Court finds Apple not committing common law monopolization of MP3 market

Michelle Massey, East Texas Bureau Oct. 14, 2009, 4:48am

TEXARKANA, Ark. – A federal judge has partially dismissed a Taiwanese MP3 maker's claims that Apple Inc. is attempting to monopolize the worldwide MP3 player market by squashing and preventing competition from smaller manufacturers of MP3 players.

On Sept. 28, U.S. District Judge Harry F. Barnes dismissed Luxpro's claims that Apple attempted acts of common law monopolization. The ruling also dismissed claims that Apple interfered with some of Luxpro's business contracts.

Luxpro Corp. filed the original lawsuit against Apple Inc., formerly known as Apple Computer Inc., on Oct. 14, 2008, in the Texarkana Division of the Western District of Arkansas.

The original lawsuit argued that "Apple sought to conquer smaller competitors such as Luxpro to prevent an increased market share among the smaller-ranged manufacturers."

Luxpro contends that Apple's competitors have attempted to fight back with lawsuits alleging, among other issues, "that Apple engages in illegal anti-trust tying schemes, unfair competition, and monopolizing behavior by placing unneeded and unjustifiable technological restrictions on its most popular products in an effort to restrict consumer choice and restrain competition in the digital music market."

The plaintiff claims that Apple began targeting Luxpro in 2005 when Apple applied to a German court for injunctive relief preventing Luxpro from using the word "Shuffle" in one of its products.

After winning the German injunction, Apple then filed suit in Taiwan alleging that the appearance of Luxpro's products closely resembled the iPod shuffle. Although Luxpro eventually won the lawsuit on appeal, it states the litigation caused it economic damage, and ruined the company's reputation.

Luxpro argues that Apple sent threatening letters to Luxpro demanding it to stop marketing, manufacturing and selling its MP3 products.

According to Luxpro, when tactic failed to work, Apple sent warning letters, made threats and exerted pressure to other companies and suppliers to cease doing business with Luxpro. Due to the pressure applied by Apple, businesses such as Circuit City pulled Luxpro's MP3 players from its shelves, the suit claims.

The lawsuit alleges Apple's actions are explained by "its thirst for complete global dominance in the worldwide MP3 player market."

Analyzing the claims under both Arkansas and California law, Judge Barnes has ruled to allow Luxpro's claims that Apple interfered with its contractual and prospective advantage with regard to some businesses, such as Starbucks, who backed out of deals with Luxpro in 2006, but to dismiss claims that fell outside the three year applicable statute of limitations.

Apple argued that its actions were immune from antitrust liability because it petitioned Germany and Taiwan for redress. The federal court disagreed stating that it could not find that Apple's conduct "was in anyway related to its right to petition a court" and is therefore not granting Apple immunity.

However, Judge Barnes dismissed the plaintiff's claims that Apple attempted common law monopolization and found that no cause of action for attempted common law monopolization claim is recognized under California or Arkansas law.

The opinion also stated that Luxpro has inadequately pleaded claims for defamation and/or trade libel and commercial disparagement but granted the plaintiff leave to amend its pleadings. The plaintiff has until Nov. 2 to amend its first amended complaint.

Attorneys Richard Adams, Phillip Cockrell, Corey McGaha and Jeremy Hutchinson of the Texarkana and Little Rock law firm Patton Roberts PLLC are representing Luxpro Corporation.

Kevin A. Crass of Friday, Eldredge & Clark in Little Rock; Stuart Christopher Plunkett and Penelope A. Preovolos of Morrison Foerster LLP in San Francisco, Calif.; and James M. Pratt Jr. of Camden, Ark., are representing Apple.

Case No 08cv004092

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