be facing more lawsuits. “If all of a sudden there are a bunch of victories for plaintiffs against platforms ... then that shows that this doctrine was basically allowing violations of antitrust law,” says Bergman. “Because this legal doctrine prevented the only party who was really harmed from bringing the suit.”

Is this part of the larger backlash against tech?

Apple v. Pepper was filed nearly a decade ago, long before the recent calls for antitrust reform and regulation. The Supreme Court was upholding a decision from early 2017, which also predates much of the controversy. As we discussed above, this isn’t a sweeping rewrite of antitrust law or a call to break up Apple. And the ruling also won’t make it easier to sue tech companies for other reasons. It’s narrowly tailored to establish whether someone has standing to file an antitrust complaint — not whether they can sue a platform for kicking them out or facilitating harassment.

Kavanaugh’s choice to side with four liberal justices could theoretically reflect a growing Republican push to regulate tech companies: he’s the newest justice, appointed just last year while the tech backlash was in full swing. But Rifkin insists that this ruling was based on a question of interpretation, not party politics. “I don’t think this is a liberal or a conservative kind of issue,” he says.

But even if there’s not a direct link to other issues, Apple vs. Pepper is certainly part of an attempt to limit the massive power of a few big tech companies. “We’ve seen explosive growth in the App Store, and that doesn’t just reflect the growth and popularity of iPhone apps. It also reflects Apple’s iron-fisted control of the distribution,” says Rifkin. “The concentration of control in the hands of a single company, whether it’s Apple or any other company, is going to help us not just prove our case — but I think also be able to demonstrate that this is the wrong sort of thing for e-commerce and the economy generally.”

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Comments

Would Apple’s problem simply go away if they still only had the app store but allowed you to buy it elsewhere but download it through app store?

Note: I’m genuinely curious because I don’t fully understand this situation.
I see Apple / App Store the same way I see Nintendo / Nintendo Switch. You can only get Nintendo switch games onto the switch by buying through nintendo in one way or another.

Single-focus platform (Switch = games) vs life-encompassing platform (Apple = everything).
Also Switch has physical copies, if you don’t care for app stores (though not for all games, but definitely the big ones).

Switch eShop is a Platform and it has Apps / Games on that platform.
That simple.

a phone is a lot more all encompassing than a games console.

Same rules apply. No one should get a pass. If that’s the case Apple should just Market the iPhone as a iGame and say there’s tons of games on it and you can make phone calls. lol

but you go after the bigger fish first. Niche markets aren’t as critical to regulate as the huge ones.

Nintendo switch is a Niche?

by comparison yes very much so.

It doesn’t work like that, that’s why we have different rules for monopolies for example.

Apple has a phone, but it branches out to cars, health, home and a bunch of smaller yet still unrelated fields (like watches, earbuds, …). If it was up to Apple, they would also love to control news, games, music, streaming and whatever other media they can find to hook you in.

Irrelevant. The difference is that you can buy console games from a source other than the digital marketplace (e.g. big box store/physical media)… at least for now…

There are a multitude of games (in fact, probably the majority) that you cannot buy physically on the Xbox One/PS4, and are only available to buy through the console’s marketplace. At the very least, whatever ruling occurs from the pending litigation would likely apply to them.

As for the physical games, they still pay the same licensing fee to the platform holder for each disc that they would digitally, so in the event Apple loses, even the presence of physical discs sold at other retailers may not protect a console platform from a similar lawsuit. That part particularly will likely come down to the specifics of judge’s interpretation and language in the ruling, so it’s really tough to predict not only if Apple will lose, but just how broad the courts end up defining that sort of inherent platform monopoly.

alternative app stores would be a consumer and developer boon. I can see a lot of developers moving over to a cheaper marketplace and the App store becoming a small but strong store. This is what’s available in Windows. I can buy games from Steam or Epic or Microsoft or GoG or Humble or any number of marketplaces, and make purchases based on sales and pricing (on any given day, some game may be cheaper in the Microsoft store than Steam for example). Developers get to retain more money which is especially helpful for the small indie developers where every dollar counts. Right now, Apple controls everything. They don’t allow you to download from any other marketplace. They don’t allow developers to collect money except through the App store so you can’t even set up a website or use a portal like PayPal to collect income. Apple holds the keys to their walled garden and don’t have to follow the rules that they established for everyone else.

I don’t get this argument at all. Of course I’m not a lawyer – but the Windows comparison doesn’t hold up, because MS isn’t the producer of the PC’s. They make some, but I can make my own PC from random parts and do whatever I want with it. The iPhone is a very specific product that only Apple makes, surely how the iPhone operates right down to how you can and can’t install stuff on it is be definition what Apple produces and what you buy when you buy the phone?
And on a broader scale – as the article mentions, the new disc less Xbox is exactly the same; you can only buy games from the Xbox store. But that’s not allowed? Or are MS allowed because what?
I think this whole lawsuit reeks of people being so jealous of how successful Apple and their iPhone is.
What exactly is the argument for why Apple can’t decide what happens with their own product?

I would agree with this take on it. The Windows comparison doesn’t fit here. And many Apple users (myself included), would very much prefer the Apple Store be the only place to obtain apps, simply because I know those have passed Apple’s inspection (whether that inspection is thorough enough or not is another argument, but I digress). I would be open to developers selling digital codes for their apps somewhere else, but where you still have to download the app/enter the code through the app store. Of course, Apple could still implement a fee to the developer on this since its still distributed through its platform, which doesn’t really solve the problem the developers are having.

It isn’t the same, MS allows Amazon (and others) to sell codes. Games have to be downloaded from Xbox store, but purchases can happen anywhere.
If you try to sue MS as you bought from them, they will direct you towards other sources of the game like Amazon, pointing out healthy competition exists (even though we all know this "competition" is bullshit). And you can’t even begin to sue Amazon due to (imo stupid) precedent.
In the end, you are still screwed, you just can’t do anything about it

Wouldn’t this kinda apply to consoles as well? Sure I can buy physical media, but I assume I have to pay Microsoft or Sony some amount of money for the ability for my games to run on their systems. (At least it used to be that way I think)

but I assume I have to pay Microsoft or Sony some amount of money for the ability for my games to run on their systems.

I didn’t re-read my quote… if I’m a developer, I assume I need to pay MS/Sony to develop games on their consoles… money that I would try to get back via sales.

There’s a licensing fee Nintendo/Sony/Microsoft charge in order to receive the electronic key the games need to even start up when their discs are inserted. It’s basically what Apple does but with more steps and even higher barriers to entry.

Apple is just the biggest fish right now.

That’s what I’m thinking, I want to know where the line is drawn with this, because if I want to digitally download games to my Nintendo Switch I HAVE to go through Nintendo, and I have no way of downloading another App Store to the switch to get around it.

Now with Windows or Mac, etc. You can download Steam, or Gog, or Games straight from Humble bundle etc.

My interpretation is that this is different. Games can be purchased from another vender in the physical form. The fact that you can choose to do that or not is not possible with Apple. As consoles move to digital only this will become more similar to the current case.

I acknowledge that, but the end result is still the same. Do they want to just be able to Buy Apps in other places to then use on the App Store? Because you would still need to go through the App store to use the app

Yes, but then you wouldn’t feel Apple tax, making this suit irrelevant.

For example, MS’s store lets you do your own payment stuff and so they don’t take provision. But even that wouldn’t left them off the hook completely – as for developers that opted to take MS’s payment processing, customer wouldn’t have any choice but pay that 30% provision.

The only way a single source for all would be if store enabled use of multiple sources for an object (think Amazon marketplace) – so the same app would be able to be bought from multiple sources inside the store. This would be essentially the same as having multiple separate app stores inside an overarching one.

You have to download it through Nintendo, but not necessarily purchase it through Nintendo. I’m looking at Amazon right now, and I can buy a digital code for Breath of the Wild.

Yes, but that code comes from nintendo, for you to then download it through their eShop, and play on only their system

Right, but you didn’t purchase the game directly from Nintendo. Now, if you purchase the game directly from Nintendo, then I think the ruling applies.

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