The U.S. Supreme Court ruled Monday that a major antitrust lawsuit against Apple over its App Store can move forward. The 5-to-4 ruling immediately plunged Apple's stock prices and opened the door to the possibility of enormous future damages against the company.
Justice Brett Kavanaugh, appointed by President Trump last year, wrote the decision for himself and the court's four liberal justices. In it, he stressed that the court majority was taking no position on the merits of the lawsuit but said that under long-standing precedent the suit could proceed to its next stages.
The lawsuit was brought against Apple by four iPhone users, who claimed that Apple was monopolizing the retail market for the sale of apps and using that monopoly to force higher-than-competitive charges for its apps.
The theory of the lawsuit is that Apple's 30% commission charge to app developers is often passed on to consumers — creating a higher-than-competitive price — and that competitors are shut out because Apple prevents iPhone owners from buying apps anywhere other than its App Store.
Apple sought to block the lawsuit, asserting that it had not set the prices on the apps and thus the iPhone owners had no standing to sue.
But the 9th Circuit Court of Appeals ruled against Apple, and on Monday the Supreme Court agreed.
"Ever since Congress overwhelmingly passed and President Benjamin Harrison signed the Sherman Act in 1890, 'protecting consumers from monopoly prices' has been 'the central concern of antitrust,' " Kavanaugh wrote in the majority opinion.
He added, "The consumers here purchased apps directly from Apple, and they allege that Apple used its monopoly power over the retail apps market to charge higher-than-competitive prices."
Kavanaugh's opinion was joined by Justices Ruth Bader Ginsburg, Stephen Breyer, Elena Kagan and Sonia Sotomayor. The dissent was written by President Trump's other appointee to the high court, Justice Neil Gorsuch.
Gorsuch's opinion was joined by Justices Clarence Thomas, Samuel Alito and Chief Justice John Roberts. They would have thrown the case out of court because in their view, iPhone users are not direct purchasers who, under the court's precedents, may bring antitrust claims.
Gorsuch's dissenting minority opinion cited the landmark Illinois Brick Co. v. Illinois case of 1977 to say that "an antitrust plaintiff can't sue a defendant for overcharging someone else who might (or might not) have passed on all (or some) of the overcharge to him."
Rather than allowing the four iPhone owners to sue under a "pass on" theory, Gorsuch wrote, the high court should have ruled that the rightful suit can only come from those who are forced to pay "overcharges" in a monopoly environment — in this case, the companies that develop and sell apps in Apple's online store.
"If the proximate cause line is no longer to be drawn at the first injured party, how far down the causal chain can a plaintiff be and still recoup damages?" Gorsuch asked, in his dissenting opinion that was joined by Roberts, along with Thomas and Alito.
Today's ruling, Gorsuch said, could begin whittling away the decision in Illinois Brick and may also call other, older cases into question.
But Kavanaugh wrote that the previous decision wasn't meant "to bar direct-purchaser suits against monopolistic retailers who employ commissions rather than markups."
He added, "The plaintiffs seek to hold retailers to account if the retailers engage in unlawful anticompetitive conduct that harms consumers who purchase from those retailers. That is why we have antitrust law."
To the question of whether Apple could now be subject to lawsuits from different plaintiffs — by consumers who are downstream in the sales process, and by suppliers who are further upstream — Kavanaugh wrote, "A retailer who is both a monopolist and a monopsonist may be liable to different classes of plaintiffs."
A monopsony, as we all recall, can occur when a company becomes the sole buyer of goods or labor, concentrating all the market power on its side.