An Apple store. Credit: Mike Scarcella

The popular meme says “there's an app for that,” but there may not be one for Apple Inc. as it searches for a win at the U.S. Supreme Court to shut down an antitrust lawsuit brought by iPhone consumers.

The consumer class action contends Apple's “wholly-owned, monopoly app store” overcharges for apps and distorts the market at the supply chain and at the retail chain.

In Apple v. Pepper, the tech company encountered resistance in the high court Monday as it argued that the 1977 decision Illinois Brick v. Illinois bars Apple customers from suing the company.

The decision held that only the first buyer from an unlawful monopoly can claim treble damages under federal antitrust laws, even if an overcharge has been passed through to indirect or subsequent buyers.

Apple's lawyer, Daniel Wall, partner at Latham & Watkins, told the justices that although Apple collects a 30 percent commission on each app, the app developers set the price for sale. Apple, Wall said, is simply the distributor of the apps.

The only first buyer with standing to sue Apple, Wall argued, is the app developer who pays the 30 percent commission. “Consumers do not pay the 30 percent commission,” he told the justices.

But Justice Stephen Breyer countered: “If Joe Smith buys from Bill, who bought from the monopolist, then we have something indirect. But, if Joe Smith bought from the monopolist, it is direct. That's a simple theory.”

Justice Elena Kagan said the relationship between Apple and consumers appears to be one step.

“I mean, I pick up my iPhone. I go to Apple's App Store. I pay Apple directly with the credit card information that I've supplied to Apple,” Kagan said. “From my perspective, I've just engaged in a one-step transaction with Apple. And when I come in and say Apple is a monopolist and Apple is charging a super-competitive price by extracting a commission that it can only extract because of its market power, I mean, there's my one step.”

U.S. Solicitor General Noel Francisco, supporting Apple, argued that the key to who can be sued is who sets the prices. “You can't sue Apple if Apple isn't the price-setting party, but the app maker is the price-setting party,” Francisco said.

The consumers' counsel, David Frederick, partner in Kellogg, Hansen, Todd, Figel & Frederick, argued: “Apple directed anti-competitive restraints at iPhone owners to prevent them from buying apps anywhere other than Apple's monopoly App Store. As a result, iPhone owners paid Apple more for apps than they would have paid in a competitive retail market.”

Under the court's prior decisions, iPhone users have a cause of action directly against Apple for the overcharges, Frederick said.

Justice Samuel Alito Jr. asked Frederick that if the class action does go to trial, would every app purchaser potentially be entitled to three times the 30 percent overcharge or would it depend on the particular app?

Frederick said he did not know the answer, but he noted a huge number of apps are free and prices vary on others.

 

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