IPhone Antitrust Litigation Can Go Forward: Judge

by Ben James

A federal judge in Northern California has rejected motions to dismiss in a putative class action accusing Apple Inc. and AT&T Mobility LLC of violating federal antitrust laws by monopolizing the aftermarket for iPhone voice and data services.

Judge James Ware of the U.S. District Court for the Northern District of California handed down a 31-page order on Wednesday upholding antitrust claims against both defendants, as well as computer trespass and computer fraud claims against Apple.

The class in this case could include anyone who has purchased an iPhone, Mark Rifkin, who represents the plaintiffs, said Thursday. Rifkin said he was very pleased with the decision, which he called ?an important victory for consumers and iPhone purchasers.?

The plaintiffs' claims include allegations that Apple violated Section 2 of the Sherman Act through monopolization of the aftermarket for iPhone applications, and that Apple and AT&T Mobility monopolized the aftermarket for voice and data iPhone services, also in violation of Section 2 of the Sherman Act.

Apple and ATTM entered into a contract that establishes ATTM as the exclusive provider of cell phone voice and data services for iPhone customers until 2012, and gives Apple a slice of ATTM's revenue and profits, the plaintiffs allege.

But while prospective class members who bought iPhones agreed to a two-year voice and/or data plan with ATTM, they didn't agree to use ATTM's services for five years, according to the revised consolidated amended complaint the plaintiffs filed in June.

The ?undisclosed? exclusivity deal forces iPhone users to use ATTM for five years, without regard for their wishes and contractual expectations, the complaint says.

?These allegations state a claim which is ripe for adjudication because plaintiffs are alleging that at the point of purchase and initiation of service, defendants involuntarily impose on consumers a contract exclusivity restriction which restricts their freedom from that point forward for at least the next five years and conceivably for the life of the iPhone,? Judge Ware wrote.

Apple also put ?software locks? on iPhones which prevented the purchaser from switching to another carrier besides ATTM, a move that ran afoul of the law, the complaint claims.

Apple created a number of applications like ringtone, instant messaging and Internet access enabling software that can be downloaded and used by iPhone owners, and has discouraged iPhone customers from downloading third-party applications by warning that it will void the iPhone warranty of any customer that downloads competing applications, the plaintiffs contend.

?Through these actions, Apple has unlawfully stifled competition, reduced output and consumer choice, and artificially increased prices in the aftermarket for iPhone software applications,? according to the complaint.

In response to customers unlocking iPhones or installing competing software applications, Apple sent out a ?purported update? to the iPhone operating software that ruined or damaged some iPhones that were either unlocked or have competing software applications on them, the plaintiffs added.

In addition to sustaining the antitrust claims, Judge Ware also declined to dismiss the plaintiffs claims under the Magnuson-Moss Warranty Act. Judge Ware did dismiss the plaintiffs' unfair and deceptive trade practices claims (which had been asserted under the laws of 42 states and the District of Columbia) but left the door open for the plaintiffs to replead those claims under the laws of New York, California and Washington, where the nine named plaintiffs live.

Spokespersons for Apple could not be immediately reached Thursday to discuss the decision.

An AT&T spokesman was not immediately available to comment.

Wolf Haldenstein Adler Freeman & Herz LLP is interim lead counsel for the plaintiffs.

Apple is represented in this matter by Latham & Watkins LLP.

AT&T is represented by Mayer Brown LLP and Crowell & Moring LLP.

The case is In Re Apple & AT&TM Anti-Trust Litigation, case number 07-5152, in the U.S. District Court for the Northern District of California.