In re Apple iPhone Antitrust Litig.

• Citation: 874 F.Supp.2d 889
• Decision Date: 11 July 2012
• Docket Number: No. C 11–06714 JW.,C 11–06714 JW.
• Parties: In re APPLE iPHONE ANTITRUST LITIGATION.
• Court: U.S. District Court — Eastern District of California

874 F.Supp.2d 889

In re APPLE iPHONE ANTITRUST LITIGATION.

No. C 11–06714 JW.

United States District Court,

N.D. California,

San Francisco Division.

July 11, 2012.

Alexander H. Schmidt, Mark Carl Rifkin, Michael Milton Liskow, Wolf Haldenstein Adler Freeman & Herz LLP, New York, NY, Betsy Carol Manifold, Francis M. Gregorek, Rachele R. Rickert, Wolf Haldenstein Adler Freeman & Herz LLP, San Diego, CA, for Plaintiffs.

Christopher S. Yates, Sadik Harry Huseny, Latham & Watkins LLP, San Francisco, CA, for Defendant.

ORDER DENYING WITHOUT PREJUDICE DEFENDANT'S MOTION TO COMPEL ARBITRATION; GRANTING IN PART DEFENDANT'S MOTION TO DISMISS

JAMES WARE, Chief Judge.

I. INTRODUCTION

Plaintiffs ¹ bring this putative class action against Apple, Inc. (“Defendant”) alleging violations of Section 2 of the Sherman Act, 15 U.S.C. § 2. Plaintiffs allege that Defendant violated the Sherman Act by conspiring with non-party AT & T Mobility, LLC (“ATTM”) to monopolize an alleged aftermarket for voice and data services for iPhones, and also by monopolizing or attempting to monopolize an alleged aftermarket for software applications for iPhones.

Presently before the Court are Defendant's Motion to Compel Arbitration ² and Motion to Dismiss.³ The Court conducted a hearing on June 18, 2012. Based on the papers submitted to date and oral argument, the Court DENIES without prejudice Defendant's Motion to Compel Arbitration and GRANTS in part Defendant's Motion to Dismiss.

II. BACKGROUND

A. Factual Allegations

In a Consolidated Class Action Complaint ⁴ filed on March 21, 2012, Plaintiffs allege as follows:

Plaintiffs are individuals residing in California, New York and Illinois. (Complaint ¶¶ 12–15.) Defendant is a California corporation that regularly conducts and transacts business in the Northern District of California, and which manufactures, markets and sells the iPhone. ( Id. ¶ 16.)

On January 9, 2007, Defendant announced that it had entered into an Exclusivity Agreement (the “Agreement”) with ATTM whereby ATTM would be the only authorized provider of wireless voice and data services for iPhones in the United States. (Complaint ¶ 52.) Under this Agreement, Defendant and ATTM agreed to share the revenue for voice and data services received from iPhone customers. ( Id. ¶ 53.) The Agreement also provided that ATTM would be the exclusive provider of voice and data services for the iPhone for five years, meaning that iPhone customers would have no choice but to continue purchasing voice and data services from ATTM until sometime in 2012 in order for their iPhones to continue to operate. ( Id. ¶ 54.) Further, the Agreement provided that Defendant and ATTM would enforce ATTM's exclusivity by installing SIM card Program Locks on all iPhones, and by agreeing never to disclose certain “unlock codes” to iPhone owners who wished to replace those SIM cards. ⁵( Id. ¶ 55.) None of the details of the Agreement were disclosed to purchasers of the iPhone, nor did any purchaser of an iPhone ever contractually consent to any of the terms of the Agreement upon buying an iPhone. ( Id. ¶ 61.)

In 2007, Defendant introduced the iPhone. (Complaint ¶ 21.) Between 2007 and 2010, Plaintiffs purchased one or more iPhones, and also purchased wireless voice and data services from ATTM for their iPhones. ( Id. ¶ 25.) Several Plaintiffs wanted to have the option of switching to a competing voice and data service provider other than ATTM, and one Plaintiff wanted to have the ability to unlock his SIM card. ( Id. ¶¶ 29–32.) However, due to the Agreement, Plaintiffs were effectively locked into using ATTM as their voice and data service provider for the duration of the Agreement, i.e., for five years, and were unable to obtain the unlock codes that would enable them to use a different SIM card. ( Id. ¶¶ 26–27.) Through the Agreement, Defendant conspired with ATTM to monopolize the iPhone Voice and Data Services Aftermarket. ( Id. ¶ 97.) Due to this conspiracy, ATTM unlawfully achieved an economically significant degree of market power in the iPhone Voice and Data Services Aftermarket, and effectively foreclosed new and potential entrants from entering the market or gaining their naturally competitive market shares. ( Id. ¶ 98.)

In addition, the iPhone supports a number of Applications which may be used on the device. (Complaint ¶ 5.) After the iPhone 2G was launched, a number of third-party providers began to create Applications for it, including Applications that gave users access to instant messaging programs and ringtone programs, from which Defendant derived no revenue. ( Id. ¶¶ 63–66.) Defendant has unlawfully acquired monopoly power over an aftermarket for iPhone Applications by, inter alia, refusing to approve Applications that do not generate revenues for Defendant, discouraging iPhone owners from using competing Applications created by third-party providers, and programming the iPhone operating system in a way that prevents iPhone owners from downloading and using competing Applications. ( Id. ¶ 86.)

On the basis of the allegations outlined above, Plaintiffs assert three causes of action: (1) Unlawful Monopolization of the Applications Aftermarket, in Violation of Section 2 of the Sherman Act; (2) Attempted Monopolization of the Applications Aftermarket, in Violation of Section 2 of the Sherman Act; and (3) Conspiracy to Monopolize the iPhone Voice and Data Services Aftermarket, in Violation of Section 2 of the Sherman Act.

B. Procedural History

On December 29, 2011, Robert Pepper, Stephen H. Schwartz, Edward W. Hayter and Harry Bass (collectively, “Pepper Plaintiffs”) filed a Class Action Complaint. ( See Docket Item No. 1.) The Pepper Plaintiffs are represented by Wolf Haldenstein. ( Id.) On January 17, 2012, Eric Terrell, James Blackwell and Crystal Boykin (collectively, “Terrell Plaintiffs”) filed a substantially identical Class Action Complaint.⁶ The Terrell Plaintiffs were represented by the Terrell Law Group. ( Id.) On March 20, 2012, the Court ordered that the two cases be consolidated.⁷ On March 21, 2012, Plaintiffs filed their Consolidated Class Action Complaint. ( See Complaint.) On March 29, 2012, the Court issued an order requesting motions for appointment of interim class counsel.⁸ On April 9, 2012, 2012 WL 1514828, on the basis of its finding that Wolf Haldenstein could adequately represent the interests of the class, and insofar as no other representative sought appointment as class counsel, the Court appointed Wolf Haldenstein as class counsel.⁹

Presently before the Court are Defendant's Motion to Compel Arbitration and Motion to Dismiss.

III. STANDARDS

A. Motion to Compel Arbitration

It is fundamental that “a party cannot be required to submit to arbitration any dispute which [it] has not agreed so to submit.” Samson v. NAMA Holdings, LLC, 637 F.3d 915, 923 (9th Cir.2011) (citations omitted). However, it is also well established that “[a]rbitration provides a forum for resolving disputes more expeditiously and with greater flexibility than litigation.” Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010, 1011 (9th Cir.2004) (citation omitted). Congress created the Federal Arbitration Act (“FAA”) to “overrule the judiciary's longstanding refusal to enforce agreements to arbitrate ... and place such agreements on the same footing as other contracts.” Id. (citation omitted). “A party to a valid arbitration agreement may ‘petition any United States district court for an order directing that such arbitration proceed in the manner provided for in such agreement.’ ” Id. at 1012 (quoting 9 U.S.C. § 4). The district court's “role is limited to determining whether a valid arbitration agreement exists and, if so, whether the agreement encompasses the dispute at issue.” See id.; see also Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir.2000). A court interpreting the scope of an arbitration provision should apply ordinary state law principles of contract construction. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). “[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24–25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Thus, arbitration should only be denied where “it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” AT & T Tech., Inc. v. Commc'n Workers, 475 U.S. 643, 650, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (quoting United Steelworkers v. Warrior & Gulf Navigation Corp., 363 U.S. 574, 582–83, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960)).

B. Motion to Dismiss

Under Fed.R.Civ.P. 12(b)(7), a party may bring a motion to dismiss for “failure to join a party under Rule 19.” Fed.R.Civ.P. 19 provides that a party “must be joined” if, in that party's absence, the court “cannot accord complete relief among existing parties.” Fed.R.Civ.P. 19(a). Under Rule 19, courts undertake a three-step analysis to determine whether an absent party should be joined. See E.E.O.C. v. Peabody W. Coal Co., 400 F.3d 774, 779 (9th Cir.2005). First, the court must determine whether the absent party is “necessary.” See Takeda v. Northwestern Nat'l Life Ins. Co., 765 F.2d 815, 819 (9th Cir.1985). A party is “necessary” if, inter alia, “complete relief cannot be accorded among those already parties” in that party's absence. Id. (citing Fed.R.Civ.P. 19(a)). Second, if the absent party is a “necessary party under Rule 19(a),” the court must determine “whether it is feasible to order that the absentee be joined.” Peabody W. Coal Co., 400 F.3d at 779. Third, “if joinder is not feasible,” the court must determine “whether the case can proceed without the absentee, or whether the absentee is an ‘indispensable party’ such that the action must be dismissed.” Id.

IV. DISCUSSION

A. Motion to Compel Arbitration

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