Pepper VS Apple – App stores monopolistic

The US court stated that Apple is a distributor of iPhone apps, selling them directly to purchasers through its monopolistic App Store. Because Apple is the distributor (which it denies), plaintiffs have standing to sue Apple under Anti-trust legislation.

This could have many important outcomes for the software industry. First, the Court opinion was that Apple’s iPhone (and by inference most of its products) is a “closed system” – often called a walled garden as purchasers are not able to buy and install apps (including ringtones etc.) direct from developers. Apple has also stated it is able to remove any app found to have alternate distribution, or that may conflict with its own apps, and will void iPhone warranties if a user installs apps from elsewhere (jailbroken).

Apple denied – on four appeals - it was the distributor but simply a facilitator for developers. The court opinion was that the user buys from Apple, pays Apple directly, and Apple, in turn, remits part of the purchase price (around 70%) to the developer. For all intents and purposes, Apple is the original seller (under Australian Consumer Law Apple is regarded as the seller too). It went further to say that developers could launch anti-trust suits against Apple as well.

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The Court also said that monopolistic or anti-trust practices, especially those that led to a lack of competition and by inference higher pricing than a free market, were not legal.

If the plaint succeeds, “The obvious solution is to compel Apple to let people shop for applications wherever they want, which would open the market and help lower prices,” Mark C. Rifkin, an attorney with Wolf Haldenstein Adler Freeman & Herz representing the group of iPhone users, told Reuters in an interview. “The other alternative is for Apple to pay people damages for the higher than competitive prices they’ve had to pay historically because Apple has utilized its monopoly.”

Now as a result of this case there are several possible repercussions

No one argues that Apple’s app store provides users with the safest possible environment - if they purchase apps from it there should be no chance of harm. That’s good provided Apple guarantee that. If Apple is ruled monopolistic it would have to allow other app stores to open, would not be able to penalise or discriminate against developers that used them, nor void device warranties. It would have to compete and differentiate itself by the safety promise. The problem is that Apple's entire business premise is built on the foundations of the walled garden.

Plaintiffs may have to prove that a single monopolist app store is anti-competitive and has led to artificially inflated prices. The first part, anti-competitive is easy to prove – it is a fact. The second part on prices is not easy to prove because to date there has been no other legitimate source of iOS apps. If developers do get on board that may add some gravitas to the case saying that without Apple’s monopoly apps could be cheaper – although I doubt developers will bite the hand that feeds them. Apple may not comment but in the app store world, that is akin to ignoring those who make waves.

It is also a watershed case that Microsoft and Google will be following closely. At present neither of their stores are monopolies although I am sure they would like to be. Although outside the purview of this plaint, Microsoft and Google freely sell their operating systems to OEMs – this opens a can of worms over iOS and macOS on clone devices.

It also has ramifications for any company that is a sole supplier of goods or services using Apple’s walled garden approach. In Australia, it is loosely called exclusive dealing or full line forcing and it is illegal under the Competition and Consumer Act 2010 (Cth) (CCA). Any monopoly or associated behaviour must be approved by the ACCC.