Judge Throws Out Claims That Apple Fixed Prices of Apps

OAKLAND, Calif. (CN) - Apple does not have to face claims that it monopolized the market for iPhone applications by charging developers a 30 percent commission, a federal judge ruled.

U.S. District Judge Yvonne Gonzalez Rogers found that a class of iPhone users lacked standing to sue Apple for antitrust violations because they were indirect purchasers of the apps in question and could not show that Apple fixed the price of applications.

The plaintiffs claimed in a 2011 lawsuit that Apple charged app developers an annual $99 fee to submit apps for distribution, collecting 30 percent of the sale of each application that it does not give away for free while the developer received the other 70 percent.

Gonzalez Rogers dismissed the claims with leave to amend in August. The class then filed a second amended complaint in September.

The class tried to argue in court filings that Apple imposed the 30 percent fee on top of the cost for apps, that they bought the apps directly from and paid the fee directly to Apple, and that Apple kept the entire fee for itself. The class also argued that since they are the only party in the chain that buys the price-fixed products, they are "straightforward direct purchasers."

Rogers was not convinced, however, finding that "at best, plaintiffs allege that the ultimate price paid by them is somehow 'fixed' across the board at a level 30% higher than it would otherwise be if not for Apple's conduct."

"Despite plaintiffs' best efforts, the [second amended complaint] is fairly read to complain about a fee created by agreement and borne by the developers to pay Apple 30% from their own proceeds - an amount which is passed-on to the consumers as part of the purchase price," she added. "Plaintiffs' attempt to recast themselves as the sole purchasers of the apps because Apple collects the entire purchase price is unavailing. To find otherwise would require the court to ignore the other allegations in the [second amended complaint], which identify the developers' obligation to pay or share the thirty percent with Apple. Consequently, the court finds the [second amended complaint] does not allege facts from which Plaintiffs can be classified as direct purchasers."

The plaintiffs also could not show any price-fixing by Apple, which would be required to have standing as indirect purchasers, according to the ruling.

"To the extent that plaintiffs intimate that developers would necessarily charge only 70% of the purchase price if not for Apple, such conclusion requires the court to speculate into developers' pricing structure, their costs, ability to find a distribution chain, and/or desired profits or rates of return," Brown wrote. "Simply put, the court cannot assume, as plaintiffs do, that developers charging 99 cents for an app would necessarily have charged 70%, or 69 cents, if not for the agreement with Apple to pay them 30% of the purchase price. Further, the [second amended complaint] lacks allegations of a conspiracy of any kind."

The judge added that the "30% figure for which plaintiffs complain is not a fixed fee, but a cost passed-on to consumers by independent software developers. As such, any injury to plaintiffs is an indirect effect resulting from the software developers' own costs. Given that none of the exceptions to the Illinois Brick doctrine apply, plaintiffs are barred from bringing claims because they are indirect purchasers."

Derived from a 1977 U.S. Supreme Court case, the Illinois Brick doctrine requires a price be paid directly for the price to be fixed. A passed-on price cannot be fixed under the doctrine.

Gonzalez dismissed the second amended complaint with prejudice.

Alexander Schmidt, attorney for the plaintiffs, told Courthouse News that he plans to appeal the ruling.

"We think the 9th Circuit case law is very clear that consumers who buy a monopoly-priced product directly from the monopolist are direct purchasers," Schmidt said. "The fact that Apple told app developers in advance that it would charge 30 percent doesn't change the direct purchase status of our clients. App developers are not purchasers. They're sellers. They can't be direct purchasers."

Schmidt is an attorney with Wolf Haldenstein Adler Freeman & Herz in Manhattan.

Christopher Yates of Latham & Watkins in San Francisco represents Apple. Frank Pizzuro, a spokesman for the firm, declined to comment. He noted that Daniel Wall and Sadik Huseny, also from the firm's San Francisco office, joined Yates as lead partners in the case.

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