Shares of Apple (
AAPL - Free Report) dipped through morning trading amid a larger market turnaround on Monday, driven by the likes of Amazon ( AMZN - Free Report) , Facebook ( FB - Free Report) , and other tech stocks. Apple stock instead slipped on the back of news that the U.S. Supreme Court might be ready to allow a lawsuit to go forward that claims Apple’s App Store is a monopoly. Case Overview
The Supreme Court heard arguments from Apple on Monday in an appeal to a lower court’s decision to
revive a 2011 antitrust lawsuit filed in California by iPhone users seeking monetary damages for Apple’s App Store practices. The case centers around the idea that Apple created a monopoly by only allowing apps to be sold via its own App Store. On top of that, Apple then charges excessive and high-priced commissions to third-party sellers.
Apple currently charges a 30% commission to companies and developers that have to sell their apps through Apple’s App Store in order to reach the iPhone giant’s massive user base. In the end, a judge could triple the compensation to consumers under antitrust law if Apple ends up losing the suit, according to the
The U.S. high court now sounds like it is open to allowing the lawsuit to go forward, with Chief Justice John Roberts alone in seeming ready to side with Apple. This lawsuit could end up dramatically changing the way Apple conducts business.
VIDEO Apple’s Stance
Apple’s legal team argues that the company is simply a middle-man between the app developers and consumers. Therefore, Apple suggests that only a developer should be able to sue the Cupertino, California-based company.
However, it appears that many Supreme Court Justices agree that consumers do have a direct relationship with Apple in these App Store-transactions. “I pick up my iPhone, go to the Apple App Store, pay Apple directly with credit card information I supplied to Apple,” Justice Elena Kagan
said. The Importance
Apple currently takes a 30% cut of all App Store purchases, which has drawn backlash over the years. But access to Apple’s user base has been too much to pass up to this point. The lawsuit suggests that app developers pass off this 30% revenue split to their customers through higher prices.
It is worth noting that Apple’s commissions aren’t even one-time fees. App developers that charge their customers subscription-based fees are charged throughout the lifetime of the subscription. Apple in
2016 did change its revenue split for these kinds of apps down from 30%-70% to 15%-85% after one year. Bottom Line
Apple, which also forces all developers to end their prices in 99 cents, doesn’t appear in any real danger at this point. At the moment the Supreme Court is simply considering if it should allow a class-action lawsuit seeking damages against Apple to proceed, with a
decision expected by the end of June.
Companies such as Spotify (
SPOT - Free Report) and Netflix ( NFLX - Free Report) would stand to benefit greatly if Apple is somehow eventually forced to change its App Store practices. On top of that, Apple stock could be hurt in the long-run since the company’s services business has become more important than ever as iPhone unit sales slow.
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