"The Apple iPod iTunes Anti-Trust Litigation"

Filing 332

Memorandum in Opposition re 306 REDACTION to MOTION to Compel filed byApple Inc.. (Kiernan, David) (Filed on 3/2/2010)

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"The Apple iPod iTunes Anti-Trust Litigation" Doc. 332 Case5:05-cv-00037-JW Document332 Filed03/02/10 Page1 of 8 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 Robert A. Mittelstaedt (State Bar No. 60359) ramittelstaedt@jonesday.com Craig E. Stewart (State Bar No. 129530) cestewart@jonesday.com David C. Kiernan (State Bar No. 215335) dkiernan@jonesday.com Michael Scott (State Bar No. 255282) michaelscott@jonesday.com JONES DAY 555 California Street, 26th Floor San Francisco, CA 94104 Telephone: (415) 626-3939 Facsimile: (415) 875-5700 Attorneys for Defendant APPLE INC. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION THE APPLE iPOD iTUNES ANTI-TRUST LITIGATION Case No. C-05-00037-JW (HRL) C-06-04457 JW (HRL) APPLE'S OPPOSITION TO MOTION TO COMPEL Magistrate Judge Howard R. Lloyd Date: March 23, 2010 Time: 9:00 a.m. Courtroom 2, 5th Floor The parties have resolved the disputes that are the subject of plaintiffs' motion with the exception of one remaining dispute: plaintiffs' request that Apple search all customer inquiries from June 1, 2007 through March 31, 2009, and produce any inquiries that relate to the alleged lack of interoperability between Apple's digital music offered on the iTunes Music Store (now called the iTunes Store ("iTS")) and devices that play digital music and between the iPod and non-iTS digital music. Apple has already produced customer inquiries from 2003 to June 2007. Plaintiffs now argue that they need these types of documents for the following two years to establish that Apple's updates to its anti-piracy software to stop illegal hacks had the effect of Opposition to Motion To Compel C-05-0037-JW (HRL); C-06-04457 JW (HRL) Dockets.Justia.com Case5:05-cv-00037-JW Document332 Filed03/02/10 Page2 of 8 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 preventing complete interoperability between Apple's music and iPods and competitors' music and players. But the 2003 to 2007 documents already produced cover the entire period when the software updates identified in the amended complaint were issued. Moreover, the lack of complete interoperability is not in dispute in this case. As Judge Ware ruled: "[t]he increased convenience of using the two products together due to technological compatibility does not constitute anticompetitive conduct under either per se or rule of reason analysis." Dkt. 274, pp. 9-10. Plaintiffs simply do not need more documents on this issue, and there is no basis for imposing on Apple the additional costs of reviewing each inquiry to determine whether it is responsive to plaintiffs' request and subsequently producing responsive documents to the extent such documents exist. Accordingly, plaintiffs' motion should be denied. BACKGROUND A. The Limited Scope Of This Case. For the first four years of this case, plaintiffs' central claim was that it was an antitrust violation for Apple to develop and use its own FairPlay anti-piracy software (digital rights management or DRM) rather than use Microsoft's software and products. Dkt. 107 39-50.1 Plaintiffs' theory was that, to promote complete interoperability among portable music players and online music stores, Apple should have licensed Microsoft's DRM and designed Apple's products around Microsoft's software. Based on that theory, plaintiffs alleged tying and monopolization under the Sherman Act, and related state law claims. Last year, Judge Ware rejected that argument. Dkt. 213; Dkt. 274. In dismissing plaintiffs' tying claims, Judge Ware held that "[t]he increased convenience of using the two products together due to technological compatibility does not constitute anticompetitive conduct under either per se or rule of reason analysis." Dkt. 274, pp. 9-10. The Court's December 21st Order made plain that this ruling also applies to plaintiffs' monopolization claims, reasoning that the alleged technological tie between Apple products was, "without more, . . . not anticompetitive" and thus does not constitute exclusionary conduct for a monopoly claim. Dkt. The record labels required Apple and other online stores to use anti-piracy software to enforce certain content usage rules as a condition of making music available to consumers. Dkt. 322, 42; Dkt. 325, p. 3. -2Opposition to Motion To Compel C-05-0037-JW (HRL); C-06-04457 JW (HRL) 1 Case5:05-cv-00037-JW Document332 Filed03/02/10 Page3 of 8 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 28 303, p. 2. Accordingly, plaintiffs were directed to file an amended complaint to clarify "what actions they allege Apple took to maintain monopoly power beyond initial technological relationships between its products." Id. Plaintiffs filed their amended complaint on January 26. In their amended complaint, plaintiffs no longer claim that Apple's decisions to use FairPlay and not license Microsoft's DRM were unlawful. They also dropped other claims, including claims that Apple disabled the iPod's processor chips so that it could not play certain digital music file formats. Plaintiffs' sole remaining claim is that Apple's updates to FairPlay to maintain and improve its security were purportedly anticompetitive. Dkt. 322, 5 ("Apple's use of software updates . . . constitutes a violation of United States and California antitrust law."); id. 52-67 ("Apple's Anticompetitive Use Of Software Updates"); id. 91, 97 ("[t]hrough the anticompetitive use of software updates described herein"); see also id. 101, 108 (same conduct is basis of their claim of attempted monopolization). On February 22, 2010, Apple moved to dismiss or for summary judgment. Dkt. 325, p. 3. As that motion demonstrates, the amended complaint fails as a matter of law for the same reason the initial complaint failed. Just as it was lawful for Apple to use its own DRM to comply with the labels' demand for anti-piracy software, it was also lawful for Apple to update and improve that software. Id. at 6-10, 19-23. Alternatively, under Rule 56, the undisputed facts show that the challenged software updates are lawful, because they were issued to stop illegal hacks that violated the Digital Millennium Copyright Act (DMCA) and because Apple was obligated to stop such hacks and maintain the security of FairPlay pursuant to its contracts with the labels. Id. at 10-23. The hearing on Apple's motion is set for April 26, 2010. B. Apple's Review And Production Of Documents. Merits discovery did not open until June 2009. Dkt. 225. From the outset, Apple has attempted to engage in a cooperative process with plaintiffs. It has met and conferred numerous times over the scope of plaintiffs' discovery, Apple's responses, and the status of production, and believed that it had resolved all discovery disputes aside from plaintiffs' request for additional customer inquiries. Declaration of David C. Kiernan (Kiernan Decl., 2.). Plaintiffs' assertion -3Opposition to Motion To Compel C-05-0037-JW (HRL); C-06-04457 JW (HRL) Case5:05-cv-00037-JW Document332 Filed03/02/10 Page4 of 8 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 that Apple has deliberately delayed producing documents is untrue. Kiernan Decl., 3. The timing of production has been a result of the broad scope of the requests, which seek highly confidential information; the ongoing meet and confer process to limit that scope; and the necessary time to obtain information and review it for responsiveness, confidentiality, and privilege. Id. Plaintiffs' sweeping discovery requests were not tailored to the claims in the original complaint, much less the significantly narrowed amended complaint. Id. 4. For example, plaintiffs served several document requests attached to a 30(b)(6) deposition notice that asked for all documents and communications related to every single software update to iPod or iTunes regardless whether those updates had any bearing on plaintiffs' claims or Apple's defenses. Id. 5; Roach Decl., Ex. 7. The parties met and conferred several times to narrow the scope of plaintiffs' discovery. Kiernan Decl., 4-6; Roach Decl., Exs. 10-20; 24-31, 35.2 To minimize the burden of production and to get plaintiffs what they wanted as quickly as possible, Apple proposed running keywords against documents identified by certain agreed-upon custodians to identify potentially relevant material. Kiernan Decl., 6. Any documents that contained a keyword would then be reviewed for responsiveness, confidentiality, and privilege, and nonprivileged, responsive documents would be produced. Id. Plaintiffs agreed to this proposal. Id. The negotiation over the custodians and keywords has been an ongoing process. Id.; see, e.g., Roach Decl., Exs. 30-31. Ultimately, the parties agreed that, for the 30(b)(6) document requests, certain keywords ("30(b)(6) keywords") would be run against data collected from 17 custodians. Kiernan Decl., 6. For the Rule 34 document requests, a different set of keywords ("Rule 34 keywords") tailored to those requests would be run against the seventeen 30(b)(6) custodians plus ten additional custodians. Id.; see also Roach Decl., Ex. 25. For example, Apple agreed to produce (i) documents that relate to updates to FairPlay, if any, that addressed conduct by competitors or hackers that permitted direct playback of protected iTS files on a non-iPod or permitted direct playback of non-iTS files on an iPod; (ii) documents, to the extent they exist, sufficient to identify such software updates; (iii) documents that relate to Apple's response, if any, to RealNetworks' introduction and release of Harmony in 2004; and (iv) communications with the record labels regarding the foregoing updates and Apple's response to RealNetworks' Harmony. Kiernan Decl., 5; Roach Decl., Ex. 14. -4Opposition to Motion To Compel C-05-0037-JW (HRL); C-06-04457 JW (HRL) 2 Case5:05-cv-00037-JW Document332 Filed03/02/10 Page5 of 8 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 Since September 2009, Apple has focused on producing documents requested in connection with the 30(b)(6) deposition notice so that the parties can schedule that deposition. Plaintiffs do not want to schedule the deposition until they receive all documents relating to the 30(b)(6) notice. To date, Apple has reviewed over one million pages of documents that were identified by the 30(b)(6) search terms and produced the majority of the responsive documents. The remaining responsive, non-privileged documents are in the final stages of review before production. Apple anticipates producing these documents on or before March 15th. Kiernan Decl., 7. Plaintiffs try to make much of the fact that Apple collected some documents in 2007, claiming that Apple should have been able to immediately produce those documents. However, plaintiffs did not serve the 30(b)(6) requests or amended requests for production until April and May 2009, respectively, and merits discovery did not open until June 2009. The parties did not reach agreement on search terms and custodians until the fall of 2009. Although Apple collected potentially relevant documents in 2007, it still had to run the 30(b)(6) and Rule 34 keywords against those documents and review them for responsiveness, confidentiality, and privilege. Moreover, at the insistence of plaintiffs, Apple also had to collect documents that were generated after the 2007 initial collection, which added significant time to the process. Id. 8. C. Plaintiffs' Motion To Compel. In light of the December 21st Order, which directed plaintiffs to file a narrowed amended complaint and anticipated a dispositive motion addressed to any remaining claims (Dkt. 303), plaintiffs should have refined their discovery requests and begun a dialogue with Apple over the scope of discovery. Instead, on December 29th, plaintiffs served additional, exceedingly broad document requests and interrogatories. Id. 15, Exs. 1-2.3 A week later, despite Apple's For example, plaintiffs seek, among other things, documents relating to definitions of relevant product and geographic markets for iPods and iTS files; licensing DRM technology; costs to develop and maintain FairPlay; transactional data for iPod sales to wholesalers and resellers, including quantity sold, date of sale, iPod model number, and price from October 2001 to present; features or functionality of an iPod, including comparisons to competing music players; iPod pricing strategy; quarterly costs to develop, maintain and advertise iTS; quarterly revenue, costs, and component costs for each iPod model; quarterly number of songs available on iTS; prices of iPods to direct purchaser end users; negotiations or communications regarding any contracts with Hewlett-Packard for the sale of iPods and the use of iTunes on Hewlett-Packard computers; the transfer of digital audio files directly from iTunes to Motorola phones, including -5Opposition to Motion To Compel C-05-0037-JW (HRL); C-06-04457 JW (HRL) 3 Case5:05-cv-00037-JW Document332 Filed03/02/10 Page6 of 8 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 ongoing cooperation and good faith efforts to search for and produce documents, plaintiffs filed their motion to compel without meeting and conferring with Apple. Id. 9. It was not until February 19th, that plaintiffs finally attempted to contact Apple to discuss their motion. Ultimately, the parties were able to reach agreement on all of the items that are the subject of plaintiffs' motion except for production of additional customer inquiries. Id. 10. ARGUMENT Courts may deny a motion to compel where "the burden or expense of the proposed discovery outweighs its likely benefit." Fed. R. Civ. P. 26(b)(2)(C)(iii); Hall v. Keller, 256 Fed. Appx. 960, 960-61 (9th Cir. 2007) (holding that district court had not abused its discretion by denying plaintiff's motion to compel due to undue burden on defendant). Courts may also limit or deny discovery that "is unreasonably cumulative or duplicative, [and] can be obtained from some other source that is more convenient, less burdensome, [and] less expensive." Fed. R. Civ. Proc. 26(b)(2)(C)(i). As detailed in the accompanying declarations, there are approximately 220,000 customer inquiries (approximately 800,000 pages) that would need to be reviewed to determine if they relate to plaintiffs' request. Kellermann Decl., 3-4; Kiernan Decl., 12-13. That review would require an estimated 6,000 hours of review time at a cost exceeding $350,000. Kiernan Decl., 13. Apple tried to reach a compromise by offering to review a sample of the 220,000 inquiries. Plaintiffs rejected that offer. Id. 14. The cost to review the inquiries is not justified given plaintiffs' purported need. Plaintiffs argue that they need customer inquiries from June 1, 2007 through March 31, 2009 in addition to the previously produced inquires from April 2003 through June 2007 to show (continued...) documents reflecting negotiations or communications regarding same; surveys, reports, or other marketing analyses that concern iPods or iTS; surveys, reports or other marketing analyses that concern iPod owners and their use of iTS, other music stores or players other than iPod; marketing studies of iPod or iTS competitors; and testimony by Apple before the Copyright Royalty Board on music royalties. Kiernan Decl., Ex. 1. Plaintiffs also served interrogatories that seek, among other things, information relating to the geographic markets for iPods and factors used to define and segregate them; each product considered to compete with iPod or iTS; quarterly market share for iPods and online music; and the identity of all facts, documents and people with knowledge that support Apple's denials of certain allegations in the consolidated complaint and affirmative defenses. Id., Ex. 2. -6Opposition to Motion To Compel C-05-0037-JW (HRL); C-06-04457 JW (HRL) Case5:05-cv-00037-JW Document332 Filed03/02/10 Page7 of 8 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 that updates to FairPlay had the effect of preventing complete interoperability--i.e., preventing music from iTS from playing directly on non-iPods and preventing non-iTS music from playing directly on iPods. Kiernan Decl., 11. Plaintiffs are referring to updates to FairPlay designed to restore its integrity after hackers breached it. Dkt. 325, pp. 3-5, 10-12. However, the lack of complete interoperability, both before the hacks and after the updates, is not in dispute. Id. at 810. It was the function of different online digital music stores using different DRMs. Moreover, as noted, the previously produced customer inquiries from April 1, 2003 through June 1, 2007 cover the entire period when the specific updates referred to in plaintiffs' amended complaint were issued. Dkt. 322, 52-67 (identifying updates issued between 2004 and September 2006). Apple is also in the process of producing documents that relate to updates to FairPlay, if any, that addressed conduct by competitors or hackers that permitted direct playback of protected iTS files on a non-iPod or that permitted the iPod to play music protected by another entity's DRM. Kiernan Decl., 4. And the parties are scheduling a 30(b)(6) deposition regarding these very issues. Id. Anything more is unreasonably cumulative and duplicative, and thus any conceivable benefit of production does not justify imposing additional expense on Apple. Plaintiffs' brief makes two other arguments regarding why they purportedly need the customer inquiries. During the meet and confer process, however, plaintiffs dropped these arguments in light of their amended complaint, and for good reason. Kiernan Decl., 11, n.2. Beyond the generalized, unsubstantiated argument that they "go to the heart of" their case, plaintiffs' brief claims (pp. 15-16) that the additional customer inquiries are needed to show that iTS customers are unhappy with their previously-purchased iTS files protected by FairPlay. Since writing their brief, however, plaintiffs dropped their claims for a class of iTS customers seeking an injunction requiring Apple to give DRM-free upgrades for all iTS music previously sold with FairPlay. Dkt. 238.4 Accordingly, plaintiffs no longer pursue this purported justification for their discovery request. Plaintiffs' brief also argues that they need the inquiries to rebut Apple's contention that iTS purchasers were happy with their purchases. The hearing transcript makes plain that Apple was addressing plaintiffs' request to represent iTunes purchasers, seeking an injunction to compel Apple to provide DRM-free music. As discussed above, plaintiffs no longer seek that relief. -7Opposition to Motion To Compel C-05-0037-JW (HRL); C-06-04457 JW (HRL) 4 Case5:05-cv-00037-JW Document332 Filed03/02/10 Page8 of 8 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 fallback argument is equally unavailing. Plaintiffs' brief argues (p. 16) that the inquiries are needed to show that Apple "was aware throughout the class period that purchasers of iPods wanted to play non-iTS files and purchasers of iTS files wanted to play them directly on non-iPods." But they fail to explain why Apple's knowledge is relevant to their monopolization claim. The only case they cite, Sanbrook v. Office Depot, did not involve antitrust claims, much less monopolization claims. The Sanbrook court permitted discovery of customer inquiries because proof of defendant's knowledge was an element of plaintiffs' fraud and negligent misrepresentation claims. See Named Plaintiff's Motion to Compel, Sanbrook v. Office Depot, No. C-07-5938 RMW (PH), 2009 WL 1948959 (N.D. Cal. February 5, 2009). And the court's holding was "limited to the facts and the particular circumstances" of the motion before it. Sanbrook v. Office Depot, No. C-07-5938 RMW (PH), 2009 WL 840019 at *1, n. 1 (N.D. Cal. March 30, 2009). Here, even if Apple's knowledge were relevant, plaintiffs already have inquiries that Apple previously produced on which they can rely. In short, plaintiffs have not shown that any benefit of production justifies imposing significant additional costs on Apple, particularly given that the previously produced customer inquiries from April 1, 2003 through June 1, 2007 cover the entire period when the specific updates referred to in plaintiffs' amended complaint were issued. Dkt. 322, 52-67 (identifying updates issued between 2004 and September 2006). CONCLUSION For the foregoing reasons, plaintiffs' motion to compel should be denied. Dated: March 2, 2010 Jones Day By: /s/ Robert A. Mittelstaedt Counsel for Defendant APPLE INC. SFI-630645v10 -8- Opposition to Motion To Compel C-05-0037-JW (HRL); C-06-04457 JW (HRL)

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