Antitrust Law Daily Developers file class action alleging Apple has unlawful monopoly in app distribution
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Wednesday, June 5, 2019

Developers file class action alleging Apple has unlawful monopoly in app distribution

By Nicole D. Prysby, J.D.

Complaint cites recent Supreme Court decision recognizing developer standing.

Developers of iOS apps have filed a class action lawsuit against Apple in the federal district court in San Jose, alleging that Apple has an unlawful monopoly in distribution of iOS apps. All iOS apps must be distributed through the App Store and Apple charges a 30 percent commission on the sale of paid apps and a $99 annual fee from all developers. According to the complaint, Apple’s market power has led to lower earnings for developers than would be available in a competitive landscape and have depressed the output of paid apps. The plaintiffs brought claims under the Sherman Act and California’s Unfair Competition Law, and cited the recent U.S. Supreme Court ruling in Apple v. Pepper allowing a monopolization suit filed by a class of iPhone owners to proceed against Apple as well as recognizing developer standing (Cameron v. Apple, Inc., filed June 4, 2019).

Plaintiffs Donald R. Cameron and Pure Sweat Basketball, Inc., are application developers for the iPhone, who sell their iOS apps through Apple’s App Store. All iOS apps must be distributed through the App Store, ostensibly so Apple can vet apps for malware and offensive content. App developers are therefore direct purchasers of distribution services from Apple. Apple charges a 30 percent commission on the sale of paid apps and a $99 annual fee from all developers who wish to sell their products through the App Store. Apple also dictates minimum price (.99) and other price aspects (e.g., all prices must end in ".99"). The complaint alleges that Apple’s market power has allowed it to charge developers a supracompetitive commission on the sale of paid apps and in-app products. This commission, the annual developer fee, and the price-setting policies have cut unlawfully into what would have been developers’ earnings in a competitive landscape and have depressed output of paid app and in-app-product transactions. The plaintiffs also allege that the sheer number of apps in the App Store (over two million) creates another output-depressing scenario. If Apple did not prevent all competition, there would be stores that could feature more apps or stores that could specialize in certain kinds of apps. And with competition, Apple and other market entrants would be incentivized to innovate in developing better technology to pair users with applications.

The plaintiffs alleged a relevant market of the U.S. market for iOS app and in-app-product distribution services, and asserted there is no competition or substitute for the App Store. Their proposed class is all U.S. developers of any Apple iOS application or in-app product (including subscriptions) sold for a non-zero price via Apple’s iOS App Store.

The plaintiffs’ Sherman Act Section 2 claim alleges that Apple has gained and maintains monopoly power in the relevant market by improper and unlawful means. More specifically, Apple has willfully acquired and maintained such power by its patently exclusionary conduct, including its refusal to allow iOS device owners to purchase iOS apps and in-app products other than through its own App Store; refusing to allow other app stores to be allowed on its devices; and mandating that iOS developers who sell through the App Store cannot sell their apps though any other means that are meant to reach iOS device consumers. Alternatively, by requiring that it be the sole retailer of iOS developers’ digital products, Apple acts as a monopsonist, or attempted monopsonist. The plaintiffs alleged a similar Sherman Act claim for attempted monopolization, and claims under the unlawful and unfair prongs of the California Unfair Competition Law.

Apple v. Pepper. The complaint also argues that the Supreme Court recently recognized developer standing in this matter. As the Court put it with respect to a monopsony case, Apple v. Pepper, which plaintiffs plead in the alternative here:

And it could be that some upstream app developers will also sue Apple on a monopsony theory. In this instance, the two suits would rely on fundamentally different theories of harm and would not assert dueling claims to a "common fund," as that term was used in Illinois Brick. The consumers seek damages based on the difference between the price they paid and the competitive price. The app developers would seek lost profits that they could have earned in a competitive retail market. Illinois Brick does not bar either category of suit.

Apple Inc. v. Pepper, 2019 WL 2078087, at *8 (May 13, 2019).

The case is No. 4:19-cv-03074-DMR.

Attorneys: Shana E. Scarlett (Hagens Berman Sobol Shapiro LLP) for Donald R. Cameron and Pure Sweat Basketball, Inc.

Companies: Pure Sweat Basketball, Inc.; Apple Inc.

MainStory: TopStory Antitrust CaliforniaNews

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