Apple App Store lawsuit can proceed, Supreme Court rules – California

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In a ruling that threatens Apple’s lucrative App Store business, the U.S. Supreme Court on Monday allowed a proposed class-action consumer lawsuit against the iPhone maker to proceed.

At issue was whether iPhone users had the right to sue the tech giant, which takes a 30 percent cut from tens of millions of app developers on its platform, over what they say is a monopolistic practice that drove up prices of apps. Other tech giants with marketplaces on their platforms, like Google, Amazon and eBay, also have a stake in the outcome of the case.

Apple had argued that it merely acts as an intermediary, and that developers set the prices of the apps so the four plaintiffs were not “direct purchasers” who could sue the company under a precedent set by the nation’s highest court decades ago.

The Supreme Court disagreed, as expected based on some justices’ questions during oral arguments in November. The opinion, written by Justice Brett Kavanaugh, who joined the court’s four liberal justices in a 5-4 decision, said, “If accepted, Apple’s theory would provide a roadmap for monopolistic retailers to structure transactions with manufacturers or suppliers so as to evade antitrust claims by consumers and thereby thwart effective antitrust enforcement.”

The court upheld the Ninth Circuit Court of Appeals’ decision in a case that is nearly a decade old, brought by four consumers in 2011 who said they had no other way to buy apps on their iPhones except through the App Store. “It is undisputed that the iPhone owners bought the apps directly from Apple,” Kavanaugh wrote in the opinion on behalf of Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan. He noted that the ruling centers solely on the question of whether the consumers could sue, and not on the merits of their case.

Justice Neal Gorsuch wrote the dissenting opinion, arguing that the majority’s decision “exalts form over substance.

“To evade the Court’s test, all Apple must do is amend its contracts,” he said. “Instead of collecting payments for apps sold in the App Store and remitting the balance (less its commission) to developers, Apple can simply specify that consumers’ payments will flow the other way: directly to the developers, who will then remit commissions to Apple.”

Gorsuch was joined in his dissent by Chief Justice John Roberts and Justices Clarence Thomas and Samuel Alito.

Apple has not returned a request for comment. Its shares, which have already taken a hit because of the escalating U.S.-China trade war, fell 5.8 percent to close at $185.72 Monday.

In its second-quarter earnings report for the period ended March 31, Apple attributed an increase in its services revenue to $11.5 billion from $9.9 billion in the year-ago quarter to the App Store, plus licensing and AppleCare. Apple’s services business has gained importance as the company sees a decline in iPhone sales.

Tech trade groups are worried that the ruling may have a broader effect.

“We are concerned that the outcome of this ruling expands a previous ruling (Illinois Brick’s), and increases liability risks for multi-sided business models,” said Ed Black, president and CEO of the Computer & Communications Industry Association, in a statement Monday. Apple is not a member of the CCIA, but the group filed an amicus brief in support of companies with platform services after the appeals court’s decision last year.

“This decision and its categorization of developers as ‘suppliers’ or ‘manufacturers’ to platforms sets a troubling precedent,” said Morgan Reed, president of ACT | The App Association, which represents app makers and companies. “Ten years ago getting software was quite a different and onerous process — our members count on platforms that enable customers to purchase software safely, easily and with confidence.”

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