iPhone owners can sue Apple over its apps, US Supreme Court decides

Customers argue that company's control over the App Store is unfair

A child holds an Apple iPhone 6S at an Apple store on Chicago's Magnificent Mile in Chicago (AP Photo/Kiichiro Sato, File)

Apple can be sued by customers who claim it has too much control over the App Store, the supreme court has decided.

The decision will allow the lawsuit from consumers who argue that the company has given itself a monopoly over apps on the iPhone. That lets it force them to pay too much for the apps, they argued.

Apple had tried to stop the case, arguing that it could prove a problem for online sales.

Apple shares were down about 5% after the justices, in a 5-4 ruling, upheld a lower court's decision to allow the proposed class action lawsuit to proceed. The plaintiffs said the Cupertino, California-based technology company required apps be sold through its App Store and extracted an excessive 30 percent commission on purchases.

Conservative Justice Brett Kavanaugh, an appointee of President Donald Trump, joined the court's four liberal justices to rule against Apple and wrote the decision.

Apple shares were trading down $10 at 187.13 by late morning.

The company, backed by the Trump administration, argued that it was only acting as an agent for app developers, who set their own prices and pay Apple's commission. Apple had argued that a Supreme Court ruling allowing the case to proceed could pose a threat to e-commerce, a rapidly expanding segment of the U.S. economy worth hundreds of billions of dollars in annual sales.

The dispute hinged in part on how the justices would apply a decision the court made in 1977 to the claims against Apple. In that case, the court limited damages for anti-competitive conduct to those directly overcharged rather than indirect victims who paid an overcharge passed on by others.

Explaining the ruling from the bench, Kavanaugh said the 1977 precedent was "not a get-out-of-court-free card for monopolistic retailers," an apparent allusion to the popular board game Monopoly.

Noting that they pay Apple - not an app developer - whenever buying an app from the App Store, the iPhone users who brought the case said they were direct victims of the overcharges. Apple said the consumers were indirect purchasers, at best, because any overcharge would be passed on to them by developers.

Developers earned more than $26 billion in 2017, a 30 percent increase over 2016, according to Apple.

"Leaving consumers at the mercy of monopolistic retailers simply because upstream suppliers could also sue the retailers would directly contradict the longstanding goal of effective private enforcement in antitrust cases," Kavanaugh said.

Dissenting from the decision, conservative Justice Neil Gorsuch, said that the decision is "not how antitrust law is supposed to work" because it gives a green light to the exact type of case that the court has previously prohibited. Gorsuch also was appointed by Trump.

A spokeswoman for Apple could not immediately be reached.

The plaintiffs, 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. They were supported by 30 state attorneys general, including from Texas, California and New York.

Apple, which was also backed by the U.S. Chamber of Commerce business group, had sought to dismiss the case, arguing that the plaintiffs lacked the required legal standing to bring the lawsuit.

After a federal judge in Oakland, California threw out the suit, the San Francisco-based 9th U.S. Circuit Court of Appeals revived it in 2017, finding that Apple was a distributor that sold iPhone apps directly to consumers.

Additional reporting by Reuters