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Case 3:20-cv-05640-EMC Document 1 Filed 08/13/20 Page 1 of 170
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`Paul J. Riehle (SBN 115199)
`paul.riehle@faegredrinker.com
`FAEGRE DRINKER BIDDLE & REATH LLP
`Four Embarcadero Center
`San Francisco, California 94111
`Telephone: (415) 591-7500
`Facsimile: (415) 591-7510
`
`Christine A. Varney (pro hac vice pending)
`cvarney@cravath.com
`Katherine B. Forrest (pro hac vice pending)
`kforrest@cravath.com
`Gary A. Bornstein (pro hac vice pending)
`gbornstein@cravath.com
`Yonatan Even (pro hac vice pending)
`yeven@cravath.com
`M. Brent Byars (pro hac vice pending)
`mbyars@cravath.com
`CRAVATH, SWAINE & MOORE LLP
`825 Eighth Avenue
`New York, New York 10019
`Telephone: (212) 474-1000
`Facsimile: (212) 474-3700
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`Attorneys for Plaintiff Epic Games, Inc.
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`UNITED STATES DISTRICT COURT
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`NORTHERN DISTRICT OF CALIFORNIA
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`EPIC GAMES, INC.,
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`vs.
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`APPLE INC.,
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`Plaintiff,
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`Case No. ___________________
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`COMPLAINT FOR
`INJUNCTIVE RELIEF
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`Defendant.
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`Case 3:20-cv-05640-EMC Document 1 Filed 08/13/20 Page 2 of 170
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`TABLE OF CONTENTS
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`NATURE OF THE ACTION .............................................................................................. 1
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`PARTIES.............................................................................................................................. 8
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`JURISDICTION AND VENUE ........................................................................................ 10
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`INTRADISTRICT ASSIGNMENT .................................................................................. 12
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`RELEVANT FACTS ......................................................................................................... 12
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`I.
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`Apple Monopolizes the iOS App Distribution Market. .......................................... 12
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`A.
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`B.
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`C.
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`The iOS App Distribution Market. ................................................................ 16
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`Apple’s Monopoly Power in the iOS App Distribution Market. .................. 17
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`Apple’s Anti-competitive Conduct in the iOS App Distribution
`Market............................................................................................................ 19
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`i.
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`ii.
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`Technical Restrictions ......................................................................... 19
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`Contractual Restrictions ...................................................................... 19
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`iii.
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`Lack of Procompetitive Justification .................................................. 22
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`D. Anti-competitive Effects in the iOS App Distribution Market. .................... 23
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`II.
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`Apple Monopolizes the iOS In-App Payment Processing Market. ......................... 27
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`A.
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`B.
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`C.
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`The iOS In-App Payment Processing Market. .............................................. 28
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`Apple’s Monopoly Power in the iOS In-App Payment Processing
`Market............................................................................................................ 30
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`Apple’s Anti-competitive Conduct in the iOS In-App Payment
`Processing Market. ........................................................................................ 32
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`i.
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`ii.
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`Contractual and Policy Restrictions .................................................... 32
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`Lack of Procompetitive Justification .................................................. 33
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`D. Anti-competitive Effects in the iOS In-App Payment Processing
`Market............................................................................................................ 34
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`III. Competition in the Sale of Mobile Devices Cannot Discipline Apple’s
`Conduct in the iOS App Distribution or iOS In-App Payment Processing
`Markets. ................................................................................................................... 38
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`A. Apple’s Mobile Device Customers Face Substantial Switching Costs
`and iOS Lock-In. ........................................................................................... 38
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`B.
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`Apple’s Sticky iOS Ecosystem Protects its Dominance in the Sales of
`Mobile Devices. ............................................................................................. 42
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`Complaint for Injunctive Relief
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`Case 3:20-cv-05640-EMC Document 1 Filed 08/13/20 Page 3 of 170
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`C.
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`Information Costs and Other Market Inefficiencies in the iOS App
`Distribution and iOS In-App Payment Processing Markets. ........................ 44
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`COUNT 1: Sherman Act § 2 (Unlawful Monopoly Maintenance in the iOS App
`Distribution Market) ................................................................................................ 47
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`COUNT 2: Sherman Act § 2 (Denial of Essential Facility in the iOS App
`Distribution Market) ................................................................................................ 48
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`COUNT 3: Sherman Act § 1 (Unreasonable Restraints of Trade in the iOS App
`Distribution Market) ................................................................................................ 49
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`COUNT 4: Sherman Act § 2 (Unlawful Monopoly Maintenance in the iOS In-App
`Payment Processing Market) ................................................................................... 51
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`COUNT 5: Sherman Act § 1 (Unreasonable Restraints of Trade in the iOS In-App
`Payment Processing Market) ................................................................................... 52
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`COUNT 6: Sherman Act § 1 (Tying the App Store in the iOS App Distribution
`Market to In-App Purchase in the iOS In-App Payment Processing Market) ........ 53
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`COUNT 7: California Cartwright Act (Unreasonable Restraints of Trade in the
`iOS App Distribution Market) ................................................................................. 55
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`COUNT 8: California Cartwright Act (Unreasonable Restraints of Trade in the
`iOS In-App Payment Processing Market) ............................................................... 56
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`COUNT 9: California Cartwright Act (Tying the App Store in the iOS App
`Distribution Market to In-App Purchase in the iOS In-App Payment
`Processing Market) .................................................................................................. 58
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`COUNT 10: California Unfair Competition Law ............................................................. 61
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`PRAYER FOR RELIEF .................................................................................................... 61
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`Plaintiff Epic Games, Inc. (“Epic”), by its undersigned counsel, alleges, with
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`knowledge with respect to its own acts and on information and belief as to other matters,
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`as follows:
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`NATURE OF THE ACTION
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`1.
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`In 1984, the fledgling Apple computer company released the
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`Macintosh—the first mass-market, consumer-friendly home computer. The product
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`launch was announced with a breathtaking advertisement evoking George Orwell’s 1984
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`that cast Apple as a beneficial, revolutionary force breaking IBM’s monopoly over the
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`computing technology market. Apple’s founder Steve Jobs introduced the first showing
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`of the 1984 advertisement by explaining, “it appears IBM wants it all. Apple is perceived
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`to be the only hope to offer IBM a run for its money . . . . Will Big Blue dominate the
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`entire computer industry? The entire information age? Was George Orwell right about
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`1984?”
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`2.
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`Fast forward to 2020, and Apple has become what it once railed
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`against: the behemoth seeking to control markets, block competition, and stifle
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`innovation. Apple is bigger, more powerful, more entrenched, and more pernicious than
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`the monopolists of yesteryear. At a market cap of nearly $2 trillion, Apple’s size and
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`reach far exceeds that of any technology monopolist in history.
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`3.
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`This case concerns Apple’s use of a series of anti-competitive
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`restraints and monopolistic practices in markets for (i) the distribution of software
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`applications (“apps”) to users of mobile computing devices like smartphones and tablets,
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`and (ii) the processing of consumers’ payments for digital content used within iOS
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`mobile apps (“in-app content”). Apple imposes unreasonable and unlawful restraints to
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`completely monopolize both markets and prevent software developers from reaching the
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`over one billion users of its mobile devices (e.g., iPhone and iPad) unless they go through
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`a single store controlled by Apple, the App Store, where Apple exacts an oppressive 30%
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`tax on the sale of every app. Apple also requires software developers who wish to sell
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`digital in-app content to those consumers to use a single payment processing option
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`offered by Apple, In-App Purchase, which likewise carries a 30% tax.
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`4.
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`In contrast, software developers can make their products available to
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`users of an Apple personal computer (e.g., Mac or MacBook) in an open market, through
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`a variety of stores or even through direct downloads from a developer’s website, with a
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`variety of payment options and competitive processing fees that average 3%, a full ten
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`times lower than the exorbitant 30% fees Apple applies to its mobile device in-app
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`purchases.
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`5.
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`The anti-competitive consequences of Apple’s conduct are pervasive.
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`Mobile computing devices (like smartphones and tablets)—and the apps that run on those
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`devices—have become an integral part of people’s daily lives; as a primary source for
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`news, a place for entertainment, a tool for business, a means to connect with friends and
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`family, and more. For many consumers, mobile devices are their primary computers to
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`stay connected to the digital world, as they may not even own a personal computer.
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`When these devices are unfairly restricted and extortionately “taxed” by Apple, the
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`consumers who rely on these mobile devices to stay connected in the digital age are
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`directly harmed.
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`6.
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` Epic brings this suit to end Apple’s unfair and anti-competitive
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`actions that Apple undertakes to unlawfully maintain its monopoly in two distinct,
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`multibillion dollar markets: (i) the iOS App Distribution Market, and (ii) the iOS In-App
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`Payment Processing Market (each as defined below). Epic is not seeking monetary
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`compensation from this Court for the injuries it has suffered. Nor is Epic seeking
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`favorable treatment for itself, a single company. Instead, Epic is seeking injunctive relief
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`to allow fair competition in these two key markets that directly affect hundreds of
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`millions of consumers and tens of thousands, if not more, of third-party app developers.
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`7.
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`Apple imposes unreasonable restraints and unlawfully maintains a
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`total monopoly in the iOS App Distribution Market. To live up to its promise to users
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`that “there’s an app for that”, Apple, after a short initial attempt to go it alone, opened up
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`iOS and invited third-party app developers to develop a wide array of apps for the iOS
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`ecosystem. Those apps contribute immense value to that ecosystem and are one of the
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`primary marketing features for iPhones and iPads. But Apple completely bans
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`innovation in a central part of this ecosystem, namely, any app that could compete with
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`Apple for the distribution of apps in iOS. Through its control over iOS, and through a
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`variety of unlawful contractual restrictions that it forces app developers to accept, Apple
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`prevents iOS users from downloading any apps from any source other than Apple’s own
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`storefront, the App Store.
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`8.
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`The result is that developers are prevented from selling or distributing
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`iOS apps unless they use Apple’s App Store, and accede to Apple’s oppressive terms and
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`conditions for doing so (some of which are discussed further below). For example, as the
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`sole distributor of iOS apps, Apple collects the money from every iOS user’s app
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`purchase, remits only 70% of that payment to the app developer, and retains a 30% tax
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`for itself. iOS developers are thus forced to increase the prices they charge consumers in
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`order to pay Apple’s app tax. There is no method app developers can use to avoid this
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`tax, as Apple has foreclosed any alternative ways to reach the over one billion users of
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`iOS devices. As Representative Hank Johnson aptly summed up at a recent
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`Congressional hearing on technology monopolies: “developers have no choice but to go
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`along with [Apple’s policies] or they must leave the App Store. That’s an enormous
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`amount of power.”
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`9.
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`Apple’s anti-competitive conduct with respect to iOS app distribution
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`results in sweeping harms to (i) app distributors, who are foreclosed from competing with
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`Apple and innovating new methods of distributing iOS apps to users outside the App
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`Store (such as, for example, curated app stores targeting particular categories of apps, like
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`gaming or travel); (ii) app developers, who are denied choice on how to distribute their
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`apps, are forced to fork over more of their revenue on paid apps than they would if Apple
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`faced competition, and on occasion have to abandon their apps altogether if they cannot
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`earn a profit given Apple’s 30% tax; and (iii) consumers, who are likewise denied choice
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`and innovation in app distribution channels and are forced to pay higher prices and suffer
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`inferior customer service from Apple, the unwelcome middleman. (Part I.)
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`10. Apple also imposes unreasonable restraints and unlawfully maintains
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`a total monopoly in the iOS In-App Payment Processing Market. Among the oppressive
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`terms that app developers have to accept, Apple coerces all app developers who wish to
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`use its App Store—the only means with which to distribute apps to iOS users—to use
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`exclusively Apple’s own payment processing platform for all in-app purchases of in-app
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`content. Apple thus requires third-party app developers to agree they will not even offer
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`iOS users the choice of additional payment processing options alongside Apple’s. And
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`Apple goes as far as to gag app developers, preventing them from even mentioning to
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`users the option of buying the same content outside of the app—for example, by
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`purchasing content directly from the app developer, or using a web browser. Because
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`Apple has a monopoly over the distribution of iOS apps, app developers have no choice
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`but to assent to this anti-competitive tie; it is Apple’s way or the highway.
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`11.
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`In this market too, Apple thus stands as the monopolist middleman,
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`positioning itself between developers and consumers. As the sole payment processor,
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`Apple is able to take an exorbitant 30% fee on all in-app purchases of in-app content.
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`12. Apple’s anti-competitive conduct with respect to iOS in-app payment
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`processing harms: (i) other payment processors, who are foreclosed from competing with
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`Apple on price and innovating new methods of in-app payment processing (such as, for
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`example, rewards points or payment through carrier billing); (ii) app developers, who are
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`denied choice on how to process payments and the benefits of innovation in payment
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`processing, and are forced to pay Apple’s tax—set by fiat—rather than by competitive
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`market forces; and (iii) consumers, who are also denied choice and innovation in payment
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`processing and suffer higher prices and inferior service. (Part II.)
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`13. Apple’s anti-competitive conduct in these markets is unchecked;
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`Apple faces little, if any, constraint on its monopoly power in both the iOS App
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`Distribution and iOS In-App Payment Processing Markets, as Apple has foreclosed all
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`direct competition in these markets. And Apple stands as the sole middleman between a
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`vast and dispersed group of iOS users, and a vast and dispersed group of app developers,
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`each with little power individually to constrain Apple.
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`14. Further, competition in the sale of mobile devices does not limit
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`Apple’s market power. The threat of users switching to non-iOS devices does not
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`constrain Apple’s anti-competitive conduct because Apple’s mobile device customers
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`face significant switching costs and lock-in to the Apple iOS ecosystem, which serves to
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`perpetuate Apple’s substantial market power. This power manifests itself in the data, as
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`Apple is able to gobble up over two thirds of the total global smartphone operating
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`profits. Furthermore, when making mobile device purchases, consumers are either
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`unaware of, or cannot adequately account for, Apple’s anti-competitive conduct in the
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`downstream app distribution and payment processing markets. The cost of app
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`downloads and in-app purchases will play an insignificant (if any) role in swaying a
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`consumer’s smartphone purchase decision. (Part III.)
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`15. Epic is one of the many app developers affected by Apple’s anti-
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`competitive conduct. Epic is a developer of entertainment software for personal
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`computers, smart mobile devices and gaming consoles. The most popular game Epic
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`currently makes is Fortnite, which has connected hundreds of millions of people in a
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`colorful, virtual world where they meet, play, talk, compete, dance, and even attend
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`concerts and other cultural events. Fortnite is beloved by its millions of users. In the
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`first year after Fortnite’s release in 2017, the game attracted over 125 million players; in
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`the years since, Fortnite has topped 350 million players and has become a global cultural
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`phenomenon.
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`16. Epic—and Fortnite’s users—are directly harmed by Apple’s anti-
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`competitive conduct. But for Apple’s illegal restraints, Epic would provide a competing
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`app store on iOS devices, which would allow iOS users to download apps in an
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`innovative, curated store and would provide users the choice to use Epic’s or another
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`third-party’s in-app payment processing tool. Apple’s anti-competitive conduct has also
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`injured Epic in its capacity as an app developer by forcing Epic to distribute its app
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`exclusively through the App Store and exclusively use Apple’s payment processing
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`services. As a result, Epic is forced, like so many other developers, to charge higher
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`prices on its users’ in-app purchases on Fortnite in order to pay Apple’s 30% tax.
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`17. Contrast this anti-competitive harm with how similar markets operate
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`on Apple’s own Mac computers. Mac users can download virtually any software they
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`like, from any source they like. Developers are free to offer their apps through the Mac
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`computer App Store, a third-party store, through direct download from the developer’s
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`website, or any combination thereof. Indeed, on Macs, Epic distributes Fortnite through
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`its own storefront, which competes with other third-party storefronts available to Mac
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`users. App developers are free to use Apple’s payment processing services, the payment
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`processing services of third parties, or the developers’ own payment processing service;
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`users are offered their choice of different payment processing options (e.g., PayPal,
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`Amazon, and Apple). The result is that consumers and developers alike have choices,
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`competition is thriving, prices drop, and innovation is enhanced. The process should be
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`no different for Apple’s mobile devices. But Apple has chosen to make it different by
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`imposing contractual and technical restrictions that prevent any competition and increase
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`consumer costs for every app and in-app content purchase—restrictions that it could
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`never impose on Macs, where it does not enjoy the same dominance in the sale of
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`devices. It doesn’t have to be like this.
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`18. Epic has approached Apple and asked to negotiate relief that would
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`stop Apple’s unlawful and unreasonable restrictions. Epic also has publicly advocated
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`that Apple cease the anti-competitive conduct addressed in this Complaint. Apple has
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`refused to let go of its stranglehold on the iOS ecosystem.
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`19. On the morning of August 13, 2020, for the first time, Apple mobile
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`device users were offered competitive choice. Epic added a direct payment option to
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`Fortnite, giving players the option to continue making purchases using Apple’s payment
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`processor or to use Epic’s direct payment system. Fortnite users on iOS, for the first
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`time, had a competitive alternative to Apple’s payment solution, which in turn enabled
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`Epic to pass along its cost savings by offering its users a 20% reduction in in-app prices
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`as shown below:
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`20. Rather than tolerate this healthy competition and compete on the
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`merits of its offering, Apple responded by removing Fortnite from sale on the App Store,
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`which means that new users cannot download the app, and users who have already
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`downloaded prior versions of the app from the App Store cannot update it to the latest
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`version. This also means that Fortnite players who downloaded their app from the App
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`Store will not receive updates to Fortnite through the App Store, either automatically or
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`by searching the App Store for the update. Apple’s removal of Fortnite is yet another
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`example of Apple flexing its enormous power in order to impose unreasonable restraints
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`and unlawfully maintain its 100% monopoly over the iOS In-App Payment Processing
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`Market.
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`21. Accordingly, Epic seeks injunctive relief in court to end Apple’s
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`unreasonable and unlawful practices. Apple’s conduct has caused and continues to cause
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`Epic financial harm, but as noted above, Epic is not bringing this case to recover these
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`damages; Epic is not seeking any monetary damages. Instead, Epic seeks to end Apple’s
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`Complaint for Injunctive Relief
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`Case 3:20-cv-05640-EMC Document 1 Filed 08/13/20 Page 11 of 170
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`dominance over key technology markets, open up the space for progress and ingenuity,
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`and ensure that Apple mobile devices are open to the same competition as Apple’s
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`personal computers. As such, Epic respectfully requests this Court to enjoin Apple from
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`continuing to impose its anti-competitive restrictions on the iOS ecosystem and ensure
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`2020 is not like “1984”.
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`PARTIES
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`22. Plaintiff Epic is a Maryland corporation with its principal place of
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`business in Cary, North Carolina. Epic’s mission is “to create fun games we want to play
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`and to build the art and tools needed to bring those games to life”.
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`23. Epic was founded in 1991 by a college student named Tim Sweeney
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`who was studying mechanical engineering. Mr. Sweeney ran Epic out of his parents’
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`garage and distributed by mail Epic’s first commercial personal computer software, a
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`game named ZZT. Since then, Epic has developed several popular entertainment
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`software products that can be played on an array of platforms—such as personal
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`computers, gaming consoles, and mobile devices.
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`24. Currently, Epic’s most popular game is Fortnite, which has connected
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`hundreds of millions of people in a colorful virtual world where they meet, play, talk,
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`compete, dance, and even attend concerts and other cultural events.
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`Complaint for Injunctive Relief
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`Case 3:20-cv-05640-EMC Document 1 Filed 08/13/20 Page 12 of 170
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`25. Although some video games or other apps require users to pay before
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`they download and use the software, Fortnite is free to download and play. Epic
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`generates revenue by offering users various in-app purchases of in-app content. For
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`example, players who wish to further express themselves within Fortnite through digital
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`avatars, costumes, dances, or other cosmetic enhancements may purchase them within the
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`Fortnite app. Through this model, Epic makes Fortnite widely accessible at no cost to
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`consumers, while earning a return on its artistic and engineering investments through the
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`sale of cosmetic enhancements.
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`Case 3:20-cv-05640-EMC Document 1 Filed 08/13/20 Page 13 of 170
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`26. Fortnite has become a global phenomenon. As noted, in the first year
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`after Fortnite was released in 2017, the game attracted over 125 million players; in the
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`years since, Fortnite has topped 350 million players and has become a global cultural
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`phenomenon.
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`27. Epic also built and runs the Epic Games Store, a digital video game
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`storefront through which gamers can download various games, some developed by Epic,
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`and many offered by third-party game developers. The Epic Games Store is currently
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`available on personal computers. Epic distributes Fortnite to users of personal
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`computers—including users of Apple’s own Mac computers—through the Epic Games
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`Store. Epic also distributes other developers’ games for a modest fee through the Epic
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`Games Store. Worldwide, approximately 400 million users have signed up to play Epic’s
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`games, and each day 30 to 40 million individuals log into an Epic game.
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`28. Epic creates and distributes the Unreal Engine, a powerful software
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`suite that allows users to create realistic three-dimensional content including video
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`games, architectural recreations, television shows, and movies. An Epic subsidiary also
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`develops and distributes the popular Houseparty app, which enables video chatting and
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`social gaming on mobile devices and personal computers.
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`29. Defendant Apple is a California corporation with its principal place of
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`business in Cupertino, California. Apple is the largest public company in the world, with
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`a current market capitalization of close to $2 trillion. Apple designs, markets and sells
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`smartphones (including the iPhone), personal computers (including Macs), tablets
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`(including the iPad), wearables and accessories, and sells a variety of related services.
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`Apple also owns and operates the Apple App Store (the “App Store”), including
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`contracting with all app developers that distribute their apps through the App Store and is
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`therefore a party to the anti-competitive contractual restrictions at issue in this Complaint.
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`JURISDICTION AND VENUE
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`30. This Court has subject matter jurisdiction over Epic’s federal antitrust
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`claims pursuant to the Clayton Antitrust Act, 15 U.S.C. § 26, and 28 U.S.C. §§ 1331
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`Case 3:20-cv-05640-EMC Document 1 Filed 08/13/20 Page 14 of 170
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`and 1337. The Court has supplemental jurisdiction over Epic’s state law claims pursuant
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`to 28 U.S.C. § 1367. The Court also has subject matter jurisdiction over the state law
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`claims pursuant to 28 U.S.C. § 1332 based on the diversity of citizenship of Epic, on one
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`hand, and of Apple, on the other. Although Epic does not seek monetary damages, the
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`amount in controversy exceeds $75,000.
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`31. This Court has personal jurisdiction over Apple. Apple is
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`headquartered in this District. Also, Apple has engaged in sufficient minimum contacts
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`with the United States and has purposefully availed itself of the benefits and protections
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`of both United States and California law such that the exercise of jurisdiction over Apple
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`would comport with due process requirements.
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`32. Further, Apple has consented to the exercise of personal jurisdiction
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`by this Court. Apple is party to an Apple Developer Program License Agreement (the
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`“Developer Agreement”) with Epic. Section 14.10 of the Developer Agreement provides
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`that “[a]ny litigation or other dispute resolution” between the parties “arising out of or
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`relating to this Agreement, the Apple Software, or Your relationship with Apple will take
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`place in the Northern District of California”, and that the parties “consent to the personal
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`jurisdiction of and exclusive venue in the state and federal courts within” the Northern
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`District of California. Section 14.10 further provides that the Developer Agreement “will
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`be governed by and construed in accordance with the laws of the United States and the
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`State of California”. At least some of the claims raised in this Complaint “relate to”
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`Epic’s relationship with Apple.
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`33. Venue is proper in this District pursuant to 28 U.S.C. § 1391(b)
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`because Apple maintains its principal place of business in the State of California and in
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`this District, and because a substantial part of the events or omissions giving rise to
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`Epic’s claims occurred in this District. In the alternative, personal jurisdiction and venue
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`also may be deemed proper under Section 12 of the Clayton Antitrust Act, 15 U.S.C.
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`§ 22, because Apple may be found in or transacts business in this District.
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`Complaint for Injunctive Relief
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`Case 3:20-cv-05640-EMC Document 1 Filed 08/13/20 Page 15 of 170
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`INTRADISTRICT ASSIGNMENT
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`34. Pursuant to Civil Local Rule 3-2(c), this antitrust case shall not be
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`assigned to a particular Division of this District, but shall be assigned on a District-wide
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`basis.
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`I.
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`Apple Monopolizes the iOS App Distribution Market.
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`RELEVANT FACTS
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`35. To understand how Apple maintains a complete monopoly over the
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`iOS App Distribution Market, it will be helpful to provide a background on smart mobile
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`devices and Apple’s control over key aspects of the devices.
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`36. Apple designs, markets, and sells mobile computing devices including
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`smartphones, which it brands as iPhones, and tablets, which it brands as iPads.
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`Smartphones and tablets are portable electronic devices that can connect wirelessly to the
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`internet and are capable of multipurpose computing functions, including, among other
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`things, internet browsing, sending and receiving email, accessing workplace software,
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`editing documents, using social media, streaming video, listening to music, or playing
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`games.
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`37. Similar to laptop and desktop personal computers, mobile devices
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`such as smartphones and tablets require an operating system or “OS” that enables
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`multipurpose computing functionality. An OS for mobile devices (a “mobile OS”), just
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`like the OS of any computer, is a piece of software that provides basic functionality to
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`users of smartphones, such as butto

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