Antitrust Law Daily Wrap Up, ANTITRUST—9th Cir.: AT&T not a required party in challenge to iPhone exclusivity agreement with Apple, (Jun 29, 2015)

By Linda O’Brien, J.D., LL.M.

A district court order, finding that AT&T Mobility was a required party in a consolidated consumer antitrust class action challenging Apple’s exclusive iPhone provider agreement with AT&T, was an abuse of discretion, the U.S. Court of Appeals in San Francisco has held. Thus, the district court judgment was reversed and remanded for further proceedings (Ward v. Apple Inc., June 29, 2015, Smith, M.).

In June 2007, Apple began selling its iPhone. Apple entered into an agreement with AT&T Mobility (ATTM) in which ATTM would be the exclusive provider of voice and data services for the iPhone for five years. Nine Apple customers filed a series of putative class actions against Apple and ATTM, asserting antitrust claims in connection with the exclusivity agreement. The cases were consolidated as In re Apple AT&TM Antitrust Litigation (Apple I). The district court granted Apple and ATTM’s motion to compel arbitration. In 2012, two groups of consumers filed class action complaints against Apple but did not name ATTM as a defendant. The consolidated complaint, In re Apple iPhone Antitrust Litigation (Apple II), alleged antitrust claims similar to Apple I. The district court granted Apple’s motion to dismiss, holding that ATTM was a necessary party under Federal Rule of Civil Procedure 19.

In October 2012, Zack Ward and Thomas Buchar initiated the current suit, alleging a single claim that Apple conspired to monopolize the aftermarket for iPhone voice and data services. The case was consolidated with Apple II. After Apple moved for dismissal, the parties agreed that the motion should be granted if the court followed the analysis set forth in Apple ll. The district court followed the decision in Apple II and granted Apple’s motion to dismiss. The plaintiffs appealed.

The district court abused its discretion in finding that ATTM, an alleged antitrust co-conspirator, was a necessary party under Rule 19. For a party to qualify as a “required party,” a party must claim an interest relating to the subject of the action and identify how that interest might be impaired if the action was resolved in the party’s absence, according to the Ninth Circuit. It is not necessary for all joint tortfeasors to be named as defendants in a single lawsuit, since antitrust co-conspirators are jointly and severally liable for all damages caused by the conspiracy. If the plaintiffs prevailed, they would be able to recover all of their damages from Apple alone.

Additionally, the district court failed to identify ATTM’s interests in the action, or address how those interests, if any, might be impaired if the action was resolved in its absence, as required by Rule 19, the appellate court found. The fact that the complaint alleged that ATTM was the central figure in the alleged conspiracy did not demonstrate that ATTM was a required party. It was essential that the court identify the specific legally-protected interest that an absent joint tortfeasor claimed and assess how that interest may be impaired when the outcome of the action would not bind an absent party in future proceedings. The district court abused its discretion by failing to undertake that inquiry.

According to the Ninth Circuit, only “legally protected” interests warrant protection under Rule 19. Apple’s argument that the risk of regulatory scrutiny ATTM faced as a result of the litigation qualified as a cognizable interest under Rule 19 was rejected. The court noted that Apple failed to demonstrate that the collateral regulatory consequences ATTM might face as a result of the action would be any more severe or likely to occur than in any typical case alleging an antitrust conspiracy. Moreover, courts have been reluctant to recognize legally protected interests based solely on speculation about the occurrence of a future event.

Apple’s argument that ATTM was a required party because the action could affect its business or reputation was similarly rejected as meritless. There was no precedent for holding that a joint tortfeasor’s reputational interests alone might make it a required party under Rule 19. Apple’s contention that ATTM’s contract rights gave it a legally protected interest in the action was also rejected since Apple did not demonstrate that ATTM currently had any substantial contract rights that may be impaired by the resolution of the action, the court concluded.

Dissent. Judge Wallace dissented, finding that the court lacked statutory appellate jurisdiction because the district court’s decision was not involuntary or adverse to the plaintiffs. Even if the court had statutory jurisdiction, the plaintiffs waived the Rule 19 issue by agreeing that the district court could adopt the very analysis they argued against on appeal, according to Wallace.

The case is No. 12-17805.

Attorneys: Mark C. Rifkin, Alexander H. Schmidt, and Francis M. Gregorek (Wolf Haldenstein Adler Freeman & Herz LLP) and Randall S. Newman (Randell S. Newman P.C.) for Zack Ward. Adam J. Levitt (Grant & Eisenhofer P.A.) for Thomas Buchar. Daniel M. Wall, Christopher S. Yates, and J. Scott Ballenger (Latham & Watkins LLP) for Apple Inc.

Companies: Apple Inc.

Cases: Antitrust AlaskaNews ArizonaNews CaliforniaNews HawaiiNews IdahoNews MontanaNews NevadaNews OregonNews WashingtonNews