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Speaker 1: Apple will have to face the music over its iPhone

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Speaker 1: app store, and hundreds of millions of dollars could be

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Speaker 1: at stake. You're listening to Bloomberg Law. I'm June Granso

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Speaker 1: with Michael Best. If you have an iPhone, you know

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Speaker 1: that you have to buy apps and download them through

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Speaker 1: the app store, even if a third party has developed

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Speaker 1: the app. A consumer lawsuit claims that Apple is monopolizing

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Speaker 1: the market for iPhone apps and collecting commissions on the apps,

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Speaker 1: with consumers paying for the price. A federal judge dismissed

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Speaker 1: the class action lawsuit in December, but the Ninth Circuit

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Speaker 1: Court of Appeals reversed that decision yesterday and rule the

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Speaker 1: lawsuit can go forward. My guests are prominent antitrust professor

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Speaker 1: Harry First of n y U Law School and Mark Rifkin,

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Speaker 1: a partner at Wolf Holdenstein who represents the consumers in

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Speaker 1: this case. Mark, explain the issue at this stage of

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Speaker 1: the proceedings. Sure, hi, tune? How are you? The question

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Speaker 1: that we appealed was the district courts determination that consumers

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Speaker 1: who at their apps on the iPhone store as they

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Speaker 1: were required to do, and paid Apple with their credit

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Speaker 1: card as they were required to do, whether they were

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Speaker 1: direct purchasers from Apple with standing under the federal any

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Speaker 1: trust laws to bring the lawsuit challenging fee that Apple

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Speaker 1: tax onto the cost of the apps on the app store.

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Speaker 1: The district court said that the consumers were indirect purchasers

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Speaker 1: and didn't have standing, and we disagreed. We asked the

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Speaker 1: Ninth Circuit to correct that decision. So Harry, what did

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Speaker 1: the ninth circuits say about this issue? Well, basically, the

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Speaker 1: Ninth Circuit said, go ahead, Um, you have standing to

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Speaker 1: sue your direct purchaser from Apple through the app store.

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Speaker 1: So Harry, do you agree with that? Do you believe

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Speaker 1: they have standing? Um? That seems to me to be

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Speaker 1: the right decision. Um. I think it's import Worton's that

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Speaker 1: consumers have the ability to challenge Um these restrictions on

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Speaker 1: their freedom to buy the products they want at the

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Speaker 1: price they want. So Um, if the plaintiffs can prevail,

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Speaker 1: they will be able to show that they have been

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Speaker 1: charged more than they should have for the applications they

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Speaker 1: like to buy. So, Mark, the court has rule that

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Speaker 1: you have the right to go forward. There's been no

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Speaker 1: ruling about the allegations themselves. Tell us about the allegations. Sure,

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Speaker 1: the basic allegation is that Apple controls the medium of distribution. Technologically,

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Speaker 1: it makes iPhones only compatible with applications that are sold

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Speaker 1: through the App Store, and it requires that developers who

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Speaker 1: want to sell apps through the App Store have to

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Speaker 1: agree to this mark up that Apple imposes on all

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Speaker 1: the apps that are sold for a price on the

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Speaker 1: App Store. And the plaintiffs say that anti competitive. It's

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Speaker 1: the result of Apple's monopoly, and uh, they're entitled to

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Speaker 1: some portion of that thirty back because Apple would not

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Speaker 1: be able to charge that fee were it not for

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Speaker 1: their monopoly control over the distribution channel. And so that's

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Speaker 1: the basis of the claim the court. This is an

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Speaker 1: outgrowth of a case that has been in the Federal

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Speaker 1: court since two thousand seven. The complaint was originally sustained

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Speaker 1: by the District court in California, and then we got

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Speaker 1: sidetracked after the Supreme Court decided the Concepcion case and

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Speaker 1: made us have to arbitrate our claims against A T

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Speaker 1: and T. It reversed what had been existing law on

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Speaker 1: the enforceability of arbitration clauses, and so that sort of

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Speaker 1: sent us back to square one. But now the Ninth

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Speaker 1: Circuit has returned us back to the district court and said,

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Speaker 1: go ahead and proceed with your claim, Harry. A lot

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Speaker 1: of people are some people anyway come plain about apples,

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Speaker 1: that Apple tries to be a closed ecosystem, as it were,

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Speaker 1: to keep you inside and keep the customers buying everything

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Speaker 1: from Apple, and that this is sort of of a

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Speaker 1: piece with it, and and that would you know, sound

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Speaker 1: like a lot of people might be sympathetic to an

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Speaker 1: anti trust claim here. What do you think about sort

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Speaker 1: of overall on the anti trust implications of how Apple

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Speaker 1: has been running the app store when you get when

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Speaker 1: we go back and we're beyond standing, well, I think

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Speaker 1: on the merthe this is um, this is an important case,

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Speaker 1: an important issue. UM. It actually extends beyond Apple. Um.

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Speaker 1: Although Apple is important. I like June startup where she

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Speaker 1: said face the music. Um. Some of this has to

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Speaker 1: do with music actually and Apple's ability to control streaming music.

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Speaker 1: But if you step back a little bit, this is

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Speaker 1: a very old problem in anti trust almost from the

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Speaker 1: beginning of the anti trust laws UM at the turn

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Speaker 1: of the twentieth century, nineteenth century sorry, um, and basically

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Speaker 1: manufacturers that sell a product which needs a second product

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Speaker 1: to operate it have long tried to force consumers to

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Speaker 1: once they bought the first product, to buy the second one.

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Speaker 1: So a familiar one for all lots of people as

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Speaker 1: printers and ink, um by my printer, you have to

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Speaker 1: buy the ink for me, raisors and blades, Barbie dolls

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Speaker 1: and clothes, cameras and film when you used to have

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Speaker 1: to buy film, computer operating systems and applications. So um

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Speaker 1: par sellers of this first product have long tried to

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Speaker 1: force us to buy the second one, sometimes by contracts

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Speaker 1: and sometimes by designing the product in a way that

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Speaker 1: you can't buy from someone else. And uh both competitors

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Speaker 1: of in the second product and consumers who want to

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Speaker 1: buy the second product from someone else have long tried

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Speaker 1: to sue, often successfully. Uh So. This again, it's a

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Speaker 1: it's a long standing problem in lots of areas with Apple.

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Speaker 1: It's um. Apple has done this in other areas too.

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Speaker 1: They did it with the iPod um and music through

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Speaker 1: the iTunes store. So there were long standing restrictions to

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Speaker 1: prevent consumers from downloading music from someone else. Um so,

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Speaker 1: And there are lots of other restrictions other than the

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Speaker 1: ones um that the plaintiffs are complaining about directly in

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Speaker 1: this case. UM. So it is a broad problem. And

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Speaker 1: if you think that markets should work properly in consumer

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Speaker 1: stuff choice, you would want to see something done about it.

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Speaker 1: And this is a case like that. Mark put yourself

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Speaker 1: on the other side of the equation, on Apple side.

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Speaker 1: What is Apple's strongest argument, Well, don't be speechless now, June.

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Speaker 1: I think their strongest argument would be to find somebody

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Speaker 1: else other than me to be on the other side.

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Speaker 1: But but that having been said, I think what what

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Speaker 1: Apple's principal defense is, People have a right to choose

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Speaker 1: what products they want. And if you want an iPhone,

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Speaker 1: you you buy an iPhone with your eyes open. And yes,

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Speaker 1: we lock you in. Harry's talking about a concept in

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Speaker 1: the anti trust law that we call on lock in. Yes,

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Speaker 1: it's true we lock you in. But aren't you really

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Speaker 1: happy being locked into Apple? Because of all the wonderful

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Speaker 1: things we do, one of which is we very carefully

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Speaker 1: vet the the apps that can be sold on the

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Speaker 1: App Store to make sure that they're not harmful to

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Speaker 1: you or your iPhone or your computer or anything else,

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Speaker 1: and that you get good quality service and so on

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Speaker 1: and so forth, and none of that comes free. Well,

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Speaker 1: we take a different view of what the lock in

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Speaker 1: is all about. Harry, given the importance of this issue,

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Speaker 1: as you've outlined it, do you think that this is

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Speaker 1: the kind of case Apple is going to want to

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Speaker 1: litigate or will they want to try to figure out

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Speaker 1: some way to settle it so that they can preserve

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Speaker 1: as much of their power as they want to as

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Speaker 1: they want. I never like to um second guests litigans particularly,

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Speaker 1: but if you look at Apple's path practices, they have

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Speaker 1: been um, a vigorous litigator in all of this, all

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Speaker 1: of these cases, UM and UM. I don't know how

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Speaker 1: Mark feels about this, but my guess is it all

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Speaker 1: continue to litigate this and they are really, as Mark explained,

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Speaker 1: not without defenses in this case. And UM, you know

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Speaker 1: the courts will UM. I don't think it's a laid

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Speaker 1: down case on either side, So I would expect them

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Speaker 1: to continue to uh to litigate vigorously. Michael Harry's right,

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Speaker 1: it's they litigate vigorously. We've been at this now for

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Speaker 1: a number of years. But the truth is there's there's

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Speaker 1: lots of enormous risk on both sides of this case,

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Speaker 1: and that's the sort of thing that generally causes people

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Speaker 1: to try to resolve disputes. We will keep following this case.

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Speaker 1: I want to thank you both for being on Bloomberg Law.

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Speaker 1: That's Mark Riston, a partner wolf hauled Instein, who represents

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Speaker 1: the plaintiffs in the case against Apple and antitrust Professor

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Speaker 1: Harry First of n y U Law School