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Apple Loses Major Antitrust Lawsuit

A lawsuit that managed to make it all the way to the SCOTUS (Supreme Court of the United States) involves the Apple App Store and whether or not Apple can be forced to make other distribution avenues available to purchasers of App Store Apps and developers.

 

How Does the App Store Work?

 

For those of us with iPhones, iPads, or iPods, the process is simple. We need something like a game or an app and we go to the Apple App Store, download it, and we have it. For those who create the app, however, it is less simple. Apple charges a 30% commission on each app purchased from the store and prevents other distribution hubs from distributing apps.

 

The question that the Supreme Court was asked to decide is whether or not this practice violates antitrust laws. In the case of Apple Inc. v. Pepper et al. the suit was brought on behalf of purchasers of apps who claim that they are paying more than they should because Apple prevents its operating system from allowing other distribution methods or other app stores.

 

The Roadblock: Illinois Brick Co. v Illinois

 

iPhone users ran into a major roadblock in their suit against Apple. In 1973, SCOTUS ruled in Illinois Brick Co. v. Illinois that “indirect purchasers” were prohibited from filing federal antitrust lawsuits. Apple argued that its commissions came from the app developers (not from the app purchasers) which threw a wrench in the lawsuit. If Apple’s interpretation of the situation was correct, then it would be the app developers who had to file suit and not the app purchasers since they would be categorized as an “indirect purchaser” for the purposes of this lawsuit.

 

A circuit court agreed with Apple, dismissing the case. But, the 9th circuit court overturned the decision finding that the app purchasers were purchasing the apps directly from the App Store, which was owned and controlled by Apple.

 

The history of the Illinois Brick decision is relevant here. In 1977, the Supreme Court found that the State of Illinois could not sue Illinois Brick company because the State of Illinois was an indirect purchaser of their bricks. Illinois purchased the bricks from general contractors who had purchased them from masons who had purchased them from the manufacturing company Illinois Brick. The decision stated that damages were not recoverable for the state in this case because they did not purchase the bricks directly from Illinois Brick. Essentially, the court decided that because a determination as to whether or not an overcharge had been passed from one commercial agent to the next would make a large mess and put a huge burden on the courts, that it was outside the scope of the courts to deal with.

 

Illinois Brick and Apple Inc. v. Pepper

 

The major question, in this case, is whether or not the Illinois Brick decision can be applied to Apple. In this case, a 5-4 majority decided that an app purchaser did buy apps directly from Apple through the app store.

 

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