A federal judge has ruled Apple can’t delete a class action that could be worth billions of dollars if plaintiffs can show the tech giant violates antitrust laws by inflating purchase prices in its native App Store in order to generate larger commissions for software developers.
U.S. District Judge Yvonne Rogers issued an opinion Feb. 2 on a motion for class certification from four named plaintiffs, as well as Apple’s motion to exclude testimony from two of their expert witnesses.
Rogers noted she had previously partially denied a motion for class certification, but did so with the expectation the “plaintiffs could fix the identified problems with their experts’ econometric model. At this juncture, plaintiffs have resolved those deficiencies.”
The complaint, which dates back to 2011, alleges Apple has monopolized the retail market for app sales by charging supracompetitive commissions, which developers allegedly pass on to consumers through inflated prices for downloads or subscriptions. As part of those allegations, the plaintiffs relied on testimony from Daniel McFadden, a Nobel Prize-winning economist who is on the faculty at University of Southern California and University of California-Berkley.
In an earlier order, Judge Rogers found “McFadden relied on sound scientific and economic principles to determine that Apple’s commission rate on developers acts as a tax for both developers and their consumers” and agreed with his definition of the relevant marketplace. However, she rejected as arbitrary his projected commission rate, but for the alleged misconduct, as well as his method for identifying which iPhone users were unharmed by the alleged scheme.
In addition to supplying a revised report from McFadden, Rogers wrote, the plaintiffs also introduced the work of Rosa Abrantes-Metz, a managing director at Berkeley Research Group who has a doctoral economics degree, to calculate the proper commission rate. They then moved again for class certification, which Apple again opposed while attempting to strike all the new testimony.
Apple argued it has already lowered its commission rate three times, and App Store prices generally remained static, which its expert said show digital marketplace products have either no or negligible marginal cost, which it said proved McFadden overestimates the influence of marginal costs. But Rogers said a different perspective doesn’t “discredit Professor McFadden’s testimony about how all app developers across the App Store would have priced their apps and in-app content had Apple’s commission rate always been 13.63% rather than 30%.”
McFadden also used a damages model that calculates prices at the app level instead of individual app purchases. Rogers said she would not reconsider her refusal to reject that model, but noted McFadden corrected an earlier flaw by applying a percentage rather than a fixed-dollar method. She also rejected Apple’s contentions that McFadden’s model ignored focal-point pricing and price tiers, saying his methodology is “sufficiently reliable.”
Apple also argued McFadden’s modeling doesn’t account for developers setting app prices based on customer demand, but Rogers said that position “again mischaracterizes Professor McFadden’s methodology.” She further said the company similarly failed to mount an adequate challenge to the sufficiency of McFadden’s data.
Noting disputes over ascertaining which AppleID holders might have suffered legal harm, Rogers wrote Apple’s dispute is about the value of McFadden’s contentions and not whether his testimony is admissible, making them “fodder for cross-examination, not reason to exclude.”
Rogers likewise declined to strike the testimony from Abrantes-Metz, finding it either failed to show her work was flawed or that any potentially valid disputes were suited for trial arguments.
Having already determined the plaintiffs met part of their burden for certification, Rogers said the new testimony from McFadden and Abrantes-Metz allowed them to satisfy the predominance requirement.
“Plaintiffs currently estimate that 17.8% of Apple accounts have not suffered an overcharge due to Apple’s allegedly anticompetitive conduct,” Rogers wrote. “Because there are many more accounts than iPhone users, plaintiffs surmise that the actual number of class members that are uninjured is significantly lower. In any case, in response to the Court’s overbreadth concerns, plaintiffs have now narrowed their class definition to only include Apple account holders who have spent $10 or more on app or in-app content. Under this narrowed definition, Professor McFadden estimates that the class includes only 7.9% uninjured members.”
Rogers said it is likely that number could be reduced through further economic modeling. She approved the four plaintiffs as class representatives and agreed there are no concerns about class counsel: the firms of Wolf Haldenstein Adler Freeman & Herz, of New York; and Kellogg, Hansen, Todd, Figel & Frederick, of Washington, D.C.
Plaintiffs have been represented by attorneys Mark Rifkin, Betsy C. Manifold, Rachele R. Byrd and Marisa C. Livesay, of Wolf Haldenstein Adler Freeman & Herz; and David C. Frederick and Aaron M. Panner, of Kellogg, Hansen, Todd, Figel & Frederick.
Apple did not respond to a request for comment.
Apple has been represented by attorneys Theodore J. Boutrous Jr., Daniel G. Swanson, Cynthia E. Richman, Caeli A. Higney, Julian W. Kleinbrodt and Harry R. S. Phillips, of the firm of Gibson Dunn & Crutcher, of Los Angeles, San Francisco and Washington, D.C.