"The Apple iPod iTunes Anti-Trust Litigation"

Filing 181

REDACTED/corrected MEMORANDUM in Opposition to 165 Motion for Class Certification filed by Apple Inc.. (Attachments: # 1 Appendix Addendum 1-2)(Related document(s) 175 ) (Strong, Tracy) (Filed on 10/20/2008) Modified on 10/20/2008 (counsel failed to properly link to motion.) (cv, COURT STAFF).

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"The Apple iPod iTunes Anti-Trust Litigation" Doc. 181 1 2 3 4 5 6 Robert A. M i t t e l s t a e d t # 0 6 0 3 5 9 Craig E. Stewart # 1 2 9 5 3 0 JONES DAY 555 California Street, 26th F l o o r S a n Francisco, C A 9 4 1 0 4 Telephone: ( 4 1 5 ) 626~3939 Facsimile: (415) 8 7 5 - 5 7 0 0 ramittelstaedt@jonesday.com cestewart@jonesday.com A t t o r n e y s for D e f e n d a n t APPLE INC. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SFI·5948<iOv I Corrected Copy o f Redacted Mem. in Opp. to Class Cellilication C 05-()0037 JW UNITED STATES D I S T R I C T C O U R T N O R T H E R N D I S T R I C T OF C A L I F O R N I A S A N J O S E DIVISION T H E A P P L E i P O n iTUNES ANTITRUST LITIGATION C a s e No. C OS-00037 J W C 06-04457 J W C O R R E C T E D C O p y O F REDACTED MEMORANDUM IN O P P O S I T I O N T O M O T I O N F O R CLASS C E R T I F I C A T I O N D a t e : December 1 5 , 2 0 0 8 T i m e : 9 : 0 0 A.M. P l a c e : C o u r t r o o m 8, 4 t h Floor Dockets.Justia.com T A B L E OF C O N T E N T S 2 INTRODUCTION 3 4 5 Page 1 3 3 BACKGROUND A. B. iPods and the iTunes S t o r e 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 Plaintiffs' Testimony Confirms T h a t The Existence o r Extent 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 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 t h e Nature o f T h e i r T y i n g Claim Plaintiffs' Current Tying Claim Plaintiffs' Proposed Class 6 5 7 C. 8 9 10 6 D. 8 10 11 12 13 E. F. II II ARGUMENT 14 I. 15 16 PLAINTIFFS BEAR T H E B U R D E N 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 M E T 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 FOR C L A S S C E R T I F I C A T I O N A. II II. 17 18 12 12 Whether iPod 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 o n I n d i v i d u a l P r o o f . . Separating Purchasers Who 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 A l l e g e d T i e a n d S u f f e r e d N o Injury R e q u i r e s I n d i v i d u a l P r o o f . . 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 A l l e g e d Tie C r e a t e s F u r t h e r I n d i v i d u a l I s s u e s and C o n f l i c t s 19 20 B. 18 C. 21 19 22 23 24 III. A D D I N G R E S E L L E R S LIKE B E S T B U Y E X A C E R B A T E S 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 , A D E Q U A C Y AND M A N A G E A B I L I T Y PROBLEMS P L A I N T I F F S ' SECTION 2 CLAIM LIKEWISE C A N N O T B E CERTIFIED C E R T I F I C A T I O N U N D E R R U L E 23(B)(2) IS A L S O I M P R O P E R 22 24 24 25 IV. 25 V. 26 27 28 SFI-594890vl C o r r e c t e d C o p y o f Redacted Mem. in Opp, to Class C e r t i t i c a t i o n C 05-00037 JW CONCLUSION 1 T ABLE OF A U T H O R I T I E S 2 3 4 A & M Records. Inc. v. Napsler. Inc., 2 3 9 F . 3 d 1 0 0 4 ( 9 t h Cir. 2 0 0 1 ) Anderson Foreign Molors, Inc. v. New England Toyota Distrib .. Inc., 475 F. Supp. 973 (D. M a s s . 1 9 7 9 ) Bafus v. Aspen Realty. Inc., 236 F.R.D. 652 (D. I d a h o 2 0 0 6 ) 4 5 6 7 8 9 15 14 Blades v. Monsanto Co., 4 0 0 F.3d 562 ( 8 t h C i r . 2 0 0 5 ) Butt v. Allegheny Pepsi-Cola Bottling Co., 116 F.R.D. 4 8 6 (E.D. Va. 1987) Cascade Health Solutions v. PeaceHealth, 515 F . 3 d 883 ( 9 t h C i r . 2 0 0 8 ) Castano v. Am. Tobacco Co .. 84 F . 3 d 7 3 4 ( 5 t h C i r . 1 9 9 6 ) Chamberlain v. F o r d Afotor Co., 4 0 2 F.3d 9521 ( 9 t h Cir. 2 0 0 5 ) Chase Parkway Garage Inc. v. Subaru. Inc., 94 F . R . D . 3 3 0 (D. M a s s . 1 9 8 2 ) Colburn v. ROlo-Rooter Corp., 78 F . R . D . 6 7 9 (N.D. Cal. 1978) Coleman v. Gen. l\;[OlOrs Acceptance Corp., 2 9 6 F . 3 d 443 ( 6 t h C i r . 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 WL 1794 (W.D. N.Y. Mar. 10, 1983) 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 1304 ( 9 t h C i r . 1 9 7 7 ) 19 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 22 14 12 11 13 13 25 14 13 15 24 SFI-594890v I 11 C o r r e c l e d C o p y o f R e d a c t e d Mem. in Opp. to Class Certification C 05-1)0037 JW 1 2 3 Dukes v. Wal-Mart. Inc., 509 F.3d 1168 (9th Cir. 2007) Foremost Pro Color, Inc. v. Eastman K o d a k Co., 703 F.2d 534 (9th Cir. 1983) Freeland v. A T & T Corp., 238 F.R.D. 130 (S.D.N.Y. 2006) Gen. Tel. Co. v. Falcon, 4 5 7 U.S. 147 ( 1 9 8 2 ) Gray v. Shell Oil Co., 4 6 9 F.2d 7 4 2 ( 9 t h C i r . 1 9 7 2 ) Hardy v. City Optical Inc., 39 F.3d 765 (7th Cir. 1994) Hill v. A-T-O. Inc., 535 F.2d 1349 (2d Cir. 1976) Illinois Tool Works Inc. v. Independent Ink. Inc. 547 U . S . 2 8 ( 2 0 0 6 ) Image Tech. Servs. v. Eastman Kodak Co., No. C 87-1686 BAC, 1994 WL 508735 (N.D. Cal. Sept. 2 , 1 9 9 4 ) In re Allstate Ins. Co., 400 F.3d 505 (7th Cir. 2005) In re Graphics Processing Units Antitrust Litig., No. C 06-07417 WHA, 2008 WL 2788089 (N.D. Cal. July 18, 2008) In re Methionine A n t i t r u s t Litig., 204 F.R.D. 161 (N.D. Cal. 2001) In re SRAA1 Antitrust Litigation, No. C 07-01819 CW, 2008 WL 4447584 (N. D. Cal. Sep. 29, 2008) In re Visa Check/Mastermoney Antitrust Litigation, 280 F.3d 124 (2d Cir. 2001) Jefferson Parish Hosp. Dist. N o . 2 v. Hyde, 466 U.S. 2 (1984) Krehl v. Baskin-Robbins Ice Cream Co., 78 F.R.D. 108 (C.D. Cal. 1978) Kypta v. McDonald's Corp., 671 F.2d 1282 ( l 1 t h Cir. 1982) SFI·594890v 1 12 10 4 5 6 7 8 13, 18, 1 9 , 2 2 11,23 20 9 10 11 12 13 14 15 16 17 18 19 20 21 15 15, 16 21 14 25 12, 25 19 22 22 23 24 25 26 27 28 18 C o r r e c t e d C o p y o f R e d a c t e d Mem. in Opp. to C l a s s Certification 15 14 25 III C 05.()OO37 JW 1 2 3 4 5 6 Lessig v. Tide'water Oil Co., 3 2 7 F .2d 4 5 9 ( 9 t h Cir. 1 9 6 4 ) Lewallen v. Medtronic USA, Inc., No. C 0 1 - 2 0 3 9 5 R M W , 2 0 0 2 W L 3 1 3 0 0 8 9 9 ( N . D . C a l . A u g . 2 8 , 2 0 0 2 ) Little Caesar Enters., Inc. v. Smith. 172 F . R . D . 2 3 6 ( E . D M i c h . 1 9 9 7 ) Little Caesar Enters., Inc. v. Smith, 895 F. Supp. 8 8 4 , 9 0 4 ( E . D . Mich. 1995) Molski v. Gleich, 3 1 8 F.3d 937 ( 9 t h Cir. 2 0 0 3 ) Moore v. Jas. H Matthews & Co., 5 5 0 F.2d 1207 ( 9 t h C i r . 1 9 7 7 ) Muller v. Curtis P u b l ' g Co., 5 7 F . R . D . 5 3 2 ( E . D . Pa. 1 9 7 3 ) lvfurphy v. Business Cards Tomorrow, Inc., 8 5 4 F . 2 d 1202 ( 9 t h C i r . 1 9 8 8 ) 19, 21 25 14 7 8 9 10 11 13 24 14,16 23 12 13 14 15 16 17 18 19 20 21 16 N. Pac. Ry. Co. v. United States, 3 5 6 U.S. 1 ( 1 9 5 8 ) 14 Olmstead v. Amoco Oil Co., N o . 7 6 - 2 4 7 - 0 r l - C i v - Y , 1 9 7 7 W L 1 4 1 6 ( M . D . Fla. J u n . 1 6 , 1 9 7 7 ) Paladin Assocs .. Inc. v. iHont. Power Co., 3 2 8 F . 3 d 1145 ( 9 t h C i r . 2 0 0 3 ) Piggly Wiggly Clarksville. Inc. v. Interstate Brands Corp., 100 F e d . A p p x . 2 9 6 ( 5 t h C i r . 2 0 0 4 ) Siegel v. Chicken Delight, Inc., 4 4 8 F . 2 d 45 ( 9 t h Cir. 1971 ) Smith v. D e n n y ' s Rests., Inc., 62 F . R . D . 4 5 9 ( N . D . C a l . 1 9 7 4 ) Sommers v. Abraham Lincoln Fed. Says. & Loan Assoc., 6 6 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. 1 9 9 7 ) Trans Sport. Inc. v. Starter Sportsli.Jear, Inc., 9 6 4 F . 2 d 186 ( 2 d C i r . 1 9 9 2 ) SFI·594890v I LV 13 15 22 16, 18 22 23 24 25 26 27 28 13 23 21 14 Corrected Copy o f Redacted Mem. in Opp. to Class Ccrtitication C 05 ..0 0 0 3 7 J W us. v. Aluminum Co. o f Am. , 2 3 4 148 F.2d 416 (2d CiI. 1945) 10 us. v. Microsoft, 253 F . 3 d 34 (D.C. Cir. 2001) 5 5 6 Ungar v. D u n k i n ' Donuts, Inc., 531 F.2d 1211 (3d Cif. 1976) Valley Drug Co. v. Geneva Pharm .. Inc., 3 5 0 F.3d 1181 ( l i t h CiT. 2 0 0 3 ) Waldo v. N. Am. Van Lines, Inc., 102 F.R.D. 807 (W.D. Pa. 1984) Wetzel v. Liberty 1\1ut. Ins. Co., 5 0 8 F . 2 d 2 3 9 ( 3 d CiI. 1975) Wofford v. Safeway Stores, Inc., 78 F.R.D. 4 6 0 (N.D. Cal. 1978) Zinser v. Acc~flx Research Ins1., Inc .. 253 F . 3 d 1180 (9th CiT. 2001) Statutes Federal Rules o f C i v i l P r o c e d u r e Rule 23 Rule 23(a)(3) R u l e 23(a)(4) Rule 23(b)(2) Rule 23(b)(3) O t h e r Authorities 5 M o o r e ' s Federal Practice § 23.45[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 ) S. Calkins, Enforcement C?fJicial's Reflections on Antitrust Class Actions, 3 9 Ariz. L. Rev. 413 (1997) 13 19 7 8 13 9 10 11 12 13 14 15 16 17 18 19 20 21 25 23, 2 4 11,24 2, 3, 3, 24, 12 23 23 25 3 13 22 23 24 25 26 27 28 13 13 14, 18 x P. Areeda, E. Elhauge, & H o v e n k a m p , Antitrust Law (2d ed. 2 0 0 4 ) SFl·594890vl v C o r r e c t e d C o p y o f R e d a c t e d Mem. in O p p to C l a s s Certification C OS..{)OO37 JW INTRODUCTION 2 3 4 T h e iTunes Store, l a u n c h e d i n 2 0 0 3 , was A p p l e ' s pioneering, innovative s o l u t i o n to the p r o b l e m o f r a m p a n t piracy o f m u s i c o v e r the Internet. F o r t h e first time, it enabled c o n s u m e r s to b u y digital m u s i c files o n l i n e - l a w f u l l y , c o n v e n i e n t l y and inexpensively. As the head o f the U n i t e d States J u s t i c e D e p a r t m e n t A n t i t r u s t 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 t h a t s o m e observers . . . predicted m i g h t n e v e r b e solved: h o w to create a consumer~friendly, 5 6 7 8 y e t legal a n d p r o f i t a b l e , s y s t e m f o r d o w n l o a d i n g m u s i c 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 . " See Ex. 1, p. 3. 1 As a condition for p e r m i t t i n g Apple to distribute t h e i r music online, the record c o m p a n i e s required A p p l e to e n c r y p t the m u s i c w i t h anti-piracy, o r digital rights m a n a g e m e n t ( D R M ) , technology. To c o m p l y w i t h that condition, A p p l e c h o s e to d e v e l o p its o w n proprietary t e c h n o l o g y rather than use M i c r o s o f t ' s . T h e c o m p l a i n t alleges that, as a result, individuals w h o p u r c h a s e i T u n e s Store m u s i c have b e e n forced to buy iPods because s u p p o s e d l y no o t h e r MP3 p l a y e r c a n play t h a t music. O n t h a t basis, plaintiffs n o w seek to represent i n d i v i d u a l s w h o b o u g h t i P o d s d i r e c t l y f r o m A p p l e s i n c e t h e l a u n c h o f the i T u n e s S t o r e in A p r i l 2 0 0 3 , and businesses i n d u d i n g B e s t Buy a n d T a r g e t that bought 9 10 II 12 13 14 15 16 17 18 additional iPods for resale d u r i n g t h a t period. T h e c o m p a n i o n Somers case is waiting in the wings, h o p i n g t o represent the c o n s u m e r s who, in t u m , bought iPods from t h o s e reseUers. Contrary to the c o m p l a i n t , however, plaintiffs a n d their 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 be 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 r i p p i n g , " i.e., c o p y i n g the m u s i c to a C D and importing it to a computer. T h u s , plaintiffs cannot possibly c o n t e n d t h a t all purchasers o f i T u n e s Store m u s i c w e r e forced to buy iPods. Rather, their c l a i m n o w is t h a t 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 m i n i m a l 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 t h e potential to force c o n s u m e r s with iTunes Store m u s i c 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 . W h e t h e r anyone was a c t u a l l y forced to do so d e p e n d s on a " b u n c h o f s t u f f " (their e c o n o m i s t ' s I U n l e s s o t h e r w i s e i n d i c a t e d , all " E x . " r e f e r e n c e s are to the e x h i b i t s to t h e S c o t t D e c l a r a t i o n , filed h e r e w i t h . 19 20 21 22 23 24 25 26 27 28 SFI-594890vl 1 Corrected Copy o f Redaclcd Mem. in Opp. 10 Class Certification C05~OOJ7 JW term) including h o w much music the individual obtained from the iTunes Store, h o w m a n y o f 2 3 4 5 6 those songs the individual wants to transfer to a different player, h o w many o f those songs are encrypted w i t h A p p l e ' s DRM (one o f the record labels permitted Apple to start selling DRM-free music last year), the i n d i v i d u a l ' 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. T h e c o u r t s h a v e d e v e l o p e d a w e l l - e s t a b l i s h e d t e s t for d e t e r m i n i n g w h e t h e r a t y i n g c a s e meets the requirements o f Rule 23, and this case does not. T h e 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 r m 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 , the c a s e m e e t s a t l e a s t 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 an across-the-board tie. On the other hand, in the absence o f a tie that applies to all purchasers, the courts have consistently and repeatedly denied class certification. I'1fra. pp. 12-13. This case falls in the latter category. Apple has not contractually or otherwise required all iTunes Store music purchasers to buy iPods. And unlike plaintiffs' cases, there are obvious r e a s o n s w h y c o n s u m e r s b u y i P o d s , t h e a l l e g e d l y t i e d o r u n w a n t e d p r o d u c t , w i t h o u t r e g a r d to i T u n e s S t o r e m u s i c , t h e a l l e g e d l y t y i n g o r w a n t e d p r o d u c t . A f t e r all, the a w a r d - w i n n i n g i P o d w a s the leading MP3 player b e f o r e 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 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 b e f o r e b u y i n g a n y i T u n e s S t o r e m u s i c . T h e y e a c h l i k e w i s e a d m i t t e d at d e p o s i t i o n t h a t t h e y voluntarily bought an iPod because it was " c o o l , " recommended by friends or for some other reason having nothing to do with iTunes 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 s h o w that the tying theory is groundless. But i f there were any differently situated customers who w a n t to claim that they were forced to buy an iPod in the limited circumstances identified by plaintiffs' economist, the only way to identify them and prove SFI-594890v I 2 C o r r e c t e d C o p y o f Redacted Mem. in Opp. to Class Certification C 0 5 - 0 0 0 3 7 JW 1 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 their claim would be through individual proof. This need for individual p r o o f defeats class 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 " n e t 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 o n individual p r o o f specific to each customer. Plaintiffs assert that their economist will try to do a regression analysis to determine 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 proper!y 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 i P o d s 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 reseller'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). BACKGROUND A. i P o d s a n d the i T u n e s S t o r e . 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-594890v I 3 C o r r e c t e d C o p y o f R e d a c t e d Mem. in Opp. to Class Cenilication C 0 5 - 0 0 0 3 7 JW Plaintiffs' o w n testimony shows not only that iPods are purchased without regard to 2 .) iTunes Store music but also that iPods are used for purposes other than to play iTunes Store m u s i c . A m o n g o t h e r uses, i P o d s c a n p l a y m u s i c i m p o r t e d f r o m p u r c h a s e d C D s o r d o w n l o a d e d from the Internet, store and display photographs, serve as hard drives to store other computer files, and provide calendar a n d alarm clock functions; some models can store and play video recordings a n d sync with Nike+ running shoes. 2 The iPod touch c a n also b e used to access the internet, p l a y v i d e o g a m e s a n d d o w n l o a d a p p l i c a t i o n s f r o m t h e A p p l e A p p Store. 3 Apple launched t h e online iTunes Store (originally known as the iTunes Music Store) in A p r i l 2003. P l a i n t i f f s ' e c o n o m i s t a d m i t s t h a t i n t r o d u c t i o n o f t h i s S t o r e was " p r o c o m p e t i t i v e " a n d 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 year," observing that " [ w ] i t h the success o f its iTunes Music Store, Apple is a l m o s t s i n g l e - h a n d e d l y d r a g g i n g t h e m u s i c industry, k i c k i n g a n d s c r e a m i n g , t o w a r d a b e t t e r 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. See A & M Records. Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001). (Addendum 1 to this b r i e f illustrates h o w iTunes Store music is purchased and loaded onto a n 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 ( w h e n T u c k e r p u r c h a s e d h e r first iPod, her p l a n was to put her C D collection o n it); Ex. 16, 75: 14-18 (Charoensak) ( " I intended to use [the iPod] to listen to m y music . . . . And I also intended to use it as an external hard drive."); Ex. 17, 91 :2-4 (Rosen) ("Q: Does your s o n watch cartoons o n the iPod? A: He is not allowed, but he does."); 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. "). ... 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 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 shuffle, the iPod nano, and the iPod touch. These different models were introduced at different times and their features evolved o v e r time. Current prices from Apple range from $49 for t h e shuffle to $399 for the 32GB touch. (The iPods, their features, a n d the prices Apple charges are described at Apple.com.) 3 SFI-594890vl C o r r e c t e d C o p y o f R e d a c t e d Mem. in Opp. to Class Certilication C 0 5 - 0 0 0 3 7 JW 4 record companies' demand for 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 4 DRM~enforced usage rules, Apple developed its 0~1l proprietary DRM, known as FairPlay. ' I b e 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." Id. 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 iPods a n d H 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 t r a m 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.comJitunes/. 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 A p p l e ' s customers indicates that See u.s. v. Microsoft, 253 F.3d 34, 72-74 (D.C. Cir. 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. "). 5 See Ex. 17, 111 :5-12 (Rosen) ( " Q : 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 first 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"). C o r r e c t e d C o p y o f R e d a c t e d Mem. in Opp. to C l a s s Certilication C 05-00037 J W SFI-594890v I 5 1 2 , o f iPod purchasers have never purchased any music at all from the iTunes Store. See Rangel Decl. Ex. 1, p. 35. O f the remaining iPod owners who use the iTunes Store according 3 4 5 6 7 8 b o u g h t iTunes S t o r e music b e f o r e b u y i n g their i P o d s meaning that of all iPod purchasers could n o t possibly have been coerced even under plaintiffs' theory. See id. Ex. 2, p. 34. This is consistent with the experience o f plaintiffs, each o f whom purchased (or was given) an iPod before making any iTunes Store See Rangel Decl. Ex. 1, p. 35. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 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 . 6 O r i t c a n b e burned to a CD that can be played j u s t as any music CD can be played, including on home or car stereos, boom boxes and portable CD players. 7 I t can also be played on competing MP3 players by burning and ripping. 8 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 Existence 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 Issue. Plaintiffs' testimony illustrates the individualized nature o f their c l a i m s - a n d , indeed, the absence o f any tie between iPods and iTunes Store music. As noted, each o f them bought o r received iPods for their own individual reasons unrelated to any coercion and unrelated to any music from the iTunes Store: Slattery, the original plaintiff, received his first iPod as a gift from his wife. He wanted it because " i t 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. 1 9 , 5 9 : 6 - 1 9 (Tucker) (describing h o w she plays iTunes Store music with "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) ("Q: And you also know that you can b u m 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; Dkt. 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 DRM-free tiles."); Ex. 21, 15:12-24 (Noll) ("[T]he mechanism [to play iTunes files o n competing players] is to either do an actual or virtual b u m o f the CD and then replay it."). 8 SFl-5Q4890vl C o r r e d e d C o p y o f R e d a c t e d Mem. in Opp. t o Class Certification C 05-00037 J W 6 from other sources, including 5,000 songs from free sites and 100 purchased CDs. ld. at 324:202 3 4 5 6 7 325:3. His complaint was not that he was forced to buy a n iPod, but that Apple was charging for its music. In his view, "generally people should have free access to artistic stuff." ld. at 157: 19158: 18. Far from ever being forced to buy an iPod, he purchased four competing players including a Creative Zen Xtra. ld. at 16:8-15. Plaintiff Tucker bought her first iPod based on her friends' recommendation: "Q: And how did you choose an iPod? . . . A: I had friends that had iPods and had seen advertisements . . . . [They] were satisfied. Q: You bought y o u r iPod voluntarily; is that correct? A: Yes." Ex. 1 9 , 8 : 2 2 - 9 : 1 , 1 1 : 4 - 5 , 5 8 : 2 - 4 . She did not have any iTunes Music a t the time, using 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 her C D collection as the source o f her music instead. [d. at 4 7 : 2 5 - 4 8 : 1 1 , 5 1 : 3 - 5 , 5 2 : 2 1 - 2 3 . She had no complaint about the iPod or the iTunes Store until a discussion with her former boyfriend in July 2006, at which point she became a p l a i n t i f f - a n d he became her counsel o f record. Id. at 85:18-87:19,90:11-21. 9 Six months after suing, she bought another iPod. She had less than 25 songs or about two C D ' s worth o f music from the iTunes Store at the time. Id. at 43:8-45:18, 120:9-121:15. Plaintiff Rosen has purchased three iPods. She admits she was not coerced when she bought the first two, one o f which was a gift for her sister. Ex. 1 7 , 4 6 : 8 - 1 0 , 62:2-5. She claims a lack o f choice only as to the third one, but t h a t claim is based largely on her mistaken b e l i e f that, i f she bought a competing player, she would have to copy all o f her music from her C D s again. ld. at 75:10-76:16, 156:19-157:7. That has nothing to d o with her tying claim. 1o PlaintifT Charoensak bought an iPod because he wanted a Mac-compatible device that he could use as an external hard drive. Ex. 16, 59:24-61: 12. He did not buy any iTunes Store music 9 T u c k e r ' s counseVformer boyfriend instructed h e r n o t to answer whether he o r she brought up the "concern" o r i f she developed her "concern" as a result o f talking with him. Ex. 1 9 , 8 8 : 2 90:24. 28 Rosen's problem, unrelated to A p p l e ' s anti-piracy software, was that when she ripped h e r CD collection into her iTunes library, she used the AAC format. Ex. 17,29:9-30:15. To play that music on some MP3 players, she needs to convert it to MP3 format. She can do so simply by changing her import preference to "MP3 encoder" and, after selecting the music she wants to convert, clicking Advanced>Convert Selection to MP3. See Ex. 9. 10 SFJ·594890v\ 7 C o r r e c t e d C o p y o f R e d a c t e d Mem. in Opp. to C l a s s C e r t i t i c a t i o n C 0 5 · 0 0 0 3 7 JW until after h e bought the iPod. ld. a t 122:19-22. M o s t o f the music o n his i P o d is from his C D 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 I I N o r were p l a i n t i f f s ' t w o e c o n o m i s t s c o e r c e d t o b u y a n iPod. P i s a r k i e w i c z b o u g h t his i P o d to impress his nephews that he was '·cool. -, Ex. 18, 76: 19-22. Noll does not o w n an iPod. His wife bought one, without ever buying any iTunes Store music before o r since. Ex. 21, 9: 19-24. collection. [d. at 81 :20-25. His m a i n c o m p l a i n t is not incompatibility with o t h e r stores o r devices but.rather t h a t he d i d n o t k n o w he should not delete music from his c o m p u t e r after syncing to his i P o d - a g a i n totally u m e l a t e d to the c o m p l a i n t here. [d. a t 25:23-27:20. P l a i n t i f f Somers is an attorney formerly e m p l o y e d by Milberg Weiss, the predecessor to the direct p l a i n t i f f s ' counsel o f record. Ex. 20, 8: 1 7 - 2 3 , 9 : 9 - 1 1 . She bought her first iPod o n a f r i e n d ' s recommendation, a n d a s e c o n d iPod as a gift for her mother. [d. at 37:14-38:4, 43:4-8. She w a s n o t coerced either time: " Q : [D]id you feel t h a t you were forced o r coerced in any way t o buy that iPod? . . . A: I c h o s e to purchase the iPod. Q: Did you feel that y o u were forced o r coerced to do it in any way? . . . A: N o : ' [d. at 38:13-23, 43:14-20. H e r m a i n purpose in buying an i P o d was t o load h e r C D s onto it, and the majority o f the tiles she has downloaded from the iTunes Store are free podcasts. ld. at 3 6 : 9 - 1 2 , 1 2 2 : 9 - 1 1 . She conceded that her c h o i c e o f a replacement MP3 player in the future would d e p e n d i n part o n h o w m u c h she liked another p l a y e r and h o w long it would take to transfer her music. Id. a t 104: 1-1 05:6. 11 D. Plaintiffs 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 on i P o d Competitors by Virtual and Physical Burning and Ripping, thus Changing 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 ( o r tied) product in o r d e r to obtain the desirable (or tying) product. Selecting which product to characterize as unwanted was difficult for plaintiffs because they were c h o o s i n g between the C N E T p r o d u c t o f the d e c a d e - t h e i P o d - a n d the Fortune p r o d u c t o f the y e a r - t h e i T u n e s Store. Initially, t h e y p u n t e d b y m a k i n g t h e u n p r e c e d e n t e d c l a i m t h a t b o t h p r o d u c t s were both the tying and tied products. At the C o u r t ' s p r o d d i n g (see Case No. 06-04457 J W , Dkt. 27, p. 8, n.2), they now have cast their fate with iTunes Store music and video as the t y i n g product, and SFI-5lJ4890v I 8 C o r r e c t e d C o p y o f R e d a c t e d Mem. in Opp. to C l a s s Certification C OS..{)U037 JW the iPod as the p r o d u c t t h a t c o n s u m e r s supposedly buy o n l y w h e n forced into it. Dkt. 107, 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 12 "Virtual" b u r n i n g r e f e r s to u s i n g s o f t w a r e to " v i r t u a l l y bum" t h e c u s t o m e r ' s e n t i r e i T u n e s Store music library b y c o p y i n g it to the hard drive o n t h e c u s t o m e r ' s computer. S u c h virtually burned songs can t h e n be imported directly into a n alternative p l a y e r ' s j u k e b o x software o n t h a t s a m e c o m p u t e r and b e p l a y e d portably on t h a t player. See Ex. 11. Cmplt. ~ 43. OW11 Originally, p l a i n t i f f s ' theory was that, as a result o f A p p l e u s i n g its anti-piracy software and c o m p e t i t o r s using d i f f e r e n t software, a n iPod w a s s u p p o s e d l y the only p o r t a b l e music player t h a t c a n play m u s i c d o w n l o a d e d from the iTunes Store. In fact, as plaintiffs a n d t h e i r e c o n o m i s t have n o w c o n c e d e d , c o n s u m e r s need o n l y b u m the m u s i c onto a C D and t h e n i m p o r t ( o r " r i p " ) t h e m u s i c o n t o t h e i r c o m p u t e r . Ex. 2 1 , 1 5 : 1 2 - 2 4 ( " t h e m e c h a n i s m i s t o e i t h e r d o a n actual o r virtual b u m o f t h e C D a n d then replay it"), 1 5 6 : 1 8 - 1 5 7 : 5 Y This process is s i m p l e a n d widely known. S l a t t e r y testified: Q. SO y o u k n o w t h a t physically, w h e n you g e t m u s i c from iTunes M u s i c S t o r e into your i T u n e s library, y o u c a n play t h a t o n c o m p e t i n g devices b y b u r n i n g to a C D a n d ripping back to the c o m p u t e r , c o r r e c t ? A. Yeah. Q. A n d b u r n i n g and ripping is a process that you have done numerous times, correct? A. Oh, yeah, many. Ex. 1 5 , 2 6 5 : 7 - 1 2 , 1 7 - 2 1 . 13 T h e burning/ripping p r o c e s s is d e s c r i b e d o n the A p p l e website (Ex. 10) and is illustrated i n A d d e n d u m 2 to this brief. E x p l a n a t i o n s o f h o w to do it can also be found by a G o o g l e s e a r c h for " h o w to p l a y iTunes m u s i c o n c o m p e t i n g p l a y e r s . " E.g., Ex. 11; see also Exs. 12, 13 ~~ 81-84 ( 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 D Similarly, T u c k e r t e s t i f i e d t h a t s h e h a s a l r e a d y b u r n e d 2 5 - 3 0 % o f h e r s o n g s to C D s a n d t h a t it takes " u n d e r a m i n u t e " o f h e r t i m e t o b u m o r rip a CD. Ex. 19, 60:2-61: 1O. Somers likewise testified t h a t burning and ripping is " e a s y to do" a n d takes " l e s s t h a n a m i n u t e . " Ex. 2 0 , 4 9 : 2 - 1 8 , 50: 10-12. She has b u r n e d C D s 3 0 times a n d ripped 50 times. [d. at 49:24-50: 1; 57: 19-23. C o r r e c t e d C o p y o f R e d a c t e d Mem. in Opp. to Class Certification C 0 5 - 0 0 0 3 7 JW SFI-594890vl 9 plaintiffs in t h e i r c o m p l a i n t at ~~ 6 0 - 7 0 , n o t i n g t h a t b u r n i n g a n d r i p p i n g is r e l a t i v e l y e a s y , 2 3 4 5 6 7 f a m i l i a r to m u s i c fans, h a s n e g l i g i b l e c o s t , a n d r e s o l v e s c o n c e r n s o f i n c o m p a t i b i l i t y ) . 14 E. Plaintiffs' C u r r e n t T y i n g Claim Plaintiffs are thus r e d u c e d to c l a i m i n g that w h a t their 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 1 : 1 - I O } - i . e . , t h a t iTunes S t o r e m u s i c c a n be p l a y e d o n c o m p e t i n g M P 3 p l a y e r s b y t h e e a s y , f a m i l i a r s t e p o f b u r n i n g a n d r i p p i n g - e r e a t e s a n i l l e g a l tie. T h e y a s s e r t t h a t s o m e c u s t o m e r s w i t h a lot o f i T u n e s S t o r e 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 r a t h e r 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 t o o i n c o n v e n i e n t o r b e c a u s e t h e i r p r e f e r e n c e f o r a c o m p e t i n g p l a y e r is t o o w e a k . A s a l e g a l m a t t e r , t h i s c l a i m h a s no m e r i t . T h e a n t i t r u s t l a w s d o n o t r e q u i r e t h a t a c o m p a n y d e s i g n i t s n e w p r o d u c t s to w o r k e q u a l l y w e l l ( o r a t a l l ) 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 w o r s e , t h a t a c o m p a n y is r e q u i r e d o n c e its p r o d u c t s b e c a m e s u c c e s s f u l t o r e d e s i g n t h e m to b e f u l l y i n t e r o p e r a b l e w i t h c o m p e t i t o r s ' p r o d u c t s . " [ T ] h e i n t r o d u c t i o n o f t e c h n o l o g i c a l l y r e l a t e d p r o d u c t s , e v e n i f i n c o m p a t i b l e w i t h the 8 9 10 11 12 13 14 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 a l o n e n e i t h e r a p r e d a t o r y o r a n t i c o m p e t i t i v e a c t . " Foremost 15 Pro Color, Inc. v. Eastman Kodak Co., 703 F . 2 d 534, 545 ( 9 t h Cir. 1 9 8 3 ) ( e m p h a s i s added). 16 17 18 19 20 21 22 23 24 25 26 27 28 E v e n p l a i n t i f f s ' e c o n o m i s t a g r e e d t h a t it w o u l d b e " c o m p l e t e l y i d i o t i c " t o r e q u i r e a n e w e n t r a n t t o d e s i g n i t s p r o d u c t s t o be c o m p a t i b l e w i t h e x i s t i n g o r f u t u r e c o m p e t i t o r s ' p r o d u c t s . E x . 2 1 , 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 u p t h e i r c o m p l a i n t b y 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 i P o d t o m a k e i t u n a b l e to p l a y m u s i c from o t h e r o n l i n e stores. P l a i n t i f f s a n d t h e i r e c o n o m i s t , h o w e v e r , h a v e b e e n u n a b l e t o i d e n t i f y a n y b a s i s for t h e c h i p d i s a b l i n g a l l e g a t i o n , a n d it is p a t e n t l y false. A s t h e i r e c o n o m i s t p u t it, " t h e i s s u e to m e w a s n e v e r d i s a b l i n g the m i c r o p r o c e s s o r ; t h e r e w o u l d b e n o r e a s o n to do t h a t . " Ex. 2 1 , 2 2 1 :23-25. F a r f r o m d i s a b l i n g a n y t h i n g , A p p l e a n d i t s 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 difTerent D R M t e c h n o l o g y . 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 t o t r y t o 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 . E x . 2 1 , 211 :21-212: 11. B u t A p p l e w a s c l e a r l y n o t " d o m i n a n t " w h e n i t d e s i g n e d t h e s e p r o d u c t s . 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 its f i r s t f o r a y i n t o s e l l i n g m u s i c p l a y e r s a n d m u s i c , a n d it h a d n o m a r k e t s h a r e a t t h e t i m e a s to either. A n d j u d g i n g t h e l e g a l i t y o f a n e w p r o d u c t r e t r o a c t i v e l y b a s e d o n w h e t h e r it b e c a m e s u c c e s s f u l o r " d o m i n a n t " is n o 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 s u c c e s s . " 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 c o m p e t e , m u s t n o t b e t u r n e d u p o n w h e n he w i n s . " U s . v. Aluminum Co. o fAm., 148 F . 2 d 4 1 6 , 4 3 0 ( 2 d Cir. 1 9 4 5 ) ( 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 ) . 15 SFI-594890v I 10 Corrected Copy o f Redacted Mem. in Opp. to Class Cel1iiication C 05-00037 JW The critical p o i n t for p r e s e n t purposes, however, is t h a t p l a i n t i f f s ' l o c k - i n - r e s u l t i n g - f r o m 2 3 4 5 6 7 8 d i f f e r e n t i a l - e a s e - o f - a c c e s s t h e o r y o f t y i n g d e p e n d s o n i n h e r e n t l y i n d i v i d u a l p r o o f that c a n n o t be m a n a g e d o n a c l a s s - w i d e b a s i s . P r o o f t h a t o n e c u s t o m e r w a s l o c k e d i n u n d e r t h i s ditTerentiale a s e - o f - a c c e s s t h e o r y will n o t e s t a b l i s h t h a t any o t h e r c u s t o m e r was locked in, let alone all customers. A s p l a i n t i f f s ' e x p e r t a d m i t t e d , " t h e d e g r e e to w h i c h any g i v e n p e r s o n is locked in . . . j u s t d e p e n d s o n a b u n c h o f stuff," i n c l u d i n g the s i z e o f the library o f i T u n e s S t o r e m u s i c with D R M , h o w technically literate the p e r s o n is, h o w e a s y it is for t h e m to b u m and rip, a n d so forth. Ex. 2 1 , 1 9 5 : 1 - 8 . 9 10 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, d e t e r m i n i n g w h i c h , i f a n y , c o n s u m e r s m i g h t m e e t p l a i n t i f f s ' e c o n o m i s t ' s d e f i n i t i o n o f l o c k e d - i n w o u l d b e a h i g h l y i n d i v i d u a l i z e d i n q u i r y . H o p i n g to o b s c u r e t h i s u n d e n i a b l e c o n c l u s i o n , p l a i n t i f f s s e e k to r e p r e s e n t n o t o n l y t h o s e c o n s u m e r s b u t e v e r y s i n g l e p e r s o n w h o b o u g h t a n y o n e o f the the U n i t e d States s i n c e April 2 0 0 3 , p l u s t h e i P o d s s o l d d i r e c t l y b y A p p l e t o c o n s u m e r s in resellers that b o u g h t "iPods f r o m A p p l e d u r i n g t h a t s a m e p e r i o d . S e e K n y s h D e c ! . ~~ 2 - 3 . T h e l a t t e r r e s e l l e r g r o u p i n c l u d e s h u g e v o l u m e p u r c h a s e r s s u c h as W a l - M a r t o r T a r g e t t h a t b o u g h t i P o d s f o r r e s a l e i n t h e i r o w n retail stores, a n d s m a l l e r distributors t h a t b o u g h t iPods for r e s a l e to retail stores. T h e c l a s s is so b r o a d t h a t it i n c l u d e s c u s t o m e r s w h o b o u g h t i P o d s i n t h e f i r s t m o n t h s a f t e r t h e i T u n e s S t o r e w a s launched, w h e n Apple c l e a r l y had no m a r k e t p o w e r u n d e r a n y c o n c e i v a b l e theory. ARGUMENT I. PLAINTIFFS BEAR T H E BURDEN O F SHOWING THAT T H E REOUIREMENTS F O R CLASS C E R T I F I C A T I O N ARE MET. P l a i n t i f f s b e a r t h e b u r d e n o f d e m o n s t r a t i n g t h a t t h e r e q u i r e m e n t s for c l a s s c e r t i f i c a t i o n a r e met. Gen. Tel. Co. v. Falcon, 4 5 7 U.S. 147, 161 (1982); Zinser v. Accufix Research Ins!., Inc., 253 F . 3 d 1 1 8 0 , 1 1 8 6 ( 9 t h C i r . 2 0 0 1 ) . T h e c o u r t m u s t e n g a g e i n a " r i g o r o u s a n a l y s i s " b e f o r e d e c i d i n g that a c l a s s a c t i o n is proper. Chamberlain v. F o r d Motor Co., 4 0 2 F . 3 d 9 5 2 , 9 6 1 ( 9 t h C i r . 2 0 0 5 ) ( q u o t i n g F a l c o n , 4 5 7 U . S . a t 161). SFJ-594SQOvl 11 Corrected Copy o f Redacted Mem. in Opp. to Class Certitication C 05-00037 JW Pointing to the allegations o f their complaint or making (or having their expert make) 2 3 4 5 6 7 8 9 10 unsupported assertions as to h o w 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 r 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 t o ' 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. Waf-Mart, Inc., 509 F.3d 1168, 1178 (9th Cir. 2007) (empahsis in orginal). Similarly, plaintiffs must offer something more than an e x p e r t ' s ipse dixit that the p r o p o s e d class m e e t s Rule 2 3 ' s r e q u i r e m e n t s . T h e e x p e r t m u s t present " p r o p e r l y - a n a l y z e d , scientitically 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 Processing Units Antitrust Litig., No. C 06-07417 WHA, 2008 WL 2788089, at *18 (N.D. Cal. July 1 8 , 2 0 0 8 ) 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ( d e n y i n g class c e r t i f i c a t i o n w h e r e t h e p l a i n t i f f s ' e x p e r t t e s t i m o n y w a s " c o n c l u s o r y , " " a r t i f i c i a l ; ' and "evad[ ed] the very burden he was supposed to shoulder"). II. PLAINTIFFS' TYING CLAIM FAILS THE PREDOMINANCE, TYPICALITY 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 iPod 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 p r o o f 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, SFI-594890v I 12 Corrected Copy o f Redacted Mem. in Opp. to Class Certification C 05 ..()O037 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) (denying class certification where "plaintiffs have not offered to prove the existence o f a tie 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 Enters .. Inc. v. Smith, 895 F. Supp. 8 8 4 , 9 0 4 ( £ . 0 . Mich. 1995) (denying class certit"ication because the tie was not "apparent from the face o f a contract, o r from reasonable inferences based on the contract and related documents"); Colburn v. Roto-Rooter Corp., 78 F.R.D. 679, 681~82 (N.D. Cal. 1978) (denying class certification o f tying 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. D e n n y ' s Rests., Inc., 62 F.R.D. 4 5 9 , 4 6 1 (N.D. Cal. 1974) (denying class certification because franchise contract did not require purchase o f supplies from franchisor); Chase Parkway Garage Inc. v. Subaru. Inc., 94 F . R D . 3 3 0 , 3 3 2 (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. D u n k i n ' Donuts. 12 13 14 15 16 17 18 Inc., 531 F .2d 1211, 1226 (3d Cir. 1976) (class certification not proper where " p l a i n t i f I franchisees place no reliance o n express contractual tie-ins"); Daniels v. A m e n ' o , No. 81 CIV.3801, 1983 WL 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 on 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. 76-247-0rl-Civ-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 Commentators agree. " I n the absence o f a c o m m o n contractual provision, p r o o f o f a tie-in is an individual question, and individual questions will predominate." 5 M o o r e ' 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 common contractual requirement exists); S. Calkins, Enforcement Official's Reflections on Antitrust Class Actions, 39 Ariz. L. Rev. 4 1 3 , 4 4 8 (1997) ("Courts regularly regard p r o o f o f coercion as requiring so much individualized p r o o f as to p r e v e n t class c e r t i f i c a t i o n . " ) . SFI-594890vl 13 C o r r e c t e d Copy o f Redacted Mem. in Opp. t o Class Certification C 05..()O037 JW The result in these cases flows from basic tying requirements. A tying arrangement is " a n 2 agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product." N Pac. Ry. Co. v. United States, 356 U.S. 1 , 5 - 6 (1958). " [ T ] h e essential characteristic o f an invalid tying arrangement lies in the s e l l e r ' s exploitation o f its control over the tying product to force the buyer into the purchase o f a tied product that the buyer e i t h e r d i d n o t w a n t a t all, o r m i g h t h a v e p r e f e r r e d t o p u r c h a s e e l s e w h e r e o n d i f f e r e n t t e r m s . " 3 4 5 6 7 8 9 10 Jefferson Parish Hasp. Dist. NO.2 v. Hyde. 466 U.S. 2, 12 (1984). "[W]here the buyer is free to take either product by i t s e l f there is no tying p r o b l e m . " Id. at 12 n.17. As the N i n t h Circuit explained, " t h e Supreme C o u r t has emphasized t h a t the coerced purchase o f the tied product is the key aspect o f a n illegal tie." Cascade Health Solutions v. PeaceHealth, 515 F .3d 883, 913 (9th Cir. 2008); Trans Sport. Inc. v. Starter Sportswear. Inc .. 964 F.2d 186, 192 (2d Cir. 1992) C'[u]n1ess the buyer can prove that it was the unwilling purchaser o f the allegedly tied products, actual coercion has not been established a n d a tying agreement cannot be found to exist"); see X 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 P. Areeda, E. E1hauge, & Hovenkamp, Antitrust Law, ~ 1753c, at 276 n.12 (2d ed. 2004) (recognizing that buyer who "purchased no a m o u n t o f t h e tied product that [he] would not have purchased anyway" would lack standing to obtain damages, with the result that " t y i n g a r r a n g e m e n t p u r c h a s e r class actions s e e k i n g d a m a g e s c a n n o t be certified i f the c l a s s m i g h t include some purchasers who would have purchased the tied product in any event"). Plaintiffs' cases are not to the contrary. In each o f them, the ground for class certification was that the defendant refused to sell the products separately, either by explicitly requiring that customers buy them together or by making it impossible for customers to buy them separately. I ? Bafus v. A s p e n Realty. Inc., 236 F.R.D. 652, 654 (D. Idaho 2006) (the defendant real estate a g e n t r e q u i r e d b u y e r s t o p a y a c o m m i s s i o n o n t h e p r o s p e c t i v e h o m e p r i c e as a c o n d i t i o n 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, at *1 (N.D. Cal. Sept. 2, 1994) (Kodak required c o p i e r purchasers to also purchase maintenance services from 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. I n t ' ! Dairy Queen, Inc., 168 F.R.D. 668, 674-75 (M.D. Ga. 1996) (franchisor never granted approval for purchasing supplies from alternative vendors and prevented vendors from being able to supply franchisees); Moore v. Jas. H JvfatthelVs & Co., 550 F.2d 1 2 0 7 , 1 2 1 2 (9th Cir. 1977) (c o n t i n u e d ) 17 SFI-594890v1 14 Correcled Copy o f Redacted Mem. in Opp. to Class Certiiicati{ffi C 0 5 - 0 0 0 3 7 JW The courts permitted class certification on the basis that all customers were necessarily c o e r c e d 2 3 4 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 unrelated to the alleged tie. Plaintiffs' economist's testimony confirms 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. 5 6 7 8 9 10 11 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 Cir. 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 terms o f standard form contract conditioned sale o f automobiles on use o f defendant's new c a r delivery service); Digidyne Corp. v. Data Gen. Corp., 734 F.2d 1336, 1339 (9th Cir. 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 Cir. 2001) (affirming 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. Afont. Power Co., 328 F.3d 1145, 1160-62 (9th Cir. 2003) (finding no tying arrangement because there was no evidence that defendant required that products be p u r c h a s e d t o g e t h e r o r effectively p r e v e n t e d t h e i r separate purchase). Ex. 2 1 , 6 4 : 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-594890v I C o r r e c t e d C o p y o f R e d a c t e d Mem. in Opp. to C l a s s Certification C 05-00037 J W 15 Plaintiffs rely on the statement in Moore. 550 F.2d at 1217. that coercion may be implied 2 3 4 5 6 7 8 9 10 II from evidence that an "appreciable number o f buyers" accepted the tie. Mot. at 15. 19 Moore, however, did not dispense with the coercion requirement. A tie was established in that case because the seller expressly required purchasers o f cemetery plots to also purchase grave markers o r burial services. In the dictum on which plaintiffs rely, the court indicated only that the existence o f a tie "may be implied" circumstantially by evidence o f actual tied purchases by a sufficiently large sample o f purchasers. 550 F.2d at 1217. I f all or essentially all purchases were made on a package basis in circumstances where some consumers would be expected to buy one o f the products from a different supplier or not at all, the courts have been 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 on which Moore relied, Hill v. A-T-O, Inc .. 535 F.2d 1349 (2d Cir. 1976), in which the seller never sold the tying product without requiring that the customers also buy the tied product. Similarly, in Siegel v. Chicken Delight. Inc., 448 F.2d 45 (9th Cir. 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 music have always been separately available and have always f u n c t i o n e d i n d e p e n d e n t l y . Effectively conceding that they must show that Apple imposed a requirement on a common basis o n all purchasers, plaintiffs repeatedly assert that Apple had an "unremitting policy" o f requiring that iTunes Store music purchasers also buy iPods. Mot. at 1, 7, 16, 17. But the "policy" to which plaintiffs refer is simply A p p l e ' s developing its OVvTI DRM. That is not any sort o f requirement, unremitting or otherwise, that iTunes Store music purchasers buy iPods. At best, under plaintiffs' "lock-in" theory, A p p l e ' s use o f its own technology potentially could have 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 19 In opposing dismissal, plaintiffs argued that t h e y need not s h o w that they o r o t h e r customers were coerced because "market-level coercion" is supposedly sufficient, citing AJurphy v. Business C a r d s Tomorrow, Inc., 854 F.2d 1202 (9th Cir. 1988). They no longer advance this argwnent, which neither M u r p h y nor any other case supports. Their new argument based on AJoore is e q u a l l y unsupportable. SFI·S94890v! 16 C o r r e c t e d C o p y o f R e d a c t e d Mem. in Opp. to Class Certification C OS..(lOO37 JW had that effect o n l y for a very small n u m b e r o f purchasers. Identifying them would d e p e n d o n 2 their individual circumstances and a " b u n c h o f stuff" to use their e c o n o m i s t ' s term, including 3 4 · · · · · W h e t h e r t h e y b o u g h t m u s i c from t h e 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; Whether they w a n t e d to play that music portably; W h e t h e r t h e y w e r e a w a r e o f a n d p r e f e r r e d to use a p o r t a b l e m u s i c p l a y e r o t h e r t h a n a n iPod; W h e t h e r they had a sufficiently large n u m b e r o f s o n g s from t h e iTunes Store w i t h D R M that they still wanted to play to affect their decision; Whether they were u n a w a r e that iTunes Store songs c a n b e p l a y e d o n o t h e r portable p l a y e r s b y b u r n i n g a n d r i p p i n g t h e m (or a l t e r n a t i v e l y w h e t h e r t h e y c o n s i d e r e d burning and ripping to be 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 l o c k - i n . 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 · Each factor requires i n d i v i d u a l p r o o f that c a n n o t p o s s i b l y b e a d d r e s s e d o n any a c r o s s - t h e b o a r d b a s i s . P r o o f t h a t a n y c u s t o m e r s a t i s f i e s a n y o n e o f t h e s e c r i t e r i a , l e t a l o n e all o f t h e m , would not prove that a n y other customer does so. These are the quintessential kinds o f individual i s s u e s t h a t the 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 i n 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 o n l y create further individual i s s u e s . 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 n o o n e purchased a n iPod due to any alleged lock-in from v i d e o p u r c h a s e s . A p p l e ' s c o n s u m e r i n f o r m a t i o n i n d i c a t e s t h a t , a s o f M a r c h 2 0 0 7 , i T u n e s S t o r e c u s t o m e r s had o n a v e r a g e p u r c h a s e d O n l Y . m u s i c v i d e o s . and t h a t _ I T V s h o w s and I movies- iPod owners had not p u r c h a s e d any video a t all. Rangel Ex. 1 (p. 37), Ex. 2 (p. 33). B u t even i f some customers could plausibly c l a i m to have b e e n locked in by having p u r c h a s e d o n e o r t w o m o v i e s o r 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 be s h o w n b y 26 27 28 In reality, it is extremely doubtful that 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 ( l ) had a n y i n t e r e s t i n 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 even 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 t o transfer. SFl·594890v[ Corrected Copy o f Redacted Mem. in Opp. to C l a s s Certification C 05-00037 l W 20 17 individual p r o o f - a n d it w o u l d b e p r o o f different from w h a t e v e r proof1may exist regarding the 2 e f f e c t o f m u s i c p u r c h a s e s from t h e i T u n e s S t o r e . 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 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. Plaintiffs' effort to represent all i P o d purchasers fails for anoth~r independent reason. T h e rule in the N i n t h Circuit is that impact and damages in a tying case m a y n o t be determined s i m p l y by the a m o u n t o f any " o v e r c h a r g e " o n the tied product alone, but m u s t be measured on a " p a c k a g e " a p p r o a c h - i . e., by d e t e r m i n i n g the net overcharge o n the tield product after taking into account any reduction in the tying p r o d u c t price occurring as a result o f the tie. Siegel, 448 F . 2 d a t 52. I f any price reduction o n the tying p r o d u c t exceeds the a m o u n t o f any overcharge, the purchaser has not suffered any injury. Kypta v. McDonald's Corp., 671 F.2d 1282, 1285 (11 th C i r . 1 9 8 2 ) ( f o l l o w i n g t h e N i n t h C i r c u i t S i e g e l rule; " [ u ] n l e s s t h e f a i r m a r k e t v a l u e o f b o t h t h e t i e d and tying products are d e t e r m i n e d a n d an overcharge in the complete price found, no injury c a n be claimed"). T h i s r u l e p r e c l u d e s c l a s s c e r t i f i c a t i o n h e r e b e c a u s e p l a i n t i f f s h a v e not p r o p o s e d a n y methodology for d e t e r m i n i n g the a m o u n t o f any net overcharge o n a c o m m o n basis. I t is generally recognized that, " i f a tie causes a buyer to pay more than the m a r k e t price for the tied product, the buyer is m o s t likely p a y i n g less than the price that the seller could profitably charge for the tying p r o d u c t i f sold separately." Freeland, 238 F.R.D. at 150 (internal quotations omitted); see also X Antitrust Law, ~ 1769c, a t 413 ( " i n m o s t cases a p r e m i u m price o n the tied product must be a c c o m p a n i e d by a reduction in the price o f the tying product"). Here, although A p p l e d e n i e s t h a t a n y t i e e x i s t s , p l a i n t i f f s ' e x p e r t t e s t i f i e d t h a t u n d e r p l a i n t i f f s ' t h e o r y the p r i c e o f iTunes Store m u s i c may have been reduced. Ex. 21, 141: 15-19. I f that were true, consumers w i t h r e l a t i v e l y l a r g e i T u n e s S t o r e p u r c h a s e s w o u l d have b e n e f i t e d b e c a u s e t h