"The Apple iPod iTunes Anti-Trust Litigation"

Filing 646

RESPONSE (re 486 REDACTION to RENEWED MOTION to Certify Class ) in Response to the Court's June 22, 2011 Order Requiring Further Supplemental Briefing filed byApple Inc.. (Kiernan, David) (Filed on 6/23/2011)

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Robert A. Mittelstaedt #60359
[e-mail]
Craig E. Stewart #129530
[e-mail]
David C. Kiernan #215335
[e-mail]
555 California Street, 26th Floor
San Francisco, CA 94104
Telephone:
[phone]
Facsimile:
[phone]
Attorneys for Defendant
APPLE INC.

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN FRANCISCO DIVISION

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THE APPLE iPOD iTUNES ANTITRUST LITIGATION

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__________________________________

Lead Case No. C 05-00037 JW (HRL)
[CLASS ACTION]

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This Document Relates To:

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ALL ACTIONS

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APPLE’S FURTHER SUPPLEMENTAL
BRIEF RE CLASS CERTIFICATION
Date:
Time:
Place:

June 27, 2011
9:00 a.m.
Courtroom 5, 17th Floor

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Apple submits this brief in response to the Court’s June 22, 2011 order requesting
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supplemental briefs on three issues related to the pending motion for class certification.
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1.

Products Included in Class.

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As summarized in the section on the Dukes case, infra at 3-7, the requirements of Rule 23
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have not and cannot be met in this case. But if any class were to be certified, it should be
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limited—under Plaintiffs’ theory of the case—to iPod models that Plaintiffs prove were sold at
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elevated prices due to iTunes 7.0. The operative complaint contains no specific allegation that
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Apple’s Further Supp. Br. Class Cert.
C 05-00037-JW (HRL)

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iTunes 7.0, which was issued in September 2006, resulted in any price increase for any iPod

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model. Nor have Plaintiffs offered any evidence, lay or expert, to establish that iTunes 7.0 caused

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the price of any iPod model to increase. See Doc. 633, pp. 1-6; Doc. 638, pp. 2-3. Indeed, as

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previously noted, Plaintiffs’ economic expert has not examined whether iTunes 7.0 had any

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impact on prices of any iPod model and admitted that he suspected that Plaintiffs’ theory of a

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price increase would not work for iTunes 7.0. See Doc. 633, pp. 4-5. Making any overcharge

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theory even more untenable is the fact that, with or without the update, every iPod model could

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play DRM-free music regardless of source. By the fall of 2007, even RealNetworks was selling

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DRM-free music which could play on any iPod model. So were competitors like Wal-Mart and

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Amazon.com. These facts make it even more impossible for Plaintiffs to prove that the price of

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any iPod model was elevated by an inability to directly play music from one of many sources of

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music. Thus, there is no basis to include any iPod model in the class, much less all iPods sold in

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or after September 2006 as Plaintiffs propose.

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As a factual matter, no iPod model introduced before September 2006 included the update

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challenged by Plaintiffs even if the model was sold after September 2006. See Doc. 473, p. 10

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(Apple’s Renewed Motion For Summary Judgment); Doc. 472, ¶¶ 31-32 (Farrugia Decl. Filed

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Under Seal) and Doc. 506, ¶ 2 (Errata to Farrugia Decl.). So even under Plaintiffs’ theory, any

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class must be limited to iPod models with the challenged updates. The first model with that

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update was the second generation iPod nano, which first shipped in September 2006. Doc. 472, ¶

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31 and Doc. 506 ,¶ 2 (Errata to Farrugia Decl.).

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2.

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Geographic Scope of Class.
The operative complaint seeks a class of “[a]ll persons or entities in the United States

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(excluding federal, state and local governmental entities, Apple, its directors, officers and

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members of their families) who purchased an iPod directly from Apple” during the class period.

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Doc. 321, ¶ 31. Apple understands this definition as limiting the requested class to persons who

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now reside in the United States and who purchased their iPod in this country. As the Court stated

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in its December 22, 2008 certification order, the claims are based on “domestic iPod purchases.”

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Doc. 196, p. 8.
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Apple’s Further Supp. Br. Class Cert.
C 05-00037-JW (HRL)

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Any attempt to seek a broader class would be untimely and improper for numerous other

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reasons including the inapplicability of the Sherman Act and the difficulty of accomplishing

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notice and ensuring the binding effect of any judgment adverse to Plaintiffs. If Plaintiffs request

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a broader class for their Sherman Act claim, Apple would request an opportunity to respond to

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Plaintiffs’ arguments. As is, Apple assumes that Plaintiffs’ request for a class under the Sherman

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Act is for domestic U.S. direct purchases by persons or entities residing now and at the time of

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purchase in the U.S.

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Plaintiffs’ class certification motion did not present any argument that the California
Unfair Competition Law should apply to purchases outside the State of California. Any belated

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argument would be untimely and improper on other grounds including inter alia that, under a

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choice of law analysis, purchases in other states should be governed by the laws of those states.

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See In re Graphics Processing Units Antitrust Litig., 527 F. Supp. 2d 1011, 1028 (N.D. Cal.

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2007) (declining to certify a nationwide class for a claim under the California UCL and antitrust

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statute). If Plaintiffs present argument on this topic, Apple requests an opportunity to respond to

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it.

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3.

Wal-Mart Stores Inc. v. Dukes

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The claim on which Plaintiffs now seek certification is considerably different from the

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claims before the Court at the time of its 2008 certification decision (and even when this issue

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was briefed a few months ago before this Court’s summary judgment decision). That fact taken

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together with the Dukes decision requires a fresh—and rigorous—review of whether Plaintiffs

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have “affirmatively demonstrate[d] [their] compliance with the Rule.” Slip Opinion, p. 10. That

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demonstration must be tied to their current claim, not the claims that have been dismissed.

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The premise of Plaintiffs’ current claim is that iTunes 7.0 disadvantaged consumers who

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wanted to play DRM-protected music from RealNetworks’ online digital music store directly on

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new iPod models equipped with that update. Consumers could still play RealNetworks’ music

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directly on every iPod purchased before the date of iTunes 7.0 and on the iPod models launched

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before that date even if purchased later. Consumers could also play RealNetworks’ music on new

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Apple’s Further Supp. Br. Class Cert.
C 05-00037-JW (HRL)

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iPod models by simply “burning” the music to a CD and “ripping” it to the iTunes jukebox

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application on their computer.

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Most fundamentally, none of the three Plaintiffs alleges or testified that he or she ever had

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any interest in obtaining music from RealNetworks, much less that they actually did so or that it

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impacted their decision on whether to buy an iPod.

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Thus, Plaintiffs have not established commonality, typicality or that common issues
predominate.

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Dukes reiterated that the commonality and typicality requirements of Rule 23(a) “serve as
guideposts for determining . . . whether the named plaintiffs’ claim and the class claims are so

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interrelated that the interests of the class members will be fairly and adequately protected in their

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absence.” Id. at 8, n. 5, quoting General Telephone Co. of Southwest v. Falcon, 457 U.S. 147,

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157-158, n. 13 (1982). In 2008, when Plaintiffs were making the broad claim that use of DRM in

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Apple’s online music store was unlawful, this Court found that the commonality and typicality

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requirements were met. That finding, however, should be revisited now that, in substance,

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Plaintiffs are alleging only that some hypothetical individuals who wanted to play RealNetworks’

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music on certain iPods after September 2006 would need to undertake the extra step of burning

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and ripping—with no claim that any Plaintiff ever obtained RealNetworks’ music, that any of

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them ever wanted to play that music, directly or indirectly, on an iPod, or that their iPod

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purchasing decision had anything to do with whether they could directly play RealNetworks’

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music.

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Given the change in Plaintiffs’ claim, it would be appropriate to revisit the

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commonality/typicality finding even if Dukes had not imposed a heightened standard. But

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revisiting that issue is particularly appropriate now because, as the Dukes’ dissent put it, the

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commonality requirement “is no longer ‘easily satisfied” and the criteria of Rule 23(b)(3) for

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certifying a damages class, including that common issues “predominate” over individual issues, is

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even “more demanding.” Dissent Slip Op. at 8.

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Plaintiffs do not satisfy their burden simply by saying that the impact of iTunes 7.0 on

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other consumers (i.e., those who wanted to buy music from RealNetworks for direct use on an
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Apple’s Further Supp. Br. Class Cert.
C 05-00037-JW (HRL)

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iPod) might have caused iPod prices to increase. As Dukes made clear, “Rule 23 does not set

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forth a mere pleading standard. A party seeking class certification must affirmatively

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demonstrate his compliance with the Rule.” Slip Op. at 10. He must do so even if it is an issue

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that he “will surely have to prove again at trial . . .” Id. at 11, n. 6 (the Court’s emphasis).

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Dukes required Title VII plaintiffs to present “convincing proof of a companywide

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discriminatory pay and promotion policy” in part because without such proof the trial would

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devolve into individual issues. Id. at 19. Likewise, Dukes approved of the requirement in

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securities fraud cases that “plaintiffs seeking 23(b)(3) certification must prove that their shares

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were traded on an efficient market.” Id. at 11, n. 6. Without that proof, the case would devolve

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into individualized proof of reliance by individual investors. Id. By the same reasoning,

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Plaintiffs here should be required to prove their theory that iTunes 7.0 elevated iPod prices.

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Without that proof, this case would devolve into individualized proof of the other types of alleged

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harm that Plaintiffs’ expert posits but does not claim can be determined on a class-wide basis. 1

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To explain, in addition to their overcharge claim, Plaintiffs say the supposed harm also

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included higher prices for competing digital players, switching costs, and reduced innovation.

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Doc. 479, pp. 64-65. None of these theories of harm is susceptible to proof on a class-wide basis

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(assuming arguendo that any could support a Section 2 claim at all). See Doc. 511, ¶ 44 (Burtis

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Decl). For example, the alleged harm of buying a competing player at a higher price would

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require proof not only that iTunes 7.0 somehow caused an increase in competing player prices but

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also that an individual class member actually bought a competing player. Any claimed harm

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from an alleged inability to buy a competing player would also depend on individualized proof

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that an individual wanted to replace his iPod with a competing player but decided not to on

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account of the size of the library he bought from iTunes after 7.0 and his unwillingness or

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inability to burn and rip that music. A customer who had no interest in purchasing a different

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player or who cannot show that the update somehow prevented him from doing so would have no

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Requiring proof at this stage is particularly appropriate given the implausibility of Plaintiffs’
class-wide impact and damage theory, i.e., that the partial removal of one of multiple sources of
music playable directly on iPods could somehow cause the price of iPods to increase.
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Apple’s Further Supp. Br. Class Cert.
C 05-00037-JW (HRL)

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claim even under Plaintiffs’ theory (assuming it was valid in the first place). These circumstances

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can be determined only on an individual-by-individual basis.

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Likewise, apart from the irony of accusing an innovation leader of reducing choice and

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diminishing innovation, attempting to prove those alleged harms would depend on numerous

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individual factors, including whether any particular customer was unhappy with the existing

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products, would have benefited from whatever features might have been available, would have

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been willing to pay for those features, and so on. Just as proof of a tying claim would have raised

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predominately individual issues (see Doc. 177, pp. 12-22), proof of these alternative impact and

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damages theories would do the same thing and defeat class certification for similar reasons.

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In short, because Plaintiffs have not demonstrated that their expert can prove that all class

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members suffered an overcharge, this case if certified as a class would inevitably result in an

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endless sequence of individual mini-trials seeking relief on alternative theories of harm that could

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be established, if at all, only on an individual basis. Class certification in these circumstances is

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improper.

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This reason for denying class certification, which was set forth in Apple’s opposition brief

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in February 2011 (Doc. 512, pp. 18-19), is even stronger now in light of Dukes. Just as Title VII

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and security fraud plaintiffs are required to present convincing proof that they can overcome the

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need to rely on individualized proof, Plaintiffs here should be required to demonstrate that they

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can overcome individualized issues of impact and damages which are key to their remaining case.

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As this record now stands, they have failed to do so. Dr. Noll has performed no analysis of the

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alleged impact, if any, of iTunes 7.0 on iPod prices. And even as to the regression he previously

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ran, Dr. Noll admitted that it is not a workable, valid damages model: “I do not regard this as a

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damage model.” Declaration of David C. Kiernan In Support hereof, Ex. 1 (Noll Dep. at 90). 2

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He admitted that he could not draw any “causal inferences from that regression” (id. at 90),

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including any inference on the pivotal question for which Plaintiffs offer his testimony—i.e.,

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For convenience, the Kiernan declaration filed herewith contains relevant excerpts from the Noll
deposition, including excerpts previously filed with other declarations.
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Apple’s Further Supp. Br. Class Cert.
C 05-00037-JW (HRL)

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whether Apple’s software updates caused any change in the price of iPods. As he summarized, “I

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cannot rule out anything based on the regression I have because I’m not relying on it for

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anything.” Id. at 130-131. As to whether he could say based on all of his work in this case

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“when, if ever, the disabling of Harmony had an impact on iPod prices:” “I have not attempted

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even to answer that question.” Id. at 202. And he admitted that if there was any such price

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impact, it might be “so slight that it wouldn’t show up in a regression.” Id. at 209.

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As shown in Apple’s supplemental brief filed yesterday, this testimony does not carry

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Plaintiffs’ burden anymore than the expert testimony that Dukes found should be disregarded.

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Doc. 638.

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In sum, Dukes buttresses the conclusion that Plaintiffs have failed to carry their burden of

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showing, with respect to their new claim relating solely to iTunes 7.0, compliance with the

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commonality and typicality requirements of Rule 23(a)(2) and the predominance or superiority

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requirements of Rule 23(b)(3).

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Dated: June 23, 2011

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JONES DAY

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By:/s/ Robert A. Mittelstaedt
Robert A. Mittelstaedt

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Counsel for Defendant APPLE INC.

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SFI-701306v1

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Apple’s Further Supp. Br. Class Cert.
C 05-00037-JW (HRL)