By Brent Kendall and Tripp Mickle 

WASHINGTON -- The Supreme Court ruled Monday that consumers can proceed with an antitrust lawsuit challenging Apple Inc.'s exclusive control over the marketplace for iPhone apps, threatening the tech giant's slice of billions of dollars in software sales.

Plaintiffs, who are suing on behalf of a class of app purchasers, allege consumers pay inflated prices because Apple requires that all phone software be sold and purchased through the company's App Store. Apps would be cheaper if software developers could sell them directly and bypass Apple as a middleman, the lawsuit alleges.

Apple typically takes a 30% cut of every app it sells, and a 15% cut of subscriptions sold through the app store after subscribers' first year. The consumer lawsuit also complains about other App Store rules that affect pricing, such as Apple's requirement that every app price point end in "99 cents," meaning developers can only set prices in one-dollar increments like $1.99, $2.99 and so forth.

The Supreme Court's decision focused on a preliminary issue in the case: whether consumers had a right to sue Apple over these practices. The court, in a 5-4 opinion by Justice Brett Kavanaugh, said they did.

The court rejected Apple's arguments that consumers can't sue because it is the app developers, not the company, that set app prices.

"If accepted, Apple's theory would provide a roadmap for monopolistic retailers to structure transactions with manufacturers or suppliers so as to evade antitrust claims by consumers and thereby thwart effective antitrust enforcement," Justice Kavanaugh wrote in a 14-page opinion.

Justice Kavanaugh, President Trump's most recent appointee to the high court, was joined by four liberal justices: Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan.

Four conservatives dissented: Chief Justice John Roberts and Justices Clarence Thomas, Samuel Alito and Neil Gorsuch.

The high court didn't address the merits of the plaintiffs' claims. If they ultimately win, the case could change the way apps are sold and make Apple liable for significant monetary damages. The case could take one to two years, if not longer, to resolve.

The court's decision came on a day when Apple shares already were trading sharply lower because of rising U.S.-China trade tensions. Apple assembles most of its devices in China and counts on China for about a fifth of its sales. As of mid-morning Monday, Apple's stock price was down about 4.5%, while the broader market had declined about 2%.

More broadly, Monday's decision could open the door to additional consumer lawsuits against other tech companies that run marketplaces on their platforms.

App-store sales account for about 35% of Apple' ballooning services business. Apple has pointed to that business as a bright spot in the face of declines in the number of iPhones sold. The services business grew by about 30% during last fiscal year to $39.75 billion.

The App Store offers developers access to 900 million iPhones world-wide and generally reaches a more affluent audience than rivals. Users of iPhones and iPads spent an estimated $46.6 billion on apps in 2018, almost double what was spent for apps from rival service Google Play, according to Sensor Tower, a market research firm.

Apple said last year it had paid developers more than $100 billion from app sales over the past decade.

The company didn't immediately respond to a request for comment.

Apple has said it is entitled to take a share of app sales because it built the store and employs staff who review 100,000 submissions weekly for compliance with its rules around privacy and content.

The Apple tax, as some developers have called it, has faced criticism for years. In addition to the litigation on app sales, separately the iPhone maker is facing pushback on how it handles in-app subscription services.

In 2015, Spotify Technology SA began encouraging users to stop subscribing through Apple by raising monthly pricing to $13 in the App Store compared with $10 through the music service's website.

Lately, Netflix Inc. and Fortnite creator Epic Games have moved to avoid Apple's fees by offering their products outside the App Store.

Apple's rules differ somewhat from those of Alphabet Inc.'s Google, which developed the Android phone operating system. Google also takes a 30% cut of apps sold in its Google Play store, but Android phone can buy apps elsewhere, including directly from the software maker in some cases.

Write to Brent Kendall at brent.kendall@wsj.com and Tripp Mickle at Tripp.Mickle@wsj.com

 

(END) Dow Jones Newswires

May 13, 2019 11:13 ET (15:13 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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