WEBVTT - Apple Faces Antitrust Suit Over App Store Monopoly (Audio)

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<v Speaker 1>Apple will have to face the music over its iPhone

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<v Speaker 1>app store, and hundreds of millions of dollars could be

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

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<v Speaker 1>with Michael Best. If you have an iPhone, you know

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<v Speaker 1>that you have to buy apps and download them through

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<v Speaker 1>the app store, even if a third party has developed

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<v Speaker 1>the app. A consumer lawsuit claims that Apple is monopolizing

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<v Speaker 1>the market for iPhone apps and collecting commissions on the apps,

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<v Speaker 1>with consumers paying for the price. A federal judge dismissed

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<v Speaker 1>the class action lawsuit in December, but the Ninth Circuit

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<v Speaker 1>Court of Appeals reversed that decision yesterday and rule the

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<v Speaker 1>lawsuit can go forward. My guests are prominent antitrust professor

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<v Speaker 1>Harry First of n y U Law School and Mark Rifkin,

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<v Speaker 1>a partner at Wolf Holdenstein who represents the consumers in

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<v Speaker 1>this case. Mark, explain the issue at this stage of

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<v Speaker 1>the proceedings. Sure, hi, tune? How are you? The question

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<v Speaker 1>that we appealed was the district courts determination that consumers

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<v Speaker 1>who at their apps on the iPhone store as they

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<v Speaker 1>were required to do, and paid Apple with their credit

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<v Speaker 1>card as they were required to do, whether they were

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<v Speaker 1>direct purchasers from Apple with standing under the federal any

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<v Speaker 1>trust laws to bring the lawsuit challenging fee that Apple

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<v Speaker 1>tax onto the cost of the apps on the app store.

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<v Speaker 1>The district court said that the consumers were indirect purchasers

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<v Speaker 1>and didn't have standing, and we disagreed. We asked the

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<v Speaker 1>Ninth Circuit to correct that decision. So Harry, what did

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<v Speaker 1>the ninth circuits say about this issue? Well, basically, the

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<v Speaker 1>Ninth Circuit said, go ahead, Um, you have standing to

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<v Speaker 1>sue your direct purchaser from Apple through the app store.

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<v Speaker 1>So Harry, do you agree with that? Do you believe

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<v Speaker 1>they have standing? Um? That seems to me to be

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<v Speaker 1>the right decision. Um. I think it's import Worton's that

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<v Speaker 1>consumers have the ability to challenge Um these restrictions on

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<v Speaker 1>their freedom to buy the products they want at the

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<v Speaker 1>price they want. So Um, if the plaintiffs can prevail,

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<v Speaker 1>they will be able to show that they have been

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<v Speaker 1>charged more than they should have for the applications they

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<v Speaker 1>like to buy. So, Mark, the court has rule that

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<v Speaker 1>you have the right to go forward. There's been no

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<v Speaker 1>ruling about the allegations themselves. Tell us about the allegations. Sure,

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<v Speaker 1>the basic allegation is that Apple controls the medium of distribution. Technologically,

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<v Speaker 1>it makes iPhones only compatible with applications that are sold

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<v Speaker 1>through the App Store, and it requires that developers who

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<v Speaker 1>want to sell apps through the App Store have to

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<v Speaker 1>agree to this mark up that Apple imposes on all

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<v Speaker 1>the apps that are sold for a price on the

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<v Speaker 1>App Store. And the plaintiffs say that anti competitive. It's

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

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<v Speaker 1>some portion of that thirty back because Apple would not

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<v Speaker 1>be able to charge that fee were it not for

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<v Speaker 1>their monopoly control over the distribution channel. And so that's

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<v Speaker 1>the basis of the claim the court. This is an

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<v Speaker 1>outgrowth of a case that has been in the Federal

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<v Speaker 1>court since two thousand seven. The complaint was originally sustained

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<v Speaker 1>by the District court in California, and then we got

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<v Speaker 1>sidetracked after the Supreme Court decided the Concepcion case and

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<v Speaker 1>made us have to arbitrate our claims against A T

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<v Speaker 1>and T. It reversed what had been existing law on

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<v Speaker 1>the enforceability of arbitration clauses, and so that sort of

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<v Speaker 1>sent us back to square one. But now the Ninth

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<v Speaker 1>Circuit has returned us back to the district court and said,

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<v Speaker 1>go ahead and proceed with your claim, Harry. A lot

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<v Speaker 1>of people are some people anyway come plain about apples,

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<v Speaker 1>that Apple tries to be a closed ecosystem, as it were,

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<v Speaker 1>to keep you inside and keep the customers buying everything

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<v Speaker 1>from Apple, and that this is sort of of a

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<v Speaker 1>piece with it, and and that would you know, sound

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<v Speaker 1>like a lot of people might be sympathetic to an

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<v Speaker 1>anti trust claim here. What do you think about sort

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<v Speaker 1>of overall on the anti trust implications of how Apple

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<v Speaker 1>has been running the app store when you get when

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<v Speaker 1>we go back and we're beyond standing, well, I think

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<v Speaker 1>on the merthe this is um, this is an important case,

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<v Speaker 1>an important issue. UM. It actually extends beyond Apple. Um.

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<v Speaker 1>Although Apple is important. I like June startup where she

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<v Speaker 1>said face the music. Um. Some of this has to

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<v Speaker 1>do with music actually and Apple's ability to control streaming music.

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<v Speaker 1>But if you step back a little bit, this is

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<v Speaker 1>a very old problem in anti trust almost from the

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<v Speaker 1>beginning of the anti trust laws UM at the turn

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<v Speaker 1>of the twentieth century, nineteenth century sorry, um, and basically

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<v Speaker 1>manufacturers that sell a product which needs a second product

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<v Speaker 1>to operate it have long tried to force consumers to

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<v Speaker 1>once they bought the first product, to buy the second one.

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<v Speaker 1>So a familiar one for all lots of people as

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<v Speaker 1>printers and ink, um by my printer, you have to

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<v Speaker 1>buy the ink for me, raisors and blades, Barbie dolls

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<v Speaker 1>and clothes, cameras and film when you used to have

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<v Speaker 1>to buy film, computer operating systems and applications. So um

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<v Speaker 1>par sellers of this first product have long tried to

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<v Speaker 1>force us to buy the second one, sometimes by contracts

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<v Speaker 1>and sometimes by designing the product in a way that

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<v Speaker 1>you can't buy from someone else. And uh both competitors

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<v Speaker 1>of in the second product and consumers who want to

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<v Speaker 1>buy the second product from someone else have long tried

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

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

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<v Speaker 1>It's um. Apple has done this in other areas too.

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<v Speaker 1>They did it with the iPod um and music through

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<v Speaker 1>the iTunes store. So there were long standing restrictions to

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<v Speaker 1>prevent consumers from downloading music from someone else. Um so,

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<v Speaker 1>And there are lots of other restrictions other than the

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<v Speaker 1>ones um that the plaintiffs are complaining about directly in

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<v Speaker 1>this case. UM. So it is a broad problem. And

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<v Speaker 1>if you think that markets should work properly in consumer

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<v Speaker 1>stuff choice, you would want to see something done about it.

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<v Speaker 1>And this is a case like that. Mark put yourself

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<v Speaker 1>on the other side of the equation, on Apple side.

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

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<v Speaker 1>I think their strongest argument would be to find somebody

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<v Speaker 1>else other than me to be on the other side.

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<v Speaker 1>But but that having been said, I think what what

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<v Speaker 1>Apple's principal defense is, People have a right to choose

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<v Speaker 1>what products they want. And if you want an iPhone,

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<v Speaker 1>you you buy an iPhone with your eyes open. And yes,

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<v Speaker 1>we lock you in. Harry's talking about a concept in

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<v Speaker 1>the anti trust law that we call on lock in. Yes,

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<v Speaker 1>it's true we lock you in. But aren't you really

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<v Speaker 1>happy being locked into Apple? Because of all the wonderful

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<v Speaker 1>things we do, one of which is we very carefully

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<v Speaker 1>vet the the apps that can be sold on the

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<v Speaker 1>App Store to make sure that they're not harmful to

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<v Speaker 1>you or your iPhone or your computer or anything else,

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<v Speaker 1>and that you get good quality service and so on

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<v Speaker 1>and so forth, and none of that comes free. Well,

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<v Speaker 1>we take a different view of what the lock in

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<v Speaker 1>is all about. Harry, given the importance of this issue,

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<v Speaker 1>as you've outlined it, do you think that this is

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<v Speaker 1>the kind of case Apple is going to want to

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<v Speaker 1>litigate or will they want to try to figure out

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<v Speaker 1>some way to settle it so that they can preserve

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<v Speaker 1>as much of their power as they want to as

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<v Speaker 1>they want. I never like to um second guests litigans particularly,

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<v Speaker 1>but if you look at Apple's path practices, they have

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<v Speaker 1>been um, a vigorous litigator in all of this, all

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<v Speaker 1>of these cases, UM and UM. I don't know how

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<v Speaker 1>Mark feels about this, but my guess is it all

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<v Speaker 1>continue to litigate this and they are really, as Mark explained,

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<v Speaker 1>not without defenses in this case. And UM, you know

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

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<v Speaker 1>down case on either side, So I would expect them

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<v Speaker 1>to continue to uh to litigate vigorously. Michael Harry's right,

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

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<v Speaker 1>a number of years. But the truth is there's there's

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<v Speaker 1>lots of enormous risk on both sides of this case,

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<v Speaker 1>and that's the sort of thing that generally causes people

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<v Speaker 1>to try to resolve disputes. We will keep following this case.

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<v Speaker 1>I want to thank you both for being on Bloomberg Law.

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<v Speaker 1>That's Mark Riston, a partner wolf hauled Instein, who represents

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<v Speaker 1>the plaintiffs in the case against Apple and antitrust Professor

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<v Speaker 1>Harry First of n y U Law School