Schwartz v. Apple Inc. (In re Apple iPhone Antitrust Litig.)

• Citation: 846 F.3d 313
• Decision Date: 12 January 2017
• Docket Number: No. 14-15000,14-15000
• Parties: IN RE APPLE IPHONE ANTITRUST LITIGATION, Robert Pepper; Stephen H. Schwartz; Edward W. Hayter; Eric Terrell, Plaintiffs–Appellants, v. Apple Inc., Defendant–Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

846 F.3d 313

IN RE APPLE IPHONE ANTITRUST LITIGATION,

Robert Pepper; Stephen H. Schwartz; Edward W. Hayter; Eric Terrell, Plaintiffs–Appellants,

v.Apple Inc., Defendant–Appellee.

No. 14-15000

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 10, 2016 San Francisco, California

Filed January 12, 2017

Mark C. Rifkin (argued), Alexander H. Schmidt, and Michael Liskow, Wolf Haldenstein Adler Freeman & Herz LLP, New York, New York; Francis M. Gregorek and Rachele R. Rickert, Wolf Haldenstein Adler Freeman & Herz LLP, San Diego, California; for Plaintiffs–Appellants.

Daniel M. Wall (argued), Christopher S. Yates, and Sadik Huseny, Latham & Watkins LLP, San Francisco, California; J. Scott Ballenger, Latham & Watkins LLP, Washington, D.C.; for Defendant–Appellee.

Before: A. Wallace Tashima and William A. Fletcher, Circuit Judges, and Robert W. Gettleman,^** District Judge.

OPINION

W. FLETCHER, Circuit Judge:

In their current complaint, Plaintiffs allege that they purchased iPhones and iPhone applications ("apps") between 2007 and 2013, and that Apple has monopolized and attempted to monopolize the market for iPhone apps. In ruling on Apple's fourth motion to dismiss, the district court held that Plaintiffs lacked antitrust standing under Illinois Brick Co. v. Illinois , 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977).

We must decide two questions. First, we must decide whether Rule 12(g)(2) barred the district court from considering on the merits Apple's fourth motion to dismiss, brought under Rule 12(b)(6), in which Apple contended that Plaintiffs lack statutory standing under Illinois Brick . We conclude that the district court may have erred in considering this motion on the merits, but that its error, if any, was harmless. Second, we must decide whether Plaintiffs lack statutory standing under Illinois Brick. We hold that Plaintiffs are direct purchasers from Apple within the meaning of Illinois Brick and therefore have standing.

I. Factual Allegations

The following factual narrative is drawn from Plaintiffs' current complaint. Because the district court dismissed Plaintiffs' suit under Rule 12(b)(6) for failure to state a claim, we take as true all plausible allegations.

Apple released the iPhone in 2007. The iPhone is a "closed system," meaning that Apple controls which apps—such as ringtones, instant messaging, internet, video, and the like—can run on an iPhone's software. In 2008, Apple launched the "App Store," an internet site where iPhone users can find, purchase, and download iPhone apps. Apple has developed some of the apps sold in the App Store, but many of the apps sold in the store have been developed by third-party developers. Apple earns a commission on each third-party app purchased for use on an iPhone. When a customer purchases a third-party iPhone app, the payment is submitted to the App Store. Of that payment, 30% goes to Apple and 70% goes to the developer.

Apple prohibits app developers from selling iPhone apps through channels other than the App Store, threatening to cut off sales by any developer who violates this prohibition. Apple discourages iPhone owners from downloading unapproved apps, threatening to void iPhone warranties if they do so.

II. Procedural History

The procedural history of this case is complex. We describe as much of the history as is necessary to resolve the procedural question before us. Four named plaintiffs filed a putative antitrust class action complaint ("Complaint 1") against Apple on December 29, 2011. Counts I and II of Complaint 1 alleged monopolization and attempted monopolization of the iPhone app market by Apple. Count III alleged a conspiracy between Apple and AT&T Mobility, LLC ("ATTM") to monopolize the voice and data services market for iPhones. Plaintiffs alleged that they had purchased iPhones, but did not allege that they had ever purchased, or attempted to purchase, iPhone apps. On March 2, 2012, Apple moved to dismiss the entire complaint under Rule 12(b)(7) for failure to join ATTM as a defendant. This motion to dismiss was mooted when the district court consolidated the action with another action.

Seven named plaintiffs, including the original four plaintiffs, then filed a consolidated putative class action complaint ("Complaint 2") against Apple on March 21, 2012. The allegations in Complaint 2 were essentially the same as those in Complaint 1, and the same three Counts were alleged. None of the named plaintiffs alleged that they had bought, or attempted to buy, an iPhone app. ATTM was not added as a defendant. On April 16, 2012, Apple moved again to dismiss the entire complaint under Rule 12(b)(7) for failure to join ATTM as a defendant. In the alternative, it moved to dismiss Count III under Rule 12(b)(6) for failure to state a claim for conspiracy between Apple and ATTM. The district court granted without prejudice the motion to dismiss the entire complaint, even though Counts I and II alleged no wrongdoing by ATTM. The court specifically ordered Plaintiffs either to add ATTM as a defendant or to forgo Count III. It denied without prejudice Apple's motion to dismiss Count III under Rule 12(b)(6) on the ground that, in the absence of ATTM, the motion was premature.

Plaintiffs filed an amended consolidated complaint ("Complaint 3") on September 28, 2012. Complaint 3 was essentially the same as Complaint 2, except that Count III was now labeled as "Preserved for Appeal." None of the named plaintiffs alleged that they had ever purchased, or sought to purchase, iPhone apps, and ATTM was not named as a defendant. On November 2, 2012, Apple moved under Rule 12(f) to strike Claim III on the ground that ATTM had still not been named as a defendant. As part of the same motion, Apple moved to dismiss Counts I and II under Rule 12(b)(1) for lack of Article III standing, and under Rule 12(b)(6) for lack of statutory standing under Illinois Brick . This was the first time Apple had moved to dismiss Counts I and II. Relying on Rule 12(g)(2), Plaintiffs opposed Apple's motion to dismiss under Rule 12(b)(6) on the ground that Apple had not moved to dismiss these claims under Rule 12(b)(6) in its two previous motions under Rule 12.

The district court granted the Rule 12(f) motion to strike Count III. The district court also granted the Rule 12(b)(1) motion to dismiss Counts I and II for lack of subject matter jurisdiction, holding that Plaintiffs lacked Article III standing to bring those counts because Plaintiff failed to allege that they had purchased or attempted to purchase an iPhone app. The court declined to rule on the Rule 12(b)(6) motion to dismiss under Illinois Brick , concluding that, in the absence of an alleged Article III injury, any ruling would be advisory. The district court dismissed with leave to amend.

Plaintiffs filed a second amended consolidated complaint ("Complaint 4") on September 5, 2013. Complaint 4 alleged only the iPhone app monopolization claims, which had been Counts I and II of all of the earlier complaints. For the first time, Plaintiffs alleged that they had purchased iPhone apps, thereby alleging sufficient injury under Article III to support Counts I and II. Complaint 4 added the following allegation specifically addressed to statutory standing under Illinois Brick

When an iPhone customer buys an app from Apple, it pays the full purchase price, including Apple's 30% commission, directly to Apple.... Apple sells the apps (or, more recently, licenses for the apps) directly to the customer, collects the entire purchase price, and pays the developers after the sale. The developers at no time directly sell the apps or licenses to iPhone customers or collect payments from the customers.

On September 30, 2013, Apple filed a motion to dismiss under Rule 12(b)(6), contending that Plaintiffs lacked statutory standing under Illinois Brick . The district court agreed and dismissed Complaint 4 with prejudice. Plaintiffs timely appealed.

III. Standard of Review

We review de novo alleged errors of law in interpreting Rule 12. See Whittlestone, Inc. v. Handi–Craft Co. , 618 F.3d 970, 973 (9th Cir. 2010). We review de novo dismissals for failure to state a claim under Rule 12(b)(6). Carlin v. DairyAmerica, Inc ., 705 F.3d 856, 866 (9th Cir. 2013).

IV. Discussion

Plaintiffs make three arguments on appeal, of which we need to reach only two. First, Plaintiffs argue that Rule 12(g)(2) barred Apple from raising its Illinois Brick statutory standing defense in its fourth Rule 12 motion to dismiss, and that the district court erred in deciding the motion on the merits. Second, Plaintiffs argue that the district court erred in characterizing them as indirect purchasers from Apple, and therefore without statutory standing under Illinois Brick . We address these two arguments in turn.

A. Late-filed Motions to Dismiss under Rule 12(b)(6)

Rule 12(g)(2) provides, "Except as provided in Rule 12(h)(2) or (3), a party that makes a motion under this rule must not make another motion under this rule raising a defense or objection that was available to the party but omitted from its earlier motion." The consequence of omitting a defense from an earlier motion under Rule 12 depends on type of defense omitted. A defendant who omits a defense under Rules 12(b)(2)–(5) —lack of personal jurisdiction, improper venue, insufficient process, and insufficient service of process—entirely waives that defense. Fed. R. Civ. P. 12(h)(1)(A). A defendant who omits a defense under Rule 12(b)(6) —failure to state a claim upon which relief can be granted—does not waive that defense. Rule 12(g)(2) provides that a defendant who fails to assert a failure-to-state-a-claim defense in a pre-answer Rule 12 motion cannot assert that defense in a later pre-answer motion under Rule 12(b)(6), but the defense may be asserted in other ways. Fed. R. Civ. P. 12(h)(2).

Our sister circuits disagree about the proper interpretation and application of Rule 12(g)(2). The Seventh Circuit has held...