`
`
`
`Steve W. Berman (pro hac vice forthcoming)
`HAGENS BERMAN SOBOL SHAPIRO LLP
`1301 Second Avenue Suite 2000
`Seattle, WA 98101
`Telephone: (206) 623-7292
`Facsimile: (206) 623-0594
`steve@hbsslaw.com
`
`Ben M. Harrington (SBN 313877)
`HAGENS BERMAN SOBOL SHAPIRO LLP
`715 Hearst Avenue, Suite 202
`Berkeley, CA 94710
`Telephone: (510) 725-3000
`Facsimile: (510) 725-3001
`benh@hbsslaw.com
`
`Eamon P. Kelly (pro hac vice forthcoming)
`Joseph M. Vanek (pro hac vice forthcoming)
`Jeffrey H. Bergman (pro hac vice forthcoming)
`SPERLING & SLATER, P.C.
`55 W. Monroe Street, 32nd Floor
`Chicago, IL 60603
`Telephone: (312) 676-5845
`Facsimile: (312) 641-6492
`ekelly@sperling-law.com
`jvanek@sperling-law.com
`jbergman@sperling-law.com
`
`Attorneys for Plaintiff and the Proposed Class
`
`
`UNITED STATES DISTRICT COURT
`
`NORTHERN DISTRICT OF CALIFORNIA
`
`SAN JOSE DIVISION
`
`
`v.
`
`AFFINITY CREDIT UNION,
`
`
`
`
`
`APPLE INC., a California corporation,
`
`
`
`
`
`Plaintiff,
`
`Defendant.
`
`
`
`
` No. 22-cv-4174
`
`CLASS ACTION COMPLAINT FOR
`VIOLATION OF THE SHERMAN ACT
`AND CLAYTON ACT
`
`DEMAND FOR JURY TRIAL
`
`
`
`
`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 3:22-cv-04174-TSH Document 1 Filed 07/18/22 Page 2 of 43
`
`TABLE OF CONTENTS
`
`Page
`
`INTRODUCTION .................................................................................................................... 1
`
`JURISDICTION AND VENUE ............................................................................................... 5
`
`DIVISIONAL ASSIGNMENT ................................................................................................ 5
`
`PARTIES .................................................................................................................................. 5
`
`RELEVANT FACTS ................................................................................................................ 6
`
`A.
`
`Apple Has Market Power in the U.S. Markets for Its Mobile Devices. ....................... 6
`
`1.
`
`2.
`
`3.
`
`The Smartphone Market ................................................................................... 6
`
`The Tablet Market ............................................................................................ 7
`
`The Smart Watch Market ................................................................................. 8
`
`NFC Tap and Pay Technology Predates Apple Pay and is Available to
`All Competitors Offering Payment Solutions on Android. .......................................... 9
`
`Apple Ties Apple Pay to Its Mobile Devices By Excluding Any Rival
`Tap and Pay iOS Mobile Wallet. ................................................................................ 13
`
`Apple Unlawfully Monopolizes the Tap and Pay iOS Mobile Wallets
`Market. ........................................................................................................................ 15
`
`1.
`
`The Tap and Pay iOS Mobile Wallets Market is a Distinct,
`Relevant Antitrust Market. ............................................................................. 15
`
`a.
`
`b.
`
`Android Wallets Are Not Reasonable Substitutes For
`Apple Pay. .......................................................................................... 16
`
`Contactless Cards are Not Reasonable Substitutes For
`Apple Pay. .......................................................................................... 19
`
`2.
`
`Having Barred All Competitors, Apple Pay Exercises
`Monopoly Power in the Market for Tap and Pay iOS Mobile
`Wallets and Imposes Supracompetitive Fees. ................................................ 20
`
`Apple Protects its Monopoly By Preventing Issuers From Driving
`Cardholders Away from Apple Pay. .......................................................................... 22
`
`Apple Leverages its Monopoly By Bundling Tap and Pay Payments
`with E-Commerce Payments. ..................................................................................... 22
`
`B.
`
`C.
`
`D.
`
`E.
`
`F.
`
`
`
`I.
`
`II.
`
`III.
`
`IV.
`
`V.
`
`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
`
`CLASS ACTION COMPLAINT - i
`Case No.: 22-cv-4174
`
`
`
`
`Case 3:22-cv-04174-TSH Document 1 Filed 07/18/22 Page 3 of 43
`
`
`
`G.
`
`Apple’s Conduct Harms Not Only Issuers, But Also Consumers and
`Competition as a Whole. ............................................................................................ 24
`
`1.
`
`2.
`
`3.
`
`Apple Charges Issuers Supracompetitive Fees on Apple Pay
`Transactions. ................................................................................................... 24
`
`Apple’s Monopoly Stifles Innovation and Market Alternatives. ................... 24
`
`By Foreclosing Competition, Apple Depresses Output. ................................ 25
`
`H.
`
`I.
`
`Apple Cannot Justify Its Conduct as Serving Any Procompetitive End. ................... 26
`
`European Regulators Have Preliminarily Concluded That Apple Has
`Abused Its Dominant Position in the Market for Mobile Wallets on
`iOS Devices. ............................................................................................................... 28
`
`VI.
`
`INTERSTATE TRADE AND COMMERCE ........................................................................ 29
`
`VII. RELEVANT MARKETS ....................................................................................................... 30
`
`A.
`
`Relevant Product Markets .......................................................................................... 30
`
`1.
`
`2.
`
`Relevant Markets For Apple’s Mobile Devices (iPhone, iPad,
`and Watch) ...................................................................................................... 30
`
`Relevant Market for Tap and Pay iOS Mobile Wallets .................................. 31
`
`B.
`
`Relevant Geographic Market ...................................................................................... 32
`
`VIII. CLASS ALLEGATIONS ....................................................................................................... 32
`
`IX.
`
`CLAIMS FOR RELIEF .......................................................................................................... 35
`
`FIRST CAUSE OF ACTION: VIOLATION OF THE SHERMAN ACT – TYING
`THE TAP AND PAY IOS MOBILE WALLET MARKET TO IOS MOBILE
`DEVICE MARKETS (15 U.S.C. §§ 1, 3) .............................................................................. 35
`
`SECOND CAUSE OF ACTION: VIOLATION OF THE SHERMAN ACT –
`MONOPOLIZATION OF TAP AND PAY IOS MOBILE WALLET
`MARKET (15 U.S.C. § 2) ...................................................................................................... 36
`
`THIRD CAUSE OF ACTION: VIOLATION OF THE SHERMAN ACT –
`ATTEMPTED MONOPOLIZATION OF TAP AND PAY IOS MOBILE
`WALLET MARKET (15 U.S.C. § 2) .................................................................................... 37
`
`PRAYER FOR RELIEF ..................................................................................................................... 38
`
`JURY TRIAL DEMANDED ............................................................................................................. 39
`
`
`
`CLASS ACTION COMPLAINT - ii
`Case No.: 22-cv-4174
`
`
`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 3:22-cv-04174-TSH Document 1 Filed 07/18/22 Page 4 of 43
`
`
`
`For its suit against Defendant Apple Inc., Plaintiff Affinity Credit Union, on its own behalf
`
`and that of all similarly situated payment card issuers, alleges as follows:
`
`I.
`
`INTRODUCTION
`
`1.
`
`Smart mobile devices have transformed the way people interact with the world around
`
`them. This transformation launched an array of digital products and services that, while
`
`unfathomable two decades ago, are now ubiquitous in daily life. Among these services are mobile
`
`wallets that allow consumers to make payments with just their mobile device. Using mobile wallets,
`
`consumers can store credit and other payment cards on their mobile devices and, with just a tap at the
`
`point-of-sale, send a secure payment to the merchant. This is accomplished through a technology
`
`known as “Near Field Communication” or “NFC.” With an NFC chip, any smart device can send a
`
`wireless signal to an NFC-enabled payment terminal from close proximity. More than 90 percent of
`
`U.S. retailers accept mobile wallets, and at least 70% of Americans use them.1 It is a trillion dollar
`
`industry, and it is growing exponentially.
`
`2.
`
`Apple is the leading manufacturer of smartphones, tablets and smart watches. But
`
`Apple is not content to dominate these mobile device markets. Instead, it exercises its market power
`
`in the device markets by requiring that consumers of its mobile devices also acquire its mobile
`
`wallet—Apple Pay—and prevents consumers from using competing mobile wallets capable of
`
`offering competing tap and pay solutions.
`
`3.
`
`In comparison, on Android devices, consumers have a selection of competing wallets
`
`to choose from. Google Pay and Samsung Pay are the leaders. Google, the owner of Android, does
`
`not restrict access to NFC technology on Android devices—it is available for use to all comers,
`
`including digital wallets that compete with Google’s digital wallet, Google Pay.
`
`
`1 See Alex Clere, “75% of consumers now using mobile wallets – survey,” FINTECH (May 27,
`2022) https://fintechmagazine.com/digital-payments/75-of-consumers-now-using-mobile-wallets-
`survey.
`CLASS ACTION COMPLAINT - 1
`Case No.: 22-cv-4174
`
`
`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 3:22-cv-04174-TSH Document 1 Filed 07/18/22 Page 5 of 43
`
`
`
`4.
`
`In contrast to the Android ecosystem, there is only one tap and pay mobile wallet that
`
`can be used on Apple’s iOS devices (iPhone, iPad and Apple Watch).2 The only option is Apple
`
`Pay, Apple’s own proprietary service. Apple did not secure preeminence for Apple Pay by building
`
`a better product. Apple Pay is mostly indistinguishable from Google Pay and Samsung Pay from a
`
`functionality standpoint. Rather, Apple propped up Apple Pay by requiring iOS users to use its
`
`Apple Pay service exclusively for tap and pay mobile wallet transactions, barring all would-be and
`
`free competitors from accessing the NFC interface needed to compete.
`
`5.
`
`Having barred all competitors from its devices, Apple charges payment card issuers
`
`fees that no other mobile wallet ventures to impose. Whenever an Apple Pay transaction is
`
`completed on a U.S. issuer’s payment card, the issuer must pay Apple a fee—15 basis points on
`
`credit (.15%) and a flat 0.5 cents ($0.005) on debit. These fees generated a reported $1 billion for
`
`Apple in 2019, and this revenue stream—earned from card issuers—is predicted to quadruple by
`
`2023.
`
`6.
`
`Apple’s issuer fees are manifestly supracompetitive and the result of the
`
`anticompetitive conduct alleged herein. In the Android ecosystem, where multiple digital wallets
`
`compete, there are no issuer fees whatsoever. The upshot is that card issuers—the proposed class
`
`here—pay a reported $1 billion annually in fees on Apple Pay and $0 for accessing functionally
`
`identical Android wallets. If Apple faced competition, it could not sustain these substantial fees.
`
`Alternative mobile wallets, including Google Pay, would be downloaded onto iOS devices, and card
`
`issuers would agree to make their cards available on those substitute mobile wallets at zero cost and
`
`would not agree to make their cards available on Apple Pay unless and until Apple reduced its price
`
`to the competitive level.
`
`7.
`
`Apple has further cemented its market power by preventing all US-based card issuers
`
`from passing on Apple Pay’s fees to consumers. That is, to participate in Apple Pay, an issuer must
`
`
`2 The operating systems for iPad and Apple Watch have been branded iPad OS and watchOS,
`respectively, but they are both derived from iOS and share many of the same core features. For ease
`of reference, the term “iOS” in this complaint refers to the operating systems for iPhone, iPad and
`Apple Watch collectively.
`CLASS ACTION COMPLAINT - 2
`Case No.: 22-cv-4174
`
`
`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 3:22-cv-04174-TSH Document 1 Filed 07/18/22 Page 6 of 43
`
`
`
`agree not to impose a surcharge on a cardholder’s Apple Pay transactions. This rule prevents issuers
`
`from using differential pricing to drive cardholders to lower cost alternative modes of payment.
`
`8.
`
`Apple Pay can also be used to make e-commerce payments online and within apps.
`
`But critically, issuers cannot disable the e-commerce function, nor negotiate a different fee on those
`
`transactions. Apple bundles the “e-commerce” functionality with the “tap and pay” service and
`
`requires that issuers who accept the latter also accept the former. As with tap and pay, when a user
`
`completes an Apple Pay transaction in e-commerce, members of the class must pay the same
`
`supracompetitive fees to Apple. Thus, even though Apple’s exclusionary conduct—i.e., the
`
`restriction on the use of NFC technology—operates on point-of-sale transactions, Apple, by bundling
`
`its tap and pay and e-commerce services, can extract the same monopoly rents on transactions in e-
`
`commerce. This compounds the injury card issuers suffer.
`
`9.
`
`Apple Pay’s practices have drawn increased scrutiny from antitrust authorities. After
`
`completing a preliminary investigation, the European Commission issued Apple a statement of
`
`objections on May 2, 2022. Targeting the same practices challenged by this complaint, the European
`
`Commission stated that it “takes issue with the decision by Apple to prevent mobile wallets app
`
`developers, from accessing the necessary hardware and software (‘NFC input’) on its devices, to
`
`benefit its own solution, Apple Pay.” The European Commission announced its preliminary view
`
`that Apple Pay’s restrictions on NFC likely violate European competition law and have “an
`
`exclusionary effect on competitors and lead[] to less innovation and less choice for consumers for
`
`mobile wallets on iPhones.” This same loss of innovation and choice is present here in the United
`
`States as well.
`
`10.
`
`Here in the United States, Apple Pay violates the Sherman Act in two ways. First,
`
`Apple has unlawfully “tied” two of its products together—namely, its mobile devices and its mobile
`
`wallet—by compelling iOS users to use its mobile wallet product exclusively and foreclosing rival
`
`iOS tap and pay solutions. Apple has market power in each of the device markets for smartphones,
`
`tablets and smart watches. If a consumer purchases an iOS device in any of these markets, that
`
`consumer also receives the Apple Pay service and must agree to Apple Pay’s terms and conditions.
`
`Furthermore, if that consumer wishes to use a tap and pay mobile wallet, that consumer must
`CLASS ACTION COMPLAINT - 3
`Case No.: 22-cv-4174
`
`
`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 3:22-cv-04174-TSH Document 1 Filed 07/18/22 Page 7 of 43
`
`
`
`exclusively use Apple Pay to fulfill its requirement. While this tie negates consumer choice, the
`
`economic injury is suffered by Plaintiff and other payment card issuers (the class here), because
`
`Apple forces issuers to pay its supracompetitive fee on each transaction. Apple’s tie is per se
`
`unlawful under the Sherman Act.
`
`11.
`
`Second, by foreclosing all competitors, Apple unlawfully monopolizes (and has
`
`attempted to monopolize) the market for tap and pay mobile wallets on iOS (hereafter, the “Tap and
`
`Pay iOS Mobile Wallets Market”). This is a relevant antitrust market. Apple Pay charges a
`
`substantial premium over all conceivable substitutes and yet demand remains inelastic. As noted,
`
`issuers pay $0 to Google when their cardholders use Android wallets, but the issuers cannot switch to
`
`iOS versions of Google Pay or Samsung Pay to reach iOS device owners. Furthermore, issuers pay
`
`$0 when their cardholders use contactless cards. If these or other payment forms were substitutes,
`
`without significant quality differentiation, demand would have shifted to them in response to Apple
`
`Pay’s fees. It has not. Instead, issuer acceptance of Apple Pay increases every year. That Apple has
`
`profitably sustained its significant issuer fees, despite other free forms of payment, demonstrates that
`
`a hypothetical monopolist can (and has been able to) profitably impose a small but significant non-
`
`transitory increase in price (a SSNIP).3 Those alternative payment forms are therefore not in the
`
`same relevant antitrust market.
`
`12.
`
`As a result of Apple’s exclusionary conduct, Plaintiff and other issuers pay, and have
`
`paid, fees they would not have incurred in a competitive market. But that is not the extent of the
`
`harm. If there were multiple Tap and Pay iOS Mobile Wallets, the competing firms would need to
`
`innovate to differentiate their offerings, for example by improving the security of transactions.
`
`Consumers and issuers have been deprived of that innovation and differentiated choice among
`
`market alternatives. Competition would also increase output, because even more issuers would
`
`enroll in Tap and Pay iOS Mobile Wallets if the cost of doing so were lower, thus increasing the
`
`
`3 See U.S. DEPARTMENT OF JUSTICE, HORIZONTAL MERGER GUIDELINES (2010),
`https://www.justice.gov/atr/horizontal-merger-guidelines-08192010 (last accessed July 14, 2022).
`CLASS ACTION COMPLAINT - 4
`Case No.: 22-cv-4174
`
`
`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 3:22-cv-04174-TSH Document 1 Filed 07/18/22 Page 8 of 43
`
`
`
`number of cards enabled for the service, the number of merchants that accept those cards, and the
`
`number of transactions within the market.
`
`13. With this action, Plaintiff seeks to hold Apple accountable. On behalf of a proposed
`
`class of issuers—including banks, credit unions, and other institutions offering payment cards
`
`enabled for Apple Pay—Plaintiff seeks monetary relief, injunctive relief, and all other relief
`
`available to stop Apple’s ongoing exclusionary practices and redress the harm they have caused.
`
`II.
`
`JURISDICTION AND VENUE
`
`14.
`
`This Court has subject matter jurisdiction over this action under 28 U.S.C. § 1331
`
`because Plaintiff alleges violations of federal law, namely, the Sherman Act.
`
`15.
`
`This Court has personal jurisdiction over the Defendant Apple, which is
`
`headquartered in this District. Apple has engaged in sufficient minimum contacts with the United
`
`States, this judicial district, and this State, and it has intentionally availed itself of the laws of the
`
`United States and this State by conducting a substantial amount of business throughout the State.
`
`16.
`
`This judicial district is a proper venue because Apple resides in this District and
`
`transacts affairs in this District. A substantial part of the events giving rise to Plaintiff’s claims
`
`occurred in this District.
`
`III. DIVISIONAL ASSIGNMENT
`
`17.
`
`Intra-district assignment to the San Jose division of the Court is proper under Local
`
`Rule 3-2(e) because a substantial number of the events giving rise to the claims arose in Santa Clara
`
`County.
`
`IV.
`
`PARTIES
`
`18.
`
`Plaintiff Affinity Credit Union (“Affinity”) is an Iowa chartered credit union with its
`
`principal place of business in Des Moines, Iowa. Affinity issues payment cards and is an Apple Pay
`
`participating financial institution. As a participating financial institution, Affinity is required to pay
`
`Apple’s supracompetitive issuer transaction fees on each Apple Pay transaction processed using an
`
`Affinity issued payment card. Affinity has paid and continues to pay Apple’s supracompetitive
`
`issuer transaction fees.
`
`CLASS ACTION COMPLAINT - 5
`Case No.: 22-cv-4174
`
`
`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 3:22-cv-04174-TSH Document 1 Filed 07/18/22 Page 9 of 43
`
`
`
`19.
`
`Defendant Apple designs, manufactures and markets smartphones, personal
`
`computers, tablets, and smart watches, and sells a variety of related services, including Apple Pay.
`
`Apple maintains its headquarters and principal place of business in Cupertino, California.
`
`V.
`
`RELEVANT FACTS
`
`A.
`
`Apple Has Market Power in the U.S. Markets for Its Mobile Devices.
`
`20.
`
`Apple Pay is available on three Apple mobile devices—the iPhone, iPad and Apple
`
`Watch. While these devices are integrated in some respects, they are distinct products operating in
`
`distinct markets, with Apple holding market power in each.
`
`1.
`
`The Smartphone Market
`
`21.
`
`Smartphones are a singular device that has transformed the way people interact with
`
`the world around them. They allow people to access the internet anytime and anywhere with a
`
`cellular or Wi-Fi connection. Smartphones also provide access to apps with a staggering range of
`
`functionality. With a smartphone in hand, consumers can shop online, navigate a city, post on social
`
`media, buy movie tickets, check the weather, and so much more. While it has ceased to be their
`
`primary function, smartphones are also mobile telephones.
`
`22.
`
`There is no reasonably close substitute for the smartphone. Various devices can
`
`provide some piece of a smartphone’s functionality, but none provide a substantial share. Landline
`
`phones enable phone calls, but not on the move, and they do not offer the other features smartphones
`
`provide. Cellphones (not smart) provide mobility, but not internet access or any of the other features
`
`of a smartphone. Personal computers (including laptops) provide internet access and computing
`
`functions, and sometimes phone applications, but they are not as portable as a smartphone, and
`
`generally do not have cellular access.
`
`23.
`
`The absence of close substitutes in part explains the ubiquitous adoption of
`
`smartphones. As of 2021, approximately 85% of adults in the U.S. owned a smartphone.4
`
`
`4 See “Demographics of Mobile Device Ownership and Adoption in the United States,” PEW
`RESEARCH CENTER (Apr. 7, 2021), https://www.pewresearch.org/internet/fact-sheet/mobile/.
`CLASS ACTION COMPLAINT - 6
`Case No.: 22-cv-4174
`
`
`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 3:22-cv-04174-TSH Document 1 Filed 07/18/22 Page 10 of 43
`
`
`
`24.
`
`Apple enjoys market power in the U.S. smartphone market. The iPhone, first
`
`launched in 2007, is the leading smartphone in the U.S. As of June 2022, iPhones had a 57% market
`
`share. The next closest competitor—Samsung—has a 29% share and after that, competitor shares
`
`dip into the single digits.5
`
`25.
`
`Apple’s market power is reinforced by substantial barriers to entry. Developing the
`
`hardware and software needed to market a smartphone requires a substantial outlay of capital and
`
`expertise. The iPhone also benefits from significant indirect network effects generated by its sizable
`
`user base and large community of developers creating iOS apps. To succeed, new entrants would
`
`need to convince users to switch to a new smartphone operating system without the catalog of apps
`
`available on iOS, while simultaneously convincing developers to incur the costs of writing apps for a
`
`new operating system without iOS’ sizable user base. These are substantial hurdles. Brand loyalty
`
`to existing manufacturers, and high switching costs, compound the difficulty of entry.6 Highly
`
`sophisticated and resourced companies—e.g., Amazon—have sought to market smartphones and
`
`failed to gain traction.
`
`2.
`
`The Tablet Market
`
`26.
`
`Tablets share certain features of smartphones, and other features of laptops, but they
`
`are a distinct product. Apple introduced the first tablet—the iPad—in 2010, marketing it as “a third
`
`category of device.”7 Tablets do not replace smartphones, and were never intended to.
`
`27.
`
`One fundamental difference between tablets and smartphones is the screen size. The
`
`screen on a smartphone ranges from 4 to 6 inches, making the device small enough to fit into a
`
`pocket.8 Tablets have screens ranging from 7 to 17 inches, making them far less mobile or
`
`
`5 See “Mobile Vendor Market Share United States of America” STATCOUNTER (June 2022),
`https://gs.statcounter.com/vendor-market-share/mobile/united-states-of-america.
`6 See infra at Section VII.A.1.
`7 See William Gallagher, “Apple got tablets right, and created a whole new market with the iPad
`12 years ago today” APPLEINSIDER (Jan. 27, 2022), https://appleinsider.com/articles/19/01/27/apple-
`got-tablets-right-and-created-a-whole-new-market-with-the-ipad.
`8 See “Smartphone sales market share in the United States from 2017 to 2019, by display size,”,
`STATISTA (Apr. 21, 2022), https://www.statista.com/statistics/1042669/us-smartphone-sales-by-
`display-size/.
`CLASS ACTION COMPLAINT - 7
`Case No.: 22-cv-4174
`
`
`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 3:22-cv-04174-TSH Document 1 Filed 07/18/22 Page 11 of 43
`
`
`
`stowable.9 The screen size differential also means that certain apps are developed solely for either
`
`tablets, or smartphones, and are not available on both.
`
`28. While some tablets have cellular connectivity, and can be used to make and receive
`
`telephone calls, this is not a core functionality. Rather, with the larger screen, tablets provide more
`
`immersive internet connectivity. And they can be used to perform a range of productivity tasks like
`
`a laptop or desktop computer. With keyboard accessories, tablets can, for example, be used as word
`
`processors. They are also marketed as creativity tools that can be used to create and edit music and
`
`video.
`
`29.
`
`Apple’s iPad exercises market power in the tablet market. As of June 2022, iPad’s
`
`U.S. market share in the tablet market was 54%, more than double the 20% share of its closest
`
`competitor, Samsung.10 There are also substantial barriers to entry into the tablet market, bolstering
`
`Apple’s market power. Beyond the significant startup costs of developing and marketing a tablet
`
`device, indirect network effects, brand loyalty and high switching costs, impose a substantial
`
`impediment to new entrants.
`
`3.
`
`The Smart Watch Market
`
`30.
`
`Smart watches are wearable devices that, like smartphones, offer apps and
`
`connectivity. But they are a distinct product with distinct demand. As Apple promotes, a smart
`
`watch “can do what your other devices can’t because it’s on your wrist.”11
`
`31.
`
`Because they are wearable, smart watches feature an array of functions tracking the
`
`user’s activity and monitoring fitness-related metrics. For example, they can track the user’s sleep
`
`patterns, blood oxygen, and heart rate, and they can make emergency calls after a hard fall.12 Many
`
`(but not all) smart watches also have text, phone, and email functionality. Some, but not all, store
`
`and play music. Web browsing on a smart watches is limited or non-existent.
`
`
`9 See “Tablet Comparison Chart: List Of Tablets In 2022,” TABLETMONKEYS (June 2022),
`https://tabletmonkeys.com/tablet-comparison/ (last accessed July 14, 2022).
`10 See “Tablet Vendor Market Share United States Of America,” STATCOUNTER,
`https://gs.statcounter.com/vendor-market-share/tablet/united-states-of-america (last accessed July 14,
`2022).
`11 See https://www.apple.com/watch/why-apple-watch/ (last accessed July 14, 2022).
`12 Id.
`CLASS ACTION COMPLAINT - 8
`Case No.: 22-cv-4174
`
`
`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 3:22-cv-04174-TSH Document 1 Filed 07/18/22 Page 12 of 43
`
`
`
`32.
`
`Smart watches are not a replacement for smartphones or tablets. Their small interface
`
`allows for only limited functionality and features. For certain features—e.g., texting and calling—
`
`many smart watches must be paired with another device. Even smart watches with cellular can
`
`require a smartphone to be enabled. For example, to set up an Apple Watch, the user must have an
`
`iPhone 6s or later.13
`
`33.
`
`Apple Watch, launched in 2015, leads the Smart Watch market. Even including
`
`fitness trackers14 in the smart watch market, Apple Watch has an approximately 46% market share in
`
`the United States, besting all rivals.15 And as with smartphones and tablets, there are significant
`
`barriers to entry in the smartphone market, including startup costs, indirect network effects, brand
`
`loyalty, and switching costs. These barriers reinforce Apple’s market power.
`
`B.
`
`NFC Tap and Pay Technology Predates Apple Pay and is Available to All Competitors
`Offering Payment Solutions on Android.
`
`34.
`
`Tap and pay mobile wallets are enabled by NFC chips installed in mobile devices.
`
`NFC technology allows two electronic devices to exchange information when brought into near
`
`proximity. Apple did not invent NFC. NFC evolved from radio frequency identification (RFID)
`
`technology that has been around for decades. The first RFID patent was issued in 1983, and NFC
`
`was standardized in 2003 through the efforts of Sony and Phillips.16
`
`35.
`
`Both RFID and NFC rely on inductive coupling between a “reader” device and a
`
`“tag.” The reader creates a magnetic field by passing an electric current through a coil. That field
`
`induces an electric current within the tag, and once this match has been made, the two devices can
`
`
`13 See https://support.apple.com/en-
`us/HT204505#:~:text=To%20set%20up%20and%20use,with%20iOS%2015%20or%20later (last
`accessed July 14, 2022).
`14 Fitness tracking watches like Fitbit allow users to track fitness related metrics, including steps
`taken in a day and calories burned. But they generally lack many of the features and functionality of
`smartwatches. There is also a substantial cost differential, with the most popular fitness tracking
`watches retailing for less than $100 and the Apple Watch ranging from $200 to more than $1000.
`Apple has market power in the smartphone market whether or not fitness tracking watches are part of
`that market.
`15 See Katharina Buchholz, “Apple Watch Leads U.S. Market,” STATISTIA (Oct. 15, 2021),
`https://www.statista.com/chart/25982/smartwatch-market-by-brand-usv/.
`16 See “The History of NFC,” PARAGON ID, https://www.paragon-rfid.com/en/the-history-of-nfc/
`(last accessed July 14, 2022).
`CLASS ACTION COMPLAINT - 9
`Case No.: 22-cv-4174
`
`
`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 3:22-cv-04174-TSH Document 1 Filed 07/18/22 Page 13 of 43
`
`
`
`wirelessly exchange data. The principal difference between RFID and NFC is the transmission
`
`range. RFID can cover longer distances, whereas NFC can span only a few centimeters.17
`
`36.
`
`RFID and NFC enabled devices are everywhere today. If you have ever entered a
`
`hotel room by tapping a key card, or paid a toll with a device attached to your windshield, you have
`
`used RFID, NFC, or both.
`
`37.
`
`To set up Apple Pay, users need to load a payment card (or cards) onto the wallet.
`
`Apple Pay can support all manner of payment cards, including credit, debit, prepaid, transit, and
`
`other cards linked to an account from which funds can be accessed (provided the user agrees to
`
`Apple’s terms). Users can then toggle between enabled payment cards, and set a default option.
`
`
`38. When an Apple Pay user approaches an NFC terminal compatible with Apple Pay, the
`
`mobile wallet automatically opens and the user can make a payment by holding his or her device
`
`within close proximity to the terminal.
`
`39.
`
`Payment networks—Visa or MasterCard—handle most of the processing work for
`
`Apple Pay transactio