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iPhone owners can sue Apple over App Store, Supreme Court says – CNET

Apple lost its Supreme Court cases against Pepper. 

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iPhone users can sue Apple for operating an alleged monopoly with its App Store, the Supreme Court ruled Monday.

The Justices on the highest court in the land disagreed with Apple's argument that app buyers aren't direct customers of Apple. Instead, they said in a 5-4 decision in the case, Apple v. Pepper, that "the iPhone owners were direct purchasers who may sue Apple for alleged monopolization."

"The iPhone owners here are not consumers at the bottom of a vertical distribution chain who are attempting to sue manufacturers at the top of the chain," Justice Brett Kavanaugh said in the court's opinion as he called the Supreme Court's conclusion "straightforward."  

iPhone owners can sue Apple over App Store, Supreme Court says     - CNET

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The case stems from complaints that Apple's App Store -- the only way to purchase apps that can be used on iPhones, iPads and Apple Watches -- is effectively a monopoly that overcharges people for software. Under Apple's model, it charges developers a $99 annual membership fee, lets them set the retail price of their apps and then charges a 30% commission for each sale. 

Apple prohibits developers from selling iPhone apps outside the App Store, and Apple device users can't download software to their phones unless it comes from the App Store. Google's Android phones, by contrast, make apps available in a variety of places. Along with Google's official Play Store, users can download apps from stores operated by Samsung and Amazon, and other developers have also offered their apps directly to consumers. 

As of November, seven plaintiffs in Apple v. Pepper had filed four antitrust cases class-action complaints against Apple since 2011. They argued that Apple's practices meant apps cost more than they should, and they asked for damages on behalf of people who've bought software in the App Store. Apple has long said that closely controlling the apps in its store ensures they're safe, and it has touted the number of jobs and industries created by the existence of the App Store. 

In defense in the Pepper lawsuit, Apple said iPhone owners didn't have the right to sue Apple because Apple didn't directly set app prices. Those are determined by developers. And it said it only acts as a conduit between the customer and the actual sellers -- the app developers. The Supreme Court disagreed. 

Apple didn't immediately respond to requests for comment on Monday. Its shares dropped 5.1% to $187.04 in recent trading. 

Services at risk?

Apple, which became the US' first trillion-dollar company last year, has been struggling in recent months. The company makes about two-thirds of its revenue from the iPhone, but people just aren't buying as many smartphones. They're holding onto their devices longer, and in places like China, they're increasingly opting for phones from Apple's rivals like Huawei and Oppo. That means Apple has to grow its operations beyond the iPhone, and it's counting on its services operations to become an even bigger business.

The App Store is a major part of that business. Anything that threatens the App Store could hurt Apple's push to become a services powerhouse. The Supreme Court's decision, and the likely subsequent lawsuits that will emerge, could change the way apps are sold. Apple also could be on the hook for a large monetary hit if suits alleging it's a monopoly are successful. 

The Pepper lawsuit was initially dismissed because the commission is imposed on the developers, not the purchasers who are suing. But the plaintiffs appealed and the Ninth Circuit Court of Appeals ruled in 2017 that they had standing to sue Apple.

Apple told the court in an appeal that the outcome of this lawsuit could affect e-commerce venues such as Google Shopping, Amazon and Facebook's marketplace. Those online marketplaces act as middlemen between consumers and third-party businesses. The companies take commissions on sales, but don't set retail prices for the products they sell.

"This is a critical question for antitrust law in the era of electronic commerce," Apple said in its 2017 petition. "The threshold issue is who may seek damages based on allegedly anticompetitive conduct by Apple that allows it to charge excessive commissions on apps distribution: the app developers, the plaintiff consumers, or both?"

Bloomberg earlier reported the news. 

CNET's Shelby Brown contributed to this report.

Originally published at 7:40 a.m. PT
Updates at 8:04 a.m. and 8:44 a.m PT: Adds background information.

iPhone owners can sue Apple over App Store, Supreme Court says     - CNET

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