Claims of Apple-AT&T Exclusive Baffle Judge

OAKLAND, Calif. (CN) - A federal judge on Monday considered whether to dismiss an antitrust class action against Apple over the tech giant's wireless exclusivity agreement with AT&T.

Lead plaintiff Zack Ward claimed in 2012 that Apple and mobile carrier AT&T entered into a five-year exclusivity agreement shortly before the iPhone was introduced in 2007.

According to the complaint, Apple enforced the agreement by putting SIM card locks on iPhones without telling customers. If customers wanted an iPhone, they were unknowingly bound to use AT&T for five years, even though they signed only two-year wireless service contracts with AT&T.

The plaintiffs claim that the agreement at issue violated federal antitrust law.

Arguments before U.S. District Judge Yvonne Gonzalez Rogers on Monday focused on whether the disputed economic conduct took place in an "aftermarket," which legally refers to the market that exists after the purchase of an underlying product.

Arguing for the plaintiffs, Mark Rifkin theorized that the sale of AT&T's mobile service took place in an aftermarket, on the logic that the service was purchased following the purchase of an iPhone.

"Consumers do not define the boundaries of the market - products and producers do," Rifkin said. "The way the aftermarket here was defined was simply pursuant to the agreement between Apple and AT&T that these phones, unlike every phone in the known universe, could not be used except on AT&T."

But Rogers noted that "what you're complaining about was sold at the exact same time [as the original product] and was integral to the product that was sold."

She also asked Rifkin to update his clients' complaint before she could viably evaluate its merits.

"There may be something here, but it's not clear to me that you've articulated it well enough in this complaint - which is very old - and you may have to go back and do some work," she said.

Rogers said that it seems that the allegations regarding the five-year exclusivity agreement was "ultimately for naught" because there is no evidence that such a deal was "ever consummated."

Daniel Wall, representing Apple, urged the judge to use "common sense" in her evaluation of the complaint's merits.

"Regardless of the fact that iPhone users can't take their devices to Verizon or Sprint or T-Mobile, everybody else can," he said. "And the market price for cellphone service is set by all the interactions in the market."

He added, "AT&T never charged more for iPhone service than it did for the service of any other brand of phone. The plaintiffs do not allege and could not in good faith allege that."

The plaintiffs' allegations, Wall said, are "entirely circular," and are defining the whole market by Apple's relationship with AT&T.

He also argued that the complaint does not deal with an aftermarket, since by the middle of 2009 AT&T's service was "the only game in town for the iPhone."

"It's just not reasonable to claim that there was an aftermarket," he said.

Near the end of the hearing, Rogers questioned whether the case presented valid antitrust claims at all.

"The point of antitrust law is to keep competition in the markets healthy," she said to Rifkin. "Where is competition being harmed under your theory? I'm trying to figure out how it is that you fit into one of these markets."

Rifkin is with Wolf Haldenstein Adler Freeman & Herz, in New York City.

Wall is with Latham & Watkins in San Francisco.

Rogers did not indicate when or how she intends to rule.

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