U.S. Supreme Court Rules Against Apple, Allows Antitrust Suits

Posted on May 13, 2019 by Paul Thurrott in Apple, iOS with 59 Comments

The U.S. Supreme Court today ruled that iPhone users could sue Apple for antitrust violations related to the iPhone App Store.

Four iPhone users sued Apple, alleging that the consumer electronics giant illegally monopolizes the distribution of apps for the devices. According to the complaint, Apple’s 30 percent “vig” on paid apps causes direct consumer harm as that cost is passed on to consumers by app developers. And because Apple doesn’t allow app makers to distribute iPhone apps any other way, this behavior is doubly injurious as iPhone users have no other choices.

Apple’s response was a legal classic: It claimed that the iPhone users could not sue it because they weren’t purchasing Apple products directly from Apple. Instead, Apple is simply a third party that sits between the users and the app makers.

The U.S. Supreme Court disagreed, in a close 5-4 ruling. This will allow the suits to go forward, and they could result in hundreds of millions of dollars in damages. Or, more, if and when more claimants come on board, as is now expected.

“Apple’s alleged anticompetitive conduct may leave Apple subject to multiple suits by different plaintiffs,” the Court noted in its ruling.

“Apple’s line-drawing does not make a lot of sense, other than as a way to gerrymander Apple out of this and similar lawsuits,” Justice Brett Kavanaugh wrote, rejecting Apple’s defense. “In particular, we fail to see why the form of the upstream arrangement between the manufacturer or supplier and the retailer should determine whether a monopolistic retailer can be sued by a downstream consumer who has purchased a good or service directly from the retailer and has paid a higher-than-competitive price because of the retailer’s unlawful monopolistic conduct. As the Court of Appeals aptly stated, ‘the distinction between a markup and a commission is immaterial’.”

Tagged with ,

Join the discussion!

BECOME A THURROTT MEMBER:

Don't have a login but want to join the conversation? Become a Thurrott Premium or Basic User to participate

Register
Comments (59)

59 responses to “U.S. Supreme Court Rules Against Apple, Allows Antitrust Suits”

  1. lvthunder

    Imagine the shock these people would receive when/if they realize the typical markup at a real store is 50%.

    • prjman

      In reply to lvthunder: Except, at most 'real' stores, you are buying 'real' product. Physical product has costs that digital product doesn't have and is reflected in the 50% markup you are citing.

      In reality, however, most retail stores operate at a much lower markup percentage than 50%. Walmart's gross margin is around 32%, while their net margin, after expenses, is around 3%.


    • jboman32768

      Imagine the shock these people would receive when/if they realize the typical markup at a real store is 50%.


      ... and they can walk out of a real store and into a different store for a more competitive price.

    • wright_is

      In reply to lvthunder:
      Imagine the shock these people would receive when/if they realize the typical markup at a real store is 50%.

      Markup isn't profit. That markup covers rent for the store, electricity, heating/cooling, wages, insurances, distribution, marketing and a lot more.


  2. christian.hvid

    Surprisingly sound argument by Justice Kavanaugh. Someone must have bought him a beer or two.

    • vernonlvincent

      In reply to christian.hvid:

      I have to agree - I didn't expect him to be supportive of the plaintiffs in this suit, and his comparison to gerrymandering is both spot on and compelling - especially since it's not a comparison I had ever see used before.


      Which goes to show that people aren't limited or confined to doing only what we expect them to do.

  3. Paul Avvento

    This is interesting as it pertains to Spotify's argument with the EU, in the sense that the plaintiffs have actual proof of prices being higher due to the 30% cut as opposed to being hypothetical.


    Apple's response to both cases will have major ramifications for Apple and the tech world. Given that 'services' is Apple's new cash cow they will need to protect it - does that mean a settlement to keep the wheels turning or fighting in court to prevent any dip?

  4. lvthunder

    So how many update processes are going to start showing up on your phone if they break up the app store? What's that going to do to battery life?

  5. curtisspendlove

    Most developers don’t make as much money on the App Store as you think. Especially with the collapsing of the model (driven primarily by shady psychology and in-app purchases).


    I guarantee you, if Apple (forced or voluntarily) reduced their cut to even as low as 5-10% you’d not see much price drop in app prices.


    However it would definitely help the feasibility of “making a living” on the App Store.


    There is plenty of software on the App Store for reasonable prices, including free (really free, not free to download but with IAP).


    I’d be curious to see what these 4 supposedly spent so much money on. My guess is games and IAP. This is a problem everywhere.


    Contrast and compare “loot box” lawsuits.


    The “gerrymandering” tie-in, while at least novel and interesting in an otherwise cliche argument, is also largely irrelevant.


    It is, in fact, much much harder to sell software outside an “app store”. You have to spend money (usually a *lot*) on marketing to have much success in people even finding your app, let alone buying it.


    And as a customer, you then have to find the other stores (or the company website or whatever) to download it.


    If I have to spend time setting up a bunch of infrastructure to support the sale of my app, it is still going to cost me time to do this. (And I actually do this stuff for a living.) I could certainly build out infrastructure that puts me at about 5% overhead. But now I had to maintain it. And also take on huge amounts of complication in tax and governmental liability...especially if I want to sell internationally. And I now have to do pretty much 100% of my own marketing (which is likely 10-20%, or more, of a typical app’s list cost).


    This is without factoring in bandwidth, which, for a large app can be *massive* ... ask some companies about their AWS, Linode, DigitalOcean, et al invoices. (Though, to be fair, update bandwidth is usually just a fraction of overall bandwidth but it still adds up, especially with popular apps. Even another 1-3% is getting us dangerously close to where none of this is even worth doing yourself.)


    This stuff isn’t easy folks. It might not be worth 30% all the time, but the App Store gets a massive number of visits ... and you do get plenty of value out of that cut. My big “sell out” complaint with the App Store is the paid Ad lottery. That thing is a mess and needs to be changed. But that is a major digression.


    You want pricing proof to counter this ridiculous idea that just won’t seem to die? Feel free to compare and contrast IOS vs Mac app prices. And remember, a developer can write and distribute software for the Mac outside the store, and many have been doing so for decades.


    Mac app prices (for the same software title) are generally an order of magnitude more expensive.


    I’m also curious how many here would call out Google?


    “For apps and in-app products offered through Google Play, the transaction fee is equivalent to 30% of the price. You receive 70% of the payment. The remaining 30% goes to the distribution partner and operating fees.”


    Or Microsoft?


    “For a new app in the Windows Store, this is also true. But, in the Windows Store, once your application makes $25,000 USD, your share increases to 80%. So you are rewarded for creating a compelling app! For example, if your app makes $1 million in sales, you would take home $97,500 more* selling in the Windows Store than Google Play. “


    How many developers on the Microsoft Store do you think are bringing in a cool Mil or more per year? How many are $25k+.


    Where sre are the articles and lawsuits?


    Sure...you now get to the meat of the complaint ... you can sideload on those platforms, but how many “normal” people do you think do that?


    Android (and even modern Windows) are ... pretty discouraging... when you try to sideload.


    But really. Look at the prices between iOS apps and Mac apps if you want to see why these lawsuits mistake the actual reason for high priced software.


    I imagine many, if not most, of the readers of this site will remember buying boxes of disks/CDs of this fancy Microsoft Office suite for multiple hundreds of dollars (at one license per computer).


    I remember buying MetroWerks CodeWarrior for multiple hundreds of dollars.


    I remember buying Visual Studio for multiple thousands of dollars (well, to be fair my employer actually paid that bill, not me).


    I remember the infrastructure we used to need to master floppies (or later CDs) and send out boxed software. I remember when company offices had “mail rooms”. ;) For software companies (pre-mordern-internet) the mail room was mostly for outgoing shipments, little of the square footage was dedicated to incoming. You could sell software in any storefront you could convince to carry your product. And it cost far more than 30% of the list price to do so.


    It has never been cheaper to be a developer. But it has never been harder to compete and sustain yourself (or your software development company).


    As is often the case in consumer law, be careful what you wish, as the result you get may be worse than what was before.


    You want multiple competing stores? Before you answer “yes”, I encourage you to look into the state of PC gaming, particularly Steam, Epic, EA, and, Arc.


    I need five effing game store apps (at least, since a few larger entertainment companies, like Blizzard, also maintain their own fiefdoms) installed to have access to all the games I enjoy. And I’m forced, due to distribution deals to use ones I don’t like just to be able to play a game I enjoy.


    Imagine all that junk on your Xbox or PlayStation. Because if these suits succeed, this compost heap will spread.


    Enjoy having a home home screen full of app stores, and either all the background threads to maintain them or having to manually check them all for updates. It isn’t all it is cracked up to be.

    • skane2600

      In reply to curtisspendlove:

      I can't believe how some tech people are so fixated on the processing cost of checking for updates or otherwise missing that update with the UI change you may hate. Many programs just check for updates on launch and ask you if you want to update and then the cost drops to zero. Of course average users don't get excited about this stuff.

      • curtisspendlove

        In reply to skane2600:

        Of course average users don't get excited about this stuff.


        It isn’t a zero cost. Having multiple (different) implementations of the same code is stupid, and a security issue, in the case of an App Store. 


        But everyone forgets so quickly. From the technical side it isn’t as good of an idea as it sounds. 


        amp.businessinsider.com/fortnite-android-security-2018-8


        Bugs x numberOfAppStores


        or (worse)


        Bugs x numberOfAutoUpdatingApps


        Also, a large part of the world has to concern themselves with bandwidth. If a 1gb game update didn’t occur overnight, during “non-peak” (cheap) bandwidth, that has a monetary cost to them when they next launch their App Store. 


        Just because you don’t see a problem, doesn’t mean it doesn’t exist. 

        • skane2600

          In reply to curtisspendlove:

          Obviously it isn't really the same code just a similar function.


          Is there some kind of Steve Jobs magic that makes 1gb game a quicker download from Apple's store compared to a third-party's?

          • curtisspendlove

            In reply to skane2600:

            It isn’t the app code you have to worry about. It is the 3rd party downloader / autoupdater / etc code.


            Unless Apple write an installer API for 3rd party developers to use.


            But there will still be plenty (like the Fortnite downloader) who insist on writing their own.


            There have already been security issues introduced on other platforms that allow this.


            I’d be perfectly happy with a side load option, but I would prefer that it work similarly to how Gatekeeper on Mac works.

            • skane2600

              In reply to curtisspendlove:

              If the app code isn't what you have to worry about, why did you bring it up?


              Of course there's no guarantee that a third-party downloader is more buggy than an Apple one.

              • curtisspendlove

                In reply to skane2600:

                I didn’t bring up the app code. I specifically linked to an article about a 3rd party downloader on Android.


                I also said having multiple app stores stores on a single platform (that all do the same basic thing) is stupid.


                So I guess an App Store, is technically an app, so you should be concerned with bugs in that.


                There is no guarantee Apple’s App Store is less buggy than a 3rd party.


                But the probability of having security bugs in a single App Store is much lower than the probability of having security bugs across ten different App Stores on my phone. I’ll take my chances and the trade offs with a single App Store. It is one of the reasons I prefer the Apple platform and recommend it to some individuals.

                • skane2600

                  In reply to curtisspendlove:

                   "If a 1gb game update didn’t occur overnight,"


                  So yes, you absolutely did bring up an app.





                • curtisspendlove

                  In reply to skane2600:

                  I brought up an app download.


                  You suggested if an update doesn’t occur, no big deal, just launch the App Store and it will update.


                  In many areas of the world bandwidth is cheaper at night and more expensive during the day. So if I simply do that with a 3rd party App Store in one of these areas I get charged with 1gb of transfer, instead of a free overnight download.


                  There are are plenty of other considerations that people who aren’t you might need to take into account.


                  Does that help you understand why some people are “fixated” on update mechanisms?

                • skane2600

                  In reply to curtisspendlove:


                  "You suggested if an update doesn’t occur, no big deal, just launch the App Store and it will update."


                  Actually, that's not what I said. I said many programs check for updates when they are launched, not app stores and then if so, ask you if you want to update. So, if there's a bandwidth issue at that time of day you just answer "no" and nothing is downloaded.


                  I still think the importance of this issue is exaggerated but I don't expect you to agree.



          • Greg Green

            In reply to skane2600:

            There’s magic involved somewhere. Maybe it’s changed recently but downloading games a year or two ago from the MS store was days slower than downloading from Steam.

    • wright_is

      In reply to curtisspendlove:

      I agree with you for the most part, but there are a couple of key things. Google doesn't stop in-app purchases over non-Play accounts. For example I can buy Audible books or stuff off Amazon on the Android app, using my Amazon account, I am led to believe that is not possible on iOS?

      Likewise, if I subscribe to a service on Android, the app developer can either do it through Google Play or their own system. On iOS they can only do it though Apple. That means either you earn 30% more from Android subscribers or you can charge them less - or you have to tell the iOS users to please go to your website and sign up for a subscription there.

      I have no problem with paying Apple for the distribution of the app itself, but 30% every month for a subscription?

      • Greg Green

        In reply to wright_is:

        You can side load some apps on to iPhone but generally it takes developer tools to do it. It’s not for the average user.

      • curtisspendlove

        In reply to wright_is:

        I actually think Apple is stretching their play with the rule that disallows external signup links in an app. I get the security reasoning, but I think they could cover themselves legally and still allow external signup links to be present in app UI.


        As I’ve mentioned elsewhere I also think it is a bad user experience to not be able to buy digital goods in-app, but they do take their 30% (or some negotiated percentage for certain large clients) of any digital goods purchase. So I have to buy comic books through safari on comiXology’s site, audiobooks on Audible’s site, etc.


        (I admit that one of the few times I experience a bit of envy toward my wife’s Android life is when she is directly buying a book in the Kindle app after a sample chapter or whatever, and I have to fire up the Amazon site in Safari like a chump.) ;)


        They should open that up and let apps either choose to implement Apple’s purchase APIs to give a smoother user experience or implement their own at the potential cost of a bit more friction. I still think a lot of developers (especially small and medium sized companies) would just use the current APIs instead of implementing everything themselves. Building out payment processing kit, while not incredibly difficult, isn’t much fun for most people. But a lot of web apps have it anyway. So the choice should be there.

  6. dontbe evil

    finally... apple thurrot fanboys are upset

  7. hrlngrv

    Maybe if Apple exercised no, er, curation of app store offerings they could get away with claiming to be just a 3rd party middleman. However, the app store as the only means of installing apps may be more germane.

  8. hrlngrv

    This is just SCOTUS ruling that users can press a suit. Apple hasn't lost anything yet, but it'd seem they're going to have to prove that their app store provides essential value to users in trial court. One thing is certain: Apple's legal bills will be much higher over the next several quarters.

    • wright_is

      In reply to hrlngrv:

      I can see the opening day of the trial, where they do jury selection.

      Prosecution Lawyer: Juror number 1, are you an Apple stock holder?

      Apple Lawyer: Juror number 2, do you own an iPhone?


      A jury of 12 "unbiased" Android owners. ;-D

  9. Yaggs

    The biggest problem I see with a lot of this is the fact that Apple will let people put free apps on the App Store... so Aside from charging a "processing fee" in line with the normal 3% ish any other CC processor charges, what are these paid apps doing that makes it cost them so much more than the free apps? If Apple doesn't make ANYTHING except the $99 per year that a developer has to pay to be a developer and release free apps then why, if you want to charge your user for an app, should you have to pay of 1/3 of the cost of the app to Apple? The free apps are getting all the same services EXCEPT for payment processing... and again... 30% is 10x what a normal payment processor charges.


    And I get that the developers *need* Apple to make money on their apps... but Apple *needs* the developers to put their apps in the store or the iPhone wouldn't be as popular.

  10. John Jackson

    Many subscription products, developer tax on app stores, cloud centralisation … all examples of a potential return to feudal computing and the days of IBM: where the customer owns nothing and pays the revenue cost dictated by the lord of the manor.

    Time we had limits on platform price gouging.

    I wonder how MSFT and APPL would feel if INTEL levied them a 30% tax because they use microprocessors, or the disk storage companies the same, or the network providers a 30% tax on Edge, ...

  11. Daekar

    It will be interesting to see how much the press reports on this, and how. I view this as a fairly big precedent-setting case, and it will shape how digital marketplaces are handled by all companies moving forward. The big question in my head is, what changes would the Court suggest that Apple pursue to correct the violation? Charge less? How much less is enough? Drop the apps that they produce, or stop charging for them (thus removing them from pricing competition)?


    EDIT: If this causes Apple to allow sideloading, that will be good and bad. For me, it would immediately make iOS considerably more interesting.

    • Greg Green

      In reply to Daekar:

      The Supreme Court decision merely allows the lower court case to go forward. So far there hasn’t been any decision or precedent from the original lawsuit.


      Once a lower court decision is made then the appeals process can start all over again. Only when appeals are finished will their be precedent (or not).

    • skane2600

      In reply to Daekar:

      I would think the simplest remedy would be to allow iOS apps to be installed outside of the App Store. Then developers could decide if the services that Apple offers in the App store are more attractive then the possibly less expensive alternatives. That competition would be likely to lower average prices for the consumer and would pretty much eliminate the monopoly issue.

    • provision l-3

      In reply to Daekar:

      This is a civil lawsuit not a criminal lawsuit so the court won't try to "correct the violation". Civil suits handle restitution or compensation and in the case of civli antitrust the fine is automatically tripled. Forcing a change with the app store or forcibly breaking up the company would require a criminal case and the DOJ filed an amicus brief on the side of Apple so that is unlikely to happen.

      • nbplopes

        In reply to provision l-3:


        The App Store it’s a Store not a directory of Apps.


        Yet I do think that it’s excessive for Apple to be entitled to charge 30% of ones business in the context iOS devices, regardless of anything else.


        Hardly such a rational it’s defendable. More so when except for the app there is no other involvement from the in creating such business


        Thw problem is, how can we measure this?


        Within this reasoning I do think Apple is acting as. Monopolist because it is such an important market today.


        In a way, as a customer, I feel I am being treated as a product.


    • Jackwagon

      In reply to Daekar:

      I do wonder how they would handle sideloading if it came to that. I imagine they'd feel a need to provide some sort of advisory to people who go down that road, but they'd probably be cautioned by legal counsel to not go too far into "HERE BE DRAGONS" territory with the advisory.

      • curtisspendlove

        In reply to Jackwagon:

        I expect it would operate a lot like Gatekeeper on the Mac.


        Developers would be be allowed to “notorize” built binaries with their developer account certificates.


        Then there would be a setting (App Store only) by default. With a sliding scale of riskier options.


        I'd guess you’d be able to set IOS to also install certified apps as well, and perhaps install any app with an “unsafe” warning and explicit “yes, I understand the security risk” opt in.


        I do actually wish this were an option on iOS so I could download directly from a developer’s website, etc.


        I also wish I could buy ebooks in the Kindle app, audiobooks in audible, etc.


        :: shrug ::


        en.m.wikipedia.org/wiki/Gatekeeper_(macOS)

  12. cheetahdriver

    If Apple is actually curating the store (which I believe they are, at least to some extent) then they deserve a fee for doing that. 30% isn't outside the range of normalcy for this. If the plantifs win, were I Apple I would simply allow sideloading of whatever crap the customer chose and then require deletion anytime they brought it in. If you don't have a trusted source to get apps, it's the Wild West of WIndows out there. Apple could then charge a fee for having "Apple Approved" apps in the store. Perhaps 30%....


    Not saying Apple is being an angel here, just that folks should think about what they are trying to accomplish, and how that advantages (or disadvantages) the end customer. If they break the store, I doubt anyone will be happy except some of the app companies that will be able to delve as far into your phone as they like.

    • earlster

      In reply to cheetahdriver:

      Of course a curated store has a cost associated and the provider needs to be able to make a profit, but this is less about the question if 30% is a fair cut, but about that fact that Apple doesn't allow competing stores, which would allow for the market to determine that cut.


      • beatnixxx

        In reply to earlster:

        Also, I think there's a difference between a one-time 30% and the ongoing 30% for subscriptions purchased through the store (netflix, spotify, etc.). While there might be some minor recurring cost for the transaction fee, etc. 30% is, in my never to be humble opinion, obscene for these kind of on-going "purchases."

    • Skolvikings

      In reply to cheetahdriver:

      I disagree that it's really much of a curated list. I mean, sure they do that, but most people go to the top lists. Usually I don't even go to any lists, I know what I want from elsewhere and just search the store for it.

  13. nbplopes

    This is all fine and dandy, but the prices of apps are the same or more expensive in other stores.


    What about Whaf happens in consoles? What about Cable? What about Amazon?


    Everyone is doing it. At least Apple does in a very clear and transparent way.

  14. Stooks

    If Apple is forced to allow apps from outside the store then their whole model will collapse. Their Faux-privacy stance will also fall apart.


    Many app makers need the store for its distribution (install/updates) and payment processing. I guess they would stay and bigger app makers would leave to make more money since they wont have to pay Apple? I bet the charge the same thing for their apps, but just keep the 30% and the consumer ultimately loses because malware will come flooding in from shady apps that you can get from anywhere.

    • provision l-3

      In reply to Stooks:

      I think you meant faux-privacy not fo-privacy.


      Anyway, per my comment below. This is a civil lawsuit and a criminal one. So the result of this one wouldn't be a ruling that forced Apple to allow Apps from outside the store to be installed.

      • Stooks

        In reply to provision l-3:

        Fixed, mean Faux. I know it is civil but there was stuff in their about monopoly specifically about only being able to buy apps from Apple.


        Personally I think it would be a mistake. I specifically choose Apple because of its locked down store. I wish I could choose my default apps, like I can on Android but right now the security of the store and getting updates is more important.

        • provision l-3

          In reply to Stooks:

          Right, but assuming the outcome is that the App Store is found to be a monopoly and that Apple is found to be abusing that monopoly there is a limit to the what the outcome can be because it is a civil trial. Being forced to allow apps outside of the App Store isn’t one of those outcomes. That would require a criminal trial. They outcome in this case would be compensation and at the estimated damages. The other possible outcome would be for Apple

          to settle in which case they could offer to modify App Store restrictions or pricing rather than paying the full compensation amount.

          • MikeGalos

            In reply to provision l-3:

            You're missing the point. This does enable civil suits AND it's the key step toward an anti-trust case for abuse of monopoly power.

            • provision l-3

              In reply to MikeGalos:

              You have a serious reading comprehension problem. I have said this would be a civil antitrust lawsuit. And because it is a civil antitrust suit rather than a criminal antitrust suit the result wouldn't be Apple being forced to allow apps to be installed by anything other than the app store as the original poster suggested. That is the fundamental difference between civil and criminal suits. A civil suit's judgment would be limited to restitution or compensation. For a court to force a change to Apple's business practices or break Apple up or whatever it would require a criminal antitrust lawsuit. The chances of a criminal lawsuit don't seem super likely given that the DOJ filed an amicus brief siding with Apple and suggesting that customers don't have legal standing to sue. Clearly the SCOTUS disagreed and ruled that they did. A ruling I personally agree with, but it doesn't look good for a criminal suit if the DOJ is arguing against it. The FTC could disagree and file a criminal suit but I honestly think we would need an administration change for the government to become more interested in antitrust.



      • hrlngrv

        In reply to provision l-3:

        He might have meant fo-privacy as in the opposite of aunty-privacy, but I figure you're right.

  15. Patrick3D

    There is no reason for iOS and tvOS to be different than MacOS in allowing users to install any software they want, simply by presenting the user with a security warning when installing from a 3rd party. Done. End of story.

Leave a Reply