Noted antitrust attorney K. Todd Wallace comments on the
latest development in Apple iPhone apps antitrust litigation.
The U.S.
Supreme Court has decided to hear Apple’s appeal of the Ninth Circuit’s
decision allowing the litigation to proceed in a case brought against Apple by
purchasers of iPhones and iPhone applications (hereinafter “apps”). In early 2017, the Ninth Circuit Court of
Appeals overturned a dismissal by the district court for lack of statutory
standing.
Plaintiffs
in the case are purchasers of iPhones and iPhone apps between 2007 and
2013. Plaintiffs allege “that Apple has
monopolized and attempted to monopolize the market for iPhone apps.” As familiar to many users, the Ninth Circuit
outlined the factual background of the iPhone ecosystem. “The
iPhone is a ‘closed system,’ meaning that Apple controls which apps— such as
ringtones, instant messaging, Internet, video, and the like—can run on an
iPhone's software. In 2008, Apple launched the ‘App Store,’ an internet site
where iPhone users can find, purchase, and download iPhone apps. Apple has
developed some of the apps sold in the App Store, but many of the apps sold in
the store have been developed by third-party developers.” Noting that Apple receives a 30% commission
from any sale of apps developed by third-party developers, the Ninth Circuit
went on to explain that “Apple prohibits app developers from selling iPhone
apps through channels other than the App Store, threatening to cut off sales by
any developer who violates this prohibition. Apple discourages iPhone owners
from downloading unapproved apps, threatening to void iPhone warranties if they
do so.”
Plaintiffs’
complaint went through multiple versions and amendments following complex history
of legal procedure at the trial level. The
last amended complaint addressed only Apple’s monopolization of the iPhone app
market. At the trial level, Apple sought
and was granted a dismissal based on statutory standing to sue in an antitrust
case.
“Under §
4 of the Clayton Act, ‘any person who shall be injured in his business or
property by reason of anything forbidden in the antitrust laws may sue . . .
and shall recover threefold the damages by him sustained[.]’” U.S. Supreme Court has limited the definition
of any person under the act in Illinois Brick Co. v. Illinois, 431 U.S. 720
(1977) to “only ‘the overcharged direct purchaser, and not others in the chain
of manufacture or distribution’". Therefore,
the Ninth Circuit framed the issue as “whether Plaintiffs purchased their
iPhone apps directly from the app developers, or directly from Apple. Stated
otherwise, the question is whether Apple is a manufacturer or producer, or
whether it is a distributor. . . . [I]f Apple is a manufacturer or producer
from whom Plaintiffs purchased indirectly, Plaintiffs do not have standing. But
if Apple is a distributor from whom Plaintiffs purchased directly, Plaintiffs
do have standing.”
Apple
argued that “it does not sell apps but rather sells ‘software distribution
services to developers.’ In Apple's view, because it sells distribution
services to app developers, it cannot simultaneously be a distributor of apps
to app purchasers. Apple analogizes its role to the role of an owner of a
shopping mall that ‘leases physical space to various stores.’" The Ninth Circuit rejected Apple’s argument,
noting that “part of the anti-competitive behavior alleged by Plaintiffs is
that, far from allowing iPhone app developers to sell through their own ‘stores,’
Apple specifically forbids them to do so, instead requiring them to sell iPhone
apps only through Apple's App Store.”
The Ninth
Circuit explained that the decision is compelled “on the fundamental
distinction between a manufacturer or producer, on the one hand, and a
distributor, on the other. Apple is a distributor of the iPhone apps, selling
them directly to purchasers through its App Store. Because Apple is a
distributor, Plaintiffs have standing under Illinois Brick to
sue Apple for allegedly monopolizing and attempting to monopolize the sale of
iPhone apps.”
The issue
reached by the Ninth Circuit obviously has potential for far reaching effect in
the digital age. Many tech companies, such
as Google, will likely be watching the Supreme Court case closely as the Court
shapes the antitrust exposure of not only Apple but many others who follow such
a business model. The Ninth Circuit case is In re Apple iPhone Antitrust Litigation, 846 F.3d 313 (2017),
available at https://scholar.google.com/scholar_case?case=13642149723808458466&q=in+re+apple+iphone+antitrust&hl=en&as_sdt=3,47
*** K. Todd Wallace is an attorney at Wallace Meyaski in New Orleans. He has nearly 20 years of experience in the legal and business professions with established excellence in trial advocacy, negotiation, strategic and initiative planning, government relations, mergers and acquisitions, and team building. See http://www.walmey.com/our-attorneys/k-todd-wallace/
