The Supreme Court has ruled that Apple iPhone users can pursue antitrust lawsuits against its app sales in a case that threatens to devastate Silicon Valley's business model.
Apple tried to halt a lawsuit by four iPhone-users who claim damages as the result of Apple's monopolistic pricing practices that include charging a 30-percent commission for software-developers to sell their products through its App Store, bars developers from selling their apps on other platforms, and requires prices to end in 99 cents.
The plaintiffs claim that Apple's monopoly on the two million apps listed in its store means they are forced to pay higher prices than if the environment for app purchases were competitive. The iPhone plaintiffs claim that Apple is illegally engaged in a highly lucrative "demanded profit," also referred to by Silicon Valley as the "Apple Tax."
Apple argued that under a prior Supreme Court antitrust litigation precedent, only app-developers are the "direct purchasers" with "standing" to bring a damages lawsuit to the Court, versus consumers, who are only "indirect purchasers."
But recently confirmed Trump nominee Justice Brett Kavanaugh joined liberal justices and wrote a 5-4 majority opinion that found: "Apple's line-drawing does not make a lot of sense, other than as a way to gerrymander Apple out of this and similar lawsuits."
In what is sure to embolden a tsunami of consumer antitrust litigation against Apple, Facebook, Amazon, and Alphabet's Google business structure, the Court opinion stated:
If a retailer has engaged in unlawful monopolistic conduct that has caused consumers to pay higher-than-competitive prices, it does not matter how the retailer structured its relationship with an upstream manufacturer or supplier — whether, for example, the retailer employed a markup or kept a commission.
To get a sense of how much financial risk Apple faces if the antitrust plaintiffs are successful as their lawsuit moves toward trial, Apple revealed for the first time in its second-quarter earnings release on April 30 that its App Store and other services had a stunning 62.8-percent profit margin, almost twice the 35-percent iPhone sales margin.
Despite Apple's total quarterly sales versus the prior year falling by $3 billion to $58 billion, its stock price hit a four-month high of $208 a share on the wildly profitable App Store and service sales jumping from $9.8 billion to a record $11.5 billion.
With the 30-percent "Apple Tax" commission, typically opposed to 15 percent for Amazon, 2–15 percent for eBay, and 3.5 percent for Etsy, the iPhone antitrust plaintiffs could credibly claim that Apple must reimburse the 116 million iPhone-users in the United States $5.75 billion for illegal monopoly profits in the first three months of 2019.
The high-cost "Apple Tax" has already caused other large app-developers to curtail selling through the App Store. TechCrunch reported that Amazon redirects Apple iOS purchasers of books and streaming music, movies, and TV shows to its browser. Netflix dumped iOS in-app subscriptions in December.
Because the Google Play Store charges the same 30-percent commission as Apple, the Epic Games' number-one-selling action videogame Fortnite Battle Royale for Android is exclusively available on Epic's Fortnite Launcher website.
The Spotify streaming music service filed a complaint with E.U. competition-regulators in March about being forced to charge $12.99 per month for iOS subscribers to recoup the 30 percent mark-on "Apple Tax," versus $9.99 per month for subscribing on its website.