Apple Must Face Monopoly Claims Over App Store Sales

SAN FRANCISCO (CN) – Consumers who say Apple monopolizes the market for iPhone apps have standing to pursue their antitrust claim, the Ninth Circuit ruled Thursday.

The lawsuit brought by Robert Pepper, Stephen Schwartz, Edward Hayter and Eric Terrell began in 2011. They claim Apple monopolizes the market for iPhone apps sold through its iTunes App Store by increasing the prices for the apps, prohibiting third-party developers from selling their apps elsewhere and threatening to void the warranties of iPhone users who download unapproved apps.

Apple earns 30 percent commission on App Store sales.

The original complaint also claimed that Apple was engaged in a conspiracy with AT&T Mobility to make the cellular provider “the exclusive provider of cellphone voice and data services for iPhone customers.” That claim was not at issue on appeal.

In September 2013, a federal judge dismissed the case, ruling that the U.S. Supreme Court’s decision in Illinois Brick Co. v. Illinois meant the consumers did not have standing to bring an antitrust claim.

U.S. Circuit Judge William Fletcher, writing for the unanimous panel, disagreed.

“The question before us is whether plaintiffs purchased their iPhone apps directly from the app developers, or directly from Apple,” he wrote. “Stated otherwise, the question is whether Apple is a manufacturer or producer, or whether it is a distributor.”

The answer: Apple is a distributor.

“Apple is a distributor of the iPhone apps, selling them directly to purchasers through its App Store,” Fletcher wrote. “Because Apple is a distributor, plaintiffs have standing under Illinois Brick to sue Apple for allegedly monopolizing and attempting to monopolize the sale of iPhone apps.”

Questions of whether purchasing an app is a direct transaction and who sets the price are immaterial, the panel held.

“Apple analogizes its role to the role of an owner of a shopping mall that ‘leases physical space to various stores,’” Fletcher wrote. “In the case before us, third-party developers of iPhone apps do not have their own ‘stores.’ Indeed, part of the anticompetitive behavior alleged by plaintiffs is that, far from allowing iPhone app developers to sell through their own ‘stores,’ Apple specifically forbids them to do so, instead requiring them to sell iPhone apps only through Apple’s App Store.”

Mark Rifkin of Wolf Haldenstein Adler Freeman & Herz in New York, representing the consumers, said he is pleased with the ruling.

“We’re looking forward to going back to the district court and resuming the litigation on its merits,” he said.

Apple’s attorney Daniel Wall from Latham & Watkins in San Francisco could not be reached for comment Thursday.