Class Certification Denied in Apple Music Monopoly Case

A California federal judge has denied certification of a damages class in a suit alleging Apple illegally configured its popular iTunes online music store and iPod digital music player to work only with each other and not with competitors' products.

U.S. District Judge James Ware of the Northern District of California said plaintiff Stacie Somers failed to provide a reliable method to show common damages across the class.

The decision hinged on the credibility of the parties' experts.

Somers says she purchased a 30-gigabyte iPod from a Target retail store in San Diego in November 2005.

According to the suit, Cupertino, Calif.-based Apple controls 83 percent of the market for online music, 75 percent of the online video market and more than 90 percent of the market for digital music players that store files on hard drives.

Though marketed mainly as a music player, the iPod also can play video files.

Apple has used its dominance in these three markets to create a closed system in which the iPod will play only files purchased from iTunes, and iTunes files will work only on the iPod, the complaint says.

Apple deliberately "cripples" its products to restrict consumer choice, the suit says.

Somers sought simultaneously to certify a damages class and an injunctive class on behalf of everyone in the United States who bought an iPod "indirectly" from Apple from Dec. 31, 2003, until the date that trial in the case ends.

Federal antitrust law allows only "direct purchasers" to seek monetary damages from antitrust violators. Although some states follow this rule, others, including California, allow indirect purchasers (those who buy a product through a retailer or other third party) to recover money.

The complaint alleges illegal "tying" in violation of the Sherman Act, monopolization in violation of the Sherman Act, and violations of California's Cartwright Act, unfair-competition law, and Consumer Legal Remedies Act.

In denying certification of a damages class, Judge Ware found the methodology of Somers' expert, Gary French, insufficient to establish damages across the class.

French had proposed several methods for determining indirect buyers' damages. His methodology, which he called the "more direct approach," involved measuring damages via "regression analysis using retail prices."

At an evidentiary hearing French admitted a lack of experience with using regression models for indirect purchasers in antitrust class actions and that he had not yet completed a model for the case.

Judge Ware said French has done "nothing more than make a five-paragraph-long collection of proposals for accomplishing what the court sees as a daunting task."

During the hearing, Apple presented expert testimony from economist Michelle Burtis, who criticized French's proposal.

Burtis testified that French failed to propose a model that would consider all the variables inherent in the iPod's pricing structure.

The judge found Burtis' testimony "far more persuasive" than French's.

"Dr. French's testimony was limited to making unspecified proposals as to how he might be able to prove damages, while Dr. Burtis' testimony showed the significant challenges that Dr. French would face in carrying out his proposals," he said.

Judge Ware said he would rule on Somers' motion for certification of an injunctive relief class at a later date.

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Somers is represented by Alreen Haeggquist and Helen I. Zeldes of Zeldes & Haeggquist in San Diego and Craig L. Briskin and Steven A. Skalet of Mehri & Skalet in Washington. Apple is represented by Craig Ellsworth Stewart, Elaine Wallace, Michael Tedder Scott, Robert Allan Mittelstaedt and Tracy Strong of Jones Day in San Francisco.