Case 3:21-cv-03958-JSC Document 1 Filed 05/25/21 Page 1 of 41
`
`
`
`QUINN EMANUEL URQUHART & SULLIVAN, LLP
`Sean Pak (Bar No. 219032)
`seanpak@quinnemanuel.com
`Michelle A. Clark (Bar No. 243777)
`michelleclark@quinnemanuel.com
`Andrew M. Holmes (Bar No. 260475)
`drewholmes@quinnemanuel.com
`50 California Street, 22nd Floor
`San Francisco, California 94111-4788
`Telephone:
`(415) 875-6600
`Facsimile:
`(415) 875-6700
`
`Adam Wolfson (Bar No. 262125)
`adamwolfson@quinnemanuel.com
`865 S. Figueroa Street, 10th Floor
`Los Angeles, California 90017
`Telephone:
`(213) 443-3000
`Facsimile:
`(213) 443-3100
`
`Attorneys for AliveCor, Inc.
`
`
`
`
`UNITED STATES DISTRICT COURT
`
`NORTHERN DISTRICT OF CALIFORNIA
`
`
`
` CASE NO.
`
`
`COMPLAINT
`
`
`JURY TRIAL DEMANDED
`
`AliveCor, Inc.,
`
`
`Plaintiff,
`
`
`
`vs.
`
`
`Apple Inc.,
`
`
`Defendant.
`
`
`
`
`
`
`
`
`
`
`
`COMPLAINT
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`
`
`
`
`

`

`Case 3:21-cv-03958-JSC Document 1 Filed 05/25/21 Page 2 of 41
`
`
`
`1
`
`2
`
`I.
`
`INTRODUCTION
`
`1.
`
`When Apple Inc. (“Apple”) first released the Apple Watch in 2015, it presented the
`
`3
`
`new device, a smartwatch, primarily as a high-tech fashion accessory. The first Apple Watch came in
`
`4
`
`multiple colors—several with gold plate—and the biggest features Apple advertised were the Watch’s
`
`5
`
`multiple different types of band, all of which were decorative in nature. Although the first version of
`
`6
`
`the Apple Watch included some fitness and health features, it was clear that Apple viewed the Apple
`
`7
`
`Watch primarily as a way for luxury and high-end watch purchasers to dress up their wrist with an
`
`8
`
`extension of their smartphone.
`
`9
`
`2.
`
`Plaintiff AliveCor, Inc. (“Plaintiff” or “AliveCor”) was an innovator that helped change
`
`10
`
`that perception, first for the public and then for Apple. AliveCor’s founder, Dr. Dave Albert, realized
`
`11
`
`that smartwatches, such as the Apple Watch, were the perfect device to monitor one’s heart for
`
`12
`
`potentially life-threatening conditions. Dr. Albert and AliveCor therefore went to work to develop a
`
`13
`
`wristband for the Apple Watch, the KardiaBand, that was capable of recording an electrocardiogram
`
`14
`
`(“ECG” or “EKG”).1 Simultaneously, AliveCor developed first-of-their-kind apps: (i) the Kardia app,
`
`15
`
`that could analyze those readings on the Apple Watch; and (ii) a heartrate analysis app powered by
`
`16
`
`artificial intelligence, SmartRhythm, that could monitor a user’s heartrate and alert them when there
`
`17
`
`was some irregularity suggesting they should record an ECG. AliveCor was open with Apple about its
`
`18
`
`intentions and, in fact, Apple not only initially approved AliveCor’s apps for distribution through the
`
`19
`
`App Store, but also advertised AliveCor’s innovations in order to sell more Apple Watches.
`
`20
`
`3.
`
`In 2017, after an extensive clearance process with the U.S. Food and Drug
`
`21
`
`Administration (“FDA”), AliveCor obtained approval to sell the KardiaBand in the U.S. Consistent
`
`22
`
`with its history with Apple so far (which involved multiple meetings in which AliveCor demonstrated
`
`23
`
`its new device’s capabilities), AliveCor informed Apple about the FDA clearance and that it intended
`
`24
`
`to begin selling KardiaBands shortly along with its previously-approved Kardia and SmartRhythm
`
`25
`
`apps. What AliveCor did not know is that Apple had finally realized heart health analysis was
`
`26
`
`27
`
`28
`
`
`
`
`
`
`1 ECG readings can be used to detect whether a patient is experiencing atrial fibrillation
`(“AFib”) or other heart-related health events.
`
`
`
`
`
`-1-
`
`
`COMPLAINT
`
`

`

`Case 3:21-cv-03958-JSC Document 1 Filed 05/25/21 Page 3 of 41
`
`
`
`1
`
`incredibly valuable to (and desired by) smartwatch users, and thus had been working in the
`
`2
`
`background to copy AliveCor’s ideas—including both the ability to record an ECG on the Apple
`
`3
`
`Watch, as well as to provide a separate app for heartrate analysis. Apple apparently decided that it
`
`4
`
`needed to try to undercut AliveCor’s success and, the same day AliveCor told Apple that it planned to
`
`5
`
`announce its FDA clearance, Apple “pre-announced” a heart initiative for the Apple Watch. Apple
`
`6
`
`also tried to steal AliveCor’s thunder through various other public relations tactics, but the irony is
`
`7
`
`that Apple’s demonstrated commitment to heart health on the Apple Watch validated AliveCor’s
`
`8
`
`business concept and, as healthy competition should do, initially led to an increase in AliveCor’s sales
`
`9
`
`and public brand awareness.
`
`10
`
`4.
`
`But, as it has done multiple times over the years in other markets, Apple decided that it
`
`11
`
`would not accept competition on the merits. Almost immediately after AliveCor started selling
`
`12
`
`KardiaBand and its apps, Apple began a concentrated campaign to corner the market for heartrate
`
`13
`
`analysis on the Apple Watch, because the value of controlling such critical health data (with the
`
`14
`
`accompanying ability to exploit it) was apparently too much of a temptation for Apple. Thus, despite
`
`15
`
`previously accepting SmartRhythm without objection (when Apple did not have designs to own the
`
`16
`
`market), Apple suddenly claimed that the app “violated” various unwritten App Store guidelines.
`
`17
`
`When AliveCor pushed back on these accusations, Apple responded by literally rewriting the rules.
`
`18
`
`Nevertheless, AliveCor adapted and updated SmartRhythm multiple times over several months so it
`
`19
`
`was in compliance with Apple’s new and ever-changing guidelines.
`
`20
`
`5.
`
`Faced with AliveCor’s tenacity, Apple next resorted to behind-the-scenes acts of
`
`21
`
`sabotage, consisting primarily of undocumented updates to the Apple Watch’s operating system,
`
`22
`
`watchOS. Those unannounced updates would suddenly render SmartRhythm inoperable and were out
`
`23
`
`of the norm for devices like the Apple Watch (and particularly out of the norm for Apple, which
`
`24
`
`typically documents every minor change to its operating systems). Nevertheless, this tactic occurred
`
`25
`
`with unfortunate regularity throughout the first half and late summer of 2018, and AliveCor was
`
`26
`
`forced each time to drop everything to update its app so that its customers (who relied on
`
`27
`
`SmartRhythm for medical purposes) were not left without its lifesaving monitoring for too long.
`
`28
`
`
`
`
`
`
`
`
`
`-2-
`
`
`COMPLAINT
`
`

`

`Case 3:21-cv-03958-JSC Document 1 Filed 05/25/21 Page 4 of 41
`
`
`
`1
`
`6.
`
`In September 2018, Apple released the Series 4 Apple Watch, which included the
`
`2
`
`ability to record an ECG as a default app with the Watch’s hardware and software. Apple also released
`
`3
`
`a heartrate analysis app (like SmartRhythm) that came standard on the new Apple Watch, a fact that
`
`4
`
`Apple heavily advertised as a selling point for the new device. Had that been the extent of Apple’s
`
`5
`
`actions, the market would have dictated who won or lost. Apple’s app came standard on the Watch,
`
`6
`
`which gave it an advantage, but AliveCor’s SmartRhythm app was simply better at identifying
`
`7
`
`worrisome heart-related health events, a quality difference industry participants clearly recognized.
`
`8
`
`Other preexisting heartrate analysis apps offered similar functionality that consumers could have
`
`9
`
`selected if they thought it better than Apple’s offering. But, unfortunately, Apple did not allow the
`
`10
`
`market to make its decision. Instead, Apple used its control over watchOS to ensure that its new
`
`11
`
`heartrate analysis app had no competition from the likes of AliveCor or any other provider.
`
`12
`
`7.
`
`Apple did so by exploiting its knowledge that AliveCor and similar competitors
`
`13
`
`depended on watchOS’s heartrate algorithm to provide them critical information for heartrate
`
`14
`
`analysis.2 Although direct access to the Watch’s sensors would have been preferable, the original
`
`15
`
`heartrate algorithm was transparent enough to allow third parties to meaningfully identify irregular
`
`16
`
`heartrates and determine whether the user likely required medical assistance. The algorithm was
`
`17
`
`virtually the same on the first four versions of watchOS, but, with the introduction of the Series 4
`
`18
`
`Apple Watch and Apple’s introduction of its competing heartrate analysis app, Apple released
`
`19
`
`watchOS5, which, among other things, “updated” the Watch’s heartrate algorithm. That update did not
`
`20
`
`improve the user experience for Apple Watch purchasers; instead, its purpose and effect was simply to
`
`21
`
`prevent third parties from identifying irregular heartrate situations and, thus, from offering competing
`
`22
`
`heartrate analysis apps. Even more insidiously, the update was also pushed out to Series 1-3 Watch
`
`23
`
`users (who did not have ECG capabilities built into their Watches like Series 4 users), which rendered
`
`24
`
`their copies of SmartRhythm ineffective and negated the reason they purchased KardiaBands and
`
`25
`
`26
`
`27
`
`28
`
`
`
`
`
`
`2 The heartrate algorithm took readings from the Watch’s sensors and converted them into
`heartrate information.
`
`
`
`
`
`-3-
`
`
`COMPLAINT
`
`

`

`Case 3:21-cv-03958-JSC Document 1 Filed 05/25/21 Page 5 of 41
`
`
`
`1
`
`AliveCor’s other apps. In short, to gain an unfair competitive edge, Apple put countless AliveCor
`
`2
`
`users’ lives in danger.
`
`3
`
`8.
`
`Faced with the reality that, due to Apple’s exclusionary conduct, SmartRhythm could
`
`4
`
`no longer consistently predict irregular heart rate situations, AliveCor was forced to remove
`
`5
`
`SmartRhythm from the App Store. Other companies offering heartrate analysis apps on the Apple
`
`6
`
`Watch either did the same or limited their apps to just heartrate tracking, which is a more limited type
`
`7
`
`of app that operates in a separate market than heartrate analysis (discussed further below). All of this
`
`8
`
`has been devastating to competition, as Apple today commands 100% share of heartrate analysis apps
`
`9
`
`on watchOS devices and, if viewed in the alternative as part of either the U.S. ECG-capable
`
`10
`
`smartwatch or U.S. ECG-capable wearable devices market, over 70% market share. With a single
`
`11
`
`update, Apple thus eliminated competition that consumers clearly wanted and needed, depriving them
`
`12
`
`of choice for heartrate analysis that is better than what Apple can provide. And all for an incremental
`
`13
`
`value gain for an already-two-trillion-dollar company.
`
`14
`
`9.
`
`Apple’s anticompetitive conduct was and remains rotten to the core. AliveCor
`
`15
`
`therefore brings this antitrust action to right past wrongs and to permit future competition, so that
`
`16
`
`Apple can no longer exclude it and other heartrate analysis providers from the market. U.S. consumers
`
`17
`
`deserve the right to have the best possible heartrate analysis made available to them. This lawsuit is
`
`18
`
`the first step in that direction.
`
`19
`
`20
`
`II. THE PARTIES
`
`10.
`
`Plaintiff AliveCor, Inc. is a Delaware corporation having its principal place of business
`
`21
`
`at 444 Castro St, Suite 600, Mountain View, CA 94041. AliveCor is a leader in the design and
`
`22
`
`development of products that provide intelligent, highly-personalized heart data to help diagnose heart
`
`23
`
`conditions.
`
`24
`
`11.
`
`Defendant Apple is a California corporation with its principal place of business in
`
`25
`
`Cupertino, California. Apple is likely the largest public company in the world. Apple sells hardware,
`
`26
`
`including Apple Watches, as well as a number of related services.
`
`27
`
`28
`
`
`
`
`
`
`
`
`
`-4-
`
`
`COMPLAINT
`
`

`

`Case 3:21-cv-03958-JSC Document 1 Filed 05/25/21 Page 6 of 41
`
`
`
`1
`
`2
`
`III.
`
`JURISDICTION AND VENUE
`
`12.
`
`This Court has subject matter jurisdiction over plaintiff’s federal antitrust claims under
`
`3
`
`the Clayton Antitrust Act, 15 U.S.C. § 26, and 28 U.S.C. §§ 1331 and 1337. The Court has
`
`4
`
`supplemental jurisdiction over plaintiff’s state law claims pursuant to 28 U.S.C. § 1367.
`
`5
`
`13.
`
`This Court has personal jurisdiction over Apple because Apple’s headquarters are
`
`6
`
`located in Cupertino, California. Apple has engaged in sufficient minimum contacts with the United
`
`7
`
`States and has purposefully availed itself of the benefits and protections of both United States and
`
`8
`
`California law such that the exercise of jurisdiction over Apple would comport with due process.
`
`9
`
`Apple has also entered into agreements with developers and consumers that require related disputes to
`
`10
`
`be litigated in this District.
`
`11
`
`14.
`
` Venue is proper in this District pursuant to 28 U.S.C. § 1391(b) because Apple
`
`12
`
`maintains its principal place of business in the State of California and in this District, and because a
`
`13
`
`substantial part of the events or omissions giving rise to plaintiff’s claims occurred in this District. In
`
`14
`
`the alternative, personal jurisdiction and venue also may be deemed proper under Section 12 of the
`
`15
`
`Clayton Antitrust Act, 15 U.S.C. § 22, because Apple may be found in or transacts business in this
`
`16
`
`District.
`
`17
`
`18
`
`IV.
`
`INTRADISTRICT ASSIGNMENT
`
`15.
`
`Pursuant to Civil Local Rule 3-2(c), this antitrust case shall not be assigned to a
`
`19
`
`particular Division of this District, but shall be assigned on a District-wide basis.
`
`20
`
`21
`
`V. FACTS
`
`16.
`
`Apple has injured both AliveCor and competition by way of its unlawful
`
`22
`
`anticompetitive behavior in the U.S. market for watchOS heartrate analysis apps. It has done so via
`
`23
`
`abusing its monopoly power in that market, as well as the power it holds in the U.S. market for ECG-
`
`24
`
`capable smartwatches.3 Apple’s behavior has excluded competitors, reduced output and reduced
`
`25
`
`26
`
`27
`
`28
`
`
`
`
`
`
`3 As discussed below, if one broadens these market definitions in the alternative to heartrate
`analysis apps for wearable devices and ECG-capable smartwatches or wearable devices, Apple
`still has monopoly power in both, and has violated the Sherman Act with anticompetitive activity
`that harmed competition in the app market, however defined.
`
`
`
`
`
`-5-
`
`
`COMPLAINT
`
`

`

`Case 3:21-cv-03958-JSC Document 1 Filed 05/25/21 Page 7 of 41
`
`
`
`1
`
`innovation, and raised prices to supracompetitive levels for consumers. It has also caused AliveCor
`
`2
`
`substantial damages, including up to the present, due to Apple’s continued anticompetitive conduct.
`
`3
`
`4
`
`5
`
`A.
`
`ALIVECOR: AN INNOVATOR APPLE ORIGINALLY EMBRACED TO SELL
`APPLE WATCHES, BUT THEN EXCLUDED ONCE IT DECIDED TO COPY
`ALIVECOR’S KEY INNOVATIONS
`
`17. When the first Apple Watch launched, it was not an “intelligent guardian for your
`
`6
`
`health,” as Apple claims today—it was a fashion accessory.4 The original version of the Apple Watch
`
`7
`
`lacked basic features such as water resistance, GPS, and 4G LTE—much less the ability to record an
`
`8
`
`ECG.5 In a self-evident misunderstanding of the Apple Watch’s best uses, Apple premiered the
`
`9
`
`original Watch with a cover spread in Vogue and sold upscale versions of the device that incorporated
`
`10
`
`features like gold inlays and high-end fashion bands, for prices up to $17,000.6 The original Apple
`
`11
`
`Watch also was not made available to the average consumer who showed up at an Apple Store—it
`
`12
`
`required a fitting appointment.
`
`13
`
`18.
`
`Dr. Dave Albert, one of AliveCor’s founders, was among the first to recognize that the
`
`14
`
`Apple Watch could be so much more than just an expensive extension to a smartphone. Dr. Albert was
`
`15
`
`a physician, inventor, and entrepreneur that graduated with honors from Harvard College and Duke
`
`16
`
`University Medical School. In 2010, he was featured in a viral YouTube video depicting how the
`
`17
`
`iPhone could be used together with a phone case to record an ECG.7 Dr. Albert realized that portable
`
`18
`
`devices like the iPhone could enable tremendous innovation in personal health monitoring and
`
`19
`
`analysis, and that the Apple Watch presented an even better use case for that sort of medical tool. In
`
`20
`
`2011, Dr. Albert helped translate that insight into AliveCor.
`
`21
`
`19.
`
`AliveCor showed the potential the Apple Watch had as a medical device in 2015, the
`
`22
`
`same year Apple released the first Apple Watch. In a video much like the one he created in 2010, Dr.
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`
`
`
`
`
`4 https://www.washingtonpost.com/news/innovations/wp/2015/03/05/apple-watch-is-
`competing-as-a-fashion-accessory-and-thats-a-risky-move/
`
`5 https://swappa.com/blog/apple-watch-series-0-worth-buying/
`
`6 https://www.cnet.com/news/remember-when-apple-watch-was-luxury-item-we-look-back-5-
`year-evolution/
`
`7 https://www.mobihealthnews.com/12224/iphone-ecg-developer-alivecor-raises-3-million
`
`
`
`
`
`-6-
`
`
`COMPLAINT
`
`

`

`Case 3:21-cv-03958-JSC Document 1 Filed 05/25/21 Page 8 of 41
`
`
`
`1
`
`Albert demonstrated an initial prototype of a new product, KardiaBand, which would allow users to
`
`2
`
`turn their fashionable Apple Watch into a medical device with the ability to record an ECG.8
`
`3
`
`20.
`
`AliveCor’s innovations, however, were not just limited to hardware. When AliveCor
`
`4
`
`eventually released its commercial KardiaBand product, AliveCor also released SmartRhythm, a first
`
`5
`
`of its kind app that remains best in class to this day. As discussed below, SmartRhythm used data from
`
`6
`
`the Apple Watch’s heartrate algorithm to detect when a user’s heartrate was likely irregular and
`
`7
`
`required follow up (e.g., an ECG reading) to determine if it was a medically-worrisome event.9
`
`8
`
`21.
`
`Today, it is clear that Dr. Albert’s insights into linking portable technologies (like the
`
`9
`
`Apple Watch) to personal health monitoring and analysis were forward-thinking. In the six years since
`
`10
`
`Apple introduced the Apple Watch, fitness and health features have taken much more of “center
`
`11
`
`stage” for smartwatch devices,10 and devices with high-end medical features now constitute their own
`
`12
`
`product sub-category (discussed further below). Indeed, at the same time AliveCor made the ability to
`
`13
`
`record an ECG and to provide true heartrate analysis on the Apple Watch, Apple was discontinuing its
`
`14
`
`line of $10,000+ Apple Watches, because it had finally realized that the device’s greatest potential
`
`15
`
`was not as a fashion accessory.11
`
`16
`
`22.
`
`AliveCor’s innovations did not go unnoticed. After Dr. Albert first presented his idea
`
`17
`
`for the KardiaBand just a month after the Apple Watch release, he received a message from Dr.
`
`18
`
`Michael O’Reilly, Apple’s VP of Medical Technology, asking him to come to Apple’s campus and
`
`19
`
`present his ideas. At that meeting, Dr. Albert demonstrated the KardiaBand prototype to Apple
`
`20
`
`engineers and to Apple’s COO, Jeff Williams. Mr. Williams told Dr. Albert—at least at that time—
`
`21
`
`that Apple wanted to figure out how to work with AliveCor. A few months later, Dr. Albert and
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`
`
`
`
`
`8 https://www.medgadget.com/2015/10/alivecor-previews-apple-watch-ecg-video.html
`
`9 https://www.alivecor.com/press/press_release/fda-clears-first-medical-device-for-apple-
`watch/
`
`10 https://www.cnet.com/news/remember-when-apple-watch-was-luxury-item-we-look-back-
`5-year-evolution/
`
`11 https://www.theverge.com/circuitbreaker/2018/9/12/17851918/apple-watch-edition-
`discontinued
`
`
`
`
`
`-7-
`
`
`COMPLAINT
`
`

`

`Case 3:21-cv-03958-JSC Document 1 Filed 05/25/21 Page 9 of 41
`
`
`
`1
`
`AliveCor’s then-CEO met with Phil Schiller, Apple’s SVP of Worldwide Marketing, to demonstrate
`
`2
`
`the KardiaBand prototype and to hopefully establish a relationship that would allow AliveCor to work
`
`3
`
`together with Apple.
`
`4
`
`23.
`
`During this period, visitors to Apple’s campus noted that a large number of Apple
`
`5
`
`engineers in its Health division had KardiaBands on their Apple Watches. At the time, this was not all
`
`6
`
`that surprising (and was, in fact, exciting to AliveCor) because, from the moment AliveCor came on
`
`7
`
`the scene, Apple was fully aware of it and its innovations. Apple even advertised those innovations to
`
`8
`
`help sell the Apple Watch; specifically, by playing up AliveCor’s heartrate analysis capabilities and
`
`9
`
`explaining how useful they would be for purchasers. Those advertisements clearly worked, as Apple
`
`10
`
`Watch sales continued to climb year over year over year and its potential as a health device came into
`
`11
`
`ever greater focus.
`
`12
`
`24.
`
`Following these advertisements and the Apple Watch’s exponential growth, and after
`
`13
`
`over 18 months of conversations between Apple and AliveCor executives regarding AliveCor’s
`
`14
`
`products, AliveCor received clearance from the FDA for the KardiaBand and gave Apple a heads-up
`
`15
`
`on KardiaBand’s official launch date. A few hours later, Apple suddenly released a statement to the
`
`16
`
`press pre-announcing a heart initiative for the Apple Watch—a clear attempt to steal AliveCor’s
`
`17
`
`thunder, given that AliveCor was just about to be the first company to actually provide the ability to
`
`18
`
`record an ECG on the Apple Watch and, just as importantly, real heartrate analysis that users could
`
`19
`
`utilize to figure out if they were in a potentially dangerous medical situation. Indeed, the pre-
`
`20
`
`announcement was all the more striking given Apple’s general policy against pre-announcing
`
`21
`
`initiatives.
`
`22
`
`25.
`
`Over the next several weeks, Apple took additional steps to publicly undercut
`
`23
`
`AliveCor, now that it was clear that Apple viewed AliveCor as a competitor rather than as an
`
`24
`
`innovator helping drive Apple Watch sales. For example, AliveCor gave exclusive interviews to
`
`25
`
`Christina Farr, a technology and health reporter for CNBC in San Francisco. In 2017, Ms. Farr ranked
`
`26
`
`AliveCor as one of the top 10 most innovative companies in health, for “mobilizing health
`
`27
`
`28
`
`
`
`
`
`
`
`
`
`-8-
`
`
`COMPLAINT
`
`

`

`Case 3:21-cv-03958-JSC Document 1 Filed 05/25/21 Page 10 of 41
`
`
`
`1
`
`monitoring.”12 After AliveCor told Apple about KardiaBand’s release, Apple decided it too would
`
`2
`
`suddenly grant Ms. Farr an exclusive, presumably to squash any article or report Ms. Farr was
`
`3
`
`developing about AliveCor. It worked, as she released an article that month mentioning AliveCor, but
`
`4
`
`centering on Apple’s health initiative.13
`
`5
`
`26.
`
`One of the ironies of Apple’s “pre-announcement” and subsequent efforts to draw
`
`6
`
`attention to its heart initiative rather than AliveCor, however, is that it actually validated AliveCor’s
`
`7
`
`business concept and initially led to an uptick in AliveCor’s sales. Given Apple’s much larger
`
`8
`
`megaphone on public relations issues, Apple Watch users were better able to learn about the ability to
`
`9
`
`utilize their Watch as a heart health device and began looking for companies offering that
`
`10
`
`functionality. AliveCor therefore benefited from Apple confirming that Apple itself saw a future in
`
`11
`
`this realm. Competition was healthy for AliveCor, and welcomed. But Apple had other designs.
`
`12
`
`27.
`
`In September 2018, Apple announced an updated Apple Watch along with an updated
`
`13
`
`version of the operating system running the device (watchOS) that not only added the ability to record
`
`14
`
`an ECG (like what KardiaBand already provided), but also for the first time included an Apple-
`
`15
`
`developed heartrate analysis app. According to Apple CEO Tim Cook, Apple did not initially intend
`
`16
`
`to offer such features, but was scrambling in 2018 to add such functionality because it saw that users
`
`17
`
`demanded those features.14 Of course, the only reason Apple learned this fact is that it saw firsthand
`
`18
`
`the popularity of AliveCor’s products. But Apple apparently decided that it wanted to completely own
`
`19
`
`the market, so, in the months leading up to the September 2018 announcement, Apple took numerous
`
`20
`
`steps to try to hamper and limit AliveCor, but failed each time. Unable to accept this state of affairs
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`
`
`
`
`
`12 https://www.fastcompany.com/3067883/the-10-most-innovative-companies-in-health-
`2017?itm_source=parsely-api
`
`13 https://www.cnbc.com/2017/09/20/apple-watch-as-diagnosis-tool-cardioligists-
`skeptical.html
`
`14 https://www.outsideonline.com/2420733/tim-cook-apple-fitness-wellness-future (“As
`Cook and I make our way into the Apple Park courtyard, he explains how, in 2018, Apple found
`itself developing sensors and software for the Watch that could detect atrial fibrillation, or A-fib—
`an irregular heartbeat that can be deadly if not properly managed. This was not something the
`design team had planned to do. Like many of the Watch’s features, it came about after learning
`how the device was being used.)
`
`
`
`
`
`-9-
`
`
`COMPLAINT
`
`

`

`Case 3:21-cv-03958-JSC Document 1 Filed 05/25/21 Page 11 of 41
`
`
`
`1
`
`because it stood to reap massive benefits by monopolizing heartrate analysis on Apple Watches—and,
`
`2
`
`specifically, the health data that analysis provides—Apple chose to eliminate competition entirely by
`
`3
`
`including a change in watchOS5 that made it effectively impossible for any third party to provide
`
`4
`
`heartrate analysis on the Apple Watch. To understand why this mattered for consumers and
`
`5
`
`developers, it bears first discussing the relevant markets in which Apple and AliveCor operate, and the
`
`6
`
`scope of Apple’s considerable monopoly power in each.
`
`7
`
`8
`
`B.
`
`28.
`
`APPLE MONOPOLIZES HEARTRATE ANALYSIS APPS
`
` Although this case focuses on Apple’s exclusionary conduct regarding heartrate
`
`9
`
`analysis apps, it involves the abuse of monopoly power in multiple markets. Those markets include
`
`10
`
`the U.S. markets (or aftermarkets) for watchOS heartrate analysis apps (e.g., AliveCor’s SmartRhythm
`
`11
`
`and Apple’s version of that same app) and ECG-capable smartwatches (e.g., Apple Watch Series 4
`
`12
`
`and later, Samsung Galaxy Watch 3, etc.), as well as the power Apple possesses over locked-in Apple
`
`13
`
`Watch users. But, even if the markets are viewed in the alternative as more broadly defined—i.e., as
`
`14
`
`relevant markets for wearable device heartrate analysis apps, ECG-capable wearable devices
`
`15
`
`generally, and/or smartwatches generally—Apple still possesses (and has abused) monopoly power in
`
`16
`
`each. Each market is discussed in further detail below.
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`
`
`
`
`1.
`
`Apple Has Monopoly Power in the Relevant Markets for ECG-Capable
`Smartwatches and watchOS Heartrate Analysis Apps
`
`(i)
`
`ECG-capable smartwatches
`
`29.
`
`ECG-capable smartwatches constitute their own relevant market, but in order to
`
`understand why, one must first understand the separate nature of the broader product category to
`
`which they belong: smartwatches.
`
`30.
`
`A smartwatch is a mobile computing device with a touchscreen display that is typically
`
`worn on the wrist. As the name implies, the device acts as a digital watch, but also provides
`
`substantial additional functionality that effectively renders it an extension of a user’s smartphone
`
`(although it is not a replacement for a smartphone, given that smartwatches are more limited in terms
`
`of functionality than a smartphone, and because their much-smaller size makes them impracticable as
`
`
`
`
`
`-10-
`
`
`COMPLAINT
`
`

`

`Case 3:21-cv-03958-JSC Document 1 Filed 05/25/21 Page 12 of 41
`
`
`
`1
`
`a replacement for such devices).15 Smartwatches’ broad functionality (including the ability to use
`
`2
`
`multiple types of apps and easily select between them), as well as their touchscreen capabilities are the
`
`3
`
`main driver of demand for the devices, because those features provide users with smartphone-like
`
`4
`
`capabilities in a wearable device that is also able to, inter alia, monitor health characteristics.
`
`5
`
`31.
`
`Other types of wearable devices are not reasonably interchangeable with smartwatches
`
`6
`
`because they neither constrain pricing nor demand for such devices. Traditional wristwatches, for
`
`7
`
`example, do not provide any “smart” characteristics, such as app-based functionality, the ability to act
`
`8
`
`as both an extension of and sensor for smartwatches, a touchscreen, or health monitoring capabilities.
`
`9
`
`Users looking for a device to perform the sorts of tasks a smartwatch can perform thus would not seek
`
`10
`
`out a traditional wristwatch instead. Similarly, fitness trackers, such as those sold by Fitbit and
`
`11
`
`Garmin (among others), are not reasonably interchangeable with smartwatches because, although
`
`12
`
`fitness trackers offer some health monitoring and, in limited cases, touchscreen functionality, they do
`
`13
`
`not offer the broad array of other functions a smartwatch provides. Put differently, although
`
`14
`
`smartwatches and fitness trackers both provide some level of health monitoring, smartwatch users
`
`15
`
`want a device that provides more than just health monitoring and therefore would not switch to fitness
`
`16
`
`trackers instead if a hypothetical monopolist of smartwatches raised prices on all smartwatches by a
`
`17
`
`small but significant, non-transitory amount.
`
`18
`
`32.
`
` There are numerous other practical indicia indicating that smartwatches are a separate
`
`19
`
`relevant market. The industry plainly recognizes smartwatches’ unique and separate nature. Apple, for
`
`20
`
`example, recently noted in a filing with the International Trade Commission that “replacement
`
`21
`
`products” for the Apple Watch included only other smartwatches (and made no mention of fitness
`
`22
`
`trackers). Similarly, industry analysts regularly distinguish between smartwatches, fitness trackers,
`
`23
`
`and traditional watches. Indeed, even manufacturers that sell both fitness trackers and smartwatches
`
`24
`
`distinguish between the two types of products, specifically naming or categorizing devices as either
`
`25
`
`26
`
`27
`
`28
`
`
`
`
`
`
`15 In economic terms, smartwatches are a complement to smartphones, in that their value to
`the user increases when used in conjunction with a smartphone.
`
`
`
`
`
`-11-
`
`
`COMPLAINT
`
`

`

`Case 3:21-cv-03958-JSC Document 1 Filed 05/25/21 Page 13 of 41
`
`
`
`1
`
`“trackers” or “smartwatches.”16 This is unsurprising, given that, as noted above, smartwatches have
`
`2
`
`peculiar characteristics and uses, in that they effectively act as extensions and expansions of a
`
`3
`
`smartphone. Fitness trackers provide some of that functionality, but not nearly all, and demand for
`
`4
`
`smartwatches is therefore independent of fitness trackers as a result. Smartwatch prices similarly are
`
`5
`
`not sensitive to prices from other types of wearable device; for example, fitness trackers are typically
`
`6
`
`sold for far less than smartwatches and those lower prices do not affect demand for smartwatches.
`
`7
`
`33.
`
`As most relevant to this case, within the broader smartwatch market there is a sub-
`
`8
`
`category for smartwatches capable of taking ECGs. As noted previously, an ECG is a recording of the
`
`9
`
`electrical signals in one’s heart. It is a common test used to quickly detect heart problems and monitor
`
`10
`
`heart health. In order to advertise the ability to take an ECG, a manufacturer must first obtain
`
`11
`
`clearance from the FDA.
`
`12
`
`34.
`
`For smartwatch users, the ability to record an ECG adds a level of heart health-related
`
`13
`
`functionality that, when combined with a smartwatch’s other functionality, provides a unique
`
`14
`
`combination of uses not available on any other type of wearable or mobile computing device.
`
`15
`
`Specifically, a user concerned with the ability to meaningfully diagnose any heartrate issues in real
`
`16
`
`time can only choose a device that is capable of taking ECG readings; otherwise, beyond the most
`
`17
`
`obvious situations, they will be unable to medically determine whether they are experiencing a heart-
`
`18
`
`related event requiring medical assistance. With the exception of a few ECG-specific wearable
`
`19
`
`devices, AliveCor is unaware of any other wearables that provide ECG functionality besides
`
`20
`
`smartwatches (e.g., no fitness trackers allow