Ninth Circuit

Circuit court decisions

FTC v Qualcomm Inc^[1]

In January 2017, the Federal Trade Commission (FTC) voted to sue Qualcomm, Inc (Qualcomm) for alleged unlawful maintenance of its monopoly over the sale of cellular phone processors (processors or modem chips) in violation of section 5(a) of the FTC Act.^[2] The FTC alleged that Qualcomm applied a novel but exclusionary ‘no license, no chips’ policy, wherein the chipmaker refused to sell its processors to those cellular phone manufacturers that refused to agree to Qualcomm’s licensing terms for patents essential to widely adopted cellular standards.^[3] Judge Lucy Koh in the Northern District of California denied Qualcomm’s motion to dismiss in mid-2017,^[4] and granted the FTC’s motion for partial summary judgment in late 2018 on the issue of whether two cellular industry agreements obligate Qualcomm to license its essential patents to competing modem chip manufacturers.^[5]

In 2019, the district court concluded that ‘Qualcomm’s licensing practices were an unreasonable restraint of trade under section 1 of the Sherman Act and exclusionary conduct under section 2 of the Sherman Act.’ ^[6] Specifically, the district court found that Qualcomm’s anticompetitive acts included:

• refusing to sell an original equipment manufacturer’s (OEM) modem chips exhaustively (i.e., refusing to agree to the traditional commercial practice wherein Qualcomm’s patent rights in the chip would be terminated upon the authorized sale);^[7]
• unlawfully wielding its ‘chip monopoly power’ by threatening to withhold OEMs’ chip supply until OEMs sign patent license agreements on Qualcomm’s preferred terms;^[8]
• using incentive funds to reduce the price of Qualcomm’s chips and induce OEMs to agree to Qualcomm’s licensing terms, which the district court found to be ‘de facto exclusive deals that foreclose OEMs from purchasing modem chips from Qualcomm’s rivals’;^[9] and
• refusing to provide samples of modem chips, withholding technical support, and delaying delivery of software until OEMs sign Qualcomm’s patent license agreements.^[10]

The district court ordered a permanent, worldwide injunction against Qualcomm, ordering it to (1) cease conditioning the supply of its modem chips on a customer’s patent license status, (2) make exhaustive standard essential patent (SEP) licenses available to competitor modem-chip suppliers on FRAND^[11] terms, (3) refrain from entering express or de facto exclusive dealing agreements for the supply of modem chips, and (4) submit to seven years of compliance and monitoring procedures, with annual reports to the FTC.^[12]

In 2020, the Ninth Circuit reversed, finding that the district court ‘went beyond the scope of the Sherman Act.’ ^[13] As an initial matter, the court concluded that the district court improperly expanded the definition of the relevant market to include ‘the much larger market of cellular services generally,’ not just the markets for modem chips.^[14] This resulted in the district court considering the alleged economic harms to OEMs, ‘who are Qualcomm’s customers, not its competitors,’ and thus any such harms ‘are not “anticompetitive” in the antitrust sense.’ ^[15]

Limiting its analysis to alleged impact on modem chip markets, the Ninth Circuit rejected the district court’s conclusion that Qualcomm had an antitrust duty to license its SEPs to its direct competitors, finding that Judge Koh had failed to cite any evidence supporting that Qualcomm’s conduct had met the three elements required by the Supreme Court’s decision in Aspen Skiing^[16] – the single exception to the general rule that there is no antitrust duty to deal under the terms and conditions preferred by competitors.

Next, the court rejected the district court’s ‘primary theory of anticompetitive harm: Qualcomm’s imposition of an “anticompetitive surcharge” on rival chip suppliers via its licensing royalty rates,’ noting that this theory failed to state a cogent theory of antitrust harm because it both incorrectly conflated antitrust liability with patent law liability and improperly considered anticompetitive harms to OEMs that fall outside the newly restricted relevant markets.^[17] The Ninth Circuit applied the same analysis in finding error in the district court’s consideration of Qualcomm’s ‘no license, no chips’ policy, which focused almost exclusively on the alleged harms to OEMs.^[18] The court concluded that neither the Sherman Act nor any other law prohibits companies like Qualcomm from ‘(1) licensing their SEPs independently from their chip sales and collecting royalties, and/or (2) limiting their chip customer base to licensed OEMs.’^[19] These practices were ‘chip-supplier neutral,’ as Qualcomm collected royalties from all OEMs that license its patents, not just from OEMs that license its competitors’ patents; accordingly, there was no showing of anticompetitive harm. Such behavior, the court concluded, falls within the general rule that businesses are free to choose the parties with whom they will deal, and ‘profit-seeking behavior alone is insufficient to establish antitrust liability.’ ^[20] Judge Callahan, writing for a unanimous panel, also noted that Qualcomm’s competitors are now ‘following Qualcomm’s lead with respect to OEM-level licensing,’ which leads to increased competition against Qualcomm.^[21]

Finally, the Ninth Circuit reversed the district court’s judgment that Qualcomm violated both sections of the Sherman Act by signing ‘exclusive deals with Apple that foreclosed a substantial share’ of a specific modem chip market.^[22] Acknowledging the merits of Judge Koh’s conclusion that these agreements were structured ‘more like exclusive dealing contracts than volume discount contracts,’ the court concluded that such agreements did not have the ‘actual or practical effect of substantially foreclosing competition’ in the market, and thus injunctive relief was not warranted.^[23] Principally, the court observed that Qualcomm faced competition for the Apple contracts from only one competitor – Intel – but the district court failed to make any finding that Intel was affected by the agreements, particularly when ‘Intel won Apple’s business the very next year.’ ^[24]

The court elected to not address the question of whether Qualcomm ‘breached any of its FRAND commitments,’ explaining that determination and any remedies related thereto lie in contract and patent law, not in antitrust law.^[25] Following the panel’s decision, the FTC petitioned the Ninth Circuit for a rehearing en banc.^[26] The petition was denied,^[27] and the FTC decided to not petition the Supreme Court for review of the Ninth Circuit’s decision, citing ‘the significant headwinds facing the Commission in this matter.’ ^[28]

Alston v NCAA (In re NCAA Ath. Grant-In-Aid Cap Antitrust Litig)

In 2014, a plaintiff class of Football Bowl Subdivision and D1 student-athletes (collectively Student-Athletes) brought an antitrust action against the National Collegiate Athletic Association (NCAA), challenging the its compensation system.^[29] In 2015, following the Ninth Circuit’s decision in O’Bannon,^[30] the NCAA requested that the Northern District of California issue a judgment on the pleadings and preclude Student-Athletes from pursuing the matter further.^[31] The defendants argued that O’Bannon II required ‘nothing more of the NCAA than that it permit its member schools to provide student-athletes with their full education-related cost of attendance [(COA)]’ and because they had already amended their rules to satisfy that requirement, any post-O’Bannon antitrust challenges to its compensation rules must fail.^[32] The district court denied the motion, however, finding that the matters at issue, including the identity of class members and the rules and rights at issue in the instant case were significantly different from those in O’Bannon.^[33] After a bench trial, the district court entered judgment for the Student-Athletes in part, finding that the NCAA limits on education-related benefits are unreasonable restraints of trade, and accordingly enjoined those limits; however, the court declined to hold that the NCAA limits on compensation unrelated to education likewise violate section 1 of the Sherman Act.^[34] Both parties appealed and the Ninth Circuit affirmed, finding that the district court properly applied the rule of reason in determining that the enjoined rules are unlawful restraints of trade under section 1.^[35] The court also concluded that the record supported the factual findings underlying the injunction and that the district court’s antitrust analysis was faithful to its decision in O’Bannon II.^[36]

The court reviewed the district court’s application of stare decisis and res judicata de novo, finding that it correctly concluded O’Bannon II did not foreclose this litigation under either doctrine.^[37] The court found that the NCAA ignored the inherently fact-dependent nature of a rule of reason analysis, the panel majority’s manifest effort to limit its decision to the record before it, and the majority’s mandate that courts must continue to subject NCAA rules, including those governing compensation, to antitrust scrutiny.^[38] Furthermore, because the Student-Athletes’ antitrust claim arose from events that occurred after the O’Bannon record closed in August 2014, the court found that the claims in this case were not barred.^[39]

The court also reviewed the district court’s factual findings for clear error and legal conclusion de novo^[40] and found that it properly granted judgment on the Student-Athletes’ Sherman Act section 1 claim^[41] under the rule of reason’s three-step framework: (1) Student-Athletes bear ‘the initial burden of showing that the restraint produces significant anticompetitive effects within a relevant market’; (2) if they carry that burden, the NCAA ‘must come forward with evidence of the restraint’s procompetitive effects’; and (3) the Student-Athletes ‘must then show that any legitimate objectives can be achieved in a substantially less restrictive manner.’ ^[42] The court found that the district court properly concluded that the Student-Athletes carried their burden at the first step of the rule of reason, finding that the district court’s findings that the NCAA’s rules have significant anticompetitive effects in the relevant market had substantial support in the record and further noted that the NCAA did not dispute these findings.^[43] Next, the court reviewed the district court’s analysis of the second step, where the NCAA advanced a single procompetitive justification: the challenged rules preserve amateurism, which, in turn, ‘widen[s] consumer choice’ by maintaining a distinction between college and professional sports.^[44] The court found that the district court fairly found that the NCAA compensation limits preserve demand to the extent that they prevent unlimited cash payment akin to professional salaries, but not insofar as they restrict certain education-related benefits.^[45] The court highlighted that the district court reasonably relied on demand analyses, survey evidence, and NCAA testimony indicating that caps on non-cash, education-related benefits have no demand preserving effect and, therefore, lack a procompetitive justification.^[46] Finally, the court examined the least restrictive alternative (LRA) identified by the district court in the third step, which would prohibit the NCAA from (1) capping certain education-related benefits and (2) limiting academic or graduation awards or incentives below the maximum amount that an individual athlete may receive in athletic participation awards, while (3) permitting individual conferences to set limits on education-related benefits.^[47] The court found that the district court did not clearly err in determining that this LRA would be ‘ “virtually as effective” in serving the procompetitive purposes of the NCAA’s current rules,’ and may be implemented without ‘significantly increased cost.’ ^[48] Specifically, the court found that the district court reasonably concluded that uncapping certain education-related benefits would preserve consumer demand for college athletics just as well as the challenged rules do; the record showed ample support for the district court’s finding that the provision of education-related benefits has not, and will not, repel college sports fans and that it will only reinforce consumers’ perception of Student-Athletes as students; and that caps on education-related benefits will actually save the NCAA resources that it would otherwise spend on enforcing those caps.^[49] The court also noted that there was no evidence that substantiated the NCAA’s concerns that certain benefits permissible under the LRA, if uncapped, would become vehicles for payments that are virtually indistinguishable from a professional’s salary. Instead, the court emphasized that the district court’s injunction ‘expressly envisioned non-cash education-related benefits for legitimate education-related costs, not luxury cars or expensive musical instruments for students who are not studying music.’ ^[50]

In reviewing the district court’s injunction, the court neither vacated nor broadened the injunction, and instead affirmed it, finding that the district court struck the right balance in crafting a remedy that both prevents anticompetitive harm to Student-Athletes while serving the procompetitive purposes of preserving the popularity of college supports. The court disagreed with the NCAA’s claim that the injunction’s reference to ‘other tangible items not included in the [COA] but nonetheless related to the pursuit of academic studies’ is impermissibly vague, and instead found that when read in context, the language used was reasonably specific.^[51] Additionally, the court highlighted that the injunction invites the NCAA to promulgate a definition of ‘related to education,’ based on its institutional expertise, subject to the court’s approval and that ‘this allowance does not constitute judicial usurpation by a long shot,’ and thus, it upheld the injunction against the NCAA’s challenges.^[52]

As to the challenges made by the plaintiff, the court found the Student-Athletes’ claim, that the district court should have enjoined all NCAA compensation limits, including those on payments untethered to education, unpersuasive.^[53] Specifically, the court noted that if the district court had concluded, as the Student-Athletes contend, that the NCAA limits on compensation unrelated to education unreasonably restrain trade, then it should have enjoined those limits but it did not; instead, it determined that the NCAA limits on education-related compensation are the only challenged rules that fail the rule of reason, therefore, limits on cash compensation unrelated to education do not, on this record, constitute anticompetitive conduct and, thus, may not be enjoined.^[54] On 16 December 2020, the United States Supreme Court granted certiorari.^[55]

Northern District California decisions

SC Innovations, Inc v Uber Technologies, Inc

Chief Magistrate Judge Joseph Spero denied Uber’s motion to dismiss the second amended complaint of plaintiff SC Innovations, Inc (Sidecar), allowing the case to proceed to discovery. Sidecar alleged it was a victim of Uber’s predatory pricing tactics and exclusionary tortious conduct in the nascent ride-hailing industry and asserted claims for monopolization and attempted monopolization in violation of section 2 of the Sherman Act.^[56] Sidecar’s previous complaint had been dismissed with leave to amend for failure to provide sufficient allegations of market power,^[57] pleading deficiencies that it addressed in its amended complaint.

Uber’s ride-hailing smartphone app, launched in 2009, was initially limited to arranging rides between passengers and limousines driven by licensed chauffeurs.^[58] Sidecar launched its own ride-hailing app in 2012, allowing passengers to hail drivers who used their own personal vehicles and allegedly pioneering additional innovations such as estimated fares and ride-sharing capabilities.^[59] Uber and Lyft – allegedly Uber’s only remaining competitor currently in the market – quickly followed with similar offerings.^[60] Despite the head start, Sidecar achieved a market share of only between 10 percent and 15 percent in several large US cities, while Uber grew to become the dominant ride-hailing platform in the United States with a market share of between 60 percent and 75 percent in each of the cities in which Sidecar operated.^[61] Sidecar alleged that Uber achieved this dominance by consistently setting its prices below cost in pursuit of a ‘winner takes all’ outcome owing to the market’s barriers to entry – in particular, network effects caused by riders preferring a platform with a large supply of drivers and drivers preferring a platform with a large supply of passengers. Uber allegedly engaged in predatory pricing on each of the two sides of the ride-hailing market, offering below-market fares to passengers and above-market incentives to drivers and losing billions of dollars in the process, with the intent to recoup any losses by later raising fares and lowering payments to drivers.^[62] Uber also allegedly began increasing fares and reducing driver commissions once Sidecar ceased operations and ultimately became profitable in 2018.^[63]

In granting Uber’s motion to dismiss Sidecar’s first amended complaint, the court held that Sidecar had failed to provide sufficient allegations of market power, particularly its failure to allege that Uber had the power to raise market prices above competitive levels simply by reducing its own output, or that Lyft could not respond to such a reduction by increasing its own output.^[64] Sidecar attempted to redress these deficiencies in its second amended complaint by alleging that Uber’s discriminatory pricing and the network effects resulting from Uber’s dominance prevented Lyft from effectively restraining Uber’s pricing.^[65] Further, the financial pressures on Lyft as a public company with the need to focus on short-term financial gain allegedly left Lyft no incentive to undercut Uber.^[66] Combined with Uber’s tortious interference with its competitors, such as submitting fraudulent requests for rides or poaching drivers,^[67] Lyft allegedly had no ability to respond to Uber’s imposition of monopoly pricing and no incentive to do so.^[68]

In its second motion to dismiss, Uber argued that Sidecar still failed to allege that Uber had sufficient market power, contending that new allegations of price discrimination cannot substitute for the ability to restrict output.^[69] Second, Uber argued that Sidecar did not sufficiently address both parts of the two-sided transaction market for ride-hailing platforms, citing the Supreme Court’s decision in Ohio v American Express Co, which held that courts should analyze two-sided markets as a whole.^[70] Third, Sidecar’s complaint mistakenly relied on an oligopoly theory of market power that had been rejected by the Ninth Circuit.^[71] Last, Uber argued that the harm to competition by its purportedly tortious conduct was speculative at best.^[72]

To state a claim for monopolization, Sidecar must plausibly allege monopoly power, or ‘the power to control prices or exclude competition.’ ^[73] An ‘incomplete monopolist’ like Uber can exert market power when it controls enough of the market that ‘by restricting its own output, it can restrict marketwide output and, hence, increase marketwide prices.’ ^[74] Judge Spero noted that the Ninth Circuit has held that any anticompetitive effects of oligopolies constitute a ‘gap in the Sherman Act’ that must ‘slip past its prohibitions,’ and therefore Sidecar cannot base its Sherman Act claims, as it did in its previous complaint, on a theory of Uber’s ‘disciplined oligopoly’ with Lyft.^[75] Sidecar’s second amended complaint, however, now alleged that Lyft was ‘unable to respond effectively or to increase its own share of rides’ in response to Uber.^[76] With a sufficient disparity of market share, network effects could, as alleged by Sidecar, prevent rather than enable Lyft increasing output to counteract a reduction of supply by Uber.^[77] Judge Spero also rejected Uber’s argument that the Supreme Court’s American Express opinion required dismissal for failure to address sufficiently both sides of a two-sided market, distinguishing that case as being decided after a lengthy trial and holding only that the government improperly based its entire case on only one side of the market, factors not present here.^[78]

Judge Spero also rejected Uber’s argument that Sidecar failed to allege a danger probability of recoupment, noting that Uber could unilaterally raise the price it keeps for itself to supracompetitive levels while insulated by network effects from Lyft or another market entrant.^[79] Last, Judge Spero held that Sidecar had plausibly alleged harm to competition with its allegations of Uber’s tortious interference with competitors, rejecting Uber’s argument that Sidecar must overcome a presumption that the alleged tortious conduct has a de minimis effect on competition.^[80]

This case demonstrates the importance of properly pleading market power in the context of an incomplete monopolist, particularly one involving a two-sided market.

hiQ Labs, Inc v LinkedIn Corp

Judge Edward M Chen granted in part and denied in part LinkedIn’s motion to dismiss the first amended complaint of plaintiff hiQ Labs (hiQ), alleging that LinkedIn violated various antitrust and fair practice laws by trying to prevent hiQ from accessing public information on LinkedIn’s website.^[81] The court ruled that the plaintiff’s complaint fell short on a variety of grounds, finding that hiQ failed to (1) properly define the relevant market and (2) adequately allege anticompetitive conduct.^[82]

hiQ asserted three antitrust claims: (1) monopolization, in violation of section 2 of the Sherman Act; (2) attempted monopolization, also in violation of section 2; and (3) unreasonable restraint of trade, in violation of section 1 of the Sherman Act.^[83] In addition, hiQ asserted claims for interference with contract and prospective economic advantage, and violation of Section 17200 of the California Business and Professions Code.^[84]

LinkedIn moved to dismiss all claims for damages (i.e., the antitrust and intentional interference claims) based on the Noerr-Pennington doctrine and the California litigation privilege.^[85] However, the court found unpersuasive LinkedIn’s argument that hiQ’s antitrust and intentional interference claims were derived ‘from the cease-and-desist letters LinkedIn sent that ostensibly “cut off” hiQ’s access to LinkedIn’s website’ and that the court should reject the application of Hynix ^[86] to the case because the facts in that case are not sufficiently similar.^[87]

The court noted that LinkedIn provided no rationale as to why Hynix should be narrowly construed and, instead, highlighted that Hynix made a broader point that ‘if the gravamen of the action centers on nonpetitioning activity, the fact that petitioning activity is employed to further that conduct is not sufficient to implicate the Noerr-Pennington doctrine.’ ^[88] Thus, the court found that the Noerr-Pennington doctrine did not bar hiQ’s antitrust and interference claims^[89] and that the California litigation privilege did not bar hiQ’s interference claims for similar reasons.^[90]

LinkedIn further argued that the antitrust claims should be dismissed on various merits grounds: failure to allege antitrust injury; a product market; and anticompetitive conduct.^[91] In its complaint, hiQ defined the relevant market as the ‘market for people analytics services,’ or ‘a new type of predictive data analytics aimed at providing employers in-depth predictive insights into their workforce.’ ^[92] However, in granting LinkedIn’s motion to dismiss, the court found that the ‘parameters of the people analytics market – as pled – are vague.’ ^[93] The court reasoned that ‘it is not clear what substitutes there are for people analytics products such as those offered by hiQ.’ ^[94] Thus, the court found all of hiQ’s antitrust claims deficient for failure to adequately allege a relevant market but granted hiQ leave to amend to correct the deficiency.^[95]

Beyond hiQ’s failure to adequately allege a product market, the court also ruled that hiQ failed to adequately allege anticompetitive conduct.^[96] hiQ based its antitrust claims on various antitrust theories,^[97] but the court found ‘each theory of anticompetitive conduct implausible’:^[98]

• unilateral refusal to deal – the court determined that hiQ failed to adequately allege at least the first two Aspen Skiing^[99] factors.^[100] The court pointed to hiQ’s failure ‘to make a plausible case that it and LinkedIn had engaged in a voluntary course of dealing’ and that ‘absent specific factual allegations, it is speculative to assume that LinkedIn gave up any short-term benefit by refusing to deal with hiQ’;^[101]
• denial of essential facilities – the court found that it could not assess the viability of this argument ‘without there first being a properly defined downstream market’’;^[102]
• lock-in, and illegal tying arrangements – the court found both theories implausible because this is not a case where the same party lured to do business with the defendant is then evoked to purchase additional products and services from that same defendant;^[103]
• vertically arranged boycotts – the court determined that hiQ failed to explain how LinkedIn was able to coerce its members to boycott hiQ’s or other companies’ people analytics services;^[104]
• raising rivals’ costs – the court found that this was nothing more than a unilateral refusal to deal and is problematic for the same reasons as discussed above. Its alternative theory that claims of concerted action between LinkedIn and its members also fails, as section 1 claims ‘typically involve concerted action between multiple defendants or between a defendant and a third party that harms the plaintiff – not concerted action between the defendant and the plaintiff’;^[105] and
• leveraging – the court found that this ‘rises or falls with the other theories’ because it is a derivative theory, since ‘leveraging, in and of itself, does not give rise to a viable claim; rather, there must also be some anticompetitive conduct.’ ^[106]

The court noted that, overall, it found a majority of these theories futile. Nevertheless, the court permitted hiQ to amend its antitrust claims to the extent that they were based on the theories of unilateral refusal to deal and the essential facilities doctrine, while noting its skepticism of hiQ’s refusal to deal theory in light of the narrowness of the Aspen Skiing exception.^[107]

This case highlights the increasing likelihood of disputes regarding the use of data by commercial parties and the potential for restrictions on the accessibility of data to generate antitrust claims.

In re: German Auto Mfrs Antitrust Litig

Three strikes and you’re out! After granting plaintiff consumers (IPPs) and car dealers (DPPs) two previous chances to amend their consolidated putative class action complaints, Judge Charles R Breyer ruled that the plaintiffs had failed to plausibly allege a price-fixing conspiracy among German car manufacturers and granted, with prejudice, the defendants’ third motion to dismiss.^[108]

The plaintiffs initially filed two related consolidated class actions against five German car manufacturers and their United States subsidiaries. The IPPs alleged that the defendants conspired not to innovate with respect to diesel emissions systems and harmed competition in the market for diesel passenger vehicles in the United States.^[109] The DPPs alleged that the defendants participated in a steel price-fixing conspiracy and agreed to pass on all increases in the cost of steel to their customers.^[110] Determining that the diesel emissions system conspiracy claim must be analyzed under the rule of reason, the court found that the alleged submarket of diesel passenger vehicles in the United States was implausible and failed to plead a relevant market or submarket. The court also found that the DPPs’ steel purchase and pass-through conspiracy claims failed because they did not plausibly allege antitrust injury resulting from higher steel prices or any facts showing an agreement among defendants to pass steel surcharges through to customers as opposed to conscious parallelism. The DPPs also failed to allege a relevant market.

Focusing first on the IPPs’ alleged diesel emissions system conspiracy, the court rejected the plaintiffs’ argument that the alleged conspiracy was per se anticompetitive. The court found that the IPPs failed to adequately allege any specific agreements to restrict innovation beyond those previously deemed insufficient and that the plaintiffs mischaracterized the ‘preliminary view’ of the European Commission for Competition that certain more limited agreements ‘may have’ lacked any procompetitive benefits.^[111] Further relying on the United States Supreme Court’s ruling in State Oil Co v Khan, the court held that the per se inquiry does not allow it to ‘look at “specific information about the relevant business” or other details about the alleged restraint’s actual effect on competition.’ ^[112] Under that analysis, the court found the alleged restraint did not obviously lack procompetitive benefits because ‘establishing uniform standards and agreeing to use only certain technical solutions’ could have procompetitive effects.^[113] ‘Because the “economic impact” of this “kind of restraint” is not “immediately obvious,” per se treatment was unwarranted.’ ^[114]

Turning to a rule of reason analysis, the court found that the IPPs’ allegations regarding diesel passenger vehicles failed to plead a relevant market or submarket.^[115] The court noted that the IPPs’ own complaint implicitly acknowledged that a market defined as ‘diesel passenger vehicles’ excluded other economic substitutes and found that it ‘defies common sense to assert that other vehicles, including other purportedly environmentally friendly vehicles, lack the “potential ability to deprive” diesel passenger vehicles of “significant levels of business.” ’ ^[116] The court further rejected the IPPs’ attempt to support their submarket allegation through the results of a consumer survey focused on price sensitivity as failing to ‘pass the straight-face test.’ ^[117] The survey was based on a hypothetical price increase based solely on the cost of engines rather than the cost of the entire vehicles and thus surveyed an insignificant price increase, in the range of 0.2 percent to 1 percent.^[118] The court found that such alleged empirical evidence ‘does not pass the straight-face test’ and demonstrated ‘nothing about whether diesel passenger vehicles are meaningfully shielded from competition with other vehicles.’ ^[119] The failure to adequately allege a plausible relevant market or submarket was fatal to IPPs’ claims.

The court then examined the DPPs’ claim that the defendants entered into a steel price conspiracy ‘by agreeing with each other to accept unlawfully inflated steel prices and pass those costs to their customers.’ ^[120] The court found that the DPPs’ general allegations sufficed to allege Article III standing or injury in fact, but failed to demonstrate antitrust standing because they did not plausibly allege that the defendants’ agreements to accept the steel manufacturers’ prices resulted in higher steel prices that harmed competition in a relevant market, or that the defendants agreed to pass through increased steel costs to the DPPs.^[121]

The defendants’ alleged acceptance of the prices charged by the steel manufacturers did not plausibly suggest that the defendants were responsible for any increase in steel prices.^[122] The DPPs’ own allegations suggested that the defendants had little control over the price of steel and had nowhere else to turn in the face of the steel manufacturers’ price increases.^[123] And even assuming the defendants’ decisions to not negotiate individually with suppliers caused higher prices, ‘such an agreement would not warrant per se treatment’ because ‘an agreement among competitors to negotiate collectively with suppliers is not price-fixing, even if those suppliers (here the steel manufacturers) are engaged in price-fixing.’ ^[124] Because the DPPs merely incorporated the IPPs’ rejected submarket allegations, they also failed to plead a relevant market as required under the rule of reason analysis.^[125]

Finally, the court found that the DPPs’ claims that a pass-through agreement between the defendants ‘that any increase in steel prices would be borne by customers’ depended on the ‘faulty inference’ that the defendants’ agreements to accept the steel surcharges would have been economically irrational unless they knew they could offset those surcharges by passing them on to consumers.^[126] The court noted many economically rational reasons why the defendants may have agreed to accept the surcharges, such as ensuring a stable supply of steel and avoiding frequent renegotiations with the steel manufacturers.^[127] Because the DPPs had not alleged any facts showing a pass-through agreement as opposed to conscious parallelism, they failed to ‘plausibly allege “some credible injury caused by [Defendants’] unlawful conduct.” ’ ^[128]

Epic Games v Apple Inc

Judge Yvonne Gonzales Rogers granted in part and denied in part Epic Games’ (Epic) motion for preliminary injunction, asking the court to force Apple to reinstate Fortnite, a popular multi-platform video game, to the Apple App Store and to stop Apple from terminating its affiliates’ access to developer tools for other applications, including Unreal Engine,^[129] while Epic litigates its claims against Apple for violations of the Sherman Act, the California Cartwright Act, and California Unfair Competition.^[130] The injunction, however, only focused on two claims: the monopoly maintenance claim under section 2 of the Sherman Act; and the tying claim under section 1 of the Sherman Act.^[131]

The court first laid out Epic’s history with Apple, explaining that prior to this lawsuit, Epic contacted Apple to request the ability to offer Apple operating system (iOS) consumers (1) competing payment processing options, other than Apple payments, without Apple’s fees, and (2) a competing Epic Games Store app available through the iOS App Store,^[132] but Apple unequivocally refused.^[133] Epic then covertly introduced a ‘hotfix’ (a software update) into Fortnite that would permit a direct pay option to Epic, circumventing Apple’s internet access provider (IAP) system and therefore breaching Epic’s agreement with Apple and its guidelines.^[134] Apple accordingly made the decision to remove Fortnite from the App; it remains unavailable.^[135]

The court then analyzed whether or not Epic established the four Winter ^[136] factors necessary to obtain a preliminary injunction using the Ninth Circuit’s sliding-scale approach, which permits a strong showing on one factor to offset a weaker showing on the other, so long as all four factors are established.^[137] As to showing the likelihood of success on the merits, the court maintained its findings from the temporary restraining order in August 2020, finding that although Epic had shown that serious questions exist with respect to its section 1 and section 2 claims against Apple, the record remained insufficient to conclude that Epic had proven a likelihood of success on the merits.^[138] The court also noted, ‘given the novelty and the magnitude of the issues, as well as the debate in both the academic community and society at large, the court was unwilling to tilt the playing field in favor of one party or the other with an early ruling of success on the merits.’ ^[139] Specifically, for Epic’s monopolization claim, the court determined that the record did not establish how the relevant market should be defined,^[140] noting the importance of accurately defining the relevant market in any antitrust case^[141] and how ‘without a relevant market definition, “there is no way to measure the defendant’s ability to lessen or destroy competition.” ’ ^[142] For its tying claim, the court concluded that based on the current record, Epic had not yet shown that the IAP system is a separate and distinct service from iOS app distribution sufficient to constitute a tie under antitrust law.^[143]

As to irreparable harm, the court emphasized that its evaluation was guided by the notion that ‘self-inflicted wounds are not irreparable injury.’ ^[144] The court found that as to Fortnite, the harms claimed by Epic could not constitute irreparable harm if the harm flowed from Epic’s own actions and its strategic decision to breach its agreement with Apple.^[145] However, with respect to Unreal Engine and Epic Affiliates, the court concluded that Epic had made a sufficient showing as to the irreparable harm.^[146] The court determined that Apple’s reach into separate agreements with separate entities appeared to be retaliatory, especially when these agreements had not been otherwise breached.^[147] The court also highlighted that Apple had not shown that Epic’s breach with respect to Fortnite resulted in a breach of agreements with Epic Affiliates.^[148]

In the balance of equities, the court found that the equities, addressed in the temporary restraining order, remained the same^[149] and thus, as to Fortnite, the court found that the balance of equities weighed towards Apple, given the two other Winter factors, Epic’s decision to breach its agreements with Apple, and the fact that an injunction would potentially incentivize similar breaches among developers.^[150] With respect to Epic Affiliates, the court found that the balance of equities weighed in favor of Epic and Epic Affiliates, given the contracts concerning those applications were not breached, and the fact that Apple did not persuade the court that it will be harmed by any restraint on removing the developer tools.^[151] Finally, in its public interest determination, the court found that, as to Fortnite, the showing of numerous internet postings and comments submitted by Fortnite players were not sufficient to outweigh the general public interest in requiring private parties to adhere to their contractual agreements or in resolving business disputes through normal proceedings.^[152] With respect to Epic Affiliates, the court found that the record showed potential significant damage to both the Unreal Engine platform itself and to the gaming industry generally and that the economy is in dire need of increasing avenues for creativity and innovation. Thus, the public interest weighed in favor of Epic Affiliates.^[153]

The court ultimately found that the Winter factors weighed against granting a preliminary injunction based on Epic Games’ requests as to Fortnite and other games and in favor of granting a preliminary injunction order as to the Epic Affiliates-effected developer tools.^[154] The court ordered that the preliminary injunction remain in effect during the pendency of the litigation unless Epic Affiliates breach any of their governing agreements with Apple, or the operative App Store guidelines.^[155] A bench trial is currently scheduled for May 2021.

Notes