Editor’s Note: Sally Hubbard is director of strategic enforcement at the Open Markets Institute and a former assistant attorney general in the New York AG Antitrust Bureau. The opinions expressed in this commentary are her own.
Of the big four tech giants, Facebook, Google and Amazon have been taking heat for abusing their market power, while Apple has been flying under the radar. That’s because Apple’s business model, unlike that of Facebook and Google, doesn’t depend on closely tracking your data, and it has been more restrained than Amazon in the number of markets it muscles into. But thanks to a US Supreme Court decision on Monday, Apple is finally getting the attention it deserves.
In Apple v. Pepper, the Court ruled that consumers have the right to sue Apple for charging them a 30% commission on every app sale. The plaintiffs are consumers who argued that Apple used its monopoly power to charge them more for their iPhone apps than they would have paid in a competitive market. Apple argued consumers can only sue the company that sets the retail price for antitrust damages.
The Court ruled against Apple, saying the company’s theory would “furnish monopolistic retailers with a how-to guide for evasion of the antitrust laws.” The court did not rule that Apple is liable for monopolization — that issue was not before it — but it did clear the way for the case to proceed.
The decision is a victory for consumers, who will at least get their day in court, but it’s a loss for the Department of Justice’s Antitrust Division, which shockingly had filed an amicus brief critical of the lower court’s decision to allow the consumers’ case to go forward. That a federal agency charged with enforcing antitrust laws supported limiting consumers’ right to sue shows how far off the rails antitrust enforcement has gone. Several state attorneys general and my organization, the Open Markets Institute, had filed briefs in favor of the plaintiffs.
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The decision also highlights Apple’s monopoly problems. Like other tech giants, Apple is extracting revenue on its own terms because it lacks competition. In 2018, the 30% so-called “Apple tax” brought in nearly $14 billion of revenue for Apple, based upon estimates by mobile app intelligence firm Sensor Tower. Why is Apple’s cut called a tax? Just like the IRS, Apple sets the rate and consumers have to pay it. Taxpayers can’t bargain with the IRS, nor can they choose a different IRS if they don’t like the one they’ve got. iPhone users similarly don’t have the choice to lawfully buy their apps elsewhere.
On the other side of the app market, app developers also lack bargaining power against Apple. The Court noted the possibility that “app developers will also sue Apple on a monopsony theory.” Monopsony means a single buyer has all power, and it’s a huge problem in an economy where tech giants serve as gatekeepers that set the terms and conditions for suppliers and creators to do business. Ask any Amazon marketplace seller, for instance, if they can negotiate the fees they pay to Amazon — they’ll think you’re out of your mind.
And like other tech giants, just because Apple created the iPhone doesn’t mean it should be allowed to take over all markets that depend on its platform without competing fair and square. When AT&T had a monopoly over phone networks decades ago, it required consumers to rent AT&T phones to connect to its network. The federal government stepped in and allowed innovation and competition to flourish. Similarly, multiple app stores could compete for iPhone users’ business by offering innovation and low prices.
Just like AT&T in the past, today’s tech giants have what I call platform privilege — the incentive and ability of platforms to prioritize their own products and services over competitors’. Spotify recently sued Apple in Europe for doing just this, arguing that Apple has leveraged its platform to distort competition in favor of Apple Music with unfair app store terms. Apple refutes Spotify’s claims. As Apple plans to enter more and more markets, including streaming TV, credit cards and online gaming, Apple’s playing the game and controlling it too will likely get worse.
The Supreme Court’s decision Monday may have only been a small step toward addressing Big Tech’s monopoly problems, but it will at least give consumers the right to stand up and be heard in court — and it may even inspire US antitrust enforcers to finally take action.