Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: App purchasers lack standing to assert claims against Apple, (Dec 4, 2013)

By Jody Coultas, J.D.

Apple, Inc. was granted dismissal of antitrust claims filed by iPhone application purchasers because the purchasers lacked standing as indirect purchasers of the apps, the federal district court in Oakland has held (In re Apple iPhone Antitrust Litigation, December 2, 2013, Rogers, Y.).

The purchasers alleged that Apple has engaged in antitrust conduct by collecting 30 percent of the price of iPhone applications from independent software developers for apps sold in Apple’s App Store. In order to avoid a lack of standing as indirect purchasers, the purchasers claimed that they were the direct purchasers because the 30-percent portion obtained by Apple was a direct, fixed cost to consumers who are first in the chain to purchase the apps. The purchasers sought to represent a class of App purchasers in claims against Apple for unlawful and attempted monopolization of the aftermarket for iPhone apps.

Only direct purchasers have standing to seek damages under federal antitrust law. Thus, only the first party in the chain of distribution to purchase a price-fixed product has standing. Indirect purchasers lack standing to sue for unlawful overcharges passed on to them by intermediaries in the distribution chain who purchased directly from the alleged antitrust violator. The three exceptions to this rule apply when an indirect purchaser can establish: “a preexisting cost-plus contract with the direct purchaser”; “a price-fixing conspiracy between the manufacturer and the middleman” where the conspiracy “fix[es] the price paid” by the indirect purchasers; or customers of the direct purchaser own or control the direct purchaser or “a conspiring seller owns or controls the direct purchaser.”

The purchasers lacked standing because they were indirect purchasers of the apps, according to the court. The issue was whether the purchasers had standing to challenge the 30 percent received by Apple for each App sold from an independent software developer. The 30-percent figure was not a fixed fee, but a cost passed on to consumers by independent software developers. Fixing a price sets the price directly paid, not a price later passed to consumers. The purchasers could only argue that the ultimate price paid for apps was somehow “fixed” at a level 30 percent higher than it would otherwise be if not for Apple’s conduct. However, the fee was created by agreement and borne by the developers who paid pay Apple 30 percent from their own proceeds. Therefore, any injury from that 30-percent figure was an indirect effect resulting from the software developers’ own costs. The court declined to speculate as to whether developers would charge 30 percent less for their apps if not for the agreement with Apple to pay them 30 percent of the purchase price.

The case is No. 11-cv-06714-YGR.

Attorneys: Alexander H. Schmidt (Wolf Haldenstein Adler Freeman & Herz LLP) for Robert Pepper. Christopher S. Yates (Latham & Watkins LLP) for Apple, Inc.

Companies: Apple, Inc.

Cases: Antitrust CaliforniaNews