67 F.4th 946
9th Cir.2023Background
- Epic sued Apple under Sherman Act §§1–2 and California Unfair Competition Law (UCL), challenging: (1) App distribution limited to Apple’s App Store; (2) mandatory in-app purchases (IAP) via Apple’s processor; and (3) restrictions preventing developers from steering users to alternative payment methods. Epic sought injunctive relief to permit alternative distribution/payment on iOS.
- Apple counterclaimed for breach of the Developer Program Licensing Agreement (DPLA) after Epic deployed a Fortnite “hotfix” that bypassed IAP; Apple sought indemnification for attorneys’ fees.
- After a 16-day bench trial the district court: denied Epic’s Sherman Act claims (finding Epic failed to prove viable less-restrictive alternatives), found the anti‑steering clause unlawful under the UCL and enjoined its enforcement, held Epic breached the DPLA, and denied Apple fees under the indemnity clause.
- On appeal the Ninth Circuit affirmed most of the district court’s rulings: rejected Epic’s federal antitrust claims and illegality defense to breach, affirmed the UCL injunction for Epic, but reversed the district court on attorney fees, remanding for further proceedings as to indemnity.
- The panel identified several legal errors by the district court (e.g., treating adhesion contracts as outside §1 and misstating market‑definition rules) but deemed those errors harmless because Epic failed on the facts to prove its proposed iOS‑specific markets or viable less‑restrictive alternatives.
Issues
| Issue | Epic's Argument | Apple’s Argument | Held |
|---|---|---|---|
| Relevant market definition | Single‑brand aftermarkets: iOS app distribution and iOS in‑app payment solutions (derived from foremarket OS) | Broader market of all game transactions (or mobile‑game transactions) | District court’s mobile‑game transactions market affirmed; district court made some legal errors on market‑definition but they were harmless because Epic failed factual proof of iOS‑specific aftermarket lock‑in |
| Sherman Act §1 restraint (distribution & IAP) | Apple’s restraints are anticompetitive; no less‑restrictive alternatives that achieve Apple’s procompetitive justifications | Restrictions are procompetitive (security, privacy, IP compensation); plausible alternatives insufficient | Rejected Epic’s §1 claim: court found anticompetitive effects but Apple showed cognizable procompetitive rationales and Epic failed to prove substantially less‑restrictive alternatives |
| Sherman Act §1 tying (App Store tied to IAP) | App distribution and IAP are separate products; tying unlawfully restrains trade | The products are integrated; even if separate, rule‑of‑reason should apply | Separate‑products finding by district court was erroneous, but harmless; applying Rule of Reason, Epic failed to prove the tie was unlawful |
| Sherman Act §2 monopolization | Apple maintained monopoly power via these restrictions | Apple’s market power is not durable; conduct is procompetitive | Affirmed district court: Epic failed to prove monopoly maintenance (and did not challenge district court’s finding re lack of durable monopoly power) |
| California UCL (anti‑steering clause) | Anti‑steering harms competition and consumers; injunctive relief warranted | Federal antitrust failure forecloses UCL relief; Amex/antitrust principles control | Affirmed: district court did not clearly err on standing or unfairness; injunction against enforcing anti‑steering provision affirmed |
| Breach and attorney fees under DPLA | Epic argued illegality defense; fees not owed | Epic breached; indemnity clause covers Apple’s fees | Breach: Epic stipulated and defenses rejected (Sherman Act failure makes illegality defense fail). Fees: Ninth Circuit reversed district court — indemnity clause covers intra‑party defense costs; remand to apportion fees attributable to Epic’s breach |
Key Cases Cited
- Ohio v. Am. Express Co., 138 S. Ct. 2274 (2018) (Rule of Reason framework in two‑sided markets; market‑definition importance)
- Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451 (1992) (single‑brand aftermarket doctrine and consumer knowledge/switching costs analysis)
- Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2 (1984) (consumer‑demand test for separate products in tying claims)
- Brown Shoe Co. v. United States, 370 U.S. 294 (1962) (practical indicia for market definition)
- NCAA v. Alston, 141 S. Ct. 2141 (2021) (Rule of Reason balancing and evaluation of procompetitive justifications)
- O’Bannon v. NCAA, 802 F.3d 1049 (9th Cir. 2015) (antitrust injury measures and anticompetitive effects beyond output declines)
- Newcal Indus. v. Ikon Office Sol., 513 F.3d 1038 (9th Cir. 2008) (distinguishing Kodak; importance of consumer knowledge in aftermarkets)
- United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) (caution on per se treatment in platform/software markets; tying in software contexts)
- Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d 1421 (9th Cir. 1995) (market‑definition and SSNIP/monopoly analysis)
- United States v. Trinko, 540 U.S. 398 (2004) (antitrust §2 standards; requirement to show anticompetitive maintenance)