Each year, the Supreme Court receives approximately 10,000 petitions for writs of certiorari, but only grants about 80 writs of cert. This is the first installment of a series, “Petitions Before the Court,” that will highlight an interesting or influential petition before the court in upcoming judicial conferences.
The case Apple Inc. v. Pepper et. al. (9th Cir. 2017) concerns Apple Inc.’s App Store, and whether the App Store can be the subject of an antitrust lawsuit. In short, in Apple v. Pepper the Ninth Circuit Court of Appeals “reversed the dismissal for lack of statutory standing of an antitrust complaint alleging that Apple, Inc., monopolized and attempted to monopolize the market for iPhone apps.” The court ruled that buyers of apps purchased apps directly from Apple, rather from app developers themselves. The court also found that Apple is a distributor of apps, through the App Store. Thus, the court reversed the ruling of the District Court for the Northern District of California that declared that Apple could not be sued under the provisions laid out in Illinois Brick Co. v. Illinois (1977), and remanded the case to be tried as an antitrust suit.
This case, heavily discussed in the court of public opinion as well, concerns Apple’s method of connecting app developers to app consumers. Apple’s iPhone is a closed system, meaning Apple controls all of the apps—those downloaded and built-in—operating on the device. A year after the iPhone’s launch, Apple released the App Store, a portal through which consumers could purchase and download apps. For every third-party app sold over the App Store, Apple earns 30% of the revenue, while the developer keeps 70%. Payment for the apps goes to Apple’s App Store, after which Apple credits its developers with their share. Apple also prohibits developers from vending their apps to consumers through other means, threatening to cut access to the App Store to any violators. Similarly, they disincentivize consumer access to those other means, voiding warranties for consumers who choose to “jailbreak” their iPhones and download unapproved apps.
Under § 4 of the Clayton Antitrust Act, persons have the right to sue companies for antitrust violations of the Clayton Act and recover, in threefold, the damages inflicted upon them. However, to avoid excessive expensive lawsuits over § 4, the Court ruled in Illinois Brick Co. that consumer lawsuits could be brought only against the party that represents final point of sale of the good or service in question. The relationship between the consumer and defendant is one where the consumer is the “direct purchaser from the intermediate manufacturer or from the distributor” rather than an “indirect purchaser from the manufacturer or producer who who sold or leased the product to the intermediary.” In other words, one could bring an antitrust lawsuit against Wal-Mart for selling them a t-shirt; one could not, however, name the farmer who grew the cotton or the factory that manufactured the shirt (assuming that manufacturer sold to other outlets, like Target) in the same suit.
Whereas the District Court for the Northern District of California found that Apple’s arrangement with the App Store did not constitute distribution of apps, the Ninth Circuit reversed this stance. The Ninth Circuit was unconvinced with Apple’s analogy of the tech giant as the owner of a mall that leases physical space within the mall to stores; the stores, in this case, are the app developers.
Even though the argument that Apple possesses a monopoly over app market seems convincing on face value, the case that will be argued in the District Court is less clear-cut. Although, in terms of market concentration, Apple clearly towers over any competitors, it offers the App Store service for free to consumers. Before 1979, Apple’s market concentration would have been sufficient in finding Apple a monopolizer. However, Robert Bork, who was nominated to the Supreme Court but not confirmed, wrote an influential book called The Antitrust Paradox. The book expressed that the end goal of the Sherman Act, the principal piece of antitrust legislation, was consumer welfare—and the Supreme Court adopted that framework in 1979. Because Apple’s App Store is a free software, consumer welfare is not perceptibly worse off if Apple possesses 70% of the market or increases that share to 90% of the market. Indeed, consumer welfare might even improve, because Apple crowds out similar app-purchasing platforms that could hypothetically demand payment from consumers. Bork also transformed antitrust law to consider efficiency; from an efficiency point-of-view, Apple’s monopoly ensures a seamless consumer experience across devices, their lawyers might (successfully) argue in District Court.
The Ninth Circuit Court’s decision in Apple v. Pepper is another facet of what The Economist has dubbed “techlash,” the willingness of governments around the world to clamp down on technology industry giants such as Google, Amazon, Facebook, Microsoft, and, of course, Apple. The Economist points out a few key areas in which this clamp down has begun to occur and will continue to occur. Governments have sought to regulate hate speech, such as Holocaust denial in Germany; the proliferation of fake news, demonstrated via Facebook’s new plan to combat foreign influence in American elections; and to regulate free speech, such as the digital enforcement of Thailand’s “lèse-majesté” laws. Governments have also sought the construction of digital borders, in the image of China’s “Great Firewall” or Russia’s recent moves against the use of virtual private networks (VPNs). While courts are isolated from public opinion, which drives lawmakers to pursue techlash policies and slow to adapt to technology, the judiciary is mindful of the necessity of leaving open a path for lawmakers to enact complex regulatory schemes in response to drastic technological changes.
Apple v. Pepper is also the latest episode in the recent high-profile slate of clashes between Apple, the government and other technology companies in the court system. In the aftermath of the 2015 San Bernardino shooting, the Federal Bureau of Investigation under Director James Comey asked Apple to create software that would allow the federal government to bypass Apple’s encryption technology. After Apple refused to comply, the FBI appealed and successfully received a court order in 2016, issued under the All Writs Act of 1789, to compel Apple to aid the FBI in its mission; that court order was filed in the US District Court for the Central District of California. Apple avoided a protracted legal battle between itself and the Department of Justice because the FBI was able to find a third-party that assisted with unlocking the iPhone in question.
Later in 2016 and in 2017, the Supreme Court decided two cases litigated between Apple and Samsung over Samsung’s alleged infringement on Apple’s intellectual property and patents. In December 2016, the Court reversed a $400 million verdict in favor of Apple and remanded the case back to the US Court of Appeals for the Federal Circuit, which hears all patent law cases. Then, in a judicial conference on November 6, 2017, the Supreme Court rejected to grant review to Samsung v. Apple, affirming a $120 million verdict in favor of Apple over patent infringement.
The Ninth Circuit broke the precedent set by the Eighth Circuit Court of Appeals. This circuit split will be of particular interest to the Supreme Court because, as long as a circuit split stands, the law is different in two parts of the country. Historically, these inconsistencies have not stood for long, because the Court has sought to make the body of law consistent throughout the nation. For now, however, the Supreme Court has asked for the opinion of the Solicitor General in this case. The Court will likely wait to schedule the case for a judicial conference until the Solicitor General has informed the court. Meanwhile, the case has been remanded to the District Court of California’s Northern District, where it will be dealt with as an antitrust case.