Supreme Court appears skeptical of Apple's arguments in App Store monopoly case

The U.S. Supreme Court appeared skeptical of Apple on Monday during oral argument in a case that could permit iPhone owners to move forward with an antitrust suit against the company for allegedly inflating the prices in its App Store.

That lawsuit could disrupt the electronic giant's mobile software sales ecosystem, and potentially hit the company with hundreds of millions of dollars in penalties.

Shares of the company fell negative briefly in intraday trade after the hour-long argument concluded, before recovering much of their losses. The company has been dogged by concerns about slow iPhone sales.

The justices, including several of the court's conservatives, seemed sympathetic to the arguments presented by the iPhone owners who brought the case.

Two of the court's conservative justices, Samuel Alito and Neil Gorsuch, went as far as suggesting that the Supreme Court precedent on which Apple based its argument may need to be revisited.

To be sure, it is not always possible to guess how justices may rule based on their questions at oral argument. In most cases that have come before the Supreme Court under Chief Justice John Roberts in which one of the parties is a corporation, that corporation has prevailed.

The iPhone owners alleged Monday that the 30 percent commission Apple takes on app sales leads app developers to increase their prices, passing on the burden to consumers. Apple, which blocks iPhone owners from purchasing software from third-party marketplaces, is able to charge its commission because of its monopoly power, they argued.

The Supreme Court will not settle the underlying antitrust issue. Rather, the justices are reviewing whether iPhone owners are entitled to bring such a case at all.

In 1977, the Supreme Court established the "Illinois brick doctrine," under which only the direct purchaser of a good is entitled to collect antitrust damages. Apple argued that under the doctrine, only app developers would be able to bring an antitrust suit against the company. The company argued that it acts as an agent for developers, who set their own prices and are ultimately the direct sellers.

Noel J. Francisco during the Apple vs. Pepper case

Source: Art Lien

Noel J. Francisco during the Apple vs. Pepper case

Liberal justices Elena Kagan, Sonia Sotomayor and Stephen Breyer took issue with that formula. In an exchange with Daniel Wall, who represented the company before the court, Kagan outlined her thinking of the case in personal terms.

"I mean, 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," Kagan, the youngest member of the court's liberal wing, said. "From my perspective, I've just engaged in a one-step transaction with Apple."

Alito, a George W. Bush appointee, suggested Illinois Brick may no longer be relevant. He told Wall that "I really wonder whether, in light of what has happened since then, the court's evaluation stands up."

"Take the third point that it makes about the direct, so-called direct purchasers are the most efficient and most — in the best position to — to sue," Alito said. "If we look at this case, how many app developers are there whose apps are sold at the Apple store?"

Wall responded that there are tens of thousands of app developers. Alito asked if any had ever brought a lawsuit against Apple.

"None have ever sued," Wall said.

Gorsuch, Trump's first Supreme Court nominee, noted that "direct purchasers don't always sue because there's a threat that monopolists will share" the profits with them.

"Shouldn't we question Illinois Brick, perhaps, given the fact that so many states have done so?" Gorsuch asked.

A coalition of thirty-one states, including Texas and California, filed a brief with the court asking it to overturn the Illinois Brick ruling. The states did not take a position on the antitrust allegations against Apple.

Justice Brett Kavanaugh, who was confirmed in October, was more reserved in his questioning than Gorsuch or Alito. He noted, however, that "the consumers are harmed" in addition to the app makers. And he told Solicitor General Noel Francisco, who argued in support of Apple, that "we have ambiguity about what Illinois Brick means here."

"Shouldn't that ambiguity, if — if there is such ambiguity, be resolved by looking at the text of the statute? Any person injured?" he said.

Roberts suggested with his questions that he agreed with Apple's position. The other conservative on the bench, Justice Clarence Thomas, remained silent, which he typically does when hearing cases.

An adverse ruling for Apple in the case could have a broad impact, affecting other tech giants, like Facebook, Ebay, Amazon and Alphabet's Google, which operate similar electronic marketplaces. The court is expected to issue a ruling by late June.