Robert Mittelstaedt, Jones Day managing partner (Jason Doiy / The Recorder)
OAKLAND — Lawyers for Apple Inc. tried again Wednesday to derail accusations dating back nearly a decade that it illegally monopolized the digital music market by strategically interlocking its iTunes music store with iPod players.
Plaintiffs lawyers with Robbins Geller Rudman & Dowd claim the company violated antitrust laws by making its MP3 players compatible only with music downloaded via iTunes and blocking iTunes downloads from playing on other devices. Customers with extensive iTunes libraries were forced to continue buying Apple players or lose their music. That allowed Apple to raise prices, Robbins Geller attorneys argued. Their economics expert has set damages at about $350 million.
Apple’s attorneys from Jones Day countered in Oakland federal court Wednesday that plaintiffs have no proof consumers suffered any adverse impact because Apple products weren’t compatible with other brands. Robbins Geller lawyers haven’t presented an economic analysis or customer testimony, even from the suit’s named plaintiffs, that supports their theory, Jones Day partner Robert Mittelstaedt argued.
“They just don’t have any evidence at all,” Mittelstaedt said.
His team, which is seeking summary judgment for Apple, has already succeeded in tossing two of plaintiffs’ claims. The remaining claim, alleging Apple’s 2006 iTunes upgrade violated antitrust law, is set for trial in November before U.S. District Judge Yvonne Gonzalez Rogers, who seemed to heed Mittelstaedt’s arguments.
“I have to tell you,” she said, “one of the big issues that I have with the plaintiffs’ case in the current posture is, what am I supposed to be trying? Who is going to testify? Why are there no customer surveys?”
In response, the Robbins Geller team produced a cardboard box reportedly full of thousands of complaints from consumers upset because they couldn’t play off-brand songs on their iPods. The documents hadn’t been entered into the record, but the lawyers invited Gonzalez Rogers to take a look.
She balked: “Don’t give me a box of documents.”
Gonzalez Rogers took over the case from U.S. District Judge James Ware, who retired in 2012. Mittelstaedt spent the better part of an hour Wednesday going over the case’s complex history.
Plaintiffs first filed suit in 2005. They claimed Apple was tying its music to its devices, thereby forcing out the competition. Ware granted Apple’s motion to dismiss that claim in 2006, ruling a company has a right to prevent its products from working with its competitors’.
Plaintiffs returned in 2010 with new claims in an amended complaint. They focused their argument on Apple competitor RealNetworks Inc., which had figured out a way to circumvent Apple’s protection and make its music compatible with iPods.
To thwart the competition, plaintiffs argued, Apple implemented new protections that prevented RealNetworks songs from playing on Apple devices.
Ware granted summary judgment to Apple on a 2004 upgrade, ruling that a company has the right to improve its products even if that improvement makes life difficult for competitors. But he ruled there were triable issues as to whether a 2006 upgrade actually improved the product.
Now Gonzalez Rogers must decide whether plaintiffs have enough evidence to show consumers were impacted by the alleged monopoly created by Apple’s 2006 upgrade.
Robbins Geller partner Bonny Sweeney argued customers and music labels alike celebrated when RealNetworks figured out how to become compatible with Apple. Sweeney said she has documents showing Apple executives, including the late Steve Jobs, were threatened by the company’s move and engineered their software updates to stand in its way.
“People at the highest level of the company were shocked and alarmed when the company made its debut in 2004,” she said.
Plaintiffs based much of their argument on a regression analysis by Stanford economics professor Roger Noll.
Mittelstaedt attacked Noll’s analysis, and moved to exclude his expert testimony.
“He’s just making assumptions that are contrary to what the real world shows,” Mittelstaedt said.
Noll failed to account for important variables when attributing price increases to the 2006 software upgrade, Mittelstaedt said. Noll also alleges consumers were overcharged at a constant rate throughout the class period. Mittelstaedt counters that if plaintiffs’ claims were true, prices actually would have continued to rise as people purchased more iTunes music and became further locked into Apple products.
The four-hour hearing was thick with complex economic theory, and Gonzalez Rogers lost her place more than once as she followed along in the thick packet provided by Mittelstaedt. Before arguments began, Gonzalez Rogers admitted she had been intimidated by the case.
“It was on the back burner, I will admit,” Gonzalez Rogers said. “It’s one of those things where you don’t want to take the medicine, and so I wasn’t. And so I just left it there.”
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