September 03, 2013 12:32pm PT by Eriq Gardner
Appeals Court Won't Revive Class Action Over Apple's Digital Music Sales
Most consumers don't like the type of digital rights management software that makes music purchased on Apple's iTunes Store only compatible on Apple devices. Unfortunately for one consumer who attempted to bring a class action lawsuit against Apple for alleged antitrust behavior, failure to figure out the exact harm has doomed litigation over the issue.
In 2005, Stacey Somers bought a 20 GB iPod from a Target store and stuffed it with music purchased from iTS, an online music store accessible through iTunes. The music files came encoded with Apple's Fairplay DRM.
Two years later, she filed a class action lawsuit and sought to represent other indirect purchasers of Apple products who allegedly became victim to Apple's "unlawful tying."
In the time since, her attorneys have been dancing around the requirements at the pleading stage. To make the lawsuit work, Somers first alleged that the fact that the music was incompatible with non-iPod music players increased the demand for the iPod and enabled Apple to charge high prices for it. Later in the case, she amended the damages claim to assert that Apple's actions had inflated the price of music and deflated the value of the iPod. And on her second shot at amending her lawsuit, Somers argued that Fairplay had allowed Apple to preserve its monopoly, charge supracompetitive prices for music, and restrict consumer choices.
All the dancing hasn't gotten Somers anywhere. On Tuesday, the 9th Circuit Court of Appeals affirmed a lower judge's dismissal. Here's the full ruling.
Part of the reason why Somers loses is procedural.
When she changed her damages theory, she "voluntarily abandoned her overcharge iPod claim," and by not pursuing it further for purposes of class certification, 9th Circuit judge Milan Smith, Jr. writes "the issue of whether the district court erred in denying her motion to certify that claim for class treatment is waived."
Somers also loses because of the type of plaintiff she was -- an indirect purchaser -- and the type of damage she was asserting -- that Apple's behavior had made iPods less valuable by making the tech product unable to download music tracks that would have been available from competitors at lower prices. But case law precedent establishes bars on certain lawsuits seeking antitrust damages for customers who don't buy directly from a defendant. This is one of those lawsuits.
But even if that weren't the case, Judge Smith points to various flaws in Somers' thinking.
For example, she purchased her iPod in 2005. But Apple began issuing software updates that made iPods less compatible a year earlier. The judge notes, "Apple's software updates after 2004 thus only served to maintain the status quo -- i.e., music downloaded from iTS can only be played on the iPod."
And as for the claim that Apple's use of software updates inflated music prices, the appeals court points out that the price of music -- 99 cents per tune back then -- didn't really change in the time that Apple entered the market in 2003 and allegedly acquired a monopoly a year later. Yes, Real Networks and others then attempted to sell iPod-compatible music at lower prices, and thanks to Apple's software updates, they were foreclosed from doing so, but did that influence Apple's pricing?
Judge Smith says that not even the development of Amazon selling DRM-free music in 2008 changed things.
According to the opinion, "If Somers' overcharge theory were correct, then Apple's music prices from 2004 to 2008 were supracompetitive as a result of software updates that excluded competition, and the emergence of a large seller such as Amazon would have caused iTS music prices to fall. But Somers alleges no such price reduction. Somers' overcharge theory is thus implausible in the face of contradictory market facts alleged in her complaint."