2 years ago
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The ailment contained an absorbing illustration that compares the fees Apple commands successful the U.S., wherever its marketplace stock is precocious (and growing), arsenic compared to different markets:
A week ago, Apple responded to the ailment with a question to dismiss, accompanied by a question to enactment discovery. While I privation the recognition paper issuers to prevail (because Apple is so abusing its monopoly power), they person to bash their homework and decently code Apple's question to dismiss, perchance with an amended complaint.
A mates of hours ago, the parties filed a associated presumption report, soon aft which the people enactment lawyers filed their absorption to Apple's question to enactment discovery:
Affinity's absorption to Apple's question to enactment discovery
As their absorption filing notes, find usually goes guardant successful the Northern District of California, truthful a question to disregard indispensable beryllium precise beardown astatine archetypal show successful bid to person the tribunal to assistance a find stay. That's wherefore the absorption little is, successful part, a preview of the forthcoming absorption to the question to dismiss.
There is 1 condemnation successful the absorption little that I'm struggling hard to marque consciousness of:
"The alleged merchandise market—Tap and Pay iOS Mobile Wallets—is marque neutral."
Well, iOS is a marque (as is Apple Pay, the lone merchandise fitting that category).
But the people enactment lawyers' statement past becomes fundamentally stronger:
"Regardless, Apple’s 'single brand' statement was rejected by this Court successful AliveCor, 2022 WL 833628, astatine *7 (White, J.). There, the Court held that parties tin “plausibly asseverate a single-brand aftermarket astatine the pleading stage."
AliveCor v. Apple is simply a lawsuit pending before the precise aforesaid judge (Senior District Judge Jeffrey S. White) implicit the Apple Watch, with a absorption connected bosom complaint investigation and different functionalities. Indeed, successful a March 31, 2022 bid (PDF), Judge White held that "AliveCor has plausibly alleged an aftermarket for watchOS apps":
"AliveCor’s allegations found a plausible aftermarket for watchOS apps that is derivative from and babelike connected the superior instrumentality market. AliveCor has besides plausibly alleged that Apple achieved its marketplace powerfulness successful the aftermarket lone aft the archetypal instrumentality purchase, which satisfies the 2nd Newcal consideration. The 3rd Newcal origin considers the root of the defendant’s marketplace power. AliveCor alleges that users look precocious switching costs aft the archetypal instrumentality acquisition that are chartless astatine the clip of the purchase. Such allegations are capable to found that the challenged aftermarket restraint is not knowingly accepted by users earlier the instrumentality purchase. Finally, AliveCor alleges that precocious switching costs forestall users and developers from switching to a antithetic operating strategy aft the archetypal instrumentality commitment. These allegations suffice to plausibly found that contention successful the archetypal marketplace does not needfully subject anticompetitive practices successful the aftermarket.
"At this stage, AliveCor’s allegations are capable to prosecute a assertion based connected the alleged aftermarket. The Court DENIES Apple’s question to disregard connected this basis."
In footnote 7, Judge White distinguished AliveCor from Pistacchio, an Apple Arcade lawsuit earlier Judge Yvonne Gonzalez Rogers (the justice who besides presided implicit past year's Epic Games v. Apple proceedings successful the aforesaid district) that Apple got thrown retired a twelvemonth earlier that AliveCor decision:
"In Pistacchio, the tribunal concluded that the plaintiff had not adequately pled that the applicable marketplace should beryllium constricted to the iOS platform. 4:20-cv-07034-YGR, 2021 WL 949422, astatine *2 (N.D. Cal. Mar. 11, 2021). However, the plaintiff successful Pistacchio did not allege an aftermarket theory, and the ailment contained acold less allegations supporting the alleged applicable market."
Apple besides claims that Affinity failed to allege an aftermarket theory. And arsenic I noted successful my commentary connected the question to dismiss, the word "aftermarket" lone appears erstwhile successful Affinity's complaint. Last night's absorption brief, however, argues that each the Kodak/Newcal factors (Newcal is simply a post-Kodak Ninth Circuit precedent) were decently alleged:
Factor #1
"Tracking these factors, Affinity alleges that the marketplace for Tap-and-Pay iOS Mobile Wallets derives from the superior smartphone and mobile instrumentality markets successful which Apple operates."
pointing to para. 52 of the complaint:
"Tap and Pay iOS Mobile Wallets are a chiseled merchandise for which determination is chiseled demand. More than 1 cardinal radical usage Apple’s mobile iOS devices, and astir fractional of them person enabled the Apple Pay Mobile Wallet to marque pat and wage payments."
Factor #2
"The challenged restraint (foreclosure of rival wallets) relates lone to the aftermarket."
pointing to para. 48 of the complaint:
"But Apple has taken a distinctly exclusionary attack with NFC technology. Apple presently allows developers to usage the NFC interface, but only to supply functionality that does not vie with Apple Pay. For example, developers tin utilize the NFC interface to let users to 'scan a artifact to link it with a video game,' oregon 'an in-store motion to entree coupons,' among different things. Apple besides precocious announced exertion that volition “empower millions of merchants' to accept Apple Pay payments from an iPhone. But what developers cannot bash is usage NFC to make apps that, similar Apple Pay, let users to marque pat and wage payments. Only Apple Pay tin usage NFC for that function."
Factor #3
"Apple’s marketplace powerfulness successful the aftermarket was not secured contractually successful the superior market."
pointing to para. 46 of the complaint:
"But iOS consumers ne'er hold that they volition exclusively usage Apple Pay arsenic their pat and wage mobile wallet. Instead, arsenic discussed herein, Apple coerces consumers to usage Apple Pay by barring each would-be Apple Pay rivals from accessing the NFC interface installed connected the mobile devices Apple already sold to the iOS consumers."
Factor #4
"And contention successful the superior marketplace does not subject Apple’s practices successful the aftermarket."
pointing to paras. 57-63 of the complaint:
"a. Android Wallets Are Not Reasonable Substitutes For Apple Pay.
"57. There are nary pat and wage Android mobile wallets disposable connected Apple’s iOS devices due to the fact that Apple has barred those wallets from accessing the NFC interface connected iOS devices. Thus, portion an iOS idiosyncratic tin download an iOS mentation of Google Pay from Apple’s App Store, the iOS Google Pay app cannot beryllium utilized to marque pat and wage payments. The app cannot adjacent beryllium utilized astatine the point-of-sale astatine all. Lacking Apple Pay’s halfway functionality connected an iOS device, Google Pay and different Android wallets are not a substitute for Apple Pay.
"58. Android mobile wallets are besides not successful the aforesaid applicable marketplace arsenic Tap and Pay iOS Mobile Wallets due to the fact that a Tap and Pay iOS Mobile Wallet is not constrained by substitution successful the marketplace for smartphones. To beryllium much precise, a tiny but important and non-transitory summation successful the terms of a Tap and Pay iOS Mobile Wallet transaction would not trigger switching by users to mobile wallets connected Android-based devices.
"59. Switching costs from iOS to Android mobile devices are high. As 1 Apple enforcement stated internally, 'Who’s going to bargain a Samsung telephone if they person apps, movies, etc already purchased? They present request to walk hundreds much to get wherever they are today.' Even if consumers mightiness beryllium induced to power to Android mobile devices successful effect to a alteration successful Apple Pay fees, Apple has assured this volition not happen. As addressed further below, Apple bars issuers from charging their cardholders further fees for their information successful Apple Pay. In different words, issuers cannot walk done the outgo of Apple Pay. Shielded from Apple Pay’s fees, consumers person nary crushed to power successful effect to a alteration successful the level astatine which Apple Pay’s fees are set. Apple tin (and has) acceptable those fees supra the competitory level knowing that, from consumers’ perspective, Apple Pay is, and has ever been, disposable escaped of charge.
"60. It is besides evident that astatine the clip a mobile instrumentality purchaser makes a determination arsenic to whether to acquisition an Apple instrumentality oregon an Android instrumentality oregon different marque of device, the purchaser has nary quality to instrumentality into information the further outgo imposed connected the marketplace by Apple’s anticompetitive conduct. In fact, the added outgo is unseen by the purchaser, who is not adjacent alert of the fees that Apple imposes connected paper issuers. As a result, the user has nary inducement erstwhile purchasing a mobile instrumentality to power to a competing instrumentality that does not complaint anticompetitive fees. Apple’s pricing powerfulness successful the Tap and Pay iOS Mobile Wallet Market is frankincense not constrained by user decisions astatine the clip of purchasing a mobile device.
"61. The lone enactment with the inducement to substitute, oregon promote substitution to Android wallets, is truthful the paper issuer. Apple has, however, barred issuers from encouraging consumers to power done surcharges, and truthful issuers tin promote switching lone by ceasing to enactment successful Apple Pay. This is demonstrably not a viable enactment for astir each issuers.
"62. As of September 2020, astir 51% of iPhone users had activated Apple Pay. Given the important colonisation of Apple Pay users, issuers cannot profitably (and mostly person not) disabled Apple Pay successful an effort to displacement request to Android wallets. Indeed, the fig of Apple Pay issuers has accrued steadily since Apple Pay’s launch, reaching a reported 5,480 banks worldwide by 2020 (20% summation implicit 2019). This reveals that issuers bash not expect that removing Apple Pay would effect successful consumers switching to Android wallets, alternatively they fearfulness consumers would power to cards issued by different banks instead.
"It is besides evident from historical pricing that Android pat and wage mobile wallets bash not enforce immoderate constraint connected the terms of Tap and Pay iOS Mobile Wallets. For years, Apple Pay has recovered it profitable to enforce a important issuer interest supra the $0.0 interest imposed by Android apps providing virtually the aforesaid work connected Android devices—namely, Google Pay and Samsung Pay. If these Android products were successful information substitutes for Apple Pay, request would person shifted to Google Pay and Samsung Pay. But this has not happened, arsenic conscionable noted. That issuers person absorbed Apple Pay fees demonstrates issuers’ inability to thrust consumers to Android wallets. Imposing nary restraint connected Apple Pay’s pricing, and hence connected the quality of a hypothetical monopolist’s quality to profitably enforce a tiny but important and non-transitory summation successful terms (SSNIP), those Android wallets cannot beryllium successful the aforesaid antitrust marketplace arsenic Apple Pay."
It's evidently nary coincidence that the 4th portion (aftermarket actions not disciplined by foremarket competition, i.e., the foremarket and the aftermarket are dissociated) is the astir elaborate one. That was besides the cardinal 1 successful past year's Epic Games v. Apple decision, isolated from Judge YGR getting the foremarket portion wholly wrong.
Apple would presumably person brought a question to disregard adjacent if Affinity's ailment had been doubly arsenic specific. But it would person been bully if the ailment had referenced the Kodak/Newcal factors much clearly. I fishy the people enactment lawyers didn't bash that due to the fact that they don't privation to beryllium connected conscionable a single-brand marketplace definition. Unlike the recognition paper issuers, I judge Apple has a constituent that "Tap and Pay iOS Mobile Wallets" is simply a single-brand market. Otherwise iOS wouldn't beryllium portion of that definition. However, Apple whitethorn already person truthful overmuch powerfulness successful the foremarket that a single-brand aftermarket isn't required.
Affinity's absorption to a question to disregard won't beryllium capable to cure factual deficiencies. But what they tin bash successful the briefing process is representation the factual allegations successful their ailment to ineligible theories that enactment them, adjacent if the ailment itself didn't bash it rather arsenic intelligibly arsenic it could have.
While I deliberation Affinity's lawsuit faces further hurdles to, oregon higher hurdles than, the ones that Epic has to flooded (see my preview of the Ninth Circuit proceeding successful the Fortnite lawsuit that volition instrumentality spot connected Friday), I bash judge it's much akin to AliveCor, wherever Judge White granted successful portion and denied successful portion Apple's question to dismiss, than Pistacchio (the Apple Arcade that Judge Rogers dismissed).
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