Tuesday, December 02, 2008

Blood in the Water: Apple's Class Actions

PHUTATORIUS
It's generally accepted in the tech community, and in the broader population, too, that Apple makes terrific, user-friendly products. So why is it, then, that there are so many consumer class action cases pending against Apple in the courts? The answer is a simple one: one class action attorney took a shot at suing Apple. Apple settled a frivolous claim. Now there's blood in the water, and the sharks are circling.

In December 2003 plaintiffs' attorneys filed a consumer class action suit in against Apple in California state court over the battery life of its early iPods. The lawsuit had no legal basis. All sorts of appliances contain lithium ion batteries. Lithium ion batteries wear out after a certain number of charge cycles, rendering the appliance useless if the battery isn't replaced. Sometimes surgery is required to replace the battery. Apple made no representations that its iPods were immortal, or that they would last longer than they did. The company did supply a limited warranty, and from what I can see, nothing about the iPods' battery life breached its terms. Sure, folks were exasperated that when confronted with this issue, Apple proposed to charge them $100 to replace the battery (or its employeees tried to take advantage of the moment to sell them a new iPod — I myself wrote something pithy to Apple about this some time ago). This was a matter of some controversy for Apple, and it's fair to say it marked the end of the company's iPod Honeymoon.

But the core of the matter is that the class plaintiffs' cause of action against Apple was very weak, but rather than absorb the discovery costs, legal fees, and the ongoing PR hit of litigating the case on the merits (to an uncertain, if nonetheless very likely favorable conclusion), the company elected, in June 2005, to settle the case for approximately $15 million. The court approved payment of $2.7 million in attorney's fees to class counsel.

Since that time, Apple has been inundated with consumer class action lawsuits. Here's an exhausting — if not exhaustive — list of the cases Apple has pending right now (and in the spirit of completeness I've thrown in a few that have been recently dismissed as well):

*Six class complaints (Wimmer v. Apple Computer, Inc., Civ. No. 5:05-4244 (N.D. Cal. Oct. 19, 2005); Moschella v. Apple Computer, Inc., Civ. No. 5:05-4372 (N.D. Cal. filed Oct. 26, 2005); Kahan v. Apple Computer, Inc., Civ. No. 1:05-9251 (S.D.N.Y. filed Oct. 31, 2005); Jennings v. Apple Computer, Inc., Civ. No. 5:05-4520 (N.D. Cal. filed Nov. 4, 2005); Rappel v. Apple Computer, Inc., Civ. No. 3:05-5622 (D.N.J. filed Nov. 23, 2005); Mayo v. Apple Computer, Inc., Civ. No. 3:05-1382 (M.D. La. filed June 6, 2006)), now consolidated under a single multidistrict litigation caption (MDL No. 1754), alleging a design defect in the first generation iPod Nano's LCD screen.

COMMENT: The first generation Nanos were released on September 7, 2005, hard on the heels of the iPod battery settlement. By the end of October Apple was already served with three class action suits over scratched display screens. Coincidence? Hardly. In fact, when you consider the time it takes to evaluate a product, identify its defects, then slap together a coherent class complaint, it wouldn't surprise me if Mr. Wimmer's attorneys didn't get hold of the first Nano ever released — for the sole purpose of beating the hell out of it and then bringing suit. Apple made no promises about the display screen: there are causes for customer dissatisfaction, and there are grounds for lawsuits. With the battery settlement, Apple has allowed class attorneys to blur the distinction.

*Three cases (Leung v. Apple Computer, Inc., Civ. No. 07-4143 (N.D. Cal. filed Aug. 13, 2007); Stiener v. Apple, Inc., Civ. No. 07-04486 (N.D. Cal. filed Aug. 29, 2007); Trujillo v. Apple Computer, Inc., Civ. No. 07-04946 (N.D. Ill. filed Sept. 6, 2007)) complaining that the battery life in Apple's iPhones is too short. Leung voluntarily dismissed his case shortly after filing. Apple recently won summary judgment in Trujillo, as the court found that it made adequate disclosures about its lithium ion batteries on the iPhone's packaging (a lesson no doubt learned from the iPod cases).

COMMENT: These claims are the lousy iPod battery claims all over again, with a different product. Next!

*A class lawsuit (Li v. Apple, Inc., Civ. No. 07-4005 (E.D.N.Y.)) brought on behalf of persons who bought iPhones before Apple reduced their price by $200, to recover what buyers "overpaid."

COMMENT: This is the gold standard of frivolous class action lawsuits. Brush aside for a moment the complaint's several citations to federal laws on price discrimination and underselling — and just imagine living in a society that requires businesses that discount their sales prices to reimburse all their previous customers for the price difference.

*Two class complaints (Smith v. Apple, Inc., Civ. No. 08-AR-1498 (N.D. Ala. filed Aug. 19, 2008); Walters v. Apple Computer, Inc., Civ. No. 4:08-002484 E.D. Ark. filed Sept. 12, 2008)) claiming that Apple's advertising of its G3 iPhones as "twice as fast" for "half the price" was misleading and deceptive.
*Two other 3G class complaints (Sen v. Apple Inc., Civ. No. 1:08-03864 (E.D.N.Y. filed Sept. 22, 2008); Gillis v. Apple Computer, Inc., Civ. No. 08-01835 (S.D. Cal. filed Oct. 8, 2008)), both of which target the adequacy of the 3G service, with the Sen case appending claims relating to "hairline cracks in the iPhones' casing."

COMMENT: The iPhone 3Gs were only released on July 11, and the third-generation lawsuits have come in short order. There's a rhythm emerging here: product is released, purchased, reviewed, broken, and then it becomes the subject of a lawsuit. The fact that attorneys are basing their claims on the puffery in Apple's ad slogans signs as well that it's open season on the folks in Cupertino.

All of the above cases are brought under state and/or federal consumer protection laws, and the substance of the claims is that Apple acted unfairly or deceptively in selling iPods and iPhones that did not comport with the buyers' expectations. The plaintiffs' argue from here that Apple had a duty to disclose the deficiencies in their products (or, as in the "twice as fast" cases, to refrain from exaggerating their merits in promotions). All these claims are patterned after the plaintiffs' theory of relief in the battery litigation.

And I haven't even bulleted the parallel actions that are pending in other jurisdictions, include Canadian class litigation over iPod battery life that Apple settled earlier this year. The Canadian class litigation was filed on June 7, 2005, five days after Apple settled the U.S. litigation on the same issue. Truly a game of Whack-a-Mole here.

Class action attorneys are exploring other claims against Apple, beyond those sounding in the consumer protection laws. These include:

*A product liability class action (Birdsong v. Apple Computer, Inc., Civ. No. 06-02280 (W.D. La. filed Jan 30, 2006)) seeking damages for hearing loss resulting from iPod and earbud use, on design defect and failure to warn theories.

*A class complaint (Holman v. Apple, Inc., Civ. No. 07-05152 (N.D. Cal.)) claiming that Apple's "bricking" of the iPhone — i.e., its exclusive cellular service provider deal with AT&T — violated the Cartwright Act, California's antitrust law.

COMMENT: I'm far from an antitrust law expert, but this seems to me to be another case of class attorneys trying, into the teeth of reason and good sense, to fashion a common geek-complaint about a product into a cause of action. Consumers aren't entitled — even in California — to have McDonald's serve them Pepsi. Absent evidence that Apple and/or AT&T is leveraging monopoly power here, there is no legal claim here. And for that matter, hackers have devised their own workarounds.

*Four class complaints (Slattery v. Apple Computer, Inc., Civ. No. 05-00037 (N.D. Cal. filed Jan. 3, 2005); Tucker v. Apple Computer, Inc., Civ. No. 06-04457 (N.D. Cal. filed July 21, 2006); Black v. Apple, Inc., Civ. No. 07-61395 (S.D. Fla. filed Sept. 28, 2007); Somers v. Apple, Inc., Civ. No. 07-06507 (N.D. Cal. filed Dec. 31, 2007)) brought under the Sherman Act, the Cartwright Act, and other state consumer protection provisions, centered on Apple's iTunes/iPhone product-tying practices. Black has been transferred to the district court in California, and the cases have been consolidated under a single caption. I'm pretty sure the Somers plaintiff is a classmate of mine.

COMMENT: Of the cases I've listed, these are the closest to advancing cogent, viable legal theories, simply because of the iPod's tremendous market share. There is the potential to make monopoly arguments here. And as it happens, the Slattery case was filed five months before Apple settled the iPod battery case — it's a relic of an era when meritorious claims were the order of the day. That three other suits have followed, in pile-on style, is more evidence of Apple's predicament.

It's commonplace by now to compare lawyers to "sharks," and I indulged that cliché at the beginning of this post. In Apple's case, an analogy to piranhas may be more appropriate. The company has literally been swarmed over with junk class action claims — and all because it displayed a willingness to settle a claim it could easily (in my view) have won if it had litigated to the hilt. Now the company can't even change a price point without finding itself haled into court over it, and if (God forbid!) it should release an actual product, trumped-up claims will arrive by the dozens. And if the product is popular, or even iconic, so much the better, from the plaintiffs' perspective, as the prospective class will be even bigger.

If Apple had that first battery case to do over, knowing what it does now, do you suppose it would settle? Eesh.