Monday, May 13, 2019

App Store Monopoly Lawsuit

NY Times Editorial Board:

The actions by Apple highlight the inherent tension in the company’s fierce control over its mobile operating system: On the one hand, the closed environment is a boon to consumer privacy because the company has the leverage to insist upon it; on the other hand, that environment fosters a kind of monopoly.

Adi Robertson (MacRumors):

The Supreme Court is letting an antitrust lawsuit against Apple proceed, and it’s rejected Apple’s argument that iOS App Store users aren’t really its customers. The Supreme Court upheld the Ninth Circuit Court of Appeals’ decision in Apple v. Pepper, agreeing in a 5-4 decision that Apple app buyers could sue the company for allegedly driving up prices. “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,” wrote Justice Brett Kavanaugh.

Apple had claimed that iOS users were technically buying apps from developers, while developers themselves were Apple’s App Store customers. According to an earlier legal doctrine known as Illinois Brick, “indirect purchasers” of a product don’t have the standing to file antitrust cases. But in today’s decision, the Supreme Court determined that this logic doesn’t apply to Apple.

Ryan Jones:

I believe this is true and right.

Only Apple charges, refunds, owns the customer relationship, sends receipts, etc.

Marco Arment:

I’m no lawyer, but two things have been obvious to me:

- Customers absolutely buy apps from Apple, not developers.

- Apple’s requirement that all in-app transactions go through their system (which takes 30%) is anticompetitive, and should absolutely be challenged by regulators.

Add this to the pile of significant legal anticompetitive challenges that Apple faces by their in-app purchase rules.

They’ll never allow sideloading or reduce the 30%, but I expect all of this to result in a relaxing of the “can’t even mention other payment methods” rule.

Michael Love:

Could be forced to do a lot more, c.f. Microsoft having to un-bundle IE; Apple could be compelled to not only allow other app stores but actually provide a startup alert to invite you to pick an alternate one.

Steve Troughton-Smith:

If antitrust rulings against Apple are finally what it takes to bring Gatekeeper to iOS, then so be it. It is crazy that non-developer users pay for $100 developer accounts just to sideload apps


Update (2019-05-14): John Paczkowski (Stephen Nellis):

Here’s Apple’s statement on the #SCOTUS antitrust ruling

Michael Love:

This is… not great spin. And “if the developer chooses to sell digital services through the App Store” is outright misleading - if you choose to sell digital goods for one of the world’s two main mobile operating systems, you have to pay Apple their 30%.

And in the US at least Apple controls more than half of the mobile OS market (almost 2/3) - if you want to sell digital goods of any kind to the majority of Americans, you have to pay Apple 30%, you’re not really offered a ‘choice’ to distribute through the App Store.

Kyle Howells:

1. Yes Apple holds a complete monopoly on iOS users with the AppStore and aggressively shuts down any other options.

2. Simultaneously “app buyers could sue the company for allegedly driving up prices” is laughable. The AppStore is a race to the bottom.

Ben Thompson:

The antitrust case against the Apple App Store is going to move forward. It’s the wrong decision, and the reasons why explain why new legislation is needed.

Michael Love:

I get Ben’s argument, but I can’t sue Apple, because the systems that are supposed to ensure that Apple can’t punish me for suing them are not reliable enough for me to stake my livelihood on. So only way to see justice is to let consumers sue.

Also, I would put myself forward as a textbook example of Apple’s 30% being passed onto consumers: I pay quite substantial royalties on a lot of the stuff I sell and my prices are to a large extent determined by what margins I can live with on that content.

Joe Fabisevich:

I think Apple abuses its App Store monopoly but that this case was ruled incorrectly, and the conservative side of the Supreme Court ruled correctly but lost in this case. If you need me I’ll be hiding in my hole where Twitter doesn’t exist for a bit.

16 Comments RSS · Twitter

Apple's argument is kinda like saying my Spotify subscription is paying the artists directly. Give me a break.

I've said it before: Apple's 30% is completely ridiculous in light of the fact that 1) Free apps pay NOTHING yet incur the EXACT SAME review, hosting, etc costs for Apple and 2) It's totally unfair that Apple takes a percentage instead of a flat fee, e.g. only $1 of a $3 app but $10 of a $30 app when it's the DEVELOPER who is doing all of the work to make the app great and worth more $$$. It is absolutely TRUE that their 30% fee harms customers because this type of rent-seeking encourages developers to offer apps for free or low cost, thereby making money instead by selling customers' private data to advertisers etc. I also suspect that the 30% fee discourages development of quality apps because many developers probably look at it and say "I can't make a living on this because there's not a fair app price point that customers will pay such that I can make a living after Apple skims 30% off the top" -- even some top-tier developers like Panic have admitted this. Apple has turned it into a race to the bottom for most apps, which is obvious when the App Store contains 90% garbage.

The fee should be the $100/year that developers pay for their developer account. End of story. A percentage of each app sale is unfair. The developers are the ones doing all the work.

> The fee should be the $100/year that developers pay for their developer account. End of story

I think there should also be a fee for publishing an app. Make it high enough that your typical scam app can't make money anymore. Have really stringent requirements for allowing apps into the store so people can actually trust that the stuff they download from the official App Store is high-quality and risk-free.

And then allow sideloading for everybody else.

@Ben G, do you think getting rid of the 30% cut would lead to a sudden blossoming of paid, high quality apps? With or without 30%, there's a lot of pressure to reduce any barrier to a user downloading your app.

Also, Apple provides real value in running a store & handling payments. These are things that businesses pay a lot for in other marketplaces. Hard to argue that this "should" be free. (Not that I don't support reducing this percentage, but I think it's separate from the race-to-the-bottom problem.)

That said, I agree with a lot of the previous commentary on this topic – when it comes to in-app purchasing, Apple should be competing on their merits rather than banning other payment methods. And their recurring cut of subscriptions is far too high. So much so that it's created a worse user experience (since major content providers like Amazon & Netflix have simply eliminated in-app purchasing).

And this doesn't even touch on the myriad other problems with the App Stores, from policy restrictions to limited business models to uneven enforcement of rules to the unpredictable review process, which Michael has done an excellent job of covering over the years.

I wish those pushing for no percentage of sales could explain why that's completely fine in a grocery store or Best Buy. That is if I sell something at a Kroger's grocery store depending upon the product they'll take a margin of 15% - 50% of sales. You can say that the difference is finite space and the cost of running the store, but it's not clear finite shelves is relevant nor the cost of the store. The issue of the $100 developer account seems to suggest that Apple has already charged developers of free apps, so again that seems to make the argument weaker not stronger.

I'm completely open to those arguing that Apple's uncompetitive. I've just not seen an argument of how they are different from other types of stores in their uncompetitiveness.

To add, the place where I think there is a difference is Apple not allowing links to the developers own website in apps. That's akin to Krogers not allowing an address and number where the consumer could purchase directly. It's just that what gets focused on is the 30% rather than this other issue that strikes me as extremely odd given the function of most stores in the history of the United States.

The specter of this lawsuit can only bode well for Mac devs by making Apple think twice about locking down the Mac App Store. The libertarians aghast at this "grave mistake" remind me of General Buck Turgidson exalting the B-52's invulnerability just before realizing that it spells doom.

> @Ben G, do you think getting rid of the 30% cut would lead to a sudden blossoming of paid, high quality apps?

Yes. Why wouldn't there be? The best apps that I have on my phone are paid apps costing more than $5 -- or they're free apps that are tied to a service that I already pay for. The number of great apps that are truly free and from independent developers (i.e. not bankrolled MS, Google, VC Money, etc) is near zero.

They can easily deduct a fair "processing fee" (based on the rate actually paid to Visa et al) from each transaction. Deducting a flat 30% is not fair. Developers take all the risk. Developers MAKE the platform. iPhone would be nothing without quality 3rd party apps. And any reasoning for deducting anything more than a processing fee makes no sense when Apple charges ZERO to review and host free apps.

> I wish those pushing for no percentage of sales could explain why that's completely fine in a grocery store or Best Buy.

Because if I think Best Buy is not creating a suitable marketplace for my product, or is charging customers too much markup, I am free to sell my product to the same set of shoppers at Wal-Mart, Target, or Amazon? Apple is the ONLY marketplace. There's no choice. ALSO: Best Buy does not give away some vendors' products for free, while charging other vendors with similar products an extra fee, when the cost for Best Buy to hire employees, stock the products, pay it's electric bill, etc is the same for both products.

>I wish those pushing for no percentage of sales could explain why that's completely fine in a grocery store or Best Buy.

Because the specific arguments people are making for why Apple should get rid of the 30% mostly don't apply to Best Buy. Having said that, I'd be glad to make an argument for why grocery stores are doing a bad job, I'm just not sure this is the best place for this argument, and I'm not sure why Best Buy's bad business practices make Apple's better. There doesn't seem to be any causal connection between the two.

Alternative app stores can definitely lead to a flowering of wonderful things. Just look at two of my favorite platforms ever: Bandcamp and These could have never have arisen on iOS alone due to Apple's lockdown on payments and app distribution.

>I'm completely open to those arguing that Apple's uncompetitive. I've just not seen an argument of how they are different from other types of stores in their uncompetitiveness.

So if I don't like something... service, availablity, parking, and MOSTLY price... at my local Best Buy or Wegmans I can simply go elsewhere. But if I want to go elsewhere for my iOS apps - and be willing to either pay a higher price or risk shoddy security - where can I go? Is that a clear enough argument?

Regarding Joe Fabisevich's take, does anyway know why he thinks the ruling is wrong? I think the fact that Apple tried to argue, with a straight face, in a court of law no less, that consumers don't buy apps directly from Apple…I mean, Apple processes my payment, issues refunds, provides the download, and blocks all direct contact with the developer…sure seems like my business relationship is directly with Apple. In fact, iOS only allows app purchases by customers through the Apple owned stored.

I just don't understand the take and since there's no addendu

@Nathan I presume that Fabisevich agrees with the Gorsuch dissent that’s in the PDF linked above. Here are some key parts:

More than 40 years ago, in Illinois Brick Co. v. Illinois, 431 U. S. 720 (1977), this Court held that an antitrust plaintiff can’t sue a defendant for overcharging someone else who might (or might not) have passed on all (or some) of the overcharge to him. Illinois Brick held that these convoluted “pass on” theories of damages violate traditional principles of proximate causation and that the right plaintiff to bring suit is the one on whom the overcharge immediately and surely fell.

This seems to be saying that it doesn’t matter that Apple sold to the customer; because the developer had the choice of passing on the overcharge, the developer would be the party with standing.

This exalts form over substance. Instead of focusing on the traditional proximate cause question where the alleged overcharge is first (and thus surely) felt, the Court’s test turns on who happens to be in privity of contract with whom. But we’ve long recognized that antitrust law should look at “the economic reality of the relevant transactions” rather than “formal conceptions of contract law.” United States v. Concentrated Phosphate Export Assn., Inc., 393 U. S. 199, 208 (1968). And this case illustrates why. To evade the Court’s test, all Apple must do is amend its contracts. Instead of collecting payments for apps sold in the App Store and remitting the balance (less its commission) to developers, Apple can simply specify that consumers’ payments will flow the other way: directly to the developers, who will then remit commissions to Apple. No antitrust reason exists to treat these contractual arrangements differently, and doing so will only induce firms to abandon their preferred—and presumably more efficient—distribution arrangements in favor of less efficient ones, all so they might avoid an arbitrary legal rule.

Nor does Illinois Brick come close to endorsing such a blind formalism. Yes, as the Court notes, the plaintiff in Illinois Brick did contract directly with an intermediary rather than with the putative antitrust violator. But Illinois Brick’s rejection of pass-on claims, and its explanation of the difficulties those claims present, had nothing to do with privity of contract. Instead and as we have seen, its rule and reasoning grew from the “general tendency of the law . . . not to go beyond” the party that first felt the sting of the alleged overcharge, and from the complications that can arise when courts attempt to discern whether and to what degree damages were passed on to others. Supra, at 2–3. The Court today risks replacing a cogent rule about proximate cause with a pointless and easily evaded imposter. We do not usually read our own precedents so uncharitably.

If it’s true (I don’t know—I got the impression the majority disagreed) that making the payment go the other way would let Apple work around the majority’s finding, then I can see that it makes sense not to have the decision hinge on a technicality.

The “economic reality” point seems to be saying that, yes, customers are buying from Apple, but Apple’s role is more of a payment processor (like Visa or FastSpring). I think the App Store feels different than that, for the reasons you state, but these concerns probably don’t map very well to the Brick case.

Ah. Thanks. Definitely interesting.

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