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Apple’s Supreme Court Loss Could Ease Path for More Tech Suits

May 14, 2019, 9:46 AM

Apple Inc.'s loss at the U.S. Supreme Court will likely pave the way for consumers to challenge other tech giants with market-dominant businesses, such as Alphabet Inc.'s Google and Amazon.com Inc.

In a 5-4 ruling, the high court ruled May 13 that a class action antitrust suit—accusing Apple of using its market dominance to inflate App Store product prices—can move forward.

Other companies that run similar online marketplaces, like Facebook Inc., that link buyers with sellers are vulnerable to similar lawsuits since the Supreme Court determined consumers can sue the market operators that don’t directly make or sell the products. The ruling also emboldens technology consumers following another Supreme Court ruling last year that raised the bar on when they can sue companies for antitrust violations.

“This is a wake-up call for the tech industry,” Sharis Pozen, global antitrust co-chair at Clifford Chance LLP, said. “Companies with similar distribution platform models need now to fully consider how their practices could be viewed when the antitrust lens is applied.”

IPhone app users alleged that Apple raises app prices by keeping a 30 percent commission for each sale before remitting payment to app developers. The commission forces developers to markup their prices, consumers say. Apple also forces developers to price their products at 99 cent increments, which consumers allege also leads to higher app costs.

Apple argued that it can’t be sued by consumers because it’s merely a platform for their purchases from app makers. A 1977 Supreme Court decision, Illinois Brick Co. v Illinois, held that only direct product buyers can sue to collect damages under antitrust law, Apple said.

The Supreme Court decision, written by Justice Brett Kavanaugh, now “allows the plaintiff to have their day in court and have discovery and take it to the next level,” John Roberti, head of Allen & Overy LLP’s antitrust practice in Washington, said.

Critical Timing

The Apple v. Pepper ruling clarifies another high court decision last year—Ohio v. American Express Co.—that set a difficult standard for bringing antitrust suits.

In June, 2018, the Supreme Court ruled in favor of American Express, stating that the credit card’s anti-steering provisions—which bar merchants from offering lower fee credit cards to consumers—aren’t an antitrust violation. The justices said that both sides of the company’s market—credit card holders and merchants—needed to show harm to prove than an antitrust violation occurred.

The Apple case “makes it clear that the American Express decision was addressing a very specific type of platform,” Sally Hubbard, the director of enforcement strategy at Open Markets Institute, said. “It was not meant to cover all two sided markets.”

Consumer attorneys could now narrowly interpret the AmEx decision as applying only to banking and credit cards, Hubbard said.

“I think anyone who operates in one of these two sided platforms is likely facing a greater risk of consumer litigation in the near future,” Roberti said.

Long Road

Proving that Apple is a monopoly could still be difficult for plaintiffs. The court’s ruling only “satisfies the narrow antitrust standing question, but the plaintiffs still have a very long way to go before they prove an actual case here,” Roberti said.

The decision is still noteworthy given the Supreme Court’s conservative majority, Hubbard said.

“It’s a big deal how this court ruled in Apple given the AmEx decision seemed very hostile to antitrust enforcement,” Hubbard said. “It’s a big deal that Kavanaugh joined the progressive minority to tip this decision.”

The case is Apple Inc. vs. Robert Pepper, et al., U.S., # 17-204, Adjudged to be Affirmed 5/13/19

To contact the reporter on this story: Victoria Graham in Washington at vgraham@bloomberglaw.com

To contact the editors responsible for this story: Roger Yu at ryu@bloomberglaw.com; Seth Stern at sstern@bloomberglaw.com