Rob Fahey Contributing Editor Friday 17th May 2019 Share this article Share

Companies in this article Apple

Court cases are not speedy things. This week's highly publicised US Supreme Court judgement against Apple is a ruling in a case that was originally filed back in 2011 -- way back when App Stores were still a pretty novel kind of idea -- and it doesn't even mark the end of that case, with the Supreme Court's decision merely clearing the path for the substantive case to be heard.

This case, Apple vs. Pepper, is actually a pretty good example of how the ponderousness of legal processes and the speedy nature of technological development -- always moving fast, always breaking something -- can be seriously mismatched. The original case was arguing that Apple's control of the App Store was monopolistic and being used to drive up the price of software for iPhones, a claim that may still have some legal merit but which looks a little peculiar in an era where the standard price for most smartphone apps has fallen to zero.

"The case was originally filed back in 2011 -- way back when App Stores were still a pretty novel kind of idea"

Of course, Apple could still lose the broader case (we likely won't know for a couple of years), and if that does happen it would have huge implications across the industry. If Apple, a minority player in the smartphone market, is judged to be a monopoly for running a walled garden App Store, then the knock-on implications for every company with a walled garden digital distribution system would be dramatic -- including, of course, every console platform holder.

However, we're a long way from that point. The courts aren't yet considering any arguments about monopolies or anti-trust, with the rulings made so far being entirely about the plaintiffs' actual right to bring a case against Apple in the first place. Yet even if that aspect is an unintended stop along the way for this legal process, it's also got some boat-rocking implications of its own.

At the heart of this ruling is an argument over whether a system like the App Store is a service provided to developers in order to help them sell directly to consumers (in which case the developer is Apple's customer, and the consumer is the developer's customer), or whether it's actually effectively a retailer (in which case the consumer is Apple's customer). Apple argued that it's the former case; you're a customer of Apple when you buy an iPhone, but when you then buy an app for that iPhone, you're a customer of the app developer, while Apple's role in that second transaction is simply as a service provider to the developer. That's important here because it impacts who has standing; Apple was arguing that consumers couldn't take an anti-trust case against the App Store because they're not customers of the App Store.

"The knock-on effects will take years to unravel, and some of those years are likely to be spent in a series of court cases"

On the face of it, that might seem a little absurd. When I walk into a convenience store to buy a cold drink, I'm a customer of the convenience store, not of the Coca-Cola Company, so why should different logic apply when I open the App Store on my phone? Yet Apple's argument wasn't entirely without merit either (that's why it made it all the way to the Supreme Court, I guess). Apple isn't buying the software from the developer and reselling it to you (as a convenience store does with your Coke Zero), it's providing a storefront to the developer, who has responsibility for how the software is presented, what they put into it, how it's priced, and so on.

In that way the App Store could be argued to be more like something along the lines of Shopify, or other e-commerce service providers that are used across a wide range of different websites. The key difference of course being that the App Store is also a unified store interface for lots of software, not just a kind of "business middleware" that developers plug into to allow them to distribute their creations.

Apple's arguments hinged on some old case law about a company that makes bricks, where it was ruled that a consumer (specifically the State of Illinois, which was annoyed at being overcharged for a building project and reckoned the overcharging could be traced back to hiked prices for some bricks) couldn't sue the brick manufacturer over an issue they had with the building firm. Apple was basically arguing that it's equivalent to the brick manufacturer (just supplying something to the developer, who is the entity with the actual consumer relationship). The Supreme Court disagreed; it ruled that the customer relationship clearly exists directly between Apple and the consumer, not via the developer as an intermediary.

"Valve and Epic are two firms that will no doubt be watching this closely"

I suspect that there are a fair few lawyers across the games business (and the broader media business) who are burning through a lot of billable hours this week figuring out exactly what the implications of this are. The precedent is now set; if Apple's digital distribution consumers are considered to be direct customers of the company, and thus to have standing to challenge its business practices in court, this also holds true for every digital software or media store out there.

That's a pretty big deal. Walled-garden stores on console platforms are one thing, and they're now open to the same kind of anti-trust action Apple faces. Honestly, though, I wouldn't hold my breath for the Apple case, and the much more niche nature of Sony, Nintendo and Microsoft's game consoles compared to iOS devices, plus the availability of disc-based games at retail -- for the time being -- would make those even tougher cases to argue. This isn't all just about anti-trust, though; the precedent established here is wider and likely means that almost any digital storefront now faces a subtly but crucially changed relationship with its customers.

That includes the likes of Steam and the Epic Games Store -- and the question of where the line gets drawn will no doubt need to be teased out in further court cases, but could have big implications for service providers like Shopify, which are used by lots of PC indie games developers. The knock-on effects will take years to unravel, and some of those years are likely to be spent in a series of court cases -- some meaningful, some frivolous and frustrating -- to figure out exactly where the new boundaries lie and how much power the Supreme Court has just, wittingly or unwittingly, handed over to consumers.

One potentially enormous corollary to the ruling is that consumers now have standing to take cases over the nature not just of a store's treatment of them as customers, but over any knock-on impact the terms of the store's business agreement with developers may have on said consumers. If App Store consumers have standing to sue over Apple's revenue split with its developers, then consumers of any store can presumably sue over any aspect of the store's business relationship with developers that they consider to have negatively impacted them -- which is going to open the door to a lot of legal messes.

That's why the lawyers will be earning their big bucks this week, even for companies a long way from the smartphone app space. Valve and Epic are two firms that will no doubt be watching this closely, since the competition that's heating up between them in the PC space is increasingly using developer agreements -- revenue shares, exclusivity deals and so on -- as a battleground. The very existence of that competition will shield the dominant Steam platform from most anti-trust claims, of course, but if consumers have standing to take legal cases based on the content of those developer agreements, it means there's now a whole new legal minefield for these companies to tiptoe around as they try to go head-to-head over the future of the PC digital distribution space.