U.S. Supreme Court Opens The Door For iPhone Users' Antitrust Lawsuit Over Apple's 30% Commission

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The Supreme Court Monday cleared the way for the antitrust suit that centers on Apple’s walled garden approach to the App store, which has drawn criticism from some companies that use it to deliver services to iPhone users.

Spotify and Netflix have taken issue with the 30% commission that Apple collects from an app’s first-year subscriptions and a 15% share of revenue generated from long-term subscribers.

That fee also is at the heart of the dispute that rose to the Supreme Court.

Four iPhone owners filed a suit in 2011, claiming that Apple monopolizes the “app aftermarket”—and extracts a fee that results in higher prices for millions of consumers who use their phones to buy food, arrange transportation or buy movie tickets.

Apple sought to have the suit tossed out, arguing the iPhone owners lacked the legal standing to bring the suit. The tech company cited a decidedly analog precedent, the Illinois Brick case involving pricing of concrete masonry blocks, to argue that consumers can only sue the party that sets the retail price (in this case, the app developers).

Justice Brett Kavanaugh, writing for the court’s 5-4 majority, rejected Apple’s arguments, writing that the technology giant sought to draw “an arbitrary and unprincipled line” among retailers, based upon their arrangements with suppliers.

“Apple’s line-drawing does not make a lot of sense, other than as a way to gerrymander Apple out of this and similar lawsuits,” Kavanaugh wrote.

The case will continue through the courts. Apple issued a statement, saying it’s confident that it will prevail in court.

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“Developers set the price they want to charge for their app and Apple has no role in that. The vast majority of apps on the App Store are free and Apple gets nothing from them,” Apple said in a statement. “The only instance where Apple shares in revenue is if the developer chooses to sell digital services through the App Store.”

The outcome could have implications for any digital retailer, say consumer advocates.

“It could mean there’s going to be a variety of new things the platforms have to consider,” says John Bergmayer, an attorney for the consumer advocacy group Public Citizen. “That decision could have implications for Google or Amazon. For anyone who runs an app store.”

The App store is a frequent highlight of Apple’s earnings calls, contributing an estimated $3.7 billion of the record $11.5 billion in services revenue the company reported during its most recent quarter, according to market researcher Sensor Tower.

Apple’s app store has been a significant source of revenue for developers, who received about $120 billion over the last 11 years. The iPhone, with its 2 million apps, has transformed how consumers use their mobile phones, making the device a hub for entertainment, commerce and self-expression.

Indeed, CEO Tim Cook once hailed it as a “revolution that has changed our world.”

Still, some players who’ve profited from the iOS platform are revolting against the toll keeper. In December, Netflix said it would no longer allow new customers to pay for their monthly subscription fees through iTunes. That follows an earlier move by Spotify, which filed a complaint in March with the European Commission alleging unfair business practices.

“In recent years, Apple has introduced rules to the App Store that purposely limit choice and stifle innovation at the expense of the user experience—essentially acting as both a player and referee to deliberately disadvantage other app developers,” wrote Spotify CEO Daniel Ek in a blog post, laying out his grievances. “After trying unsuccessfully to resolve the issues directly with Apple, we’re now requesting that the EC take action to ensure fair competition.”

Forbes.com

Dawn Chmielewski, Forbes Staff