"The Apple iPod iTunes Anti-Trust Litigation"

Filing 175

REDACTED DOCUMENT re: MEMORANDUM IN OPPOSITION TO 165 MOTION FOR CLASS CERTIFICATION , 174 Proposed Order filed by Apple Inc.. (Attachments: # 1 Appendix Addendum 1-2)(Related document(s) 173 , 174 ) (Strong, Tracy) (Filed on 10/17/2008) Modified text on 10/20/2008,(counsel used incorrect event.) (cv, COURT STAFF).

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"The Apple iPod iTunes Anti-Trust Litigation" Doc. 175 1 2 3 4 5 6 Robert A. Mittelstaedt #060359 Craig E. Stewart #129530 J O N E S DAY 555 California Street, 2 6 t h Floor S a n Francisco, C A 9 4 1 0 4 Telephone: (415) 6 2 6 - 3 9 3 9 Facsimile: (415) 875-5700 rami t i e l s t a e d t @ j o n e s d a y . c o m cestewart@jonesday.com Attorneys for Defendant APPLE INC. UNITED STATES D I S T R I C T C O U R T N O R T H E R N DISTRICT OF CALIFORNIA S A N J O S E DIVISION 7 8 9 10 11 12 13 T H E A P P L E iPOD iTUNES A N T I TRUST LITIGATION C a s e No. C 05-00037 J W C 06-04457 J W REDACTED M E M O R A N D U M IN O P P O S I T I O N T O M O T I O N F O R CLASS CERTIFICATION Date: December 15, 2008 Time: 9:00 A.M. Place: Courtroom 8, 4th Floor 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SFI-S94829v I Redacted Mem. in Opp. to C l a s s C e r t i t l c a t i o n C OS..{JOO37 JW Dockets.Justia.com 1 T A B L E OF CONTENTS Page INTRODUCTION 1 3 3 2 3 4 BACKGROUND A. iPods a n d the iTunes Store iPods a n d i T u n e s S t o r e Music Are Separately Available a n d Have Separate Uses P l a i n t i f f s ' T e s t i m o n y C o n f i r m s T h a t T h e Existence o r E x t e n t o f C o e r c i o n Is A n Individual I s s u e Plaintiffs N o w C o n c e d e T h a t iTunes Store Music C a n Be P l a y e d o n iPod C o m p e t i t o r s by Virtual a n d P h y s i c a l B u r n i n g a n d R i p p i n g , t h u s C h a n g i n g t h e Nature o f T h e i r Tying Claim Plaintiffs' Current Tying C l a i m Plaintiffs' Proposed Class 5 6 7 B. 5 C. 8 6 9 10 D. 8 10 11 11 11 12 13 E. F. ARGUMENT 14 I. 15 16 17 18 19 PLAINTIFFS B E A R T H E B U R D E N OF S H O W I N G T H A T T H E R E Q U I R E M E N T S F O R C L A S S C E R T I F I C A T I O N A R E MET. P L A I N T I F F S ' T Y I N G C L A I M FAILS T H E P R E D O M I N A N C E , T Y P I C A L I T Y AND A D E Q U A C Y S T A N D A R D S F O R C L A S S C E R T I F I C A T I O N A. W h e t h e r i P o d P u r c h a s e r s Were T i e d D e p e n d s o n I n d i v i d u a l Proof. Separating Purchasers W h o Benefited U n d e r Plaintiffs' Theory o f An Alleged T i e a n d S u f f e r e d N o Injury Requires I n d i v i d u a l Proof.. D e t e r m i n i n g W h a t P u r c h a s e r s W o u l d H a v e D o n e A b s e n t the A l l e g e d T i e C r e a t e s F u r t h e r Individual Issues a n d Conflicts 11 II. 12 12 B. 18 20 C. 21 19 22 23 24 25 1II. A D D I N G R E S E L L E R S LIKE B E S T BUY E X A C E R B A T E S T H E PREDOMINANCE, TYPICALITY, ADEQUACY AND MANAGEABILITY PROBLEMS P L A I N T I F F S ' S E C T I O N 2 C L A I M LIKEWISE C A N N O T BE C E R T I F I E D C E R T I F I C A T I O N U N D E R R U L E 2 3 ( B ) ( 2 ) IS A L S O I M P R O P E R . 22 24 24 25 IV. V. 26 CONCLUSION 27 28 SFI-59~829yl Redacted Mem. in Opp. to Class Certification C OHlOO37 JW 1 T A B L E OF A U T H O R I T I E S 2 3 4 5 6 A & M Records, Inc. v. Napster, Inc., 2 3 9 F .3d 1004 (9th Cif. 2 0 0 1) Anderson Foreign Motors, Inc. v. New England Toyota Distrib., Inc., 475 F. Supp. 973 (D. Mass. 1979) Balus v. A s p e n Really. Inc., 2 3 6 F . R . D . 6 5 2 (D. I d a h o 2 0 0 6 ) Blades v. lvfonsanto Co., 4 0 0 F .3d 562 ( 8 t h Cir. 2 0 0 5 ) Butt v. Allegheny Pepsi-Cola Bottling Co., 116 F . R . D . 4 8 6 ( E . D . Va. 1 9 8 7 ) Cascade Health Solutions v. PeaceHealth, 5 1 5 F . 3 d 883 ( 9 t h C i r . 2 0 0 8 ) Castano v. Am. Tobacco Co., 84 F . 3 d 734 ( 5 t h CiT. 1996) Chamberlain v. F o r d lv/otor Co., 4 0 2 F.3d 9521 ( 9 t h Cir. 2 0 0 5 ) Chase Parkway Garage Inc. v. Subaru, Inc., 94F.R.D.330(D.Mass.1982) Colburn v. Roto-Rooter Corp., 78 F.R.D. 6 7 9 (N.D. Cal. 1978) Coleman v. Gen. lvfotors Acceptance Corp., 296 F . 3 d 443 ( 6 t h CiT. 2 0 0 2 ) Collins v. I n t ' l Dairy Queen, Inc., 168 F.R.D. 668 (M.D. Ga. 1996) Daniels v. Amerco, No. 81 C I V . 3 8 0 1 , 1983 W L 1794 ( W . O . N.Y. Mar. 1 0 , 1 9 8 3 ) Digidyne Corp. v. Data Gen. Corp., 7 3 4 F . 2 d 1 3 3 6 ( 9 t h Cir. 1 9 8 4 ) Doninger v. Pac. Nw. Bell, Inc., 5 6 4 F . 2 d 1 3 0 4 ( 9 t h Cir. 1 9 7 7 ) 4 14 7 8 9 10 11 12 14 18 21 14 13 14 15 16 17 18 19 20 21 11 11 13 13 25 22 23 24 25 26 27 28 14 13 14 24 SFI-594829v I 11 Redacted Mem. in Opp. t o Class C~rtificati()n C 0 5 - 0 0 0 3 7 JW 1 2 3 Dukes v. Waf-Alart. Inc., 5 0 9 F . 3 d 1168 ( 9 t h C i r . 2 0 0 7 ) Foremost Pro Color. Inc. v. Eastman Kodak Co., 703 F .2d 5 3 4 ( 9 t h Cir. 1983 ) Freeland v. A T & T Corp., 2 3 8 F.R.D. 1 3 0 ( S . D . N . Y . 2 0 0 6 ) Gen. Tel. Co. v. Falcon, 4 5 7 U.S. 147 ( 1 9 8 2 ) Gray v. Shell Oil Co., 4 6 9 F . 2 d 742 ( 9 t h C i r . 1 9 7 2 ) Hardy v. City Optical Inc. , 3 9 F . 3 d 765 ( 7 t h C i r . 1 9 9 4 ) Hill v. A-T-O, Inc., 535 F . 2 d 1 3 4 9 ( 2 d C i r . 1 9 7 6 ) Illinois Tool Works Inc. 5 4 7 U.S. 28 ( 2 0 0 6 ) v. 12 10 4 5 12, 1 8 , 2 1 6 7 8 9 10 11 11,22 19 14 14, 16 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Independent Ink. Inc. 20 Image Tech. Servs. v. Eastman Kodak Co., N o . C 8 7 - 1 6 8 6 B A C , 1 9 9 4 W L 5 0 8 7 3 5 ( N . D . C a l . S e p t . 2, 1 9 9 4 ) In re Allstate Ins. Co., 4 0 0 F . 3 d 505 ( 7 t h Cir. 2 0 0 5 ) In re Graphics Processing Units Antitrust Litig., N o . C 0 6 - 0 7 4 1 7 W H A , 2 0 0 8 W L 2 7 8 8 0 8 9 ( N . D . Cal. J u l y 1 8 , 2 0 0 8 ) In re Methionine A n t i t r u s t Litig., 2 0 4 F.R.D. 161 (N.D. Cal. 2 0 0 1 ) In re SRAlvf Antitrust Litigation, No. C 0 7 - 0 1 8 1 9 C W , 2008 W L 4 4 4 7 5 8 4 (N. D. Cal. Sep. 2 9 , 2 0 0 8 ) In re Visa ChecklA1astermoney Antitrust Litigation, 2 8 0 F . 3 d 124 ( 2 d C i r . 2 0 0 1 ) Jefferson Parish Hosp. Dis!. N o . 2 v. Hyde, 4 6 6 U.S. 2 ( 1 9 8 4 ) Krehl v. Baskin-Robbins Ice Cream Co., 7 8 F . R . D . I 0 8 ( C . D . C a l . 1978) Kypta v. McDonald's Corp., 671 F.2d 1282 (11th Cir. 1982) SFI-594829vl III 14 25 12,24 18 21 14 14 24 27 28 18 Redacted Mem. in Opp. to Class Certification C 0 5 · 0 0 0 3 7 JW 2 3 4 5 Lessig v. Tidewater Oil Co., 327 F.2d 459 (9th Cir. 1964) Leli!allen v. lvfedtronic USA. Inc., No. C 01-20395 RMW, 2002 WL 31300899 (N.D. Cal. Aug. 2 8 , 2 0 0 2 ) Little Caesar Enters., Inc. v. Smith. 172 F.R.D. 236 (E.D Mich. 1997) Little Caesar Enters .. Inc. v. Smith, 895 F. Supp. 884, 904 (E.D. Mich. 1995) Molski v. Gleich, 318 F.3d 937 (9th Cir. 2003) ' Moore v. Jas. H Matthe'ws & Co., 550 F.2d 1207 (9th Cir. 1977) Muller v. Curtis Publ 'g Co., 57 F.R.D. 532 (E.D. Pa. 1973) Murphy v. Business Cards Tomorrow, Inc., 854 F.2d 1202 (9th Cir. 1988) 19,20 24 14 6 7 12 8 9 10 11 12 13 14 15 16 17 18 19 20 21 24 14,15 23 15 N. Pac. Ry. Co. v. United States, 356 U.S. 1 (1958) Olmstead v. A m o c o Oil Co., No. 7 6 - 2 4 7 - 0 r l - C i v - Y, 1977 WL 1416 (M.D. Fla. Jun. 16, 1977) Paladin Assocs., Inc. v. Mont. Power Co., 328 F.3d 1145 (9th Cir. 2003) Piggly Wiggly Clarksville, Inc. v. Interstate Brands Corp., 100 Fed. Appx. 296 (5th Cir. 2004) Siegel v. Chicken Delight, Inc., 448 F.2d 45 (9th Cir. 1971) Smith v. D e n n y ' s Rests .. Inc., 62 F.R.D. 459 (N.D. Cal. 1974) Sommers v. Abraham Lincoln Fed. Savs. & Loan Assoc., 66 F.R.D. 581 (E.D. Pa. 1975) Telecomm Tech. Servs., Inc. v. Siemens Rolm Commc 'ns. Inc., 172 F.R.D. 532 (N.D. Ga. 1997) Trans Sport, Inc. v. Starter Sportswear, Inc., 964 F.2d 186 (2d Cir. 1992) SFI-594829vl 13 13 15 21 16, 17 22 23 24 25 26 27 28 14 IV Redacted Mem. in Opp. to Class Certification C 05·00037 JW 13 22 21 1 2 us. v. Aluminum Co. o fAm., 148 F . 2 d 416 ( 2 d Cir. 1945) 10 3 4 us. v. Aficrosoft, 253 F . 3 d 3 4 ( D . C . C i r . 2 0 0 1 ) 5 5 6 Ungar v. D u n k i n ' Donuts, Inc., 531 F . 2 d 1211 ( 3 d C i r . 1976) Valley Drug Co. v. Geneva Pharm., Inc., 3 5 0 F . 3 d 1181 ( l i t h Cir. 2 0 0 3 ) Waldo v. N. Am. Van Lines, Inc., 102 F.R.D. 807 (W.D. Pa. 1984) Wetzel v. Liberty Mut. Ins. Co., 508 F . 2 d 2 3 9 ( 3 d Cir. 1 9 7 5 ) Woffordv. SafewayStores, Inc., 7 8 F . R D . 4 6 0 ( N . D . Cal. 1 9 7 8 ) Zinser v' Aceufix Research Inst., Inc., 253 F . 3 d 1 1 8 0 ( 9 t h Cir. 2 0 0 1 ) Other Authorities Federal Rules o f Civil P r o c e d u r e Rule23 Rule 23(a)(3) R u l e 23(a)( 4) Rule 23(b )(2) R u l e 2 3 ( b )(3) O t h e r Authorities 5 Moore's Federal Practice § 2 3 . 4 5 [ 5 ] [ c ] (3d ed. 2 0 0 6 ) ) 7 A A C. Wright, A. M i l l e r & M . Kane, Federal Practice a n d Procedure, § 1781, pp. 249-51 ( 3 d e d 2 0 0 5 ) 13 7 8 9 10 11 12 18 13 25 23 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11,24 2,11,12 3, 23 3,23 24 3 13 13 S. Calkins, Enforcement Official's Reflections on Antitrust Class Actions, 3 9 Ariz. L. Rev. 413 ( 1 9 9 7 ) 13 14, 18 x P. Areeda, E. Elhauge, & H o v e n k a r n p , A n t i t r u s t Law ( 2 d ed. 2 0 0 4 ) SFI-594829v I v Redacted Mem. in Opp. to Cla~s Certification C 0 5 - 0 0 0 3 7 JW INTRODUCTION 2 3 4 T h e i T u n e s S t o r e , l a u n c h e d in 2 0 0 3 , w a s A p p l e ' s p i o n e e r i n g , i n n o v a t i v e s o l u t i o n t o t h e problem o f rampant piracy o f music o v e r the Internet. F o r the first time, it enabled c o n s u m e r s to buy digital m u s i c files o n l i n e - l a w f u l l y , conveniently and inexpensively. As the head o f the United States Justice D e p a r t m e n t Antitrust D i v i s i o n e x p l a i n e d , A p p l e " s o l v e d a p r o b l e m that some observers . . . predicted m i g h t n e v e r be solved: h o w to create a consumer-friendly, yet legal a n d p r o f i t a b l e , s y s t e m for d o w n l o a d i n g music a n d o t h e r e n t e r t a i n m e n t f r o m t h e I n t e r n e t : ' S e e Ex. 1, p. 3. 1 As a condition for permitting Apple to distribute their m u s i c online, the record companies r e q u i r e d A p p l e t o e n c r y p t t h e m u s i c w i t h a n t i - p i r a c y , o r d i g i t a l rights m a n a g e m e n t ( D R M ) , technology. T o comply w i t h that condition, Apple c h o s e t o develop its o w n proprietary t e c h n o l o g y r a t h e r t h a n use M i c r o s o f t ' s . T h e c o m p l a i n t a l l e g e s t h a t , a s a r e s u l t , i n d i v i d u a l s w h o purchase iTunes Store music have been torced t o buy iPods because supposedly no o t h e r MP3 p l a y e r c a n p l a y t h a t music. O n t h a t basis, p l a i n t i f f s n o w s e e k to r e p r e s e n t 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 the wings, hoping to represent the consumers who, in tum, bought iPods from those resellers. Contrary to the complaint, however, plaintiffs a n d t h e i r e c o n o m i s t have n o w a c k n o w l e d g e d t h a t i T u n e s S t o r e m u s i c c a n in f a c t b e p l a y e d o n c o m p e t i n g p l a y e r s b y t h e e a s y , familiar step o f " b u r n i n g and ripping," i.e .. copying t h e music t o a C D a n d importing it to a c o m p u t e r . T h u s , p l a i n t i f f s c a n n o t p o s s i b l y c o n t e n d t h a t all p u r c h a s e r s o f i T u n e s S t o r e m u s i c were forced to buy iPods. Rather, their claim n o w is that this "differential e a s e - o f - a c c e s s " - t h e i r e c o n o m i s t ' s t e r m for the minimal e x t r a step o f b u r n i n g / r i p p i n g - h a s the potential to torce consumers with iT unes Store music to buy a n iPod under a v e r y limited s e t o f c i r c u m s t a n c e s . Whether anyone was actually forced t o do so depends o n a " b u n c h o f s t u f f ' (their e c o n o m i s t ' s 1 Unless o t h e r w i s e indicated, all " E x . " references a r e t o the e x h i b i t s to t h e S c o t t Declaration, t i l e d herewith. 20 21 22 23 24 25 26 27 28 SFI-594829vl Redacted Mem. in Opp. to C l a s s Certillcation C 0 5 - 0 0 0 3 7 JW 1 2 3 4 5 6 7 8 9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 term) including h o w much music the individual obtained from the iTunes Store, how many o f those songs the individual wants to transfer to a different player, h o w many o f those songs are encrypted with A p p l e ' s DRM (one o f the record labels p e n n i t t e d Apple to start selling DRM-free music last year), the individual's "technical acuity" in burning/ripping, and the strength o f his preference for another p l a y e r - a l l factors that vary from individual to individual. The courts have developed a well-established test for d e t e n n i n i n g whether a tying case meets the requirements o f Rule 23, and this case does not. The test depends at the threshold o n the nature o f the alleged tying mechanism and whether it applies to all purchasers alike. I f the defendant requires all purchasers to buy the allegedly unwanted (tied) product by means o f a u n i f o n n c o n t r a c t u a l o r s i m i l a r r e q u i r e m e n t , t h e c a s e m e e t s a t least t h e t h r e s h o l d r e q u i r e m e n t s o f a class. The cases plaintiffs cite all fall into this category o f a n across-the-board tie. O n the other hand, in the absence o f a tie that applies to all purchasers, the courts have consistently and repeatedly denied class certification. Infra. pp. 12-13. This case falls in the latter category. Apple has not contractually o r otherwise required all iTunes Store music purchasers to buy iPods. And unlike plaintitTs' cases, there are obvious reasons why consumers buy iPods, the allegedly tied or unwanted product, without regard to iTunes Store music, the allegedly tying o r wanted product. After all, the award-winning iPod was the leading MP3 player before the iTunes Store was introduced. Plaintiffs themselves are the best p r o o f that consumers buy iPods without being forced into it. All o f them bought iPods before buying any iTunes Store music. They each likewise admitted at deposition that they voluntarily bought a n iPod because it was "cool," recommended by friends o r for some other reason having nothing to do with i'funes Store music. In fact, many iPod customers have not purchased any iTunes Store music at all, preferring instead to load their iPods with music from t h e i r CDs. These named plaintiffs show that the tying theory is groundless. But i f there were any ditIerently situated customers who want to claim that they were forced to buy an iPod in the limited circumstances identified by p l a i n t i t l s ' economist, the only way to identify them and prove SFI-594829vl 2 Redacted Mem_ in Opp_ (0 Class Certification C 05~0037 JW their claim would be through individual proof. This need for individual p r o o f defeats class 2 3 4 5 6 7 8 9 certification under Rule 23(b)(3), as the courts have repeatedly held in tying cases. Class certification is improper for other reasons as well. A fundamental prerequisite to class certification in antitrust cases is that plaintiffs be able to establish impact and injury on a common basis for all purchasers. In tying cases, the Ninth Circuit requires that plaintiffs prove which product customers would have purchased absent the tie and whether they suffered a "net overcharge" taking into account the prices o f both the tying and tied product. For the reasons discussed below (at 17-21), these issues cannot be resolved in this case with common evidence but instead t u m on individual p r o o f specific to each customer. Plaintiffs assert that their economist will try to do a regression analysis to detennine whether any part o f the iPod price can be attributed to the "differential ease-of-access." But that approach is irreconcilable with governing Ninth Circuit law, and plaintiffs' resort to it only confirms that this case may not properly be certified for class treatment. Finally, class certification is improper because the alleged class includes not only end-user consumers who purchased iPods directly from Apple, but also retailers like Target and Best Buy that purchased millions o f iPods from Apple and resold them to consumers. I f Target, Best Buy or any other reseller wants to assert a claim, it does not need to rely on anyone else to pursue it, let alone on end-user consumers who paid different prices for their iPods, know nothing o f the reseHer's business and cannot adequately represent it. Nor is a class action the superior method to adjudicate the claims o f such large resellers. Accordingly, plaintiffs have failed to satisfy Rule 23(a)(3)-(4) and (b)(3). 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 BACKGROUND A. iPods a n d t h e i T u n e s Store. Apple began selling iPods in November 2001. Within 18 months, the iPod had became the most popular MP3 player in the United States. Ex. 2. As CNET recognized in proclaiming the iPod the top new consumer product in the last ten years, "[i]t revolutionized and popularized music players." Ex. 3. SFI·594829vl 3 Redacted Mem. in Opp. to Class Certification C OS..{)0037 JW 1 Plaintiffs' own testimony shows not only that iPods are purchased without regard to iTunes Store music but also that iPods are used for purposes other than to play iTunes Store music. Among other uses, iPods can play music imported from purchased C D s or downloaded from the Internet, store and display photographs, serve as hard drives to store other computer files, and provide calendar and alarm clock functions; some models can store and play video recordings and sync with Nike+ running s h o e s ? The iPod touch can also be used to access the internet, play video games and download applications from the Apple App Store. 3 Apple launched the online iTunes Store (originally known as the iTunes Music Store) in April 2003. Plaintiffs' economist admits that introduction o f this Store was "procompetitive" and a " h u g e benefit" to consumers." Ex. 21, 105 :8-20. Fortune Magazine named the iTunes Store its 2003 "product o f the y e a r : ' observing that " [w]ith the success o f its iTunes Music Store, Apple is almost single-handedly dragging the music industry, kicking and screaming, toward a better future." Ex. 4. With an initial inventory o f 200,000 songs available for 99 cents each, it offered a legal alternative to Napster and other unlicensed and illegal peer-to-peer sites. S e e A & M Records, Inc. v. Nap.<;ter. Inc., 239 F.3d 1004 (9th Cir. 2001). (Addendum A to this b r i e f 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 illustrates h o w iTunes Store music is purchased and loaded onto an iPod.) Concerned about piracy and stung by the illegal peer-to-peer services, the major record labels were not willing to license their music for sale o n the iTunes Store unless Apple encoded the music using D R M anti-piracy software. See Ex. 2 1 , 1 0 2 : 4 - 1 0 5 : 7 , 1 6 8 : 1 7 - 2 1 , 2 2 5 : 4 - 1 2 ; Tucker Complaint (Case No. 06-04457 JW, Dkt. 1, filed 7/21/06), ~~ 33-34. To comply with the 2 See Ex. 1 9 , 4 7 : 2 5 - 4 8 : 3 (when T u c k e r purchased her first iPod, h e r plan was to p u t h e r CD collection o n it); Ex. 16, 75:14-18 (Charoensak) ("I intended to use [the iPod] to listen to my music . . . . And I also intended to use it as an external hard drive."); Ex. 1 7 , 9 1 :2-4 (Rosen) ("Q: Does your son watch cartoons o n the iPod? A: He is not allowed, but he d o e s : ' ) ; Ex. 15, 300:8-10 (Slattery) ("Pretty much universally everybody seems to agree that [iPod is] j u s t a cool piece o f technology. I t looks cool, has a lot o f cool features."). 22 23 24 25 26 27 28 Although plaintiffs treat the iPod as a single device, there are in fact several different models at different prices. In addition to the original iPod, now called the iPod classic, Apple sells the iPod shutlle, the iPod nano, and the iPod touch. These different models were introduced at different times and their features evolved over time. Current prices from Apple range t r o m $49 for the shuffle to $399 for the 32GB touch. (The iPods, their features, and the prices Apple charges are described at Apple.com.) 3 SFI-594829v I Redacted Mem. in Opp. to Class Certification C 0 5 - 0 0 0 3 7 JW 4 record companies' demand for DRM-enforced usage rules, Apple developed its own proprietary 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 See v. AJicrosojt, 253 F.3d 34, 72-74 (D.C. Cif. 2001) (detailing how Microsoft coerced Apple into adopting Internet Explorer by threatening to stop supporting MS Office for Apple); see also Ex. 5 (news article reporting that the revamped, legal Napster service believed technical glitches in Microsoft's DRM were hurting Napster's business); Ex. 6 (noting that Microsoft's "PlaysForSure d i d n ' t live up to its moniker, and the portable services were plagued by glitches"); Ex. 7 (noting that Microsoft Zune does not support PlaysForSure and questioning the future o f PlaysForSure services); Ex. 8 ("Microsoft's move away from its PlaysForSure DRM format has many o f its longtime partners scrambling."). 4 DRM, known as FairPlay. The complaint alleges that Apple could have licensed Microsoft's DRM instead. Dkt. 107, Cmplt. ~~ 4 0 , 4 9 . But plaintiffs' economist has "no quarrel" with a company electing to develop its own software. Ex. 21, 169:4-8. Prohibiting that conduct "would be stupid" because it would freeze technology and "prohibit innovation." Jd. at 170:4-22. And becoming reliant on Microsoft can be particularly perilous, not j u s t because o f its penchant for anti-competitive conduct but because its DRM system was viewed as unreliable. 4 B. iPods a n d i T u n e s S t o r e M u s i c A r e S e p a r a t e l y A v a i l a b l e a n d H a v e S e p a r a t e Uses. This case is unlike all o f those cited by plaintiffs where the allegedly tied products are sold only as a package or where the tied product has no real use apart from the tying product, and thus where tying (as plaintiffs use that term) can be shown uniformly for all class members. iPods and iTunes Store music are sold separately and can be, and are, used independently. See http://www.apple.comlitunesl. As noted, Apple began selling iPods 18 months before launching the iTunes Store, and iPods became the best selling portable music player even before Apple sold any digital music. After the iTunes Store launch, Apple has continued to sell iPods separately from iTunes Store music, as plaintiffs admit. 5 Millions o f consumers have purchased iPods or received them as gifts without ever purchasing any iTunes Store music. Indeed, feedback from Apple's customers indicates that u.s. See Ex. 17, 111:5-12 (Rosen) CQ: When you bought your iPod[s], did anyone at Apple tell you you couldn't buy an iPod unless you also agreed to buy music from Apple's online music store? . . . A: I d o n ' t think so, no."); Ex. 19, 54: 19-55:2 (Tucker purchased her tirst iTunes song "probably months" after purchasing her first iPod); Ex. 15, 30:3-8 (Slattery first bought iTunes Store music "within a matter o f months" after buying an iPod"). 5 SFI-594829v I 5 Re~actc;j Mem, in Opp. to Class Certification C OS..()0037 JW o f iPod purchasers have never purchased any music at all from the iTunes Store. 2 3 4 5 6 7 See Rangel Decl. Ex. 1, p. 35. O f the remaining iPod owners who use the iTunes Store according b o u g h t iTunes S t o r e m u s i c before b u y i n g t h e i r i P o d s m e a n i n g that of all iPod purchasers could not possibly have been coerced even under plaintiffs' theory. S e e id. Ex. 2, p. 34. This is consistent with the experience o f p l a i n t i f f s , e a c h o f w h o m p u r c h a s e d ( o r w a s g i v e n ) a n i P o d b e f o r e m a k i n g any i T u n e s S t o r e 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 S e e Rangel Decl. Ex. 1, p. 35. Even for consumers who buy iTunes Store music first, they have options for playing the m u s i c o t h e r t h a n o n t h e i r iPods. T h e m u s i c c a n b e p l a y e d o n t h e i r h o m e c o m p u t e r . O r i t c a n b e burned to a CD that can be played j u s t as any music C D can be played, including on home or car stereos, boom boxes and portable C D players. 7 I t c a n also be played on competing MP3 players b y b u r n i n g a n d ripping. 8 6 C. P l a i n t i f f s ' T e s t i m o n y C o n f i r m s T h a t T h e E x i s t e n c e o r E x t e n t o f C o e r c i o n Is An I n d i v i d u a l I s s u e . Plaintiffs' testimony illustrates the individualized nature o f their c l a i m s - a n d , indeed, the a b s e n c e o f a n y tie b e t w e e n i P o d s and i T u n e s S t o r e m u s i c . A s n o t e d , e a c h o f t h e m b o u g h t o r received iPods for their own individual reasons unrelated to any coercion and unrelated to any m u s i c f r o m t h e i T u n e s Store: Slattery, the original plaintiff, received his first iPod as a gift from his wife. He wanted it because "it was cool." Ex. 1 5 , 3 0 2 : 7 - 1 1 . That had nothing to do with iTunes Store music because he bought none before receiving the iPod. Id. at 30:3-31 :2. He filled his iPod with music 6 E.g., Ex. 19, 59:6-19 (Tucker) (describing h o w she plays iTunes Store music w i t h ;'the speakers connected to [her] laptop"); Ex. 1 7 , 2 8 : 2 4 - 2 9 : 3 , 131: 1-8 (Rosen). 7 E.g.. Ex. 19, 132: 13-15 (Tucker) CQ: And you also know that you can burn it to a CD and play it any place you c a n p l a y a CD, correct? A. Yes."). Infra, p. 9; Okt. 166-2, Noll Decl. at 48 (''[T]he consumer can make physical copies o f [FairPlay] recordings and then read them back into a personal computer as D RM - tr ee files."); Ex. 21, IS: 12-24 (Noll) ("[T]he mechanism [to play iTunes files o n competing players] is to either do an actual o r virtual burn o f the C D and then replay it."). 8 SFl·S94829v I 6 Redacted Mem. in Opp. 10 Class Certification C 05-00037 JW 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 from other sources, including 5,000 songs from free sites and 100 p u r c h a s e d CDs. Jd. a t 324:20325:3. His complaint was not that he was forced to buy an iPod, but that Apple was c h a r g i n g for its music. In his view, " g e n e r a l l y people should have free access to artistic stuff." ld. at 157: 19158: 18. Far from e v e r being forced to buy an iPod, he purchased four c o m p e t i n g players i n c l u d i n g a C r e a t i v e Z e n X t r a . [d. at 16:8-15. P l a i n t i f f T u c k e r bought h e r first iPod based on h e r friends' recommendation: "Q: A n d h o w d i d you c h o o s e an iPod? . . . A: I h a d friends t h a t had iPods and had s e e n advertisements . . . . [They] were satisfied. Q: You b o u g h t y o u r i P o d voluntarily; is that correct? A: Y e s . " Ex. 19, 8:22-9: 1, 11 :4-5, 58:2-4. S h e did not have any iTunes M u s i c a t the time, using h e r C D collection as the source o f h e r music instead. Jd. at 4 7 : 2 5 - 4 8 : 1 1 , 5 1 : 3 - 5 , 5 2 : 2 1 - 2 3 . She had no c o m p l a i n t a b o u t the iPod o r the iTunes Store until a discussion with h e r former boyfriend in July 2006, at which p o i n t she became a plaintiff~and he became h e r counsel o f record. ld. at 85:18-87:19,90:11-21. 9 Six months after suing, she bought another iPod. She had less than 25 s o n g s o r a b o u t t w o C D ' s w o r t h o f m u s i c f r o m t h e i T u n e s S t o r e a t t h e t i m e . ld. a t 4 3 : 8 - 4 5 : 1 8 , 120:9-121:15. P l a i n t i f f R o s e n h a s p u r c h a s e d t h r e e iPods. S h e a d m i t s s h e w a s n o t c o e r c e d w h e n s h e bought the first two, one o f which was a gift for h e r sister. Ex. 1 7 , 4 6 : 8 - 1 0 , 6 2 : 2 - 5 . S h e claims a lack o f choice only as to the third one, b u t that c l a i m is based largely o n h e r mistaken b e l i e f that, i f she bought a c o m p e t i n g player, she would h a v e to copy all o f her music from h e r C D s again. Jd. at 75:10-76: 16, 156:19-157:7. T h a t has nothing to do w i t h her tying claim. l o 21 22 23 9 P l a i n t i f f C h a r o e n s a k b o u g h t a n iPod because he w a n t e d a M a c - c o m p a t i b l e device that he c o u l d use as an external h a r d drive. Ex. 16, 59:24-61: 12. He did not buy any iTunes Store music T u c k e r ' s counsel/former boyfriend instructed h e r not t o answer w h e t h e r he o r she brought up the " c o n c e r n " o r i f she developed h e r " c o n c e r n " as a result o f talking with him. Ex. 19, 88 :290:24. LO 24 25 26 27 28 R o s e n ' s p r o b l e m , u n r e l a t e d to A p p l e ' s a n t i - p i r a c y s o f t w a r e , was t h a t w h e n s h e r i p p e d h e r C D collection into her iTunes library, s h e used the AAC format. Ex. 1 7 , 2 9 : 9 - 3 0 : 15. T o play t h a t music o n some MP3 players, she needs to c o n v e r t it to MP3 format. She c a n do so simply by changing her import preference to " M P 3 encoder" and, after selecting the music she wants to convert, clicking A d v a n c e d > C o n v e r t Selection to MP3. See Ex. 9. SFL-S94829v1 Redacted Mem. in Opp. to CLass Certification C OS.{JOO37 JW 7 until after he bought the iPod. Id. at 122: 19-22. Most o f the music o n his iPod is from his CD 2 3 4 5 6 7 8 9 10 II collection. ld. at 81 :20-25. His main complaint is not incompatibility with other stores or devices but rather that he did not k n o w he should not delete music from his computer after syncing to his i P o d - a g a i n totally unrelated to the complaint here. ld. at 25:23-27:20. Plaintiff Somers is an attorney fonnerly employed by Milberg Weiss, the predecessor to the direct plaintiffs' counsel o f record. Ex. 20, 8: 17 -23, 9:9-11. She bought her first iPod o n a friend's recommendation, and a second iPod as a gift for her mother. Id. at 37:14-38:4, 43:4-8. She was not coerced either time: "Q: [D]id you feel that you were forced or coerced in any way to buy that iPod? . . . A: I chose to purchase the iPod. Q: Did you feel that you were forced o r coerced to do it in any way? . . . A: No." ld. at 38:13-23, 43:14-20. Her main purpose in buying a n iPod was to load her CDs onto it, and the majority o f the files she has downloaded from the iTunes Store are free podcasts. Id. at 3 6 : 9 - 1 2 , 1 2 2 : 9 - 1 1 . She conceded that her choice o f a replacement MP3 player in the future would depend in part on how much she liked another player and h o w long it would take to transfer her music. ld. a t 104: 1-105 :6. I I 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 D. P l a i n t i f f s Now C o n c e d e T h a t i T u n e s S t o r e M u s i c C a n B e P l a y e d o n i P o d C o m p e t i t o r s by V i r t u a l a n d P h y s i c a l B u r n i n g a n d R i p p i n g , t h u s C h a n g i n g the Nature of Their Tying Claim. The theory o f a tying case is that consumers are r e q u i r e d - a g a i n s t their w i l l - t o buy an unwanted (or tied) product in order to obtain the desirable (or tying) product. Selecting which product to characterize as unwanted was difficult for plaintifTs because they were choosing between the CNET product o f the d e c a d e - t h e i P o d - a n d the Fortune product o f the y e a r - t h e iTunes Store. Initially, they punted by making the unprecedented claim that both products were both the tying and tied products. At the C o u r t ' s prodding (see Case No. 06-04457 JW, Dkt. 27, p. 8, n.2), they now have cast their fate with iTunes Store music and video as the tying product, and I I N o r were p l a i n t i f f s ' two e c o n o m i s t s coerced to buy an iPod. Pisarkiewicz bought his iPod to impress his nephews that he was "cool." Ex. 18, 76: 19-22. Noll does not o w n a n iPod. His wife bought one, without ever buying any iTunes Store music before o r since. Ex. 21, 9: 19-24. SFl·594829v I 8 Redacted Mem. in Opp. to Class Certification C OS..()0037 J W the iPod as the product that consumers supposedly buy only when forced into it. Dkt. 107, 2 3 4 5 6 7 8 9 10 11 12 13 Cmplt. ~ 43. Originally, plaintiffs' theory was that, as a result o f Apple using its own anti-piracy software and competitors using ditTerent software, an iPod was supposedly the only portable music player that can play music downloaded trom the iTunes Store. In fact, as plaintiffs and their economist have now conceded, consumers need only b u m the music onto a CD and then import (or "rip") the music onto their computer. Ex. 21, 15: 12-24 ("the mechanism is to either do an actual or virtual bum o f the CD and then replay it"), 156: 18-157:5. 12 This process is simple a n d w i d e l y known. S l a t t e r y t e s t i f i e d : Q. SO you know that physically, when you get music trom iTunes Music Store into your iTunes library, you can play that on competing devices by burning to a CD and ripping back to the computer, correct? A. Yeah. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Q. And burning and ripping is a process that you have done n u m e r o u s times, c o r r e c t ? A. Oh, yeah, many. Ex. 1 5 , 2 6 5 : 7 - 1 2 , 1 7 - 2 1 . 13 l b e burning/ripping process is described o n the Apple website (Ex. 10) and is illustrated in Addendum B to this brief. Explanations o f how to do it can also be found by a Google search for " h o w to play iTunes music o n competing players." E.g., Ex. 11; see also Exs. 12, 13 ~~ 8 1 - 8 4 ( d e c i s i o n o f F r e n c h C o m p e t i t i o n C o u n c i l r e j e c t i n g a l l e g a t i o n s c i t e d by "Virtual" burning refers to using software to "virtually burn" the c u s t o m e r ' s entire iTunes Store music library by copying it to the hard drive on the customer's computer. Such virtually burned songs can then be imported directly into an alternative p l a y e r ' s j u k e b o x software on that same computer and be played portably on that player. See Ex. 11. 12 13 Similarly, T u c k e r testified that she has already burned 25-30% o f her songs to C D s and that it takes "under a minute" o f her time to b u m or rip a CD. Ex. 19, 60:2-61: 10. Somers likewise testified that burning and ripping is "easy to do" and takes "less than a minute." Ex. 2 0 , 4 9 : 2 - 1 8 , 50: 10-12. She has burned CDs 30 times and ripped 50 times. Id. at 49:24-50:1; 57:19-23. SFI-594829v I 9 Rl:dal,;ICd Mem. in Opp. to Class Certitication C 05-00037 JW plaintitTs in their c o m p l a i n t at ~~ 60-70, n o t i n g t h a t burning and ripping is relatively easy, 2 3 familiar to music fans, has negligible cost, a n d resolves c o n c e r n s o f incompatibility). 14 E. Plaintiffs' Current Tying Claim 4 5 6 7 8 9 10 11 12 13 14 Plaintiffs are t h u s reduced to c l a i m i n g that w h a t t h e i r e c o n o m i s t calls a "differential e a s e o f a c c e s s " (Ex. 21, 2 l : 1 - 1 0 } - i . e .. t h a t iTunes Store music c a n b e played o n c o m p e t i n g MP3 players by the easy, familiar step o f burning a n d ripping~reatesa n illegal tie. T h e y assert that s o m e customers w i t h a l o t o f iTunes Store m u s i c m i g h t feel " l o c k e d - i n " to b u y i n g a n i P o d rather t h a n a c o m p e t i n g p l a y e r b e c a u s e t h e y v i e w t h e s m a l l e x t r a b u r n i n g a n d r i p p i n g s t e p as too inconvenient o r b e c a u s e t h e i r preference for a c o m p e t i n g p l a y e r is t o o weak. As a legal matter, this claim h a s n o merit. T h e antitrust laws do n o t require that a c o m p a n y d e s i g n its n e w p r o d u c t s to w o r k equally well ( o r at all) w i t h c o m p e t i t o r s ' p r o d u c t s - - o r worse, that a c o m p a n y is required o n c e its products b e c a m e successful to redesign them to be fully interoperable w i t h c o m p e t i t o r s ' products. " [ T ] h e introduction o f t e c h n o l o g i c a l l y r e l a t e d products, e v e n i f i n c o m p a t i b l e w i t h t h e p r o d u c t s o f f e r e d b y c o m p e t i t o r s , is alone n e i t h e r a predatory o r anticompetitive act." Foremost 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Pro Color. Inc. v. Eastman Kodak Co., 703 F . 2 d 5 3 4 , 5 4 5 ( 9 t h Cir. 1983) (emphasis added). E v e n plaintiffs' e c o n o m i s t agreed t h a t it w o u l d b e " c o m p l e t e l y idiotic" to require a n e w e n t r a n t to d e s i g n its p ro d u ct s to b e c o m p a t i b l e w i t h e x i s t i n g o r future c o m p e t i t o r s ' products. Ex. 21, 211 : 10-18.15 14 P l a i n t i f f s f u r t h e r d r e s s e d up t h e i r c o m p l a i n t by a l l e g i n g t h a t A p p l e d e l i b e r a t e l y d i s a b l e d a c h i p i n the iPod to m a k e it unable to play music from o t h e r o n l i n e stores. Plaintiffs and t h e i r economist, h o w e v e r . h a v e b e e n unable to identify any basis for the c h i p disabling allegation, and it is p a t e n t l y false. As t h e i r e c o n o m i s t p u t it, " t h e issue to m e was ne ve r disabling t h e microprocessor: there would b e no r e a s o n to do t h a t . " Ex. 2 1 , 2 2 1 :23-25. F a r from disabling a n y t h i n g , A p p l e a n d its c o m p e t i t o r s s i m p l y c h o s e t o u s e d i f f e r e n t D R M t e c h n o l o g y . 15 P l a i n t i f f s ' e c o n o m i s t w e n t o n to try to c o n s t r u c t a n e x c e p t i o n for a " d o m i n a n t " c o m p a n y . Ex. 2 L 211:21-212: 11. B u t Apple was clearly not " d o m i n a n t " when it designed these products. A p p l e w a s s t a r t i n g f r o m s c r a t c h ; t h e i P o d a n d t h e i T u n e s S t o r e w e r e i t s f i r s t foray i n t o s e l l i n g music players and m u s i c , a n d it had no market share a t t h e t i m e as to either. A n d j u d g i n g t h e legality o f a n e w p r o d u c t retroactively b a s e d on w h e t h e r it b e c a m e successful o r " d o m i n a n t " is no m o r e p e r m i s s i b l e . I t w o u l d p u n i s h success. " T h e s u c c e s s f u l c o m p e t i t o r , h a v i n g b e e n u r g e d to compete, m u s t n o t be turned u p o n when he w i n s . " us. v. Aluminum Co. o f Am., 148 F.2d 416, 4 3 0 ( 2 d Cir. 1945) ( i n t e r n a l q u o t a t i o n m a r k s o m i t t e d ) . SFI-594829v I LO Redacted Mem. in Opp. to C1a~s Certification C 0 5 - 0 0 0 3 7 JW The critical point for present purposes, however, is that plaintifTs' lock-in-resulting-from2 3 4 5 6 7 8 differential-ease-of-access theory o f tying depends on inherently individual proof that cannot be managed o n a class-wide basis. P r o o f that one customer was locked in under this differentialease-of-access theory will not establish that any other customer was locked in, let alone all customers. As plaintiffs' expert admitted, "the degree to which any given person is locked in . . . j u s t depends on a bunch o f stuff," including the size o f the library o f iTunes Store music with DRM, how technically literate the person is, how easy it is for them to burn and rip, and so forth. Ex. 2 1 , 1 9 5 : 1 - 8 . 9 ]0 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 F. P l a i n t i f f s ' P r o p o s e d Class. As noted, determining which, i f any, consumers might meet plaintiffs' economist's definition o f locked-in would be a highly individualized inquiry. Hoping to obscure this undeniable conclusion, plaintiffs seek to represent not only those consumers but every single person who bought a n y o n e o f the the United States since April 2003, plus the iPods sold directly b y Apple to consumers in r e s e l l e r s that b o u g h t ~~ iPods from Apple during that same period. See Knysh Dec!. 2-3. The latter reseller group includes huge volume purchasers such as Wal-Mart or Target that bought iPods for resale in their o w n retail stores, and smaller distributors that bought iPods for resale to retail stores. The class is so broad that it includes customers who bought iPods in the first months after the iTunes Store was lalll1ched, when Apple clearly had no market power under any conceivable theory. ARGUMENT I. P L A I N T I F F S B E A R T H E BURDEN O F S H O W I N G T H A T T H E R E Q U I R E M E N T S F O R CLASS C E R T I F I C A T I O N A R E MET. Plaintiffs bear the burden o f demonstrating that the requirements for class certification are met. Gen. Tel. Co. v. Falcon, 457 U.S. 147,161 (1982); Zinser v. ACCl~fix Research Inst., Inc., 253 F.3d 1180, 1186 (9th Cir. 2001). The court must engage in a "rigorous analysis" before deciding that a class action is proper. Chamberlain v. F o r d Motor Co., 402 F.3d 952, 961 (9th Cir. 2005) (quoting Falcon, 457 U.S. at 161). SFI-5Q482Qv I 11 Redacted Mem. in Opp. to Class Certification C 05-00037 JW 1 2 3 4 Pointing to the allegations o f their complaint or making (or having their expert make) unsupported assertions as to how they hope to prove their case is not enough. Plaintiffs must instead adduce e v i d e n c e - a n d the Court must determine as a factual m a t t e r - t h a t the case as it "would actually be tried" satisfies Rule 23. Castano v. Am. Tobacco Co .. 84 F.3d 734, 745 (5th Cir. 1996). "[C]ourts are not only ' a t liberty to' but m u s t 'consider evidence which goes to the requirements o f Rule 23 [at the class certification stage] even [if] the evidence may also relate to the underlying merits o f the case.'" Dukes v. Wal-i\1art. Inc., 509 F.3d 1168, 1178 (9th Cir. 2007) (empahsis in orginal). Similarly, plaintiffs must offer something more than an expert's ipse dixit that the proposed class meets Rule 23 ' s requirements. The expert must present "properly-analyzed, scientifically reliable evidence tending to show that a common question o f fact . . . exists with respect to all members o f the class." Dukes, 509 F .3d at 1179; In re Graphics P r o c e s s i n g Units A n t i t r u s t l i N g . , No. C 06-07417 WHA, 2008 WL 2788089, at *18 (N.D. Cal. July 1 8 , 2 0 0 8 ) 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (denying class certificati on where the plaintiffs' expert testimony was "conclusory," "artificial," and "evad[ed] the very burden he was supposed to shoulder"). II. P L A I N T I F F S ' T Y I N G C L A I M FAILS T H E PREDOMINANCE, T Y P I C A L I T Y AND A D E Q U A C Y STANDARDS F O R C L A S S C E R T I F I C A T I O N . A. W h e t h e r i P o d P u r c h a s e r s W e r e T i e d D e p e n d s on I n d i v i d u a l Proof. Plaintiffs claim that class certification is routine, asserting that courts "have consistently certified tying claims for class-wide resolution." Mot. at 4. But plaintiffs rely entirely on cases where the seller refused to sell the products separately, and thus a tie could be shown across-the board without the need for individual proof. That simply is not the case here, where the products are sold separately and the iPod was wildly successful both before and after the alleged tying product was introduced. Indeed, no court has ever found that a highly acclaimed product, extremely popular in its own right, was the unwanted "tied" product that consumers were forced to buy. Far from routinely certifYing tying claims in cases like this, no case has ever certified a tying claim like the one here. The cases have instead uniformly denied class certification where, SFl-594829v I 12 Redacted Mem. in Opp. to Class Certification C 05-00037 JW as here, the products are sold separately and obvious reasons exist for purchasing them without 2 3 4 regard to any alleged tie. E.g., Freeland v. A T & T Corp., 238 F.R.D. 130, 155 (S.D.N.Y. 2006) ( d e n y i n g c l a s s c e r t i f i c a t i o n w h e r e " p l a i n t i f f s h a v e n o t o f f e r e d to p r o v e t h e e x i s t e n c e o f a t i e through a c o m m o n contractual provision to which all class members are subject"); Little Caesar 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Enters .. Inc. v. Smith, 895 F. Supp. 8 8 4 , 9 0 4 (E.D. Mich. 1995) (denying class certification because the tie was not " a p p a r e n t from the face o f a contract, o r from reasonable inferences based on the contract and related documents"); Colburn v. Rota-Rooter Corp., 78 F.R.D. 6 7 9 , 6 8 1 - 8 2 (N.D. Cal. 1978) (denying class certification o f t y i n g claim where, although named plaintiffs' contract with defendants had a tying provision, there was no evidence o f similar contracts for other alleged class members); Smith v. Denny's Rests., Inc., 62 F.R.D. 459, 461 (N.D. Cal. 1974) ( d e n y i n g c l a s s c e r t i f i c a t i o n b e c a u s e f r a n c h i s e c o n t r a c t d i d n o t require p u r c h a s e o f s u p p l i e s f r o m franchisor); Chase P a r b m y Garage Inc. v. Subaru. Inc., 94 F.R.D. 330, 332 (D. Mass. 1982) ("[T]he tie-in is not contained in the agreement in express terms. Individual p r o o f o f coercion, therefore, will be necessary to establish the existence o f a tie-in."); Ungar v. Dunkin' Donuts, Inc., 531 F.2d 1211, 1226 (3d Cir. 1976) (class certification not proper where " p l a i n t i f f franchisees place no reliance o n express contractual tie-ins'"); Daniels v. Amerco, No. 81 CIV.3801, 1983 W L 1794, at *7-8 (W.O. N.Y. Mar. 10, 1983) (certification inappropriate where p r o o f o f coercion o f individual dealers would be required for monopolization claim); Waldo v. N 19 20 Am. Van Lines, Inc., 102 F.R.D. 807, 814 (W.O. Pa. 1984) (denying class certification because p r o o f o f actual coercion o n an individual basis is necessary to prove the existence o f a tie); 21 22 23 24 25 26 27 28 Olmsteadv. Amoco Oil Co., No. 7 6 - 2 4 7 - 0 r l - C i v - Y , 1977 W L 1416, at *3 (M.D. Fla. Jun. 16, 1977) (class action denied because leases did not require tie on their face). 16 16 C o m m e n t a t o r s agree. " I n the absence o f a c o m m o n contractual provision, p r o o f o f a t i e - i n is an individual question, and individual questions will predominate." 5 Moore's Federal Practice § 23.45[5][c] (3d ed. 2006); 7AA C. Wright, A. Miller & M. Kane, Federal Practice a n d Procedure, § 1781, pp. 249-51 (3d ed 2005) ("individual issues predominate and certification is inappropriate" in tying cases where no c o m m o n contractual requirement exists); S. Calkins, Enforcement Official's Reflections on Antitrust Class Actions, 39 Ariz. L. Rev. 413, 448 (1997) ("Courts regularly regard p r o o f o f coercion as requiring so much individualized p r o o f as to prevent class certification. "). SFI-594829v 1 13 Redacted Mem. in Opp. to Class CertifIcation C 05-00037 JW 1 2 3 4 5 6 The result i n these cases f10ws from basic tying requirements. A tying a r r a n g e m e n t is " a n agreement by a p a r t y to sell one product but o n l y o n the c o n d i t i o n that the b u y e r also purchases a different ( o r tied) product.'· N. Pac. Ry. Co. v. United States, 3 5 6 U.S. 1 , 5 - 6 (1958). " [ T ] h e essential characteristic o f an invalid tying a r r a n g e m e n t lies in the s e l l e r ' s e x p l o i t a t i o n o f its control o v e r the tying p r o d u c t to force the buyer into the purchase o f a tied product that the b u y e r either did not want a t all, o r might have preferred to purchase e l s e w h e r e o n different t e r m s . " 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Jefferson Parish Hosp. Dist. N o . 2 v. Hyde, 466 U.S. 2, 12 (1984). " [ W ] h e r e the buyer is free to take either p r o d u c t by i t s e l f there is no tying p r o b l e m . " Id. a t 12 n.17. As the N i n t h Circuit explained, " t h e Supreme C o u r t has e m p h a s i z e d t h a t the coerced purchase o f the t i e d product is the key aspect o f an illegal tie." Cascade Health Solutions v. PeaceHealth, 515 F.3d 883, 913 (9th CiT. 2008); Trans Sport, Inc. v. Starter Sports'wear, Inc., 964 F.2d 186, 192 ( 2 d CiT. 1992) C'[u ]nless the buyer can prove that it was the unwilling p u r c h a s e r o f the allegedly tied products, actual c o e r c i o n has n o t been established and a tying a g r e e m e n t c a n n o t be found to exist"); see X P. Areeda, E. Elhauge, & Hovenkamp, Antitrust Law, ~ 1753c, at 276 n.12 ( 2 d ed. 2004) (recognizing that buyer w h o " p u r c h a s e d no a m o u n t o f the tied product t h a t [he] would n o t have purchased anyway" would lack standing to obtain damages, with the result t h a t " t y i n g arrangement purchaser class actions seeking d a m a g e s c a n n o t be certified i f t h e class m i g h t i n c l u d e s o m e p u r c h a s e r s w h o w o u l d h a v e p u r c h a s e d t h e t i e d p r o d u c t in a n y e v e n t " ) . P l a i n t i f f s ' c a s e s a r e n o t t o t h e c o n t r a r y . I n e a c h o f t h e m , t h e g r o u n d for c l a s s c e r t i f i c a t i o n was that the defendant refused to sell the products separately, either b y explicitly requiring that customers b u y them together o r by making it impossible for customers to buy t h e m separately. 17 17 Bafus v. Aspen Realty, Inc., 2 3 6 F.R.D. 652, 6 5 4 (D. Idaho 2 0 0 6 ) (the d e f e n d a n t real e s t a t e a g e n t required buyers to pay a c o m m i s s i o n o n the prospective home price as a condition o f obtaining agency services to purchase the underlying undeveloped lot); Image Tech. Servs. v. Eastman Kodak Co., No. C 87-1686 BAC, 1994 WL 508735, a t *1 (N.D. Cal. Sept. 2 , 1 9 9 4 ) (Kodak required c o p i e r purchasers to also p u r c h a s e maintenance services f r o m Kodak); Little Caesar Enters .. Inc. v. Smith, 172 F.R.D. 236, 240 (E.D Mich. 1997) (contractual provision precluded franchisees from seeking alternative suppliers o f logoed restaurant supplies); Collins v. Int'l Dairy Queen. Inc., 168 F.R.D. 6 6 8 , 6 7 4 - 7 5 (M.D. Ga. 1996) (franchisor n e v e r granted a p p r o v a l f o r p u r c h a s i n g s u p p l i e s from a l t e r n a t i v e v e n d o r s a n d p r e v e n t e d v e n d o r s from b e i n g a b l e to supply franchisees); Moore v. Jas. H. Nfatthews & Co., 550 F.2d 1207, 1212 (9th Cir. 1977) (continued) SFl-594829vl 14 Redacted Mem. in Opp. to Class Certification C 05-00037 JW 1 2 3 4 5 6 7 8 9 10 11 The courts pennitted class certification on the basis that all customers were necessarily c o e r c e d it literally was not possible to buy one product without the other. Thus, the tie could be shown by common evidence for all purchasers. These cases do not support class certification where, as here, the products are separately available and have separate uses; where the claim is simply that some customers may have felt locked in to buying the tied product in highly individualized circumstances; and where obvious reasons exist for buying the allegedly unwanted product wholly umelated to the alleged tie. Plaintiffs' economist's testimony confinns that this case is precisely the kind o f tying claim for which the courts consistently deny class certification. He expects that the iPod would have significant market share even absent the alleged tie resulting from his asserted differentialease-of-access. 18 This means that, even under plaintiffs' theory, consumers would be purchasing the allegedly unwanted "tied" product anyway. Because there is no w a y - e x c e p t by individualby-individual p r o o f - t o segregate such consumers from those, i f any, who would not have purchased the iPod absent the alleged tie, no class can be certified. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (sale o f cemetery plots tied to purchase o f grave markers and marker installation services); Hardy v. City Optical Inc., 39 F.3d 765, 771 (7th CiT. 1994) (defendant adopted a "blanket policy" that effectively required that customers purchase eye examinations and contact lens together); H i l l v. A-T-O, Inc., 535 F.2d 1349, 1355 (2d Cir. 1976) (defendant admitted that it had a policy o f never selling its buying plan memberships separately from its vacuum cleaner); Anderson Foreign Motors, Inc. v. New E n g l a n d Toyota Distrib., Inc., 475 F. Supp. 9 7 3 , 9 8 8 (D. Mass. 1979) (express t e n n s o f standard fonn contract conditioned sale o f automobiles on use o f defendant's new car delivery service); Digidyne Corp. v. Data Gen. Corp.. 734 F.2d 1336, 1339 (9th CiT. 1984) (defendant refused to sell its operating system separately from its CPUs); In re Visa Check! Mastermoney A n t i t r u s t Litigation, 280 F.3d 124, 136 (2d CiT. 2001) (affinning the district c o u r t ' s conclusion that "coercion was . . . amenable to p r o o f on a class-wide basis because the contractual provision to which all class members were subject . . . would establish the requisite coercion"); Paladin Assocs.. Inc. v. Mont. Power Co .. 328 F.3d 1145, 1160-62 (9th CiT. 2003) (finding no tying arrangement because there was no evidence that defendant required that products be purchased together or effectively prevented their separate purchase). Ex. 21, 64: 18-65:4 (iPods would have "significant market power" absent the alleged tie), 148:16-19 ("I think i t ' s probably the case, although I d o n ' t know this for sure, that the but-for world is one in which the leading producer o f portable digital media players is Apple. "). 18 SFI-594829vl 15 RedllCted Mem. in Opp. to Class Certification C OS.{)OO37 JW Plaintiffs rely on the statement in }Vloore. 550 F .2d at 1217, that c o e r c i o n may be implied 2 3 4 5 6 7 8 from evidence that an " a p p r e c i a b l e n u m b e r o f b u y e r s " accepted the tie. Mot. at 15. 19 Aloore, h o w e v e r , d i d n o t d i s p e n s e w i t h t h e c o e r c i o n r e q u i r e m e n t . A t i e w a s e s t a b l i s h e d in t h a t c a s e b e c a u s e t h e s e l l e r e x p r e s s l y r e q u i r e d p u r c h a s e r s o f c e m e t e r y p l o t s to a l s o p u r c h a s e g r a v e m a r k e r s o r b u r i a l s e r v i c e s . I n the d i c t u m o n w h i c h p l a i n t i f f s r e l y , t h e c o u r t i n d i c a t e d o n l y t h a t t h e existence o f a tie " m a y be implied" circumstantially by evidence o f actual t i e d purchases by a s u f f i c i e n t l y l a r g e s a m p l e o f p u r c h a s e r s . 5 5 0 F . 2 d a t 1217. I f a l l o r e s s e n t i a l l y a l l p u r c h a s e s w e r e m a d e on a package basis in circumstances where some consumers would be expected to buy o n e o f the products from a different supplier o r n o t a t all, the courts have b e e n willing to assume (absent contrary evidence) that the seller was refusing to sell separately. T h a t was the circumstance, for example, in the case o n which Moore relied, Hill v. A-T-O. Inc .. 535 F.2d 1349 ( 2 d Cir. 1976), in which the seller never sold the tying p r o d u c t without requiring that the customers also b u y the tied product. Similarly, in Siegel v. Chicken Delight. Inc., 448 F.2d 45 (9th CiT. 1971), the tie consisted o f a "contractual requirement" that franchisees purchase supplies from the franchisor " a s a condition o f obtaining a Chicken Delight trade-mark franchise." Id. at 46. Here, by contrast, iPods and iTunes Store m u s i c have always been separately available and have always functioned i n d e p e n d e n t l y . E f f e c t i v e l y cDnceding t h a t t h e y m u s t s h o w t h a t A p p l e i m p o s e d a r e q u i r e m e n t o n a c o m m o n basis o n all purchasers, plaintiffs repeatedly assert t h a t Apple had an " u n r e m i t t i n g policy" o f requiring that iTunes Store music purchasers also b u y iPods. Mot. a t 1 , 7 , 16, 17. But the " p o l i c y " to which plaintiffs refer is simply A p p l e ' s developing its o w n DRM. That is n o t any s o r t o f r e q u i r e m e n t , u n r e m i t t i n g o r o t h e r w i s e , t h a t i T u n e s S t o r e m u s i c p u r c h a s e r s b u y iPods. A t b e s t , u n d e r p l a i n t i f f s ' "lock-in" t h e o r y , A p p l e ' s use o f its o w n t e c h n o l o g y p o t e n t i a l l y c o u l d h a v e 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 In opposing dismissal, plaintiffs argued that they need not s h o w that they o r other customers were coerced because "market-level coercion" is supposedly sufficient, citing Afurphy v. Business Cards Tomorrol1J· Inc., 854 F.2d 1202 (9th CiT. 1988). T h e y no longer advance this argument, which neither Murphy nor any other case supports. T h e i r new a r g u m e n t b a s e d o n Moore is e q u a l l y unsupportable. 19 SFI-594829v I 16 Reda.::ted Mem. in Opp. to Class C e n i f i c a t i o n C OS-Q0037 JW had that effect o n l y for a very small number o f purchasers. Identifying them would depend o n 2 3 4 5 their individual circumstances and a " b u n c h o f s t u f f ' to use their e c o n o m i s t ' s term, including · · · · · W h e t h e r t h e y b o u g h t m u s i c f r o m the i T u n e s S t o r e w i t h D R M b e f o r e b u y i n g t h e i r iPod; W h e t h e r t h e y w a n t e d t o play t h a t m u s i c p o r t a b l y ; Whether they were aware o f and preferred to use a portable music player o t h e r t h a n a n iPod; W h e t h e r t h e y h a d a s u f f i c i e n t l y l a r g e n u m b e r o f s o n g s from t h e i T u n e s S t o r e w i t h D R M t h a t they still wanted to p l a y to affect their decision; W h e t h e r t h e y w e r e u n a w a r e t h a t i T u n e s S t o r e s o n g s c a n be p l a y e d o n o t h e r p o r t a b l e players b y b u r n i n g and ripping t h e m (or alternatively whether t h e y considered b u r n i n g and ripping to b e too burdensome); and W h e t h e r t h e y p u r c h a s e d t h e i r i P o d b e c a u s e o f this a l l e g e d lock-in. 6 7 8 9 10 11 · 12 13 14 15 16 17 18 19 20 21 22 23 24 25 20 Each factor requires individual p r o o f t h a t cannot p o s s i b l y be a d d r e s s e d on a n y across-theboard basis. P r o o f that a n y c u s t o m e r satisfies a n y o n e o f these criteria, let alone all o f them, would not prove that any o t h e r customer does so. These are the quintessential kinds o f individual i s s u e s that t h e c o u r t s h a v e r e p e a t e d l y h e l d p r e c l u d e c l a s s c e r t i f i c a t i o n in t y i n g c a s e s . 20 Plaintiffs' allegations that the alleged tie e x t e n d e d to video only create further individual issues. A p p l e d i d n o t e v e n b e g i n o f f e r i n g v i d e o o n t h e i T u n e s S t o r e until O c t o b e r 2 0 0 5 . A n d even after that, it is a virtual certainty that no o n e p u r c h a s e d an iPod due to any alleged lock-in from video purchases. A p p l e ' s c o n s u m e r information indicates that, as o f M a r c h 2007, iTunes Store customers h a d o n average p u r c h a s e d O n l y . music videos, · a n d that _ TV shows a n d I movies- iPod owners had n o t purchased any v i d e o a t all. Rangel Ex. 1 (p. 37), Ex. 2 (p. 33). B u t even i f some customers could plausibly claim to have been locked in by h a v i n g p u r c h a s e d o n e o r two m o v i e s or m a y b e a T V s h o w e p i s o d e , t h a t c o u l d o n l y b e s h o w n b y 26 27 28 In reality, it is extremely doubtful t h a t anyone has a claim. O f the small percentage o f iPod owners who purchased their iPod after purchasing iTunes Store music, it is highly unlikely t h a t a n y o f t h e m ( 1 ) h a d a n y i n t e r e s t in o r e v e n c o n s i d e r e d p u r c h a s i n g a d i f f e r e n t p l a y e r , ( 2 ) h a d a large enough iTunes library to create e v e n the possibility o f lock-in, o r (3) i f they had iTunes Store music, considered it too burdensome to take the few minutes necessary to b u m and rip w h a t e v e r s o n g s t h e y w a n t e d to transfer. Redacted Mem. in Opp. to C l a s s Certification C 05-00037 J W SFI·59482Qv I 17 1 2 3 individual p r o o f - a n d it would be p r o o f different from whatever proof may exist regarding the effect o f music purchases from the iTunes Store. B. S e p a r a t i n g P u r c h a s e r s W h o B e n e f i t e d U n d e r P l a i n t i f f s ' T h e o r y o f A n Alleged Tie a n d S u f f e r e d No I n j u r y R e q u i r e s I n d i v i d u a l Proof. 4 S 6 7 8 9 10 Plaintiffs' effort to represent all iPod purchasers fails for another independent reason. The rule in the Ninth Circuit is that impact and damages in a tying case may not be determined simply by the amount o f any "overcharge" on the tied product alone, but must be measured on a "package" a p p r o a c h - i . e . , by determining the net overcharge on the tied product after taking into account any reduction in the tying product price occurring as a result o f the tie. Siegel, 448 F .2d at 52. I f any price reduction o n the tying product exceeds the amount o f any overcharge, the purchaser has not suffered any injury. Kypta v. McDonald's Corp., 671 F.2d 1282, 1285 ( l i t h Cir. 1982) (following the Ninth Circuit Siegel rule; "[u]nless the fair market value o f both the tied and tying products are determined and an overcharge in the complete price found, no injury can be c l a i m e d ' ) This rule precludes class certification here because plaintiffs have not proposed any methodology for determining the amount o f any net overcharge on a common basis. It is generally recognized that, '"if a tie causes a buyer to pay more than the market price for the tied product, the buyer is most likely paying less than the price that the seller could profitably charge for the tying product i f sold separately." Freeland, 238 F.R.D. at ISO (internal quotations omitted); see also X Antitrust Law, ~ 1769c, at 413 ("in most cases a premium price on the tied product must be accompanied by a reduction in the price o f the tying product"). Here, although Apple denies that any tie exists, plaintiffs' expert testified that under plaintiffs' theory the price o f iTunes Store music may have been reduced. Ex. 21, 141: 15-19. I f that were true, consumers with relatively large iTunes Store purchases would have benefited because they may have saved more on their iTunes Store purchases than the amount o f any overcharge on the iPod. Which consumers benefited under plaintiffs' theory depends on individual circumstances, including the number o f their iTunes Store purchases, the iPod model purchased and the date o f the purchases. It 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SFI-594829vl 18 Redacted Mem. in Opp. to Class Certification C 05-00037 JW 1 2 3 4 To j u s t i f y c l a s s t r e a t m e n t , t h e r e f o r e , p l a i n t i f f s m u s t s h o w t h a t t h e p r i c e o f i T u n e s S t o r e music was not lower as a result o f the alleged tie o r they m u s t provide some methodology for establishing a n e t overcharge o n music and iPods for all conswners. 2I They have done neither. As the court recognized in Freeland, this precludes class certification. 238 F .R.D. at 150 ("Plaintiffs' inability to identify a methodology to demonstrate that [purchasers did not benefit from a lower price o n the tying product] precludes a showing o f injury o n a c1asswide basis."); 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 see also Valley D r u g Co. v. Geneva Pharm., Inc .. 350 F.3d 1181, 1189-90 (11th Cir. 2003) ( A "fundamental conflict exists where some party members c l a i m to have been harmed by the same conduct that benefited other members o f the class . . " [N]o circuit has approved o f class c e r t i f i c a t i o n w h e r e s o m e c l a s s m e m b e r s d e r i v e a net e c o n o m i c b e n e f i t f r o m t h e v e r y s a m e conduct alleged to be wrongful by the named representatives o f the class."). c. D e t e r m i n i n g W h a t P u r c h a s e r s W o u l d H a v e D o n e A b s e n t t h e Alleged T i e C r e a t e s F u r t h e r I n d i v i d u a l Issues a n d Conflicts. Plaintiffs' theory is that Apple was able to charge higher prices for iPods because the alleged tie ( n o w limited to a "differential ease-of-access" to play iTunes Store music o n competing players) prevented some customers from purchasing competing players. See Dkt. 107, Cmplt. ~ 73. I f a n y such customers actually existed, the typical method for determining whether t h e c o n s u m e r w a s o v e r c h a r g e d o n the t i e d p r o d u c t p u r c h a s e ( b e f o r e c o n s i d e r i n g a n y r e d u c t i o n i n t h e t y i n g p r o d u c t p r i c e ) i s t o e x a m i n e t h e d i f f e r e n c e b e t w e e n t h e p r i c e o f the c o m p e t i n g p l a y e r t h e c o n s u m e r w o u l d h a v e p u r c h a s e d a n d t h e p r i c e p a i d f o r the i P o d . T h i s w a s t h e m e t h o d u s e d i n 21 22 23 24 25 26 27 28 Lessig v. Tidewater Oil Co., 327 F.2d 459 (9th Cir. 1964). There, the defendant tied the sale o f tires, batteries and accessories ( " T B A " ) to the purchase o f petroleum products. T h e court held t h a t t h e t i e d p r o d u c t o v e r c h a r g e w a s t h e d i f f e r e n c e b e t w e e n t h e p r i c e t h e p l a i n t i f f p a i d f o r the 21 See Blades v. Afonsanto Co., 400 F.3d 5 6 2 , 5 7 4 (8th Cir. 2005) ( a f f i n n i n g denial o f class certification where plaintiffs' expert " d i d not show that injury could be proven o n a classwide basis with c o m m o n p r o o f ' ) ; In re Methionine Antitrust Litig., 204 F.R.D. 161, 164-67 (N.D. Cal. 2 0 0 1 ) ( d e n y i n g c e r t i f i c a t i o n w h e r e c o n s p i r a c y p r o o f w a s c o m m o n , b u t i n j u r