Apple Lawsuit Over Inflated Prices Can Proceed, Supreme Court Says – Investor's Business Daily

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The U.S. Supreme Court ruled that consumers can press ahead with a lawsuit that accuses Apple (AAPL) of using its market dominance to artificially inflate prices at its App Store. Justices announced the Apple lawsuit ruling Monday.

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The 5-4 decision adds to pressure the company faces to cut the 30% commission it charges on app sales. Lawyers pressing the case plan to seek hundreds of millions of dollars on behalf of overpaying consumers. Apple fell 5.8% to close at $185.72 on the stock market today.

The company says a 1977 Supreme Court ruling bars the Apple lawsuit from proceeding. That 1977 case said only direct purchasers of a product can collect damages for overpricing under federal antitrust law. Justices designed that in part to keep companies from paying twice for the same misconduct.

But Justice Brett Kavanaugh, joining the court’s liberal wing in the majority, said App Store customers meet that test. They buy directly from Apple, he contended.

“The iPhone owners are not consumers at the bottom of a vertical distribution chain who are attempting to sue manufacturers at the top of the chain,” Kavanaugh wrote. “There is no intermediary in the distribution chain between Apple and the consumer.”

Apple Lawsuit Prompts Antitrust Claim Worries

Apple and its tech-industry allies said before the ruling that a decision allowing the lawsuit could lead to expensive antitrust claims against other companies that run online marketplaces. It could affect the likes of Alphabet’s (GOOGL) Google, Amazon.com (AMZN) and Facebook (FB).

In dissent, Justice Neil Gorsuch said the ruling “exalts form over substance.” Chief Justice John Roberts and Justices Samuel Alito and Clarence Thomas joined Gorsuch in dissent.

“To evade the court’s test, all Apple must do is amend its contracts,” Gorsuch wrote. “Instead of collecting payments for apps sold in the App Store and remitting the balance (less its commission) to developers, Apple can simply specify that consumers’ payments will flow the other way: directly to the developers, who will then remit commissions to Apple.”

When a user buys an app, Apple collects the money, keeps the 30% commission and gives the rest to the developer. The company told the high court it passed $26.5 billion on to developers in 2017.

App Economy Growing To $152 Billion

Apple is part of an app economy that will grow from $82 billion last year to $157 billion in 2022, according to App Annie projections.

In the Apple lawsuit, the company argued the case’s focus was the 30% commission. That’s something the company said is paid by the developers, not the app purchasers. The consumers said they pay for the commissions through higher app prices. But Apple contends those are the type of “pass-through” damages barred under the Supreme Court’s 1977 Illinois Brick v. Illinois ruling.

Thirty-one states supported the consumers, urging the Supreme Court to allow the lawsuit.

They also wanted to eliminate the direct-purchaser requirement altogether by overturning the Illinois Brick decision. Most states already allow downstream purchasers to collect damages. The group says courts have been able to ensure that companies don’t have to double-pay.

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