The U.S. Supreme Court ruled Monday that Apple iPhone customers may proceed with a class-action lawsuit against the tech giant that alleges Apple’s App Store operates an illegal monopoly on iPhone apps.
The ruling may expose Apple to payments of hundreds of millions in dollars in damages, CNBC reported. Apple shares, already pressured by the U.S.-China tariff dispute, were down more than 5% Monday in morning trading.
In the case, Apple v. Pepper, four iPhone owners had sued the company saying the company unlawfully monopolizes the aftermarket for apps because the App Store charges a 30% commission to developers, resulting in inflated prices to consumers. The App Store is the only place iPhone users can legally purchase apps. Apple had moved to dismiss the lawsuit, stemming from litigation dating back to 2011, arguing the iPhone customers couldn’t sue because they weren’t direct purchasers from Apple.
The Supreme Court, in a 5-4 ruling, upheld a Ninth Circuit decision concluding that the iPhone owners were direct purchasers because they bought their apps directly from Apple.
Apple did not immediately respond to a request for comment on the ruling.
“Apple posits that allowing only the upstream app developers — and not the downstream consumers — to sue Apple would mean more effective antitrust enforcement,” the Supreme Court said in the decision. “But that makes little sense, and it would directly contradict the longstanding goal of effective private enforcement and consumer protection in antitrust cases.”
The court, in the majority opinion, also said that “this is not a case where multiple parties at different levels of a distribution chain are trying to recover the same passed-through overcharge initially levied by the manufacturer at the top of the chain.”
The Supreme Court’s majority opinion was written by Justice Brett Kavanaugh — a conservative and controversial Trump appointee — and joined by the court’s four liberal-leaning judges: Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elia Kagan. Justice Neil Gorsuch filed the dissenting opinion, joined by Chief Justice John Roberts and Justices Clarence Thomas and Samuel Alito.
Apple’s booming App Store business has become a key growth driver, as iPhone sales have declined in recent quarters. The App Store generated an estimated $46.6 billion worldwide in 2018, up 20% year over year, per research firm Sensor Tower.
In its defense, Apple cited a 1977 Supreme Court ruling, Illinois Brick Co. v. Illinois, which established a precedent of allowing only direct product buyers to file suit on antitrust grounds. Apple claims it is not the direct seller of apps in the App Store and that developers set the prices in its marketplace.
The Supreme Court’s ruling Monday said that “Apple’s theory is not persuasive economically or legally,” in part because “It would draw an arbitrary and unprincipled line among retailers based on their financial arrangements with their manufacturers or suppliers.”
According to Kavanaugh’s opinion, “At this early pleadings stage of the litigation, we do not assess the merits of the plaintiffs’ antitrust claims against Apple, nor do we consider any other defenses Apple might have. We merely hold that the Illinois Brick direct-purchaser rule does not bar these plaintiffs from suing Apple under the antitrust laws.”