Apple Faces Antitrust Suit Over App Store Monopoly (Audio)

with consumers paying for the price. A federal judge dismissed the class action lawsuit in December, but the Ninth Circuit Court of Appeals reversed that decision yesterday and rule the lawsuit can go forward. My guests are prominent antitrust professor Harry First of n y U Law School and Mark Rifkin, a partner at Wolf Holdenstein who represents the consumers in this case. Mark, explain the issue at this stage of

the proceedings. Sure, hi, tune? How are you? The question that we appealed was the district courts determination that consumers who at their apps on the iPhone store as they were required to do, and paid Apple with their credit card as they were required to do, whether they were direct purchasers from Apple with standing under the federal any trust laws to bring the lawsuit challenging fee that Apple tax onto the cost of the apps on the app store.

The district court said that the consumers were indirect purchasers and didn't have standing, and we disagreed. We asked the Ninth Circuit to correct that decision. So Harry, what did the ninth circuits say about this issue? Well, basically, the Ninth Circuit said, go ahead, Um, you have standing to sue your direct purchaser from Apple through the app store. So Harry, do you agree with that? Do you believe they have standing? Um? That seems to me to be

the right decision. Um. I think it's import Worton's that consumers have the ability to challenge Um these restrictions on their freedom to buy the products they want at the price they want. So Um, if the plaintiffs can prevail, they will be able to show that they have been charged more than they should have for the applications they like to buy. So, Mark, the court has rule that you have the right to go forward. There's been no

ruling about the allegations themselves. Tell us about the allegations. Sure, the basic allegation is that Apple controls the medium of distribution. Technologically, it makes iPhones only compatible with applications that are sold through the App Store, and it requires that developers who want to sell apps through the App Store have to agree to this mark up that Apple imposes on all the apps that are sold for a price on the

App Store. And the plaintiffs say that anti competitive. It's the result of Apple's monopoly, and uh, they're entitled to some portion of that thirty back because Apple would not be able to charge that fee were it not for their monopoly control over the distribution channel. And so that's the basis of the claim the court. This is an outgrowth of a case that has been in the Federal

court since two thousand seven. The complaint was originally sustained by the District court in California, and then we got sidetracked after the Supreme Court decided the Concepcion case and made us have to arbitrate our claims against A T and T. It reversed what had been existing law on the enforceability of arbitration clauses, and so that sort of sent us back to square one. But now the Ninth Circuit has returned us back to the district court and said,

go ahead and proceed with your claim, Harry. A lot of people are some people anyway come plain about apples, that Apple tries to be a closed ecosystem, as it were, to keep you inside and keep the customers buying everything from Apple, and that this is sort of of a piece with it, and and that would you know, sound like a lot of people might be sympathetic to an

anti trust claim here. What do you think about sort of overall on the anti trust implications of how Apple has been running the app store when you get when we go back and we're beyond standing, well, I think on the merthe this is um, this is an important case, an important issue. UM. It actually extends beyond Apple. Um. Although Apple is important. I like June startup where she said face the music. Um. Some of this has to do with music actually and Apple's ability to control streaming music.

But if you step back a little bit, this is a very old problem in anti trust almost from the beginning of the anti trust laws UM at the turn of the twentieth century, nineteenth century sorry, um, and basically manufacturers that sell a product which needs a second product to operate it have long tried to force consumers to once they bought the first product, to buy the second one.

So a familiar one for all lots of people as printers and ink, um by my printer, you have to buy the ink for me, raisors and blades, Barbie dolls and clothes, cameras and film when you used to have to buy film, computer operating systems and applications. So um par sellers of this first product have long tried to force us to buy the second one, sometimes by contracts and sometimes by designing the product in a way that

you can't buy from someone else. And uh both competitors of in the second product and consumers who want to buy the second product from someone else have long tried to sue, often successfully. Uh So. This again, it's a it's a long standing problem in lots of areas with Apple. It's um. Apple has done this in other areas too. They did it with the iPod um and music through the iTunes store. So there were long standing restrictions to

prevent consumers from downloading music from someone else. Um so, And there are lots of other restrictions other than the ones um that the plaintiffs are complaining about directly in this case. UM. So it is a broad problem. And if you think that markets should work properly in consumer stuff choice, you would want to see something done about it. And this is a case like that. Mark put yourself on the other side of the equation, on Apple side.

What is Apple's strongest argument, Well, don't be speechless now, June. I think their strongest argument would be to find somebody else other than me to be on the other side. But but that having been said, I think what what Apple's principal defense is, People have a right to choose what products they want. And if you want an iPhone, you you buy an iPhone with your eyes open. And yes, we lock you in. Harry's talking about a concept in the anti trust law that we call on lock in. Yes,

it's true we lock you in. But aren't you really happy being locked into Apple? Because of all the wonderful things we do, one of which is we very carefully vet the the apps that can be sold on the App Store to make sure that they're not harmful to you or your iPhone or your computer or anything else, and that you get good quality service and so on and so forth, and none of that comes free. Well, we take a different view of what the lock in

is all about. Harry, given the importance of this issue, as you've outlined it, do you think that this is the kind of case Apple is going to want to litigate or will they want to try to figure out some way to settle it so that they can preserve as much of their power as they want to as they want. I never like to um second guests litigans particularly, but if you look at Apple's path practices, they have been um, a vigorous litigator in all of this, all

of these cases, UM and UM. I don't know how Mark feels about this, but my guess is it all continue to litigate this and they are really, as Mark explained, not without defenses in this case. And UM, you know the courts will UM. I don't think it's a laid down case on either side, So I would expect them to continue to uh to litigate vigorously. Michael Harry's right, it's they litigate vigorously. We've been at this now for

a number of years. But the truth is there's there's lots of enormous risk on both sides of this case, and that's the sort of thing that generally causes people to try to resolve disputes. We will keep following this case. I want to thank you both for being on Bloomberg Law. That's Mark Riston, a partner wolf hauled Instein, who represents the plaintiffs in the case against Apple and antitrust Professor Harry First of n y U Law School