Thursday, May 16, 2019

A Bite Out of Apple

In a surprise decision, the Supreme Court yesterday, May 13, 2019, in a divided decision handed a major victory to plaintiffs in a massive antitrust lawsuit against Apple.  By a vote of 5-4, the justices allowed the suit, brought by a group of iPhone users who allege that Apple is violating federal laws by requiring them to buy apps exclusively from the App Store, to go forward.

In the original trial court in California, the lower court relied on a 1977 Supreme Court Case entitled Illinois Brick Co. v. Illinois to dismiss the suit.  In Illinois Brick, the Supreme Court ruled that triple damages for violations of federal antitrust laws are not available to an "indirect purchaser," that is to a person whose claim is not that he was personally overcharged, but instead that the defendant overcharged a middle man, who then passed along the extra charge to the plaintiff.  This is the position that Apple and the Trump Justice Department took, that the App Developers are charged a 30% commission by Apple and that they, not Apple, are the one's who pass it along to the end customer, meaning the end customer is not a direct customer of Apple.

On appeal, the U.S. Court of Appeals for the 9th Circuit reversed and reinstated the case.  The court of appeals found the case much simpler and differentiated from Illinois Brick.  Here, the end customers and plaintiffs bought directly from Apple through the App Store and paid Apple for the applications, despite the developer setting the price.  Apple then is a direct distributor, selling the apps through the App Store.

The Supreme Court agreed with the 9th Circuit.  Surprisingly, Justice Kavanaugh sided with the courts more liberal justices to pen the opinion.  While Illinois Brick "established a bright-line rule that authorizes suits by direct purchasers but bars suits by indirect purchasers," Kavanuagh found that the iPhone users were direct purchasers from Apple and therefore could bring an antitrust lawsuit against the company because they "bought the apps directly from Apple."

Perhaps this signals a time when we are going to get serious about scrutinizing monopolies again.  Certainly, if this suit is ultimately successful, it will have major implications for online marketplaces like Google's Play Store or Amazon's Marketplace.  It could even have more far reaching implications for companies like Amazon itself.

And maybe that's a good thing.

I've already written about the ubiquity of the tech giants in our lives and how their reach is becoming even more insidious.    Think for a minute about how much Google has a hand in, from the backbone of the internet to smart home devices.  Even worse, think about Amazon.  You could use an Amazon Echo to ask Alexa to buy you Amazon branded merchandise on their web platform (which they can promote over other brands), on which you could use AmazonPay to then get your item shipped to an Amazon Locker if need be by an Amazon truck or eventually could get delivered to your front door via an Amazon drone.  If you have a Ring doorbell, the Amazon delivery driver could even bring it in the front door for you and leave it.  That doesn't even touch the websites that are using Amazon Web Services without you even knowing it.

And that's just in tech.  How about the monopolies that exist in prescription drugs, even for generics?  Or the monopoly in mandated school testing and test prep?

I'm as big a fan as any of the Walt Disney company, but even I can list you the negative effects of their merger with 20th Century Fox.  It may not be as dangerous as the AT&T-Time Warner merger.  There was a reason why United States v. Paramount Pictures stopped motion picture studios from owning their own distribution channel in movie theaters.

We seem to be getting a lot of Ma Bells and Standard Oils now.  Maybe it's time to get back into the trust busting business.

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