October 12, 2007

Roger Parloff reports that Apple is faced with a billion-dollar-plus lawsuit against Apple alleging antitrust violations over its software restrictions on its iPhone product.

Antitrust? you might ask. Doesn't that only apply to monopolists? How can Apple have market power when they have less than 1% of the market for cell phones? The plaintiffs get around this by claiming that Apple iPhones are a market in and of themselves, and that Apple has a monopoly over the sale of iPhones. This raises the question why Apple had to reduce the price of its product by $200 shortly after introducing it if it didn't face any competition. But who says the legal system punishes innovators?

Note also that the suit is brought as a class action on behalf of all iPhone owners, even though people with common sense knew when they bought it that they were restricted to Cingular/AT&T phone service and software, and made the decision to buy it regardless. The class even absurdly includes people who will buy the iPhone in the future.

The suit makes no economic or legal sense, but it's been brought in California, home of the Ninth Circuit, which has countenanced the irrational theory of leverage before in such cases as Image Technical Serv., Inc. v. Eastman Kodak Co.