Apple (AAPL) shares are feeling even more pressure as the Supreme Court adds to the bad news flow against the company.
Shares of the Apple were down about 5% in later morning trading, heading to their lowest level since March.
The primary culprit is increased pressure on China, one of the company's key markets not only for sales but supply chain, which led to its pre-market decline. That action was exacerbated shortly after the open after the U.S. Supreme Court ruled that a lawsuit filed by consumers that accuses the company of acting in violation antitrust regulations in its app store can proceed.
The main accusation pertains to Apple utilizing its market dominance to artificially inflate prices at its App Store and hike fees on appmakers, which is subsequently passed on to consumers.
Apple had built its defense on the precedent of the Illinois Brick Co. v. Illinois case which was ruled in 1977 and established that indirect purchasers of goods or services along a supply chain cannot litigate for antitrust actions committed by the manufacturer or service provider.
That idea was thrown out by the court as the contentious case was decided in a 5-4 ruling this morning, with the opinion of the court authored by its newest justice, Brett Kavanaugh.
"Apple asserts that the consumer plaintiffs in this case may not sue Apple because they supposedly were not "direct purchasers" from Apple under our decision in Illinois Brick Co. v. Illinois, 431 U. S. 720, 745-746 (1977)," Kavanaugh wrote in his decision. "We disagree. The plaintiffs purchased apps directly from Apple and therefore are direct purchasers under Illinois Brick."
"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," Kavanaugh added. "In particular, we fail to see why the form of the upstream arrangement between the manufacturer or supplier and the retailer should determine whether a monopolistic retailer can be sued by a downstream consumer who has purchased a good or service directly from the retailer and has paid a higher-than-competitive price because of the retailer's unlawful monopolistic conduct."
In short, the court rejected Apple's argument as obscuring the facts of the case, namely that it engaged in anti-competitive tactics by way of its app store's dominant position in transactions.
"The plaintiffs seek to hold retailers to account if the retailers engage in unlawful anti-competitive conduct that harms consumers who purchase from those retailers," Kavanaugh concluded. "That is why we have antitrust law."
To be sure, Associate Justice Neil Gorsuch strongly dissented in representing the four justices of the court's conservative wing that found Apple to be operating in line with standards set by the Illinois Brick case.
"We've long recognized that antitrust law should look at 'the economic reality of the relevant transactions' rather than 'formal conceptions of contract law,'" he wrote in his dissenting opinion. "To evade the Court's test, all Apple must do is amend its contracts. Instead of collecting payments for apps sold in the App Store and remitting the balance (less its commission) to developers, Apple can simply specify that consumers' payments will flow the other way: directly to the developers, who will then remit commissions to Apple. No antitrust reason exists to treat these contractual arrangements differently, and doing so will only induce firms to abandon their preferred-and presumably more efficient-distribution arrangements in favor of less efficient ones."
He added that the decision of the court infringes upon the rationale provided in Illinois Brick and leaves a "senseless" precedent.
"Maybe the Court proceeds as it does today because it just disagrees with Illinois Brick," Gorsuch mused. "After all, the Court not only displaces a sensible rule in favor of a senseless one; it also proceeds to question each of Illinois Brick's rationales-doubting that those directly injured are always the best plaintiffs to bring suit, that calculating damages for pass-on plaintiffs will often be unduly complicated, and that conflicting claims to a common fund justify limiting who may sue."
It must be noted that the decision in the Supreme Court this morning moves only to allow the suit to continue and does not provide a ruling.
Given the disparate opinion of the court, this will be an important case to follow. If successful, it will be of monumental importance to models of the company's services revenue segment that underlines bull theses for the company in the past year.