Judge Lets Apple Off the Hook on Monopoly Claims

OAKLAND, Calif. (CN) - IPhone users must amend claims that Apple choked competition and inflated prices in the software applications aftermarket, a federal judge ruled.

The consolidated class action at issue here, In re Apple iPhone Antitrust Litigation was filed in March 2012. It alleged that Apple entered into a secret five-year contract establishing nonparty AT&T Mobility as the exclusive provider of voice and data services for the iPhone through 2012.

Apple was also accused of putting software locks on iPhones to prevent purchasers from switching to another provider, and of using its agreement with AT&T to control which developers could create apps for iPhones, including those for ringtones, instant messaging and Internet access.

U.S. District Judge James Ware refused to compel arbitration but dismissed some claims against Apple after holding that the class had improperly left out AT&T though it was a necessary party for a conspiracy suit. He said the plaintiffs would not have to maintain claims based on the iPhone's voice and data services aftermarket, meaning the market involving parts and accessories used in the repair or enhancement of a product.

The iPhone purchaser plaintiffs said Apple charged app developers an annual $99 fee to submit apps for distribution and collected 30 percent of the sale of each application that it does not give away for free, with the developer receiving the other 70 percent. Apple also allegedly refused to approve applications from developers who did not pay the annual fee and told customers that it would void and refuse to honor the warranty for any customer who downloaded third-party apps. Customers who bought a song from the Apple iTunes store also had to pay 99 cents to convert that song into a ringtone, according to the complaint.

The class said Apple denied them a means by which to download unapproved third-party apps and that it "unlawfully stifled competition, reduced output and customer choice, and artificially increased prices in the aftermarket[] for.... iPhone software applications."

Apple moved to dismiss, but the plaintiffs emphasized that they have been "deprived lower cost alternatives, paid higher prices for 'Apple 'approved' applications' and/or had their iPhones disabled or destroyed."

U.S. District Judge Yvonne Gonzalez Rogers, who took charge of the case after Ware retired last year, found Thursday the allegations "insufficient to establish Article III standing."

While the class claims to have bought iPhones for voice and data services and many say they would have liked the option of switching to another provider or unlocking their SIM card, "none of these allegations speak to named plaintiffs' standing with respect to the applications aftermarket claims," according to the ruling.

"Plaintiffs do not satisfy Article III standing with collective allegations that they have been deprived of lower cost alternatives, paid higher prices for Apple-approved applications, and/or had their iPhones disabled or destroyed," Rogers wrote. "At a minimum, plaintiffs must allege facts showing that each named plaintiff has personally suffered in injury-in-fact based on Apple's alleged conduct. This requires that plaintiffs at least purchased applications."

The judge granted the plaintiffs leave to amend, noting that their declarations provide information that might satisfy certain deficiencies in their pleading.

She also dismissed and struck from the record a claim for conspiracy to monopolize the voice and data aftermarket because she found that the plaintiffs failed to add AT&T Mobility as a party, as Judge Ware had required. The dismissal of that claim is currently on appeal.

Rogers also rejected the plaintiffs' argument that collateral estoppel bars Apple's arguments in its motion to dismiss.

The plaintiffs had argued that because Apple raised and lost "each of the central arguments" of this case before Judge Ware, it is precluded from raising them again, and that Ware's order was sufficiently "final" for collateral estoppel purposes.

This argument points to the outcome of an earlier class action filed in 2007, alleging that Apple and AT&T Mobile tried to monopolize the aftermarket in iPhones for voice and data services. They accused Apple separately with regard to its control of the iPhones software applications aftermarket, meaning the market involving parts and accessories used in the repair or enhancement of a product.

Those allegations were consolidated in In Re Apple & AT&TM Antitrust Litigation.

Ware certified a class of iPhone purchasers in 2010 but later decertified the class and ordered arbitration in the wake of a landmark Supreme Court decision, Concepcion v. AT&T Corp .

Rogers found Thursday that while the allegations in the two actions are "similar and significantly overlap, [they are not] identical."

"Further, the court does not agree with plaintiffs that Judge Ware's order on a motion to dismiss is sufficiently final, where the rulings could not have been appealed while the action was pending in this district and Judge Ware ultimately ordered the action to arbitration," Rogers added.

The plaintiffs must file their second amended complaint within 21 days of the order, Rogers said, setting a case-management conference for Nov. 4.

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