"The Apple iPod iTunes Anti-Trust Litigation"

Filing 188

Reply Memorandum In Support of Plaintiffs' 165 Motion for Class Certification and Appointment of Class Counsel filed by Melanie Tucker. (Attachments: # 1 Amended [Proposed] Order (Sweeney, Bonny) (Filed on 11/17/2008) Modified on 11/19/2008,(counsel failed to properly link to motion.) (cv, COURT STAFF).

"The Apple iPod iTunes Anti-Trust Litigation"

Doc. 188

1 COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP 2 BONNY E. SWEENEY (176174) 655 West Broadway, Suite 1900 3 San Diego, CA 92101 Telephone: [phone] (fax) [e-mail] 5 THE KATRIEL LAW FIRM 6 ROY A. KATRIEL (pro hac vice) 1101 30th Street, N.W., Suite 500 7 Washington, DC 20007 Telephone: [phone] (fax) [e-mail] 9 Co-Lead Counsel for Plaintiffs 10 [Additional counsel appear on signature page.] 11 UNITED STATES DISTRICT COURT 12 NORTHERN DISTRICT OF CALIFORNIA 13 SAN JOSE DIVISION 14 THE APPLE IPOD ITUNES ANTI-TRUST ) Lead Case No. C-05-00037-JW(RS) 15 LITIGATION ) ) CLASS ACTION 16 ) ) REPLY MEMORANDUM IN SUPPORT OF This Document Relates To: 17 ) PLAINTIFFS' MOTION FOR CLASS ) CERTIFICATION AND APPOINTMENT OF ALL ACTIONS. 18 ) CLASS COUNSEL 19 20 21 22 23 24 25 26 27 28 JUDGE: DATE: TIME: CTRM: Hon. James Ware December 15, 2008 9:00 a.m. 8-4th Floor

Dockets.Justia.com

1 2 3 I. 4 II. 5 6 7 8 9 10 11 12 III. 13 14 IV. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 B. C. 3.

TABLE OF CONTENTS Page INTRODUCTION ...............................................................................................................1 PLAINTIFFS SATISFY RULE 23 REQUIREMENTS......................................................1 A. Plaintiffs' Tying Claim Can Be Proven Using Common Proof...............................1 1. 2. The Coercion Element Does Not Require Individualized ...........................3 "Package Theory" of Damages, Even if Adopted by the Ninth Circuit, Would Not Preclude Class Certification.........................................8 Apple's Proposed "Damages Methodology" is Not Supported by Expert Testimony and is Not Required by Law.........................................10

Plaintiffs' Monopolization Claims Go Essentially Unopposed .............................11 Plaintiffs' 23 (b)(2) Injunctive Relief Claim Warrants Certification.....................12

THE CLASS IS PROPERLY DEFINED TO INCLUDE ALL DIRECT PURCHASERS, WHO ARE ADEQUATELY REPRESENTED BY THE PROPOSED CLASS REPRESENTATIVES ....................................................................13 CONCLUSION..................................................................................................................15

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1 2 3 CASES

TABLE OF AUTHORITIES Page

4 Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975) .............................................................................................15 5 Chase Parkway Garage Inc. v. Subaru, Inc., 6 94 F.R.D. 330 (D. Mass. 1982)............................................................................................6 7 Colburn v. Roto-Rooter Corp., 78 F.R.D. 679 (N.D. Cal. 1978)...........................................................................................6 8 Daniels v. Amerco, 9 No. 81 CIV 3801 (RLC), 1983 WL 1794 (W.D.N.Y. Mar. 10, 1983)...................................................................................................6 10 Davis v. S. Bell Tel. & Tel. Co., 11 No. 89-2839-Civ-NESBITT, 1993 WL 593999 (S.D. Fla. Dec. 23, 1993) ...................................................................................................12 12 Digidyne Corp. v. Data Gen. Corp., 13 734 F.2d 1336 (9th Cir. 1984) .............................................................................................4 14 Eastman Kodak Co. v. Image Tech. Servs., 504 U.S. 451, 112 S. Ct. 2072 (1992)..................................................................................5 15 Freeland v. AT&T Corp., 16 238 F.R.D. 130 (S.D.N.Y. 2006) .....................................................................................6, 9 17 Hanlon v. Chrysler Corp., 150 F.3d 1011 (9th Cir. 1998) ...........................................................................................14 18 Hanover Shoe, Inc. v. United Shoe Mach. Corp., 19 392 U.S. 481, 88 S. Ct. 2224 (1968)............................................................................13, 14 20 Hill v. A-T-O, Inc., 535 F.2d 1349 (2d Cir. 1976)...............................................................................................7 21 Image Tech. Servs. v. Eastman Kodak, 22 125 F.3d 1195 (9th Cir. 1997) ...........................................................................................10 23 In re Bulk [Extruded] Graphite Prods. Litig., No. 02-6030 (WHW), 2006 WL 891362 24 (D.N.J. Apr. 4, 2006) .............................................................................................13, 14, 15 25 In re Data Gen. Corp. Antitrust Litig., 490 F.Supp. 1089 (N.D. Cal. 1980) ...............................................................................4, 10 26 In re Dynamic Random Access Memory (DRAM) Antitrust Litig., 27 No. M 02-1486 PJH, 2006 WL 1530166 (N.D. Cal. June 5, 2006) ....................................................................................8, 10, 13, 14 28
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3 In re Live Concert Antitrust Litig., 247 F.R.D. 98 (C.D. Cal. 2007) ...............................................................................8, 11, 12 4 In re Relafen Antitrust Litig., 5 360 F. Supp. 2d 166 (D. Mass. 2005) ..........................................................................13, 14 6 In re Static Random Access (SRAM) Antitrust Litig., No. C 07-01819 CW, 2008 WL 4447592 7 (N.D. Cal. Sept. 29, 2008) .................................................................................................10 8 In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124 (2d Cir. 2001)...............................................................................................11 9 Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 10 466 U.S. 2, 104 S. Ct. 1551 (1984)..................................................................................2, 4 11 Kypta v. McDonald's Corp., 671 F.2d 1282 (11th Cir. 1982) ...........................................................................................9 12 L.A. Mem'l Coliseum Comm'n v. NFL, 13 791 F.2d 1356 (9th Cir. 1986) .............................................................................................8 14 Lessig v. Tidewater Oil Co., 327 F.2d 459 (9th Cir. 1964) .............................................................................................10 15 Linney v. Cellular Alaska P'ship., 16 151 F.3d 1234 (9th Cir. 1998) ...........................................................................................12 17 Little Caesar Enters., Inc. v. Smith, 895 F.Supp. 884 (E.D. Mich. 1995).....................................................................................6 18 Meijer, Inc. v. Warner Chilcott Holdings Co. III, Ltd., 19 246 F.R.D. 293 (D.D.C. 2007)...........................................................................................13 20 Meijer v. Abbott Labs., No. C 07-5985 CW, 2008 WL 4065839 21 (N.D. Cal. Aug. 27, 2008)....................................................................................................9 22 Moore v. Jas. H. Matthews & Co., 550 F.2d 1207 (9th Cir. 1977) .....................................................................................3, 4, 6 23 Northern Pacific Railway Company v. United States 24 356 U.S. 1, 78 S. Ct. 514 (1958)..........................................................................................5 25 Olmstead v. Amoco Oil Co., No. 76-247-Orl-Civ-Y, 1977 WL 1416 26 (M.D. Fla. June 16, 1977) ....................................................................................................6 27 Probe v. State Teachers' Ret. Sys., 780 F.2d 776 (9th Cir. 1986) .............................................................................................12 28
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3 Siegel v. Chicken Delight, Inc., 448 F.2d 43 (9th Cir. 1971) .............................................................................................3, 8 4 Slattery v. Apple Comp., Inc., 5 No. C 05-00037 JW, 2005 WL 2204981 (N.D. Cal. Sept. 9, 2005) .....................................................................................................3 6 Smith v. Denny's Rests., Inc., 7 62 F.R.D. 459 (N.D. Cal. 1974)...........................................................................................6 8 Teva Pharms. USA, Inc. v. Abbott Labs., 252 F.R.D. 213 (D. Del. 2008) ..........................................................................................14 9 Tucker v. Apple Comp., Inc., 10 493 F. Supp. 2d 1090 (N.D. Cal. 2006) ...................................................................3, 5, 6, 7 11 Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 1148 (9th Cir. 2001) .............................................................................................2 12 U.S. v. Microsoft Corp., 13 253 F.3d 34 (D.C. Cir. 2001) ...............................................................................................4 14 Ungar v. Dunkin' Donuts, Inc., 531 F.2d 1211 (3d Cir. 1976)...............................................................................................6 15 Valley Drug Co. v. Geneva Pharms. Inc., 16 350 F.3d 1181 (11th Cir. 2003) ...........................................................................................9 17 Waldo v. N. Am. Van Lines, Inc., 102 F.R.D. 807 (W.D. Pa. 1984) .........................................................................................6 18 Ways & Means, Inc. v. IVAC Corp., 19 506 F.Supp. 697 (N.D. Cal. 1979) ...................................................................................4, 7 20 Wofford v. Safeway Stores, Inc., 78 F.R.D. 460 (N.D. Cal. 1978).........................................................................................14 21 STATUTES, RULES AND REGULATIONS 22 15. U.S.C. 23 §1............................................................................................................................1, 3, 8, 13 §2........................................................................................................................1, 11, 12, 13 24 Federal Rule of Civil Procedure 25 Rule 23 .................................................................................................................................1 Rule 23(b)(2)..........................................................................................................12, 14, 15 26 Rule 23(b)(3)................................................................................................................13, 15 27 28
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1 2 3 SECONDARY AUTHORITIES 4 R. Anthony Reese, Law Technology & the Arts Symposium: The Problems of Judging Young Technologies: A Comment on Sony, Tort Doctrines, 5 and the Puzzle of Peer-to-Peer, 55 ......................................................................................7 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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1 I. 2

INTRODUCTION No matter how innovative or "award-winning" its products, Apple, Inc. ("Apple") is not

3 immune from the antitrust laws or the rules governing class certification. In their opening class 4 certification brief and supporting expert report, Plaintiffs demonstrated that they can prove each 5 element of their Section 1 and Section 2 Sherman Act antitrust claims through predominantly 6 common proof. In opposition, Apple fails to conduct any similar element-by-element analysis, and 7 fails to challenge any of the conclusions in the 60-page report of Plaintiffs' expert, renowned 8 Stanford economist Roger G. Noll. 9 Lacking its own economist and virtually ignoring Plaintiffs' Section 2 claims, Apple instead

10 improperly argues the merits, devoting all but two paragraphs of its brief to attacking the legal 11 viability of Plaintiffs' Section 1 tying claim. In support of its improper merits arguments, Apple 12 ignores this Court's prior rulings upholding Plaintiffs' tying and monopolization claims, distorts 13 Professor Noll's report and testimony, and attempts to re-cast Plaintiffs' claims. Apple even goes so 14 far as to chastise Professor Noll for not completing a full-blown regression analysis, even though 15 Apple insisted, over Plaintiffs' objection, on an order limiting discovery and agreed to the use of 16 exemplars to illustrate the kind of data Apple has available for merits discovery. Not only are 17 Apple's arguments misguided and improper, they ultimately only reinforce the common character of 18 the issues raised by Plaintiffs' Section 1 and Section 2 claims, thereby confirming the propriety of 19 class certification. 20 II. 21 22 PLAINTIFFS SATISFY RULE 23 REQUIREMENTS A. Plaintiffs' Tying Claim Can Be Proven Using Common Proof

As explained in Plaintiffs' opening brief, and as Professor Noll opined in his expert report

23 and deposition testimony, none of the elements of Plaintiffs' tying claim turns on the individual 24 circumstances of a particular class member. Rather, Plaintiffs will rely upon common evidence to 25 prove all elements of their claim. 26 27 28
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The first element ­ the requirement that the tying and tied products be separate ­ presents no

2 barrier to certification because Apple has conceded that the iPod and the iTunes digital audio and 3 video downloads are separate products.1 Def's. Mem. at 12. See Jefferson Parish Hosp. Dist. No. 2 4 v. Hyde, 466 U.S. 2, 21, 104 S. Ct. 1551 (1984) ("a tying arrangement cannot exist unless two 5 separate product markets have been linked"). Thus, Plaintiffs will not rely on any individual 6 evidence to prove this element. 7 Nor does Apple dispute that common evidence will be used to define the relevant markets

8 and to determine whether Apple has sufficient economic power in the tying markets (legal 9 permanent digital audio and video downloads) to restrain competition in the tied market (portable 10 digital media players). See Noll Decl. at 20-35 (describing the evidence an economist would use to 11 define relevant markets and determine the level of economic power, and concluding that 12 "[i]dentically the same information would be required to prove the relevant market if each member 13 of the class were to make separate antitrust claims" and that "proof of market power is common to 14 all class members" because "exactly the same data would be collected and analyzed for each class 15 member if each were to make the same antitrust claims separately");2 Plfts' Mem. at 11-13, 18-19; 16 Def's. Mem. at 10-12. 17 Apple also fails to contest Plaintiffs' assertion that they will rely on common proof to show a

18 "not insubstantial effect" on commerce in the tied product market and, if a rule of reason analysis is 19 applied, that Apple's tie unreasonably suppresses competition in the tied product market. See Noll 20 Decl. at 38-39 (evidence of extent of foreclosure in the tied product market "applies to conditions in 21 these markets, not characteristics of a consumer, and so is common to all class members); Plfts' 22 Mem. at 13-15; Def's. Mem. at 18-22; Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 1148, 1157-58 23 (9th Cir. 2001) (proof of "an effect on a not-insubstantial volume of commerce in tied product 24 25 All references to "Def's. Mem." are to the Memorandum in Opposition to Motion for Class Certification, dated October 17, 2008. 26 2 All references to "Plfts' Mem." are to the 27 Certification and Appointment of Class Counsel, filed Notice of Motion and Motion for Class July 21, 2008. 28
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1 market" is required for per se violation and proof that the tie "suppresses competition" is required 2 under rule of reason analysis). 3 4 1. The Coercion Element Does Not Require Individualized

The only argument Apple makes against certifying Plaintiffs' tying claim (or any other

5 claim) is one that this Court has already rejected, twice. Apple argues that the class cannot be 6 certified because a class member by class member analysis is required to determine whether the 7 "coercion" element of tying has been satisfied. Def's. Mem. at 2-3, 5-18. As this Court has already 8 held, however, coercion may be alleged and proven at the market, rather than the individual, level: 9 10 11 12 Tucker v. Apple Comp., Inc., 493 F. Supp. 2d 1090, 1097 (N.D. Cal. 2006); see also Slattery v. Apple 13 Comp., Inc., No. C 05-00037 JW, 2005 WL 2204981, at *3 (N.D. Cal. Sept. 9, 2005). 14 Plaintiffs can prove through common evidence that coercion exists at the market level by 15 demonstrating that "an appreciable number of buyers have accepted" the tie-in, and that Apple holds 16 17 18 2008 ("Noll Depo.") at 66:1-5. As the case law demonstrates and as Professor Noll explains, the fact 19 20
3

[T]here is no requirement that individual purchaser plaintiffs must allege coercion at the individual level, rather than at the market level, to state a Section 1 tying claim. In the Ninth Circuit, "[t]he essence of an antitrust tying violation is not the seller's unilateral refusal to deal with a buyer who refuses to buy the tied product, but the use by the seller of its `leverage' to force a purchaser to do something that he would not do in a competitive market."3

"sufficient economic power in the tying product market."4 Moore v. Jas. H. Matthews & Co., 550 F.2d 1207, 1217 (9th Cir. 1977)5; Ex. 1, Deposition Transcript of Roger G. Noll, taken Sept. 19,

21

Unless otherwise indicated, citations are omitted and emphasis is added.

4 Apple attempts to distinguish Moore, asserting that "the seller 22 of cemetery plots to also purchase grave markers or burial services." expressly required purchasers Def's Mem. at 16. In fact, as the Ninth Circuit made plain, some purchasers bought the tying product without also buying the tied 23 product. Moore, 550 F.2d at 1217 ("each purchaser of a cemetery plot was not absolutely required

marker"). Siegel v. Chicken Delight, Inc., 448 F.2d 24 to buy aother cases,Relying onrepeated its holding that "a[] showing of43, 52-53 (9th Cir. 1971) among the court an onerous effect on an appreciable number of buyers coupled with a demonstration of a sufficient economic power in the 25 tying market is sufficient to demonstrate coercion." Id. 26 All references to "Ex." are to the Declaration of Bonny E. Sweeney in Support of Plaintiffs' Reply Memorandum of Points and Authorities in Support of Motion for Class Certification and 27 Appointment of Class Counsel, filed concurrently. 28
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1 that some class members purchased their iPods for intended uses other than playing iTunes 2 downloads does not affect the illegality of the tie-in that created supracompetitive prices for all class 3 members. Ex. 1, Noll Depo. at 19:21-24 ("[T]he identity of a particular consumer with respect to 4 whether their objective was getting access to digital downloads on a portable digital player is not 5 what's relevant."). All that is necessary is that at the market level the demand for iPods increased 6 because of their unique ability to play digital downloads purchased from iTunes, resulting in a 7 significant increase in price.6 Ex. 1, Noll Depo. at 20:19-25, 195:9-13, 252:23-254:3; Noll Decl. at 8 28. 9 Tying law has never required that the plaintiff prove that the tied product can only be used

10 together with the tying product, despite Apple's merits contention to the contrary. See Def's Mem. 11 at 12. Indeed, many cases in which plaintiffs have successfully proven an unlawful tying 12 arrangement involve tying and tied products that are available separately and have separate uses. 13 See, e.g., U.S. v. Microsoft Corp., 253 F.3d 34, 45 (D.C. Cir. 2001) (tying claim permitted where 14 tying product, a computer operating system, was used for purposes other than internet access for 15 which the tied product, Internet Explorer, was created); Moore, 550 F.2d at 1217 (each purchaser of 16 cemetery plots was "not absolutely required" to buy a marker); In re Data Gen. Corp. Antitrust 17 Litig., 490 F.Supp. 1089, 1110-11 (N.D. Cal. 1980) (fact that computer manufacturer technically 18 offered buyers the option to purchase its computer and memory separately did not preclude liability); 19 Ways & Means, Inc. v. IVAC Corp., 506 F.Supp. 697, 701 (N.D. Cal. 1979) ("separate availability 20 will not preclude antitrust liability where a defendant has established its pricing policy in such a way 21 that the only viable economic option is to purchase the tying and tied products"). 22 Nor does Ninth Circuit tying law require that all consumers purchase both the tied product

23 and tying product.7 Again, Apple reprises an argument that has already been soundly rejected by 24 25 All references to the "Noll Decl." are to the Declaration of Roger G. Noll, dated July 15, 2008 submitted as exhibit 1 to the Declaration of Bonny E. Sweeney in Support of Plaintiffs' 26 opening brief. 27 Apple insists that individual proof is required to determine which consumers would purchase an iPod in the "but-for" world, because absent the tie, Apple could still have significant market 28
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1 this Court. Relying on the Supreme Court's Eastman Kodak case, which upheld a tying claim even 2 though customers could purchase the tying and tied products separately, the Court held: 3 4 * 5 6 7 [P]laintiff's antitrust claim is not barred simply because some customers purchase iPods and never buy music from iTMS (i.e., never seek to purchase legal digital music files for their iPods) and others buy music from iTMS and never purchase iPods (i.e., never seek to purchase a digital music player to play their files). * * Apple's argument . . . is unavailing. It disregards Plaintiff's definition of the relevant markets . . . .

8 Tucker, 493 F. Supp. 2d at 1098 (citing Eastman Kodak Co. v. Image Tech. Servs., 504 U.S. 451, 9 463, 112 S. Ct. 2072 (1992)). 10 The relevant markets are the markets for legal permanent digital audio and video downloads

11 and portable digital media players.8 Complt., ¶¶3-8, 21-24; Noll Decl. at 21-29. Within Plaintiffs' 12 proposed tied product market, the only portable digital media player capable of directly playing 13 digital downloads purchased from iTunes is an iPod. As the Supreme Court said in Northern Pacific 14 Railway Company v. United States, a tying arrangement is "an agreement by a party to sell one 15 product but only on the condition that the buyer also purchases a different (or tied) product, or at 16 least agrees that he will not purchase that product from any other supplier." N. Pac. Ry. Co. v. 17 U.S., 356 U.S. 1, 5-6, 78 S. Ct. 514 (1958). As a result of Apple's technological tie, iTunes 18 customers are precluded from purchasing, other than from Apple, portable digital media players on 19 which they can directly play back their iTunes downloads. And, because Apple's technological tie is 20 See Mem. However, case law makes clear, 21 power.issue Def's. would at 15.have marketas Professor Noll stated and as the of their market power "[t]he is not they power. The issue is not does all tie. The issue is insubstantial part power 22 derive from theEx. 1, Noll Depo.is there a not Noll Decl. at 38. of that market Parish,that is derived from the tie." at 66:1-12; See Jefferson 466 U.S. at 6 (holding that the crucial 23 volume of commerce" ininquiry for a per se violation is whether the tie foreclosed a "substantial the tied product market); Digidyne Corp. v. Data Gen. Corp., 734 F.2d 1336, 1341 (9th Cir. 1984).Proof that the technological tie has a not insubstantial effect on the tied 24 product market will require analysis of market conditions, market characteristics, product 25 performance, and costs to Apple, all of which involve proof common to all class members. Noll Decl. at 37-47. 26 All references to "Complt." are to the Consolidated Complaint for Violations of Sherman Antitrust Act, Clayton Act, Cartwright Act, California Unfair Competition Law, Consumer Legal 27 Remedies Act, and California Common Law of Monopolization, filed April 19, 2007. 28
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1 unremitting ­ only iPod owners may directly play iTunes audio and video downloads ­ coercion may 2 be proved on a class wide basis. 3 Tellingly, Apple relies almost exclusively on cases from circuits that, unlike the Ninth

4 Circuit, require proof of actual coercion. See Def's. Mem. at 13 (citing cases from the First, Second, 5 and Eleventh Circuits). As this Court has already held, the Ninth Circuit ­ unlike some other circuits 6 ­ does not require proof of actual coercion in tying cases. Rather, Plaintiffs may prove coercion at 7 the market level. Tucker, 493 F. Supp. 2d at 1096-97; cf., e.g., Freeland v. AT&T Corp., 238 F.R.D. 8 130, 154 (S.D.N.Y. 2006) (Second Circuit requires proof of "actual" coercion). 9 Nor does Apple rely on any case involving a technological tie that applies to each and every

10 product unit sold. Instead, plaintiffs in the cases cited by Apple challenged contractual ties that were 11 not uniformly imposed and enforced across the class. See Freeland, 238 F.R.D. at 155 (no provision 12 in class members' cell phone service plans requiring purchase of handset); Little Caesar Enters., Inc. 13 v. Smith, 895 F.Supp. 884, 904 (E.D. Mich. 1995) (no express contractual tie existed in franchise 14 contract); Colburn v. Roto-Rooter Corp., 78 F.R.D. 679, 681-82 (N.D. Cal. 1978) (no evidence tying 15 provision in plaintiff's contract was enforced throughout the class).9 16 In contrast to the proposed class members in Apple's cases, here it is undisputed that every

17 class member is subject to the same technological tie ­ the same technology exists in each iPod and 18 each Digital Rights Management ("DRM")-protected download purchased from iTunes. See Pltfs' 19 Mem. at 16-17. Because the technology is applicable to all product units, and thus increased the 20 price paid by each class member, no other proof of coercion is required. Moore, 550 F.2d at 1217 21 22 23 24 25 26 27 28
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See also Smith v. Denny's Rests., Inc., 62 F.R.D. 459, 461 (N.D. Cal. 1974) (franchise agreement did not expressly create tie-in policy); Chase Parkway Garage Inc. v. Subaru, Inc., 94 F.R.D. 330, 332 (D. Mass. 1982) (because no express tying provision existed, proof defendants enforced such a policy would require individual proof); Ungar v. Dunkin' Donuts, Inc., 531 F.2d 1211, 1216 (3d Cir. 1976) (no existence of express contractual tie); Daniels v. Amerco, No. 81 CIV 3801 (RLC), 1983 WL 1794, at *1 (W.D.N.Y. Mar. 10, 1983) (alleged tie based on verbal orders or "indirect strategems" not contractual provisions); Waldo v. N. Am. Van Lines, Inc., 102 F.R.D. 807, 814 (W.D. Pa. 1984) (no express contractual tie-in provision existed in franchise contract); Olmstead v. Amoco Oil Co., No. 76-247-Orl-Civ-Y, 1977 WL 1416, at *3 (M.D. Fla. June 16, 1977) (absent express tie-in in lease agreement, proof based on operation of the relevant program and pressure by defendant on class members was insufficient).

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1 (showing of onerous effect on appreciable number of buyers coupled with economic power in the 2 tying market is sufficient); Hill v. A-T-O, Inc., 535 F.2d 1349, 1355 (2d Cir. 1976) (an "unremitting 3 policy of tie-in" and sufficient market power constitutes requisite coercion); Noll Decl. at 37-39, 424 43. 5 Improperly arguing the merits further still, Apple asserts that "burning and ripping" presents

6 a viable alternative to purchasing an iPod by allowing consumers the opportunity to strip away 7 Apple's FairPlay DRM from music downloads and play them on a competing player in an 8 unprotected format.10 Def's. Mem. at 8-10. Whether "burning and ripping" is, in fact, lawful and 9 therefore even a viable alternative to playing iTunes music downloads directly on an iPod is a 10 common question that is hotly disputed and affects the whole class. See R. Anthony Reese, Law 11 Technology & the Arts Symposium: The Problems of Judging Young Technologies: A Comment on 12 Sony, Tort Doctrines, and the Puzzle of Peer-to-Peer, 55 Case W. L. Rev. 877, 892, n.52 (Summer 13 2005) ("Copyright owners have asserted that most personal copying by burning a duplicate CD or 14 ripping CD tracks to transferable and usually compressed-format files is infringing."). Even 15 assuming "burning and ripping" is lawful, Apple must still demonstrate that the costs to consumers 16 of "burning and ripping" (including purchasing a CD burner, purchasing CDs, and expending time to 17 burn and rip) are so minor as to make this process equivalent to playing iTunes music downloads 18 directly on an iPod. See, e.g., Noll Decl. at 25; Ex. 1, Noll Depo. at 21:10-17, 195:1-5, 257:1919 258:6. Regardless, this is a merits question that is irrelevant to class certification. Ways & Means, 20 Inc., 506 F.Supp. at 702-03 (deciding whether a separate product is a viable option to the tie-in is a 21 question of fact at the summary judgment stage). See Tucker, 493 F. Supp. 2d at 1098. 22 23
10 Apple disingenuously have 24 "burning and ripping" allows asays that "plaintiffs and their economist digitalnow conceded" that consumer to play iTunes downloads on a player other than the iPod which has resulted in a change of claims. Def's. Mem. at 9. Plaintiffs have never denied that 25 "burning and ripping" exists and have definitely not changed their claims; instead, Plaintiffs have

and ripping" is not nearly simple, easy 26 consistently argued that "burning be. See Complt., ¶22; Ex.the Noll Depo. atviable alternative for consumers Apple makes it out to 1, 15:12-24; 66:13-23. Notably, Apple makes no comparable argument for video downloads, because video downloads 27 cannot be burned and ripped. 28
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2.

"Package Theory" of Damages, Even if Adopted by the Ninth Circuit, Would Not Preclude Class Certification

Apple argues that Plaintiffs' proposed methodologies for proving damages are insufficient 3 because they do not include assessment of the price paid by class members for iTunes downloads. 4 Def's. Mem. at 18. According to Apple's "package" theory, if a purchaser, as a result of the 5 unlawful tie has received a price reduction on iTunes digital downloads that exceeds the amount of 6 an overcharge on the iPod, then "the purchaser has not suffered any injury." Id. 7 The Ninth Circuit has never held that offsets for reductions in price on the tying product 8 preclude class certification. In Siegel, the only Ninth Circuit case cited by Apple, plaintiff9 franchisees were required to purchase a fixed quantity of equipment and supplies exclusively from 10 franchisor Chicken Delight, as a condition for using Chicken Delight's unique registered trade-mark. 11 Siegel, 448 F.2d at 52-53. The franchisee class was certified and proceeded to trial on a tying 12 theory. After the plaintiff class prevailed at trial, the Ninth Circuit affirmed the judgment that 13 Chicken Delight's contractual requirements constituted a tying arrangement in violation of Section 1. 14 Id. at 52. The Ninth Circuit remanded the case solely on the question of the measure of damages, 15 because class members were not charged for the use of the trademark. Id. at 53. The Ninth Circuit 16 held that, absent the tie, defendant would have charged plaintiffs for the use of the trademark. 17 Therefore, class members' damages should have been offset by the amount they would have paid for 18 the trademark in a competitive market. Id. at 52-53. 19 As Siegel and subsequent Ninth Circuit cases make clear, price reductions in the tying 20 product neither relieve the defendant of liability, nor preclude certification of a class. Rather, any 21 such reductions affect only the measure of damages. See L.A. Mem'l Coliseum Comm'n v. NFL, 791 22 F.2d 1356, 1370-71 (9th Cir. 1986) (explaining that Siegel is merely a case of offsetting damages). 23 Proof of antitrust injury is not impacted by proof that Plaintiffs also received benefits from the 24 anticompetitive conduct. Id. at 1371. Individual damages issues will not defeat certification. Id.; In 25 re Live Concert Antitrust Litig., 247 F.R.D. 98, 133-35 (C.D. Cal. 2007) (individual damages issues 26 will not defeat class certification); In re Dynamic Random Access Memory (DRAM) Antitrust Litig., 27 No. M 02-1486 PJH, 2006 WL 1530166, at *10 (N.D. Cal. June 5, 2006) (same). 28
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1

Moreover, as Professor Noll explained at his deposition, this is not a case in which the

2 alleged tie would have been likely to cause a decrease in the price of the tying product, i.e., iTunes 3 downloads.11 Rather, a tie is likely to decrease the price for the tying product only under certain 4 circumstances, for example, where there is a fixed relationship between the purchase quantity of the 5 tying product and the purchase quantity of the tied product, or where the tying product is initially 6 priced at a low introductory price and then increased. Ex. 1, Noll Depo. at 141:3-145:1. As 7 Professor Noll testified, neither of those conditions is present here. Ex. 1, Noll Depo. at 142:118 145:1; see, e.g., Kypta v. McDonald's Corp., 671 F.2d 1282, 1285-86 (11th Cir. 1982) (alleged tie of 9 license to restaurant lease in fixed proportion required proof that the tie increased the prices of the 10 "entire package"). 11 Thus, Professor Noll correctly did not account for any iTunes discount in his proposed

12 damages methodologies. Perhaps that is why Apple lacks any expert economist to challenge 13 Professor Noll's methodology. In any event, even assuming any offset for a "benefit" derived from 14 Apple's anticompetitive conduct were appropriate, accounting for such offset can be performed 15 formulaically for the entire class. See Meijer v. Abbott Labs., No. C 07-5985 CW, 2008 WL 16 4065839, at *9-*10 (N.D. Cal. Aug. 27, 2008) (certifying tying claims despite defendant's argument 17 that plaintiffs' proposed damages methodology did not take into account possible discounts or 18 chargebacks received by some plaintiffs).12 19 20
11 Once again engaging in disingenuous cutting and Apple claims that Professor Noll 21 said that the tie might have reduced the price of iTunespasting, downloads. Def's. Mem. at 18. digital out Professor Noll explained that 22 Apple leftwhy the testimony in which Noll Depo. at 141:3-145:1. such a reduction was unlikely here, and it was unlikely. Ex. 1,

23 24 25 26 27 28

Apple's cases are distinguishable. In each, the defendants had presented evidence that significant portions of the class had benefited from the anticompetitive conduct. In Valley Drug Co. v. Geneva Pharms. Inc., 350 F.3d 1181 (11th Cir. 2003), the Eleventh Circuit concluded that regional wholesalers could not adequately represent national wholesalers who benefited from the supracompetitive price caused by defendants' market allocation agreement. Unlike the regional distributors, the national wholesalers, whose claims comprised the bulk of damages, priced on a costplus basis, so would have benefited from selling larger quantities of the higher-priced drug. Similarly, in Freeland, it was undisputed that defendants subsidized the purchase price of the tying product. Freeland, 238 F.R.D. at 155 n.20.

12

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3.

Apple's Proposed "Damages Methodology" is Not Supported by Expert Testimony and is Not Required by Law

Ignoring more than four decades of case law, and unburdened by any expert testimony, 3 Apple reaches back to 1964 to find a case supporting its theory of damages. Apple claims that the 4 "typical" method for determining damages is to "examine the difference between the price of the 5 competing player the consumer would have purchased and the price paid for the iPod," an inquiry 6 that supposedly creates individual issues. Def's. Mem. at 19-20. 7 Notably, Apple could find no reputable economist to support its damages theory (or even 8 criticize Plaintiffs' expert). Instead, Apple's proposed methodology for proving antitrust impact 9 10 Professor Noll, testified, Apple's theory is not a "typical" method for proving damages in a tying 11 case or any other antitrust case. Instead, experts rely on the three methodologies Professor Noll 12 described in his report for estimating a competitive benchmark price (before-and-after, yardstick and 13 mark-up). Noll Decl. at 52-29; In re Static Random Access (SRAM) Antitrust Litig., No. C 07-01819 14 CW, 2008 WL 4447592, at *6 (N.D. Cal. Sept. 29, 2008) (holding that Professor Noll's use of 15 before/after yardstick, and make-up methodologies was sufficient to prove damages on a class-wide 16 basis); DRAM, 2006 WL 1530166, at*10 (certifying class where Professor Noll presented 17 before/after and yardstick methodologies of proving damages on class-wide basis); Image Tech. 18 Servs. v. Eastman Kodak, 125 F.3d 1195, 1221-22 (9th Cir. 1997) (upholding damages for tying 19 claim based on yardstick methodology). 20 Moreover, Apple's method misstates the basic theory of Plaintiffs' claims, which Plaintiffs' 21 theory is that, as a result of thwarting competition through, inter alia, the tie, Apple was able to 22 overcharge for all of its own iPods. Complt., ¶¶22, 72. Thus, all class members ­ even those that 23 24
13 Nothing v. Co., 327 Cir. 1964), suggests that 25 the Ninth Circuitin LessigtheTidewater Oil proposedF.2d 459, 471-72 (9thor even desirable in tying viewed methodology by Apple as required It just happened that the plaintiff in that evidence that the tied product cost 26 cases.than competitive brands, and there was no case introducedrecord to the contrary. Id. Thus, the more evidence in the 27 court held that this was "`relevant data' from which the jury could have made `a just and reasonable estimate of damage.'" Id. at 472. 28

springs from its lawyer's say-so, with a single citation to an inapposite case.13 As Plaintiffs' expert,

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1 would have purchased an iPod absent the tie ­ overpaid for their purchase. See In re Visa 2 Check/MasterMoney Antitrust Litig., 280 F.3d 124, 136-37 (2d Cir. 2001) (explaining that plaintiffs' 3 theory of class-wide injury resulted from every single class member paying the overcharge and did 4 not require analysis of any of the individualized questions). Additionally, Plaintiffs are not 5 "ignoring or forfeiting claims" of certain class members. Def's. Mem. at 21. If Plaintiffs are correct 6 ­ that an appreciable number of iTunes purchasers were coerced into buying iPods when they would 7 have preferred a competing product ­ then all class members suffered injury because the tie 8 increased Apple's market power in the tied product market and enabled it to increase prices of all 9 iPods to supracompetitive levels. Plaintiffs have presented plausible methodologies of proving such 10 impact as to all class members using common proof.14 See Noll Decl. at 47-49, 52-59. 11 12 B. Plaintiffs' Monopolization Claims Go Essentially Unopposed

Apple has not presented any opposition to the certification of Plaintiffs' independent actual

13 and attempted monopolization counts. See Complt., ¶¶85-114. Unlike tying, a monopolization 14 claim does not require a showing of coercion, which is the primary focus of Apple's attack. Rather, 15 to prove a Section 2 monopolization claim, the plaintiff need prove only that the defendant willfully 16 acquired or maintained monopoly power through exclusionary conduct rather than superior skill, 17 enterprise, or acumen, and has used that unlawfully attained monopoly power to injure the plaintiff 18 in his business or property. See Live Concert, 247 F.R.D. at 122. These elements are particularly 19 well-suited for classwide adjudication because issues like market definition, market power, and 20 whether defendant's conduct was exclusionary are matters that do not vary based on the individual 21 circumstances of Plaintiffs or members of the class. Id. at 155; Visa Check/Mastermoney, 192 22 F.R.D. at 1345. 23 Here, Plaintiffs have offered plausible methods for determining the defined antitrust market

24 for portable digital media players on a class wide basis. Complt., ¶ 3; Noll Decl. at 25-29. 25 26 Additionally, the fact that Plaintiffs' class includes all iPod models does not pose individual issues (Def's. Mem. at 21) because the necessary information is maintained by Apple or by trade 27 organizations and does not depend on individual consumers. Noll Decl. at 31. 28
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1 Determination of the relevant market will involve analysis of the cross-elasticity of demand or 2 indirect evidence of product substitutes, such as product functionality, consumer and industry 3 beliefs, and price correlation, all of which uniformly apply across the class. Noll Decl. at 20, 25-27; 4 Live Concert, 247 F.R.D. at 122-24. Likewise, whether the exclusionary conduct ­ preventing 5 purchases of iTunes audio and video downloads purchasers from playing those downloads directly 6 on a competing portable digital media player ­ violates Section 2 is a common issue. Noll Decl. at 7 37-47. 8 Lastly, because direct purchaser prices for iPods are not individually negotiated, proof that

9 the direct sale price was supracompetitive would be common to the entire class. Noll Decl. at 35-47. 10 One court has explained this straightforward principle by noting that, "[i]t is undisputed that all of 11 the class representatives purchased IWMS from Southern Bell prior to the present date. Thus, all of 12 the class representatives paid monopolistic prices for IWMS at some time and therefore suffered 13 exactly the same type of injury as the absent class members." Davis v. S. Bell Tel. & Tel. Co., No. 14 89-2839-Civ-NESBITT, 1993 WL 593999, at *6 (S.D. Fla. Dec. 23, 1993) (emphasis in original). 15 That, of course, is the precise allegation made here. 16 Because all the elements of Plaintiffs' monopolization claims are subject to common proof,

17 and because Apple has not offered any substantive argument in opposition to the motion to certify 18 these freestanding counts, Plaintiffs' motion for class certification should also be granted with 19 respect to their Section 2 monopoly claims. 20 21 C. Plaintiffs' 23 (b)(2) Injunctive Relief Claim Warrants Certification

Similarly, Plaintiffs have set forth a certifiable Rule 23(b)(2) injunctive relief claim, as

22 discussed in their opening brief. Plfts' Mem. at 9-10. Plaintiffs' request for both monetary and 23 injunctive relief does not defeat certification of a Rule 23(b)(2) class, as Apple suggests. The Ninth 24 Circuit has held that "`class actions certified under Rule 23(b)(2) are not limited to actions 25 requesting only injunctive or declaratory relief, but may include cases that also seek monetary 26 damages.'" Linney v. Cellular Alaska P'ship., 151 F.3d 1234, 1241 (9th Cir. 1998) (quoting Probe 27 v. State Teachers' Ret. Sys., 780 F.2d 776, 780 (9th Cir. 1986). 28
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1 III. 2 3

THE CLASS IS PROPERLY DEFINED TO INCLUDE ALL DIRECT PURCHASERS, WHO ARE ADEQUATELY REPRESENTED BY THE PROPOSED CLASS REPRESENTATIVES Plaintiffs' proposed class quite appropriately includes all those who purchased iPods directly

4 from Apple during the proposed class period,15 whether or not they intended to resell the iPods. See, 5 e.g., DRAM, 2006 WL 1530166; In re Bulk [Extruded] Graphite Prods. Litig., No. 02-6030 (WHW), 6 2006 WL 891362 (D.N.J. Apr. 4, 2006). The elements of the resellers' Section 1 and Section 2 7 claims are no different than the claims of all other class members. Id., 2006 WL 891362, at *86. 8 Apple nevertheless argues ­ without any specific case support ­ that class certification must

9 be denied because the proposed class includes major retailers who, because of their sales volume, 10 "do[] not need to rely on anyone else to pursue [their claims]." Def's. Mem. at 3. "Need" is not, of 11 course, the relevant test for inclusion within a plaintiff antitrust class; like any other member of a 12 Rule 23(b)(3) class, resellers can, regardless of size, make their own decision whether to join in the 13 class proceeding. Distributors/wholesalers have happily participated in settlement classes with end14 user direct purchasers. See, e.g., In re Relafen Antitrust Litig., 360 F. Supp. 2d 166 (D. Mass. 2005). 15 Nor is variation in quantity purchased or the price paid to Apple a reason to exclude resellers

16 from the proposed class. Def's. Mem. at 22; but see DRAM, 2006 WL 1530166, at *4 (typicality 17 met even where plaintiffs purchased in different quantities or at different prices); Graphite, 2006 WL 18 891362, at *15; Meijer, Inc. v. Warner Chilcott Holdings Co. III, Ltd., 246 F.R.D. 293, 301 (D.D.C. 19 2007). 20 Likewise irrelevant are differences in costs and profit margins among resellers, especially

21 given Apple's lack of any "pass-on" or "otherwise benefitted" defense against iPod purchasers who 22 happen to be resellers. See Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481, 489, 88 23 S. Ct. 2224 (1968) (disallowing "pass on" defense; "[a]s long as the seller continues to charge the 24 25 Contrary to Apple's contention (Def's. Mem. at 11) ("[t]he class is so broad that it includes customers who bought iPods in the first months after the iTunes store was launched, when Apple 26 clearly had no market power under any conceivable theory"), the class period proposed by Plaintiffs fact co-extensive 27 is inEx. 1, Noll Depo. with Professor Noll's determination of Apple's acquisition of market power. See at 152:13-24. 28
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1 illegal price, he takes from the buyer more than the law allows."); see, e.g., Teva Pharms. USA, Inc. 2 v. Abbott Labs., 252 F.R.D. 213, 226-27 (D. Del. 2008) (rejecting as "irrelevant" adequacy challenge 3 premised on variation in resellers' size and pricing strategies; "[D]irect purchasers may recover the 4 amount of their overcharges irrespective of what happens after the overcharge is paid.") (citing 5 Hanover Shoe); In re Relafen, 360 F. Supp. 2d at 187-89 (Hanover Shoe precludes contention that 6 class certification should be denied because allegedly overcharged direct purchasers "otherwise 7 benefitted" from the challenged misconduct). 8 Here, Professor Noll's analysis, based upon the exemplar data supplied by Apple, amply

9 satisfies the need to demonstrate plausible economic methodologies with which to calculate antitrust 10 impact and damages on a common basis. Cf. DRAM, 2006 WL 1530166, at *8-*9 (accepting 11 Professor Noll's analysis sufficient for class certification purposes, despite controverting expert 12 testimony). Apple's emphasis on differences in calculating the amount of damages essentially 13 amounts to nothing more than its counsel's demand for refinements to Professor Noll's expert 14 damages analysis. Ex. 1, Noll Depo. at 239:15-241:17; but see Def's. Mem. at 23 (suggesting that 15 Noll "had not looked into" resellers situation). Indeed, Apple has not even mounted a "battle of the 16 experts" over Professor Noll's ability to conduct a comprehensive damages determination that would 17 account for any material differences between those class members who bought the iPod for resale 18 and those who did not. Cf. Graphite, 2006 WL 891362, at *10-*14 (unrebutted expert report 19 sufficient demonstration of common methodology at class certification stage). 20 Apple's contention that end-user class representatives are therefore somehow atypical and

21 cannot adequately represent resellers in a federal antitrust case is thus baseless. Def's. Mem. at 2322 24 (citing only Wofford v. Safeway Stores, Inc., 78 F.R.D. 460, 475 (N.D. Cal. 1978) (certifying 23 employment discrimination claims under Rule 23(b)(2))); but see DRAM, 2006 WL 1530166, at *524 *6 (rejecting similar attacks on typicality and adequacy); Graphite, 2006 WL 891362, at *6-*8 25 (same). As to typicality, Apple has identified no unique defense suggesting that the interests of the 26 proposed class representatives are not "reasonably co-extensive" with those of other direct 27 purchasers, whether they be end-users or not. Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (9th 28 Cir. 1998) ("Under the rule's permissive standards, representative claims are `typical' if they are
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1 reasonably co-extensive with those of absent class members; they need not be substantially 2 identical."). Nor has Apple identified any conflict between resellers and end-users, let alone one that 3 goes to the "very heart" of the common representation so as to undermine adequacy. Blackie v. 4 Barrack, 524 F.2d 891, 909 (9th Cir. 1975) ("courts have generally declined to consider conflicts, 5 particularly as they regard damages, sufficient to defeat class action status at the outset unless the 6 conflict is apparent, imminent, and on an issue at the very heart of the suit"); see, e.g., Graphite, 7 2006 WL 891362, at *6-*8 (rejecting similar attack on adequacy). 8 In any event, even if Apple's misguided suggestion that resellers are "not in the same

9 position as individual end-user purchasers" were valid (Def's. Mem. at 22), the remedy would be to 10 narrow the direct purchaser class by excluding, allowing opt-out by, or establishing a subclass for the 11 relatively few resellers, not to deny the class relief to the millions of individual end-users who 12 purchased their iPods directly from Apple. 13 IV. 14 CONCLUSION For the reasons stated above and in Plaintiffs' opening brief, the requested class should be

15 certified pursuant to Fed. R. Civ. P. 23(b)(2) and (3). 16 DATED: November 17, 2008 17 18 19 20 21 22 23 24 25 26 Co-Lead Counsel for Plaintiffs 27 28 BONNETT, FAIRBOURN, FRIEDMAN & BALINT, P.C.
REPLY MEMORANDUM IN SUPPORT OF PLAINTIFFS' MOTION FOR CLASS CERTIFICATION AND APPOINTMENT OF CLASS COUNSEL - C-05-00037-JW(RS)

COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP BONNY E. SWEENEY

s/ BONNY E. SWEENEY BONNY E. SWEENEY 655 West Broadway, Suite 1900 San Diego, CA 92101 Telephone: [phone] (fax) THE KATRIEL LAW FIRM ROY A. KATRIEL 1101 30th Street, N.W., Suite 500 Washington, DC 20007 Telephone: [phone] (fax)

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

ANDREW S. FRIEDMAN FRANCIS J. BALINT, JR. ELAINE A. RYAN TODD D. CARPENTER 2901 N. Central Avenue, Suite 1000 Phoenix, AZ 85012 Telephone: [phone] (fax) BRAUN LAW GROUP, P.C. MICHAEL D. BRAUN 12304 Santa Monica Blvd., Suite 109 Los Angeles, CA 90025 Telephone: [phone] (fax) MURRAY, FRANK & SAILER LLP BRIAN P. MURRAY JACQUELINE SAILER 275 Madison Avenue, Suite 801 New York, NY 10016 Telephone: [phone] (fax) GLANCY BINKOW & GOLDBERG LLP MICHAEL GOLDBERG 1801 Avenue of the Stars, Suite 311 Los Angeles, CA 90067 Telephone: [phone] (fax) Additional Counsel for Plaintiffs

17 18 19 20 21 22 23 24 25 26 27 28

S:\CasesSD\Apple Tying\BRF00055667_Class Cert.doc

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CERTIFICATE OF SERVICE I hereby certify that on November 17, 2008, I electronically filed the foregoing with the

3 Clerk of the Court using the CM/ECF system which will send notification of such filing to the e-mail 4 addresses denoted on the attached Electronic Mail Notice List, and I hereby certify that I have 5 mailed the foregoing document or paper via the United States Postal Service to the non-CM/ECF 6 participants indicated on the attached Manual Notice List. 7 I certify under penalty of perjury under the laws of the United States of America that the

8 foregoing is true and correct. Executed on November 17, 2008. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 s/ BONNY E. SWEENEY BONNY E. SWEENEY COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP 655 West Broadway, Suite 1900 San Diego, CA 92101-3301 Telephone: [phone] (fax) E-mail:[e-mail]

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