OAKLAND, Calif. (CN) – Attorneys continued to debate the definition of a “true aftermarket” at Tuesday’s hearing of arguments in a federal putative class action over Apple’s five-year iPhone exclusivity deal with AT&T.
Zack Ward and Thomas Buchar’s 2012 antitrust lawsuit claims that the agreement – which they say the companies entered shortly before the iPhone was introduced in 2007 – bound iPhone purchasers to use AT&T for five years without their knowledge, even though they signed only two-year service contracts with the mobile carrier.
The plaintiffs’ argument hinges on the theory that the AT&T service constitutes an economic aftermarket, with the iPhone being the “primary product” on which the aftermarket is contingent.
Existing “aftermarket doctrine” arises from the Supreme Court’s 1992 decision in Eastman Kodak Company v. Image Technical Services, in which the high court held that competition in a primary market does not necessarily preclude antitrust liability in derivative aftermarkets.
At Tuesday’s hearing on Apple’s motion for summary judgment before U.S. District Judge Yvonne Gonzalez Rogers, Apple attorney Dan Wall argued that this case does not involve an aftermarket because the two transactions at issue “are not only simultaneous but intertwined.”
“The price of one is dependent on the execution of the other,” Wall said. “The only way to buy this phone is an interconnected transaction.”
Wall added that “we’re talking about taking the ‘after’ out of the aftermarket here,” and that “there’s no way” that consumers would not have understood what they were signing up for.
Mark Rifkin, who argued for the plaintiffs, contended that there is no evidence that his clients understood that they were binding themselves to AT&T for more than two years or that they were giving up their right to terminate their contracts.
But Judge Rogers pointed out that Rifkin’s aftermarket theory is mostly propped on academic papers, which she said she did not contain enough of a factual basis for a legal argument.
Rifkin argued that the case involves an aftermarket because the two transactions took place not simultaneously but at different times. Even if the time difference is “only a matter of minutes,” the amount of time between the transactions is “irrelevant,” he said.
“We disagree with Apple that an aftermarket means that the aftermarket has to arise some time substantially later in time than the primary product is purchased,” he said.
“No case says that there is a minimum difference in time that has to be observed.”
Wall seemed appalled by Rifkin’s theory.
“I cannot believe that someone would actually say that timing has nothing to do with the aftermarket doctrine,” Wall said. “It is entirely about the temporal separation between two transactions.”
Since time separates two distinct competitions, the aftermarket arising later “involves a new and distinct realm of competition,” Wall said.
“If that is ignored, the doctrine has lost its foundation,” he said.
Rogers said that in order to properly analyze the case “one has to look at the context of the purchase.”
“And looking at the context of this purchase doesn’t actually help your case, because in addition to the fact that there is this temporal component, you can’t have one [purchase] without the other,” she told Rifkin.
Wall chimed in that the plaintiffs cannot call AT&T a monopolist if it is only the plaintiffs – whose proposed class has not been certified – “don’t get” the contract.
“AT&T is only a monopolist if millions of consumers don’t get it so they can exploit a market, not two guys,” he said.
Rogers did not indicate how or when she expects to rule.
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