Case 4:21-cv-03958-JSW Document 42 Filed 03/21/22 Page 1 of 16
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`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
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`ALIVECOR, INC.,
`Plaintiff,
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`v.
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`APPLE INC.,
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`Defendant.
`
`Case No. 21-cv-03958-JSW
`
`
`ORDER GRANTING, IN PART, AND
`DENYING, IN PART, MOTION TO
`DISMISS
`Re: Dkt. No. 21
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`Now before the Court for consideration is the motion to dismiss filed by Defendant Apple
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`Inc., (“Apple”). The Court has considered the parties’ papers, relevant legal authority, and the
`record in the case, and it finds this matter suitable for disposition without oral argument.1 See
`N.D. Civ. L.R. 7-1(b). For the following reasons, the Court GRANTS, IN PART, AND DENIES,
`IN PART, Apple’s motion.
`
`BACKGROUND
`Plaintiff AliveCor, Inc. (“AliveCor”) filed a complaint against Apple, alleging that Apple
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`unlawfully monopolized the U.S. market for watchOS heart rate analysis apps. AliveCor alleges
`that it is an innovator in the smartwatch industry that helped change the perception of the Apple
`Watch from an accessory to a personal health monitoring tool. (Compl. ¶¶ 2, 17-18.) AliveCor’s
`products include: (1) the KardiaBand, a wristband for the Apple Watch, capable of recording an
`electrocardiogram (“ECG”); (2) the Kardia app, which analyzes readings from the KardiaBand on
`the Apple Watch; and (2) SmartRhythm, a heart rate analysis app with the ability to monitor a
`user’s heart rate and alert the user of an irregularity suggesting they should record an ECG. (Id. ¶
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`1 The Court has also received and considered the subsequent authorities submitted by the parties.
`(See Dkt. Nos. 32, 34-36.)
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`Case 4:21-cv-03958-JSW Document 42 Filed 03/21/22 Page 2 of 16
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`2.) SmartRhythm used data from the Apple Watch’s heart rate algorithm to detect the
`irregularities. (Id. ¶ 20.) AliveCor alleges that SmartRhythm is the true focus of the lawsuit.
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`AliveCor alleges that Apple was aware of and supportive of AliveCor’s innovations to the
`Apple Watch. (Id. ¶¶ 20-23.) But as the Apple Watch grew in popularity and shortly after the
`KardiaBand gained FDA approval, AliveCor alleges that Apple announced its own heart initiative
`for the Apple Watch, which AliveCor viewed as an attempt to undercut the KardiaBand. (Id. ¶
`24.) From this point on, AliveCor alleges that Apple viewed AliveCor as a competitor and took
`steps to undercut AliveCor including introducing an updated Apple Watch and watch operating
`system (“watchOS”), with the ability to record an ECG and Apple’s own heart rate analysis app.
`(Id. ¶ 25, 27.)
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`A.
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`Product Market Allegations.
`AliveCor focuses its allegations on Apple’s purported exclusionary conduct regarding
`heart rate analysis apps. (Id. ¶ 28.) However, AliveCor alleges that Apple abused monopoly
`power in multiple markets, including the U.S. market for watchOS heart rate analysis apps (e.g.
`AliveCor’s SmartRhythm and Apple’s version of that app) and ECG-capable smartwatches. (Id.)
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`1.
`ECG-capable smartwatches.
`According to AliveCor, a smartwatch is a mobile computing device with a touchscreen
`display that is typically worn on the wrist. (Id. ¶ 30.) A smartwatch acts as a digital watch but
`provides additional functionality that makes it an extension of and complement to a user’s
`smartphone. (Id.) AliveCor alleges that it is the broad functionality and touchscreen capabilities
`of smartwatch that drive demand for smartwatches because the features provide users with
`smartphone-like capabilities in a wearable device. (Id.) AliveCor alleges that traditional
`wristwatches and fitness trackers are not reasonably interchangeable with smartwatches because
`wristwatches do not provide any “smart” characteristics and fitness trackers do not offer the array
`of functions a smartwatch provides beyond health monitoring. (Id. ¶ 31.)
`AliveCor alleges that within the broader smartwatch market there is a submarket for
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`smartwatches capable of taking ECGs (“ECG-capable smartwatches”). 2 (Id. ¶ 29, 33.) The
`ability to record an ECG on a smartwatch adds a layer of heart health-related functionality that,
`“when combined with a smartwatch’s other functionality, provides a unique combination of uses
`not available on any other type of wearable or mobile computing device.” (Id. ¶ 34.)
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`2.
`Heart rate analysis apps.
`AliveCor also alleges that the market or aftermarket of “watchOS heart rate analysis apps”
`constitutes the relevant product market. 3 (Id. ¶ 45, 48.) AliveCor alleges that a heart rate analysis
`app “analyzes the user’s heart rate in real time, typically using a PPG sensor in close proximity to
`the user’s wrist” and determines whether the user’s heart rate is normal or irregular. (Id. ¶ 40.)
`The app runs constantly while the device is worn and alerts a user when a situation arises requiring
`an ECG recording and medical analysis. (Id.) This distinguishes a heart rate analysis app from an
`ECG app, which records and interprets an ECG using specialized hardware, and a heart rate
`tracking app, which tracks certain aspects of a user’s heart rate to assess general fitness but does
`not provide medical analysis or diagnostics. (Id. ¶¶ 40-41.) For Apple Watch users, the only heart
`rate analysis apps are those written for watchOS, so the only reasonably interchangeable heart rate
`analysis app alternatives an Apple Watch user can select are watchOS apps. (Id. ¶ 39, 45.)
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`B. Market Share Allegations.
`AliveCor alleges that Apple possesses monopoly in the U.S. market for ECG-capable
`smartwatches and watchOS heart rate analysis apps. (Id. ¶ 48.) AliveCor alleges, on information
`and belief, that Apple commands over sixty-eight percent of the U.S. smartwatch market. (Id. ¶
`49.) According to AliveCor, Apple’s share of the narrower ECG-capable smartwatch market is
`even greater—over seventy percent—because Apple’s competitors only offer ECG functionality
`on a subset of their smartwatches. (Id. ¶ 50.)
`AliveCor alleges that Apple has a nearly one hundred percent market share of watchOS
`heart rate analysis apps given its complete control over watchOS and distribution for watchOS
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`2 AliveCor adopts in the alternative broader definitions of the relevant ECG-capable smartwatch
`market that it defines as “all smartwatches” or “all ECG-capable wearable devices.” (Id. ¶ 35.)
`3 In the alternative, AliveCor alleges that the relevant market can be more broadly defined as “all
`heart rate analysis apps for wearable devices.” (Id. ¶ 46.)
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`apps. (Id.) AliveCor further alleges that competition in the smartwatch market does not constrain
`Apple’s power in the watchOS heart rate analysis app market because of high switching costs and
`consumer lock-in. (Id. ¶ 55.) AliveCor also alleges that Apple has monopoly power over locked-
`in Apple Watch users. (Id. ¶¶ 57-69.)
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`C.
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`Allegations of Anticompetitive Conduct.
`AliveCor alleges that Apple harmed competition by excluding competitors for watchOS
`heart rate analysis app in several ways including by pre-announcing Apple’s own heart initiative
`(id. ¶ 72), informing AliveCor that SmartRhythm violated App Store guidelines (id. ¶¶ 73-75), and
`making changes to watchOS that created technical problems for SmartRhythm. (Id. ¶ 76.)
`AliveCor alleges that Apple’s changes to the heart rate algorithm prevented third-party developers
`from being able to detect heart rate fluctuations and irregularities. (Id. ¶¶ 77-84.) As a result of
`these changes, SmartRhythm could not provide accurate heart rate analysis, and AliveCor
`removed it from the market. (Id. ¶ 85.) AliveCor alleges that Apple made these changes to
`exclude competition not to provide benefits to users. (Id. ¶ 86.)
`The complaint alleges claims monopolization and attempted monopolization in violation of
`Section 2 of the Sherman Act, 15 U.S.C. section 2 and violations of California’s Unfair
`Competition Law (“UCL”), California Business and Professions Code section 17200 et seq.
`ANALYSIS
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`A. Requests for Judicial Notice.
`Generally, when evaluating a motion to dismiss, district courts may not consider material
`outside the pleadings. Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). There are
`two exceptions to this rule: the doctrine of incorporation by reference and judicial notice under
`Federal Rule of Evidence 201. Each mechanism permits district courts to consider materials
`outside a complaint, but each does so for different reasons. Khoja v. Orezigen Therapeutics, Inc.,
`899 F.3d 988, 1002-03 (9th Cir. 2018).
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`Under Rule 201, a court may take judicial notice of an adjudicative fact if it is “not subject
`to reasonable dispute.” Fed. R. Evid. 201(b). A fact is “not subject to reasonable dispute” if it is
`“generally known,” or “can be accurately and readily determined from sources whose accuracy
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`cannot reasonably be questioned.” Id. Though a court may take judicial notice of matters of
`public record and properly consider those matters when evaluating a motion to dismiss, a court
`may not take judicial notice of disputed facts contained in such public records. Lee, 250 F. 3d at
`689 (quotations and citations omitted).
`Incorporation by reference, on the other hand, is a judicially-created doctrine that treats
`certain documents as though they are part of the complaint itself. Khoja, 899 F.3d at 1002. This
`doctrine is a tool to prevent plaintiffs from highlighting only the portions of certain documents that
`support their claims, while omitting portions of those documents that weaken their claims. Id.
`(citations omitted). A court may incorporate a document by reference if the complaint refers
`extensively to the document or the document forms the basis for the plaintiff’s claim. Id.
`(citations omitted). For a reference to be sufficiently “extensive,” a document should be referred
`to “more than once.” Id. at 1003. But “a single reference” could, in theory, satisfy the standard if
`the reference is “relatively lengthy.” Id. If a document “merely creates a defense” to the
`complaint’s allegations, the document does not necessarily “form the basis of” the complaint. Id.
`at 1002-03 (“Although the incorporation-by-reference doctrine is designed to prevent artful
`pleading by plaintiffs, the doctrine is not a tool for defendants to short-circuit the resolution of a
`well-pleaded claim.”). When a court incorporates a document by reference, it may assume all
`contents of the document are true for the purposes of a motion to dismiss under 12(b)(6). Id. at
`1003 (citing Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (quotations omitted)). Thus,
`courts must be cautious when drawing inferences from incorporated documents. Id.
`Apple requests judicial notice of twelve exhibits in connection with its motion to dismiss.
`Apple argues that the Court may consider these documents under the doctrine of incorporation by
`reference because they are documents that the complaint “necessarily relies” upon. Exhibits A
`through L are articles cited by AliveCor in the complaint. Exhibits A, D, and E are each referred
`to twice in the complaint, and Exhibits B, C, and F through L are referred to once. Accordingly,
`the complaint does not refer to any of the exhibits “extensively enough to warrant incorporation on
`that ground alone.” Khoja, 899 F.3d at 1006. However, an exhibit may nevertheless be
`incorporated by reference if AliveCor used the exhibit to form the basis of its claims. Id.
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`Here, Exhibits A-C are referenced once or twice in the complaint and these references are
`found in a section of the complaint discussing AliveCor’s background. Similarly, Exhibit L is
`referenced once in the complaint, and it does not form the basis of Plaintiff’s claims. These
`references are not at the “core” of the complaint, and the Court DENIES Apple’s request to
`incorporate these documents by reference into the complaint. See Garcia v. J2 Glob., Inc., No.
`20-cv-06096-FLA (MAAx), 2021 WL 1558331, at *6 (C.D. Cal. Mar. 5, 2021) (denying
`incorporation by reference because “any support [the exhibits] give to Plaintiff’s claim is too
`tangential to form the basis of Plaintiff’s claim”) (internal citation and quotation marks omitted).
`On the other hand, Exhibits D-G, although referenced only once or twice, serve to form the
`basis of Plaintiff’s claim because Plaintiff cites them as support for its allegations related to the
`relevant product market for heart rate analysis apps. Similarly, Exhibits H-K, though minimally
`referenced, serve to form the basis of Plaintiff’s claim because Plaintiff cites them to help show
`Apple’s market share in the smartwatch market. The Court GRANTS Apple’s request to
`incorporate these documents by reference into the complaint.
`However, the Court agrees with AliveCor that with regard to the documents incorporated
`by reference, the Court will not interpret the incorporated documents to contradict well-pled
`factual allegations in the complaint. Khoja, 899 F.3d at 1003; Sgro v. Danone Waters of N. Am.
`Inc., 532 F.3d 940, 943 n.1 (9th Cir. 2008) (refusing to interpret incorporated disability plan
`documents to contradict plaintiff’s pleaded facts). 4
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`B.
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`Legal Standard Applicable to a Motion to Dismiss.
`A complaint must contain a “short and plain statement of the claim showing that the
`pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). “[D]etailed factual allegations are not
`required” to survive a motion to dismiss if the complaint contains sufficient factual allegations to
`“state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
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`In its request for judicial notice, Apple asks the Court to consider these documents under
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`the doctrine of incorporation by reference. In reply, Apple appears to conflate judicial notice
`under Federal Rule of Evidence 201 and incorporation by reference. (See Dkt. No. 27, RJN
`Reply, 1:27-2:2.) Because Apple’s request for judicial notice did not address whether judicial
`notice was proper under Rule 201, the Court will not consider whether the exhibits would be
`proper subjects of judicial notice under Rule 201.
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`(citing Bell Atl. v. Twombly, 550 U.S. 544, 570 (2007)). “Labels and conclusions[] and a
`formulaic recitation of the elements of a cause of action will not do.” Twombly, 50 U.S. at 555.
`When evaluating a Rule 12(b)(6) motion to dismiss, a district court accepts as true all
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`material facts alleged in the complaint and draws all reasonable inferences in favor of the plaintiff.
`Faulkner v. ADT Servs., Inc., 706 F.3d 1017, 1019 (9th Cir. 2013). A district court should grant
`leave to amend unless the court determines the pleading could not “possibly be cured by the
`allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000).
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`C.
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`Sherman Act Claims.
`Protecting competition, not individual competitors, is at the heart of antitrust regulation.
`See Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962). Accordingly, antitrust laws target
`only behavior that tends to reduce (or actually reduces) competition. Atl. Richfield Co. v. USA
`Petroleum Co., 495 U.S. 328, 344 (1990); Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104,
`109-10 (1986) (“[I]t is inimical to the antitrust laws to award damages for losses stemming from
`continued competition.” (citation and quotation omitted)).
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`To successfully plead monopolization under the Sherman Act, a plaintiff must allege: (i) a
`market participant has monopoly power in the relevant market and (ii) is willfully acquiring or
`maintaining monopoly power. Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 480-
`81 (1992). “[G]rowth or development as a consequence of a superior product, business acumen,
`or historic accident” is not prohibited behavior. Id. at 1481. A private plaintiff must also plead
`the defendant’s anticompetitive behavior has injured it. Rebel Oil Co. v. Atl. Richfield Co., 51
`F.3d 1421, 1433 (9th Cir. 1995).
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`To successfully plead attempted monopolization under the Sherman Act, a private plaintiff
`must allege: (i) predatory or anticompetitive conduct (ii) pursued with the specific intent to control
`prices or destroy competition; (iii) a dangerous probability the defendant will achieve a monopoly
`or monopoly power; and (iv) injury stemming from the complained-of anticompetitive behavior.
`Image Tech. Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1202 (9th Cir. 1997) (citations
`omitted). Apple argues that AliveCor’s monopolization and attempted monopolization claims fail
`for the same reasons.
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`1. Relevant Product Market.
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`Apple first argues that AliveCor fails to allege a plausible product market. To state a valid
`claim for monopolization or attempted monopolization, a plaintiff must allege that a “relevant
`market” exists and that the defendant has power within that market. Newcal Indus., Inc. v. Ikon
`Office Sol., 513 F.3d 1038, 1044 (9th Cir. 2008).5 The sufficiency of allegations concerning the
`“relevant market” is a factual, rather than legal, question; therefore, a Sherman Act claim survives
`a Rule 12(b)(6) motion to dismiss unless the alleged market suffers from a fatal legal defect. Id. at
`1045; see High Tech. Careers v. San Jose Mercury News, 996 F.2d 987, 990 (9th Cir. 1993)
`(market definition depends on “a factual inquiry into the ‘commercial realities’ faced by
`consumers”) (citation omitted).
`To avoid a fatal legal defect, the relevant market must be a “product market,” rather than a
`market whose boundaries are delineated by consumers. Id. (citations omitted). The market at
`issue must encompass the product at issue as well as all economic substitutes for the product. Id.
`The relevant market must include the group of service providers “who have [the] actual or
`potential ability to deprive each other of significant levels of business.” Thurman Indus., Inc. v.
`Pay ‘N Pak Stores, Inc., 875 F.2d 1369, 1374 (9th Cir. 1989).
`A degree of fungibility demarcates the outer boundaries of a product market: the court
`must look to whether the market, as the plaintiff defined it, includes all reasonably interchangeable
`products and whether there is cross-elasticity of demand between the product and its substitutes.
`Olin Corp. v. FTC, 986 F.2d 1295, 1298-99 (9th Cir. 1993) (citation omitted). Practically, cross-
`elasticity means that if the price of one good increases, demand for the purportedly equivalent
`good will increase, as consumers substitute the equivalent good for their initial, now relatively
`expensive, choice: “[i]f consumers view the products as substitutes, the products are part of the
`same market.” Rebel Oil Co., 51 F.3d at 1435.
`AliveCor alleges that Apple’s conduct abuses monopoly power in two markets: (1) ECG-
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`5 This element of an antitrust claim need not be pled with specificity. See Cost Mgmt. Servs., Inc.
`v. Washington Nat. Gas Co., 99 F.3d 937, 950 (9th Cir. 1996) (complaint “need only allege
`sufficient facts from which the court can discern the elements of an injury resulting from an act
`forbidden by the antitrust laws”) (citation and quotation omitted).
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`capable smartwatches, and (2) watchOS heart rate analysis apps. 6
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`a.
`ECG-capable smartwatches.
`Apple argues that AliveCor’s hardware-based market definitions fail because they exclude
`AliveCor’s own products. Specifically, Apple contends that AliveCor’s KardiaBand is not a
`smartwatch, an ECG-capable smartwatch, or an ECG-capable wearable device, but instead is an
`ECG-capable product designed to work with a smartwatch. That is, it complements but does not
`compete in a market for wearable or smartwatch devices. AliveCor contends Apple’s argument
`raises a factual issue that is improper to determine at this stage.
`The Court agrees with Apple. The products at issue do not fall within the proposed ECG-
`capable smartwatch market or the broader smartwatch market. As alleged, a smartwatch is a
`“mobile computing device with a touchscreen display that is typically worn on the wrist” and “acts
`as a digital watch, but also provides substantial additional functionality,” and the KardiaBand is a
`“wristband for the Apple Watch.” (Compl. ¶ 2, 30.) Thus, the allegations in the complaint make
`clear that the KardiaBand is used in connection with the Apple Watch and does not independently
`satisfy the alleged smartwatch criteria. Contrary to AliveCor’s argument, this is not a factual issue
`because it is apparent from the face of the complaint that the KardiaBand is not a smartwatch. The
`alleged products do not fall within the proposed market of ECG-capable smartwatches or the
`broader smartwatch market. Accordingly, neither of those are plausible relevant markets. See
`Hicks, 897 F.3d at 1120 (relevant market must “encompass the product at issue.”).
`In its opposition, AliveCor does not meaningfully dispute that the KardiaBand is not a
`smartwatch or an ECG-capable smartwatch. Rather, it contends that “it is a wearable device,
`albeit one that integrates with Apple Watches via the Kardia app to make them ECG-capable.”
`(Opp’n at 10 n.3.) As such, of AliveCor’s three proposed hardware-based market, the only one
`that could plausibly constitute a relevant market here is the broadly defined market for all ECG-
`capable wearable devices, which AliveCor alleges in the alternative.
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`6 Antitrust law requires allegation of both a product market and a geographic market. AliveCor
`alleges the United States is the relevant geographic market for its hardware and software product
`markets. (Compl. ¶¶ 37, 47.) Apple does not challenge that allegation.
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`However, AliveCor’s contention that the KardiaBand falls within the proposed ECG-
`capable wearable device market is also implausible. As Apple argues, if the KardiaBand is an
`ECG-capable wearable device, then every product or band capable of being integrated with an
`Apple Watch would fall into this market so long as the product can integrate with an Apple Watch
`that has ECG capability. However, AliveCor focuses this litigation on heart rate analysis apps and
`the devices on which those apps run. Thus, this definition does not make sense when viewed in
`the broader context of the complaint. It is implausible that the proposed ECG-capable wearable
`device market would include devices on which apps cannot be run, like the KardiaBand. AliveCor
`fails to plausibly establish that the KardiaBand falls within the even the broadly defined proposed
`ECG-capable wearable device market. Newcal, 513 F.3d at 1045 (market must encompass the
`product at issue).
`Even assuming the KardiaBand is an ECG-capable wearable device, AliveCor has failed to
`allege that this is a plausible market. A plausible market requires facts explaining why seemingly
`similar products excluded from the market are not substitutes for those in the market. Reilly v.
`Apple Inc., No. 21-cv-04601- EMC, 2022 WL 74162, at *6 (N.D. Cal. Jan. 7, 2022). The ECG-
`capable wearable device market lacks justification on this basis. AliveCor has not alleged why
`seemingly similar products, such as ECG-capable portable or mobile devices, are not reasonable
`substitutes for ECG-capable wearable devices. AliveCor asserts that it alleges such products are
`not reasonable substitutes for ECG-capable wearable devices because the demand for wearable
`devices stems from their wearability. However, this is not alleged in the complaint. The
`allegations AliveCor points to reference smartwatches, not ECG-capable wearable devices.
`AliveCor cannot rely on its allegations related to smartwatches to bolster its deficient ECG-
`capable wearable device market. The complaint contains few allegations about this proposed
`alternative market, and it does not contain allegations related to the demand for wearables nor does
`it allege why portable or mobile ECG-capable devices are not reasonable substitutes.
`For these reasons, AliveCor has not plausibly alleged any of its proposed hardware-based
`markets. The Court GRANTS Apple’s motion to dismiss on this basis.
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`Case 4:21-cv-03958-JSW Document 42 Filed 03/21/22 Page 11 of 16
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`b. WatchOS heart rate analysis apps.
`
`Apple also challenges AliveCor’s alleged “watchOS heart rate analysis app” market.
`Apple argues this is a single-brand market, comprised of watchOS heart rate analysis apps, which
`fails because AliveCor does not establish watchOS apps as a separate market. AliveCor responds
`that it has plausibly alleged that watchOS heart rate analysis apps constitute a distinct sub-
`aftermarket of an aftermarket for watchOS apps.
`Single-brand markets are “extremely rare.” Reilly, 2022 WL 74162, at *5 (quoting Apple,
`Inc. v. Psystar Corp., 586 F. Supp. 2d 1190, 1198 (N.D. Cal. 2008). However, “it is legally
`permissible to premise antitrust allegations on a submarket” or an aftermarket. Newcal, 513 F.3d
`at 1045, 1049 (finding single-brand market plausible in the context of aftermarkets). A submarket
`“is economically distinct from the general product market.” Id. at 1045. An aftermarket is
`“wholly derivative from and dependent on the primary market.” Id. at 1049. An aftermarket may
`constitute the relevant market where market imperfections, such as information and switching
`costs, “prevent consumers from realizing that their choice in the initial market will impact their
`freedom to shop in the aftermarket.” Id. at 1050. The actual existence of an aftermarket is a
`factual question. Id. at 1051.
`Under Newcal, to plausibly assert a single-brand aftermarket at the pleading stage, a
`plaintiff must adequately allege that (1) the aftermarket is wholly derivative from the primary
`market; (2) illegal restraints of trade relate only to the aftermarket; (3) the defendant did not
`achieve market power in the aftermarket through contractual provisions that it obtains in the initial
`market; and (4) competition in the initial market does not suffice to discipline anticompetitive
`practices in the aftermarket. Id. at 1048-1050.
`Here, AliveCor has plausibly alleged an aftermarket for watchOS apps. AliveCor’s
`allegations establish a plausible aftermarket for watchOS apps that is derivative from and
`dependent on the primary device market. AliveCor has also plausibly alleged that Apple achieved
`its market power in the aftermarket only after the initial device purchase, which satisfies the
`second Newcal consideration. The third Newcal factor considers the source of the defendant’s
`market power. AliveCor alleges that users face high switching costs after the initial device
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`purchase that are unknown at the time of the purchase. Such allegations are sufficient to establish
`that the challenged aftermarket restraint is not knowingly accepted by users before the device
`purchase. Finally, AliveCor alleges that high switching costs prevent users and developers from
`switching to a different operating system after the initial device commitment. These allegations
`suffice to plausibly establish that competition in the initial market does not necessarily discipline
`anticompetitive practices in the aftermarket.
`At this stage, AliveCor’s allegations are sufficient to pursue a claim based on the alleged
`aftermarket. 7 The Court DENIES Apple’s motion to dismiss on this basis.
`
`2.
`Market share.
`Apple also moves to dismiss AliveCor’s claims on the basis that the complaint fails to
`plead that Apple holds a sufficient market share, and therefore, market power, in the proposed
`relevant markets. Based on the Court’s conclusion regarding the plausibility of AliveCor’s
`alleged relevant markets, the question is whether AliveCor has sufficiently pled that it has a
`dominant market share of the aftermarket of watchOS heart rate analysis apps.
`Monopoly power may be established circumstantially where “the defendant owns a
`dominant share” of a market and “significant barriers to entry” exist. Image Tech., 125 F.3d at,
`1202. Generally, a market share of sixty-five percent is sufficient for a monopolization claim,
`while a “lower quantum” is required for an attempt claim. Rebel Oil Co. v. Atl. Richfield Co., 51
`F.3d 1421, 1438 (9th Cir. 1995).
`The Ninth Circuit has held that a plaintiff need not plead market share with specificity.
`See Newcal, 513 F.3d at 1045 (“There is no requirement that these elements of the antitrust claim
`be pled with specificity.”). Courts have found rough estimates of market share sufficient at the
`pleading stage. See United Energy Trading, LLC v. Pacific Gas & Electric Co., 200 F. Supp. 3d
`1012, 1020 (N.D. Cal. 2016) (denying motion to dismiss and finding single allegation related to
`
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`7 The Court finds Pistacchio v. Apple Inc. distinguishable. In Pistacchio, the court concluded that
`the plaintiff had not adequately pled that the relevant market should be limited to the iOS
`platform. 4:20-cv-07034-YGR, 2021 WL 949422, at *2 (N.D. Cal. Mar. 11, 2021). However, the
`plaintiff in Pistacchio did not allege an aftermarket theory, and the complaint contained far fewer
`allegations supporting the alleged relevant market.
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`market share sufficient); Teradata Corporation v. SAP SE, No. 18-cv-03670-WHO, 2018 WL
`6528009, at *15 (N.D. Cal. Dec. 12, 2018) (finding allegation that defendant “possess a market
`share that ranges, on information and belief, from 60% to 90%” sufficed to plead market power at
`the motion to dismiss stage); Datel Holdings Ltd. v. Microsoft Corp., 712 F. Supp. 2d 974, 997-98
`(N.D. Cal. 2010) (finding allegation that defendant held approxima