In a surprise upset, Brett Kavanaugh (accused rapist), one of the courts more conservative appointees, sided with liberal justices today, allowing antitrust cases to move forward against Apple. In the case of Apple v. Pepper, a case originally opened in 2011, the court ruled in favor of Robert Pepper, an iOS user suing Apple for their monopolistic treatment of App Developers and the cut they take from developers. His claim is that developers put that burden on consumers by raising prices.
Apple’s defense was that iOS users were not really their App Store customers. However, Apple charges customers directly on behalf of app developers. That 30% cut of App Sales and 15%-30% cut of subscriptions comes directly from consumers. Five out of nine justices agreed.
Apple argues that they actually charge developers for their cut and that only those developers were the real Apple customers. However, Robert Pepper’s lawyers argued that developers have to compensate for this substantial cut, which leads to higher prices for consumers. You may have noticed that many subscription services that are marketed as “$9.99” end up as $12.99 charges on your bank statement. That’s the developer accounting for Apple’s 30% cut.
Apple’s users may not be the intended recipients of these fees, but they foot the bill. The court ruled that a similar 1977 case was not enough to exonerate Apple, who would have to prove that they are not a monopoly in court.
Seeing as the App Store is the only place to get iOS apps, and iOS is one of two smartphone operating systems, Apple has its work cut out for it.
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What This Could Mean for Apple
The case hasn’t been decided, only that it’s allowed to proceed. However, we could now see class action lawsuits against Apple from both iOS users and iOS app developers. These suits could force Apple to lower or eliminate their cut of apps on the App Store. There’s another option. Apple could spin off the App Store into its own company, separate from Apple. This company would charge all companies—including Apple—a set price for hosting apps on the App Store. Apple would have to negotiate with the App Store just as any other developer would, removing the antitrust portion of the case. This is the same as Elizabeth Warren’s plan for breaking up large tech companies.
It’s possible that someone could still consider this a monopoly unless Apple allows apps installed from other companies on iOS. It would open iOS up the way macOS is open. Apple could still choose to do this on their own, but would likely rather do it only as a last resort to avoid antitrust fines or as part of a ruling.
Finally, Apple could simply change the wording of their contracts. They could say that the pricing cannot be passed along to consumers. They may also switch to a subscription plan for developers, requiring a higher subscription fee for registered developers to replace the portion of app sales they collect. This will hurt smaller developers, though Apple could base the fee on the number of iPhone users who regularly use the app.
What Would it Mean for Apple Users?
Apple users might not notice anything right away. They may receive a small sum of money as the result of a class action lawsuit, but this likely wouldn’t be very much. However, they may get more choice in the apps they download. Apple could have to open iOS up to third party app stores as the result of an antitrust ruling against them. This would lead to greater consumer choice.
If Apple decides to change their pricing model, dealing only with developers, Apple users may not notice anything at all. Developers may choose to lower their prices slightly, but many will simply enjoy the larger margins due to the higher prices App Store users have become accustomed to.
Apps on the App Store are already underpriced compared to their desktop counterparts. Therefore, developers will be less likely to lower their prices willingly. And why should they? iOS and Android users already dramatically underpay for their apps and the effort that goes into developing them. That’s why small app developers struggle to make any money.
Chances are, consumers won’t notice a difference, but that depends on how far the justices go to enforce antitrust laws.
What About Spotify and Other Developers?
Illustration: Spotify
Spotify has already accused Apple of monopolistic behavior. They’ve already stated that Apple’s 30% “tax” on developers hurts consumers and hurts innovation. It also gives an unfair advantage to Apple’s own products. We’ve seen this happen, with Apple Music as the only service that works on Apple’s Homepod and the rule-breaking upsell for Apple News+ in the Apple News app. Not to mention the fact that these upsells occur with apps that Apple installs on iOS devices from the factory.
Basically put, any decisions in favor of consumers would set a precedent for third party app developers like Spotify, Pandora, Flipboard, or other companies that compete with Apple to open a lawsuit against the company. They’d likely win with the legwork already done for them.
For consumers, this will lead to more fair pricing, more competition, and greater differentiation and innovation between services. For Apple, it’s a strike against their monopoly.
How is Apple Handling This?
Apple has been reluctant to speak to the press regarding the matter. However, Apple made a statement, saying that Apple is “confident we will prevail when the facts are presented and that the App Store is not a monopoly by any metric.” That’s a little hard to believe though. Apple has worked hard to ensure that the only place iOS users can get apps is either from the App Store if or they build them themselves. That’s the very definition of a monopoly.
“The first sale is from Apple to the customer. It’s the customer who pays the 30 percent.”
– Justice Sonia Sotomayor on the fact that Apple directly charges users’ credit cards.
Apple will continue to fight this in court. Today, Apple’s stock price fell over 5%, and was already down 5% this week on fears of Apple’s reliance on Chinese manufacturing and Trump’s tariffs. However, Apple’s stocks were mostly level throughout the day after the initial drop. That suggests investors are waiting to see how this plays out. Apple didn’t lose their case yet, they simply now must go to trial.
Apple’s Statement
Apple’s full statement is below. What do you think? Will Apple be able to defend their case?
“Today’s decision means plaintiffs can proceed with their case in District court. We’re confident we will prevail when the facts are presented and that the App Store is not a monopoly by any metric.
We’re proud to have created the safest, most secure and trusted platform for customers and a great business opportunity for all developers around the world. Developers set the price they want to charge for their app and Apple has no role in that. The vast majority of apps on the App Store are free and Apple gets nothing from them. The only instance where Apple shares in revenue is if the developer chooses to sell digital services through the App Store.
Developers have a number of platforms to choose from to deliver their software — from other apps stores, to Smart TVs to gaming consoles – and we work hard every day to make our store is the best, safest and most competitive in the world.”
– Apple’s official statement
Sources
- Andrew Chung, Reuters
- Timothy B. Lee, ArsTechnica
- Tony Romm and Robert Barnes, The Washington Post
- Supreme Court Ruling