The Supreme Court hearing on Pepper v Apple has not gone well for Apple; the Supremes are considering whether App Store customers are entitled to sue Apple over its monopoly control over the Ios App Store.
The plaintiffs say that Apple’s 30% commission and control over pricing (exerted through search ranking and other mechanisms) raise prices on apps, and that they should be entitled to sue Apple for the additional expense its customers bear due to this monopolistic control. The framing is important: since the Reagan era, US antitrust has been dominated by the “public harm” standard, which says that the only monopolies that matter are the ones that result in price increases for consumers — all other forms of market domination are within bounds in this theory.
Apple argues that whether or not the public is being harmed by elevated app pricing, the App Store customers don’t have standing to sue. They cite a case called Illinois Brick, which concerned a brickworks cartel that conspired to raise prices on bricks that were sold to masons, who then passed the price-hikes on to consumers. In that case, the customers didn’t have standing to sue the brick cartel, because they were buying their bricks through an intermediary.
But App Store customers don’t buy their apps from third parties (quite the contrary: Apple famously takes steps to prevent people from buying apps anywhere but its App Store), they buy them from Apple.
It’s always hard to say how the Supremes will rule, but based on the argument, it seems like Apple is likely to lose. All this means is that the lawsuit can proceed, and Apple will still get a day in court to defend its monopoly.
My takeaway from this is that it’s an example of how distorting the public harm theory is: it’s obvious that Apple maintains a monopoly over App Store apps, and that they maintain that monopoly through anticompetitive use of DRM, user agreements and developer contracts. None of that would have flown in the pre-Reagan era. But because price is the only thing we’re willing to consider today, we end up having baroque procedural wrangles over whether or not price-fixing for apps is or isn’t like price-fixing for bricks.
After reviewing the transcript, it seems clear that Justice Sonia Sotomayor was leaning heavily against Apple. She explained to Apple’s attorney, Daniel Wall, that the precedent set by Illinois Brick doesn’t appear to apply the way that he thinks it does.That case found that customers couldn’t sue a brick monopoly because they weren’t the direct purchasers of the bricks. The customers were purchasing the bricks from masons who acted as an intermediary. As the direct purchaser of the bricks, the masons were the only ones who had legal standing to sue the brick monopoly. Establishing the direct purchaser as the one who has legal standing to sue in an antitrust case was intended to prevent multiple groups from suing a company for the same offense. “This is not quite like that,” Sotomayor told Wall. “This is dramatically different. This is a closed loop.”
Supreme Court Appears to Lean Heavily Against Apple’s Defense of Its Walled Garden [Rhett Jones/Gizmodo]