Apple Owned This Multibillion Dollar Market for 11 Years. But After Monday’s Big Supreme Court Decision, It’s Suddenly All at Risk
This story seems like it’s about three things: (a) Apple, (b) an enormous and lengthy lawsuit, and (c) a brand-new decision by the U.S. Supreme Court.
The Supreme Court case is called Apple Inc. v. Pepper, and it all has to do with the App store — an absolute cash cow for Apple, since it controls which apps can be included and charges an enormous total commission for the privilege: $99 a year, then 30 percent of gross revenue.
As long as Apple was able to keep up this arrangement, it seemed like a giant, never-ending revenue stream. But a funny thing happened on the way to the future.
The 10x factor
To get the whole picture, we have to go back to 2008, when Apple introduced the App Store — literally a full year after the introduction of the original iPhone itself.
Truly, the App Store was the X factor — as in, it made the the iPhone 100x more useful.
But it wasn’t long before Apple found itself on the receiving end of a slew of antitrust lawsuits claiming that because Apple basically owned this entire market — it was the gatekeeper and charged such a healthy commission — it was acting as an illegal monopoly and driving up the costs that end users ultimately paid for apps.
The lawsuits were a complicated mess of litigation, and were dismissed, refiled, decided, appealed and combined, ultimately, into a single case. And after more than a decade, the Supreme Court found itself in a position where it had to weigh in.
‘A how-to guide’
Apple actually won this case at the district court level, by arguing that under a 1977 Supreme Court case called Illinois Brick Co. vs. Illinois, it couldn’t be sued by individual customers.
But, the 9th U.S. Circult Court of Appeals reversed that decision, and on Monday, the Supreme Court, rejected that argument.
“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,” Justice Brett Kavanaugh wrote, adding later that if the court adopted Apple’s reasoning, it would amount to “a how-to guide for evasion of the antitrust laws.”
To be clear, Apple hasn’t lost the whole case. It only lost the threshold argument over whether it could even be sued. But the stakes here are tough to overstate.
Apple made $11.5 billion in “services revenue” during the most recent quarter, of which the App Store is one part. Annualize, that and we’re talking about a $46 billion a year business — with expectations for even more growth down the road.
A 5 to 4 decision
It’s interesting to note that this was a Kavanaugh decision — the newest member of the court, with a reputation as a staunch conservative — siding with the four most liberal justices: Kagan, Ginsburg, Sotomayor, and Breyer.
Dissenting were the four conservatives — or more accurately, the four other conservatives: Justices Gorsuch, Thomas, Roberts, and Alito.
And that just goes to show how unpredictable this whole thing is. In fact, there are probably only two things we can predict about the final outcome of this case.
First, no matter what happens, the uncertainty at least is a blow to Apple. Its stock dropped 5.81 percent yesterday after news of the decision (although in fairness, the entire market was down hard, and there’s a lot of bad news that could have affected the price).
But the other certainty is that this won’t be settled soon. It took more than two years for this issue of whether Apple can even be sued to work its way through appeals. Now we’re back at the starting line — with a multibillion dollar business on the line.
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