In Somers v. Apple, Inc., Case No. 11-16896 (9th Cir. Sept. 3, 2013), the Ninth Circuit affirmed the district court’s dismissal of a putative class action against Apple, Inc., alleging antitrust violations in connection with Apple’s iPod and its Tunes Music Store. The case illustrates the dangers of failing to adequately allege a price effect caused by a defendant’s purportedly anticompetitive conduct.
On behalf of a putative class, Somers alleges that she suffered injury in the form of inflated music prices. The premise of her overcharge theory is that Apple used software updates to thwart competitors (e.g., Real Networks) and gain a monopoly in the music download market, which permitted Apple to charge higher prices for its music than it could have in a competitive market. Specifically, Somers alleges that if Apple had not engaged in anti-competitive conduct to exclude Real Networks from the market, “it would have had to price Audio Downloads to compete on price with Real Networks.”
(Slip Opinion at 19-20.)
But, unfortunately for Somers, her allegations did not square with her overcharge theory. Apple’s price for music downloads remained stable before the time it allegedly acquired a monopoly and afterwards.
if Somers’ overcharge theory were correct, then Apple’s music prices from 2004 to 2008 were supracompetitive as a result of software updates that excluded competition, and the emergence of a large seller such as Amazon would have caused iTS [iTunes] music prices to fall. But Somers alleges no such price reduction. Somers’ overcharge theory is thus implausible in the face of contradictory market facts alleged in her complaint. As Somers herself acknowledges, under basic economic principles, increased competition—as Apple encountered in 2008 with the entrance of Amazon—generally lowers prices.
(Id. at 20.) “The fact that Apple continuously charged the same price for its music irrespective of the absence or presence of a competitor renders implausible Somers’ conclusory assertion that Apple’s software updates affected music prices.” (Id. at 21.)
The Ninth Circuit agreed that price “is only one possible indicator in assessing competitive markets. Monopoly power may be evaluated by other factors, such as barriers to entry or structural evidence of a monopolized market.” (Id. at 21.) “But if Apple did not charge inflated prices for its music, then this fact contradicts Somers’ overcharge theory, and there would be no basis for damages in the first place.” (Id.)
While Somers suggested that it was conceivable that Apple’s music was not priced higher because of some other factor, such as superior product or greater efficiency, the court found that to state a plausible antitrust injury, a plaintiff must allege facts that rise beyond mere conceivability or possibility. “We are only left to speculate on what factors could have permitted Apple to charge 99 cents continuously.” (Id. at 22.) Somers therefore failed to plead a plausible, non-speculative claim.