Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: iPhone purchasers lack standing to pursue monopoly claims against Apple, (Aug 19, 2013)

By Tobias J. Gillett, J.D., LL.M.

Plaintiffs asserting claims that Apple Inc. monopolized and attempted to monopolize the aftermarket for iPhone applications failed to establish that they possessed standing to bring their claims, the federal district court in Oakland has ruled (In re Apple iPhone Antitrust Litigation, August 15, 2013, Rogers, Y.). The court also dismissed a claim for conspiracy to monopolize the aftermarket for voice and data services due to the plaintiffs’ failure to add AT&T Mobility, LLC (ATTM) as a party, and struck the plaintiffs’ allegations related to that claim.

In a previous action, the plaintiffs alleged that Apple and ATTM had monopolized, attempted to monopolize, or conspired to monopolize the aftermarket for iPhone voice and data services, and monopolized or attempted to monopolize the aftermarket for iPhone software applications. The judge in that action initially found that the plaintiffs sufficiently alleged relevant aftermarkets, market power, and monopolization for both aftermarkets and denied ATTM’s motion to compel arbitration (2008-2 Trade Cases ¶76,319), and later certified a class. However, following the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the court granted Apple’s motions to compel arbitration and decertify the class.

A new set of plaintiffs then filed another action against Apple, alleging monopolization and attempted monopolization of the applications aftermarket, as well as conspiracy to monopolize the voice and data services aftermarket. The court denied Apple’s motion to compel arbitration, but held that ATTM was a required party for the conspiracy claim. In their amended complaint, the plaintiffs declined to add ATTM as a party, but retained the conspiracy claim solely to preserve it for appeal.

The plaintiffs sought to represent a class of persons “who purchased an iPhone anywhere in the United States at any time, and who then also purchased applications from Apple from December 29, 2007 through the present.” The plaintiffs alleged that “[u]nder its Exclusivity Agreement with ATTM, Apple retained exclusive control over the design, features and operating software for the iPhone.” Apple’s software development kit (SDK) enabled independent software developers to submit iPhone applications for sale through Apple’s “iTunes App Store.” Apple charged an annual fee of $99 for the SDK, and 30 percent of the sale of each application. Apple allegedly refused to approve applications from developers that did not pay Apple’s charges, and warned iPhone customers that it would void the warranty of any customer who downloaded third party apps. The plaintiffs alleged that Apple thereby “unlawfully stifled competition, reduced output and consumer choice, and artificially increased prices” in the aftermarket for iPhone apps. Apple filed a motion to dismiss and a motion to strike.

Article III standing. The court concluded that the plaintiffs’ allegations failed to establish Article III standing. Although the plaintiffs alleged that each named plaintiff had “paid for ATTM voice and data service,” and had wanted the option to switch to another voice and data service provider, “[n]one of these allegations speak to named Plaintiffs’ standing with respect to the applications aftermarket claims,” according to the court. The plaintiffs could not rely on collective allegations that they had been “deprived of lower cost alternatives, paid higher prices for Apple-approved applications, and/or had their iPhones disabled or destroyed”; rather, the plaintiffs had to allege that each named plaintiff had “personally suffered an injury-in-fact based on Apple’s alleged conduct.” Therefore, the court dismissed the plaintiffs’ claims, but without prejudice.

Voice and data claims. The court dismissed with prejudice the plaintiffs’ claims with respect to the voice and data aftermarket due to the plaintiffs’ refusal to add ATTM as a party.

Motion to strike. The court also granted Apple’s motion to strike the plaintiffs’ allegations regarding the voice and data claims. The court noted that “a significant portion of [the plaintiffs’] allegations [were] still directed to ATTM’s voice and data services,” and that the plaintiffs “continue[d] to allege a conspiracy with third-party ATTM,” even though the plaintiffs had chosen not to proceed with their voice and data claims.

Antitrust standing. Apple contended that the plaintiffs failed to establish antitrust standing under Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), because “[a]ll the wrongful conduct is ancillary as it restricts developers only,” and therefore the consumers were indirect purchasers whose involvement was “derivative of the antecedent transaction.” In response, the plaintiffs argued that they were direct purchasers “because they bought both (i) Apple-made Apps directly from Apple, and (ii) third-party developer Apps directly from Apple’s App Store.”

The court observed that the plaintiffs’ complaint did not “allege a ‘supracompetitive’ or ‘fixed’ price, but rather a mark-up.” Although the plaintiffs alleged that Apple had “unlawfully stifled competition, reduced output and consumer choice, and artificially increased prices” in the aftermarket for iPhone apps, they did not “explain how Apple’s conduct results in increased ‘prices’ or how said prices were paid,” and only argued for the first time in their opposition that “iPhone customers were forced to pay Apple a 30% fee on top of the cost for the apps.” Since the court’s analysis only focused on the allegations in the complaint, and the allegations in the complaint did not “sufficiently identify the basis upon which” the plaintiffs were proceeding, the court “decline[d] to issue an advisory opinion analyzing Illinois Brick as relevant here.” The court therefore granted the plaintiffs leave to amend to allege antitrust standing.

Rule 12(g). The court rejected the plaintiffs’ argument that Apple was barred under Federal Rule of Civil Procedure 12(g) from asserting lack of standing and failure to state a claim because it had failed to raise those arguments in either of two prior motions to dismiss. Failure to state a claim and lack of subject matter jurisdiction could be raised by a Rule 12(c) motion or at trial. Although “[s]uccessive motions under Rule 12(b) are generally not permissible and create significant inefficiencies within the court system,” here consideration of the jurisdictional issue promoted efficiency because the court would be obligated to dismiss the action in its absence.

Collateral estoppel. The court also declined to find that Apple was barred by the doctrine of non-mutual offensive collateral estoppel from relitigating issues decided in the first action against Apple. Although the claims in the two actions were “similar and significantly overlap,” they were “not identical.” Moreover, the court did not agree that the previous “order on a motion to dismiss [was] sufficiently final, where the rulings could not have been appealed while the action was pending in this district and [the judge] ultimately ordered the action to arbitration.”

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