Judge weighs whether iPhone users can bring App Store monopoly class action

OAKLAND, Calif. (CN) — In 2019, the U.S. Supreme Court brought iPhone users one step closer to bringing a massive antitrust case against Apple to trial when it ruled that App Store customers could sue the company for using its monopoly power to drive up prices for apps and in-app purchases.

But now they face a fresh hurdle — convincing a federal judge to certify a class comprising millions of Apple customers who paid for iOS apps and in-app content through the App Store.

The case, now in its tenth year, was initially brought by Robert Pepper, Stephen Schwartz, Edward Hayter and Eric Terrell in 2011. It was dismissed by a federal judge in 2013 under a key antitrust holding in Illinois Brick Co. v. Illinois, where the Supreme Court ruled that alleged monopolists can be sued only by people who are directly impacted by the companies' conduct, not by indirect purchasers. A 2019 decision penned by Justice Brett Kavanaugh said the plaintiffs are direct purchasers under Illinois Brick since they purchased apps directly from Apple.

Lawyers for Apple told U.S. District Judge Yvonne Gonzalez Rogers on Tuesday that it is not possible to ascertain how many iPhone users have been injured by Apple’s alleged App Store monopoly.

“In order to certify a damages class, plaintiffs need to come forward with a model capable of showing injury to all or virtually all of the plaintiffs. It means more than a great number of members of the class need to be injured,” said attorney Cynthia Richman with Gibson Dunn, who represents Apple.

Apple takes issue with a damages model offered by econometrician Daniel McFadden, a professor emeritus of economics at the University of California Berkeley. McFadden analyzed what commission rates Apple would have charged developers in a competitive but-for world. Apple currently earns a 30% commission on App Store sales, though a settlement with small developers the judge approved on Tuesday lowers that rate to 15% for three years.

Apple contends that McFadden’s model estimates a substantial number of proposed class members who show no damages, and disputes McFadden’s conclusion that Apple would have charged 10% to 12% if non-Apple iOS app stores were allowed to exist.

Gonzalez Rogers also questioned those percentages at Tuesday’s hearing, saying McFadden seemed to be pulling numbers out of thin air.

Counsel for the proposed class said the model is a reliable enough method of determining class-wide damages. When Gonzalez Rogers questioned him about the percentage of uninjured class members, attorney Aaron Panner with Kellogg, Hansen, Todd, Figel and Frederick said customers who made purchases from the App Store have an antitrust injury whether or not they have damages.

"There is antitrust impact from the fact that the Apple store did not provide choices that they would have provided in a competitive market, that they were deprived of innovations that they would have had in a competitive market,” Panner said. “So they have an antitrust injury irrespective of whether they really have measurable damages.”

The adequacy of the model isn’t the only obstacle to the case moving forward, as Gonzalez Rogers already rejected the idea of a foremarket for Apple’s operating system and a tethered aftermarket for iOS apps and IAP in her ruling in another high-profile lawsuit over Apple’s app store policies.

"Quite simply, it is illogical to argue that there is a market for something that is not licensed or sold to anyone,” she wrote in her ruling in the case where Epic, the maker of the popular Fortnite video game, challenged Apple’s App Store policies and 30% commission rate as anticompetitive. “Given the court’s rejection of the foremarket theory, the aftermarket theory fails as it is tethered to the foremarket," she added.

The judge said the iPhone user plaintiffs seemed to ignore this. “It’s not surprising to me that both sides selectively use my order for their purposes,” she said, noting that iPhone users had defined their foremarket in the exact same way as Epic Games. “I found it had no legs."

Panner said the key point is that all customers are subject to the same anticompetitive constraints in the retail market for iPhone apps because Apple prohibits alternative iOS app stores.

Plaintiff attorney Mark Rifkin said the App Store is like a supermarket for apps and in-app purchases. “Apple has forced consumers who buy iPhones and iPads to shop only in one place,” he said. “And they've been monstrously successful and they have effectively foreclosed not only competition but choice."

He said McFadden’s methodology will be used to calculate damages using the 400 million discreet Apple IDs currently in existence.

Rifkin was a bit cagey with Gonzalez Rogers when she asked for the total damages figure but ultimately said he believed it to be around $7 billion to $10 billion.

Gonzalez Rogers took the case under submission.

Follow @MariaDinzeo

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