Saturday, July 2, 2022

UK consumer class action against Apple's app tax passes legal and factual plausibility test: Competition Appeal Tribunal gives guidance, lets case go forward

Just yesterday, I quoted Elon Musk on lawyers often being the real plaintiffs in class actions, but in commenting on a sham settlement between Google and a few U.S. developers also noted that sometimes class actions do bring about important results, particularly the Pepper v. Apple antitrust-based consumer class action that made it all the way up to the Supreme Court and--at least psychologically--paved the way for Epic Games v. Apple.

Hausfeld, a firm specializing in antitrust damages with offices in multiple countries, is one of the firms involved with the aforementioned Google cases, but they also do some much more significant work. In particular, their German office is playing a very important role in complaints with the European Commission as well as national competition authorities over various forms of misconduct by Apple and Google. And their UK consumer class action against Apple (for overcharging through the app tax), i.e., the British equivalent of the aformentioned Pepper case, looks ever more interesting.

The Competition Appeal Tribunal in London published a short summary as well as the entire 35-page decision (PDF).

The easier part for the court to resolve was the certification of the class, including that it's an opt-out rather than opt-in class: Apple wasn't challenging that part. Also, Apple wasn't trying to get the exclusive dealing and tying claims thrown out at this early procedural stage (at the earliest, the case will go to trial next year)--but Apple was trying to get the unfair pricing claim stricken. The key EU precedent for unfair pricing--which applies to British cases with respect to the period until Brexit, and still has some persuasive weight--is United Brands.

The standard for the class action lawsuit to survive Apple's early challenge was neither as low as Hausfeld merely having to establish that their representative client (economist Dr. Rachael Kent) had an actional antitrust claim nor as high as proving a likelihood of success on the merits. It was in between, basically a legal test that also involved a plausibility assessment of the factual allegations (U.S. readers will feel reminded of Twombly).

What's interesting here is that Apple's motion apparently backfired. It wasn't merely dismissed but the court effectively--whether intended or not--also gave guidance to Hausfeld and their economic expert witness with a view to future testimony.

Apple argued that the theories for what would have constituted fair pricing in a but-for scenario came down to a cost-plus theory (offsetting costs and generating some limited profits) without sufficient attention to demand-side effects, such as Apple creating features that enable app developers to make more money. The court, however, noted that the plaintiff's expert witness, Mr. Holt, actually compared Apple's return on capital employed (ROCE) to its weighted average cost of capital (WACC)--and will have to tread carefully in the further process so as not to lend credence to Apple's "it's just cost-plus" argument. The court "agree[s] with Apple that Mr Holt is somewhat abrupt in his explanation of his assessment of demand side factors--but that is exactly what will help the plaintiff side to optimize its case, while there is nothing in the decision that would better enable Apple to defend itself.

Hausfeld set up a website for the UK class action. Notwithstanding my general reservations concerning the actual impact of class actions on the (mis)conduct of large corporations, this one stands out as a particularly interesting one.

The UK decision mentions regulatory investigations and lawsuits around the globe. Apple and Google are facing ever more challenges to their app distribution terms and practices. For one example of many, I can't imagine the Korea Communications Commission would accept without a fight that Apple and Google charge a 26% fee (which Apple doesn't even adjust for cases where the regular app tax is 15%--small businesses, second-year subscriptions) even on payments processed by third parties.