Supreme Court weighs antitrust dispute over Apple App Store

[November 26, 2018]  By Andrew Chung

WASHINGTON (Reuters) - U.S. Supreme Court justices on Monday will take up Apple Inc's <AAPL.O> effort to bury a lawsuit seeking damages from the company for allegedly monopolizing the market for iPhone software applications and forcing consumers to overpay.

The justices will hear arguments in Apple's appeal of a lower court's decision to revive the proposed class-action lawsuit by a group of iPhone users. The lawsuit accused the Cupertino, California-based technology company of violating federal antitrust laws by requiring apps to be sold through the company's App Store and then taking a 30 percent commission from the purchases.

The case hinges on how the justices will apply one of its past decisions to the claims against Apple. That 1977 ruling limited damages for anti-competitive conduct to those directly overcharged rather than indirect victims who paid an overcharge passed on by others.

The iPhone users, including lead plaintiff Robert Pepper of Chicago, filed the suit in a California federal court in 2011, claiming Apple's monopoly leads to inflated prices compared to if apps were available from other sources.

Though developers set the prices of their apps, Apple collects the payments from iPhone users, keeping a 30 percent commission on each purchase. One area of dispute in the case is whether app developers recoup the cost of that commission by passing it on to consumers. Developers earned more than $26 billion in 2017, a 30 percent increase over 2016, according to Apple.

The company, backed by Republican President Donald Trump's administration as well as the U.S. Chamber of Commerce, told the justices in legal papers that siding with the iPhone users who filed the lawsuit would threaten the burgeoning field of e-commerce, which generates hundreds of billions of dollars annually in U.S. retail sales.

A woman uses her mobile phone, an iPhone 6 by Apple in Munich downtown, Germany, January 27, 2016. REUTERS/Michaela Rehle

The plaintiffs, as well as antitrust watchdog groups, said closing courthouse doors to those who buy end products would undermine antitrust enforcement and allow monopolistic behavior to expand unchecked. The plaintiffs were backed by 30 state attorneys general, including from Texas, California and New York.

The plaintiffs said app developers would be unlikely to sue Apple, which controls the service where they make money, leaving no one to challenge anti-competitive conduct.

The company sought to have the antitrust claims dismissed, arguing that the plaintiffs lacked the required legal standing to bring the lawsuit. A federal judge in Oakland, California threw out the suit, saying the consumers were not direct purchasers because the higher fees they paid were passed on to them by the developers.

But the San Francisco-based 9th U.S. Circuit Court of Appeals revived the case last year, finding that Apple was a distributor that sold iPhone apps directly to consumers.

(Reporting by Andrew Chung; Editing by Will Dunham)

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