"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).

Download PDF
"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·5948Convert 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