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Somers v. Apple, Inc.

United States Court of Appeals, Ninth Circuit

September 3, 2013

Stacie Somers, On Behalf of Herself and All Others Similarly Situated, Plaintiff-Appellant,
v.
Apple, Inc., Defendant-Appellee.

Argued and Submitted February 11, 2013—San Francisco, California

Appeal from the United States District Court for the Northern District of California James Ware, District Judge, Presiding D.C. No. 5:07-cv-06507-JW

Craig Briskin (argued) and Steven A. Skalet, Mehri & Skalet, PLLC, Washington, D.C.; Helen I. Zeldes, Alreen Haeggquist, and Aaron M. Olsen, Zeldes & Haeggquist, LLP, San Diego, California, for Plaintiff-Appellant.

Craig E. Stewart (argued), Robert A. Mittelstaedt, and David C. Kiernan, Jones Day, San Francisco, California, for Defendant-Appellee.

Before: Dorothy W. Nelson, Stephen Reinhardt, and Milan D. Smith, Jr., Circuit Judges.

SUMMARY[*]

Antitrust

The panel affirmed the district court's dismissal of a putative class action against Apple, Inc., alleging antitrust violations in connection with Apple's iPod and iTunes Music Store.

The panel held that the plaintiff waived review of the district court's order denying certification of a class of indirect purchasers of the iPod because she abandoned her underlying individual claim under § 2 of the Sherman Act based on inflated iPod prices.

The panel also held that the plaintiff failed to allege sufficient facts to state antitrust claims for damages and injunctive relief. The plaintiff alleged that Apple encoded iTunes Music Store music files with its proprietary Digital Rights Management (DRM), called FairPlay, which rendered the music files and the iPod compatible only with each other. She alleged that through certain software updates, Apple excluded competitors and obtained a monopoly in the portable digital media player and music download markets, which inflated Apple's music prices and deflated the value of the iPod.

The panel held that a monopolization claim for damages based on the theory of diminution in iPod value was barred by Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), because the plaintiff was an indirect purchaser of the iPod. In addition, she lacked standing to bring this claim because she alleged that she purchased her iPod after Apple's purported anti-competitive conduct began. The panel concluded that because Apple used FairPlay from the beginning, when it first launched the iTunes Music Store, its use of subsequent software updates only served to maintain the status quo at the time of purchase, and therefore could not plausibly be the basis for diminishing the value of the iPod.

The panel held that the plaintiff failed to state a monopolization claim for damages based on overcharged music downloads because she failed to plead sufficient facts to state a plausible antitrust injury. The panel concluded that the fact that Apple continuously charged the same price for its music irrespective of the absence or presence of a competitor rendered implausible the plaintiff's assertion that Apple's software updates affected music prices.

Finally, the panel held that the plaintiff failed to state a claim for injunctive relief in the form of DRM-free music files because her alleged inability to play her music freely, on non-iPods, was not an "antitrust injury" that affected competition.

OPINION

M. SMITH, Circuit Judge.

Plaintiff-Appellant Stacie Somers (Somers) brought a putative class action against Defendant-Appellee Apple, Inc. (Apple), alleging federal and state antitrust claims. Somers seeks to represent a class of indirect purchasers of the iPod, Apple's portable digital media player (PDMP), and a class of direct purchasers of music downloaded from Apple's iTunes Music Store (iTS). She alleges that Apple encoded iTS music files with its proprietary Digital Rights Management (DRM), called FairPlay, which rendered iTS music and the iPod compatible only with each other. She further claims that through certain software updates, Apple excluded competitors and obtained a monopoly in the PDMP and music download markets, which inflated Apple's music prices and deflated the value of the iPod. Somers requests damages and injunctive relief in the form of DRM-free music files.

Somers moved to certify a class of indirect purchasers of the iPod under Federal Rule of Civil Procedure 23(b)(3), which the district court denied. After giving Somers two opportunities to amend her complaint, the district court also dismissed Somers' antitrust claims with prejudice under Federal Rule of Civil Procedure 12(b)(6). Somers appeals both rulings. We hold Somers waived review of the district court's class certification order. We further hold that Somers failed to allege sufficient facts to state antitrust claims for damages and injunctive relief. Accordingly, we affirm.

FACTS AND PRIOR PROCEEDING

A. Background[1]

In January 2001, Apple introduced a software program called iTunes for personal computers. iTunes enables computer users to organize and play digital music files, and upload or "sync" the files to a PDMP. The iTunes software is pre-installed on Apple computers, and is also available to non-Apple computer users by free download. In October 2001, Apple introduced the iPod, its first PDMP, which at the time, was capable of playing only unprotected audio downloads in MP3 format.

In April 2003, Apple launched iTS, an online music store accessible only through iTunes. iTS began selling digital music tracks from major record labels for 99 cents each. iTS music files were encrypted with Fairplay at the point of purchase through iTunes. DRM is designed to restrict a consumer's use and reproduction of digital files. Major record labels required that digital music files sold by Apple through iTunes be in a protected format, but did not require Apple to restrict music files for use only with Apple products. Both iTunes and the iPod were updated to be compatible ...


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