The Apple Inc. logo is seen outside of the company’s new flagship store at Union Square in San Francisco, California, U.S. (Photographer: David Paul Morris/Bloomberg)  

Apple Faces Skepticism at Supreme Court in Bid to Stop Antitrust Suit

(Bloomberg) -- U.S. Supreme Court justices appeared inclined to allow an antitrust lawsuit that accuses Apple Inc. of using its market dominance to artificially inflate prices at its App Store.

Hearing arguments in Washington on Monday, justices from across the court’s ideological spectrum suggested skepticism about Apple’s contention that the consumers pressing the suit can’t collect damages.

A ruling against Apple could add to pressure the company already faces to cut the 30 percent commission it charges on app sales. Lawyers pressing the case have said they will seek hundreds of millions of dollars.

Apple has seen a steep decline in its share price since early October amid concerns about weak demand for iPhones, and it was briefly overtaken by Microsoft Corp. Monday as the most valuable U.S. company based on market capitalization. Apple rose 0.6 percent to $173.25 at 2:08 p.m. New York time.

Apple says the consumers can’t press the suit because it centers on the commissions the company charges to app developers. Past Supreme Court decisions have said only direct purchasers can sue for damages.

The consumers in Monday’s case say they pay for commissions through higher app prices, and the court’s four liberal justices signaled they would let those claims go forward.

‘Non-Intuitive Argument’

"It’s the customer who pays the 30 percent," Justice Sonia Sotomayor said.

Apple’s lawyer, Daniel Wall, said the 30 percent commission "is charged by contract between Apple and the developers," making the developers the only conceivable group that could sue.

Justice Elena Kagan called that a "non-intuitive argument."

"It just seems to me that when you’re looking at the relationship between the consumer and Apple, that there is only one step," Kagan said. "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. From my perspective, I’ve just engaged in a one-step transaction with Apple."

The skeptics included Justice Ruth Bader Ginsburg, who asked several questions while attending the court’s first argument since she broke three ribs earlier this month.

Two of the court’s conservatives -- Justices Neil Gorsuch and Samuel Alito -- suggested they weren’t sure the consumers qualified as direct purchasers, but they raised the prospect of allowing the lawsuit through a more sweeping ruling. Each questioned the Supreme Court’s 1977 Illinois Brick decision, which says only direct purchasers of a product can collect damages for overpricing under federal antitrust law.

State Antitrust Suits

Alito said he wasn’t sure the reasoning behind the 1977 ruling "stands up," while Gorsuch pointed to a brief filed by 30 states and the District of Columbia asking the court to overturn the ruling. Most states allow suits by indirect purchasers under their own antitrust laws.

"Why should we build on Illinois Brick?" Gorsuch asked. "Shouldn’t we question Illinois Brick perhaps, given the fact that so many states have done so?"

Only Chief Justice John Roberts suggested clear support for Apple. He said the legal theory being pressed by the consumers would leave the company "subject to suit on both sides of the market for a single antitrust price increase that they’re alleged to have imposed."

The lawyer for the iPhone users, David Frederick, told the court that "Apple has found ways using technology and contractual constraints to limit the opportunity of a competitive market to flourish."

The Trump administration is backing Apple in the case. Solicitor General Noel Francisco told the justices that the allegedly inflated commission charged by Apple is not the "direct cause" of higher app prices.

"The direct cause of the higher prices is the app maker’s decision to increase their prices in order to recoup the overcharge," Francisco argued.

‘Any Person Injured’

Among the skeptics was the newest justice, Brett Kavanaugh, who pointed to the broad language of the 1914 Clayton Antitrust Act, which says "any person who shall be injured" can collect damages.

"We have ambiguity about what Illinois Brick means here, and shouldn’t that ambiguity, if there is such ambiguity, be resolved by looking at the text of the statute?" Kavanaugh said. "Any person injured? That’s broad."

Apple is part of an app economy that will grow from $82 billion last year to $157 billion in 2022, according to projections from App Annie, a data and analytics company. Apple says that last year alone, developers earned more than $26 billion through the App Store, which offers more than 2 million apps to consumers.

Apple and its tech-industry allies say a decision allowing the consumer lawsuit could open other companies that run online marketplaces and platforms to expensive antitrust claims. A broad ruling could affect Alphabet Inc.’s Google, Inc., Facebook Inc., Etsy Inc. and DoorDash Inc., Apple and its supporters say.

The case is Apple v. Pepper, 17-204.

©2018 Bloomberg L.P.