Case 4:20-cv-05640-YGR Document 118 Filed 10/09/20 Page 1 of 39
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`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
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`EPIC GAMES, INC.,
`Plaintiff,
`
`vs.
`
`APPLE INC.,
`Defendant.
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`Case No. 4:20-cv-05640-YGR
`
`ORDER GRANTING IN PART AND DENYING
`IN PART MOTION FOR PRELIMINARY
`INJUNCTION
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`Re: Dkt. No. 61
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`Preliminary injunctive relief is an extraordinary measure rarely granted. Plaintiff Epic
`Games, Inc.’s lawsuit against defendant Apple Inc. challenges the fundamental operation of digital
`platforms affecting millions of users. To resolve it, the Court must apply the Sherman Act,
`California’s Cartwright Act, and California’s Unfair Competition Law—statutes enacted more
`than a century ago—to a technology context where lawyers and economists can merely
`hypothesize about the future of the digital frontier. While courts are charged with adjudicating
`cases of significant impact, they do so cautiously, and on full records, with the status quo intact.
`In this motion for preliminary injunction, Epic Games asks the Court to force Apple to
`reinstate Fortnite to the Apple App Store, despite its acknowledged breach of its licensing
`agreements and operating guidelines, and to stop Apple from terminating its affiliates’ access to
`developer tools for other applications, including Unreal Engine, while Epic Games litigates its
`claims. Having carefully considered the parties’ arguments, and for the reasons set forth more
`fully below, the Court maintains its findings from the temporary restraining order and hereby
`GRANTS IN PART and DENIES IN PART Epic Games’ motion for a preliminary injunction.
`Epic Games bears the burden in asking for such extraordinary relief. Given the novelty
`and the magnitude of the issues, as well as the debate in both the academic community and society
`at large,1 the Court is unwilling to tilt the playing field in favor of one party or the other with an
`
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`1 See e.g., “Investigation of Competition in Digital Marketplaces,” STAFF OF SUBCOMM.
`ON ANTITRUST, COMMERCIAL, AND ADMIN. LAW OF THE COMM. ON THE JUDICIARY, UNITED
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`Case 4:20-cv-05640-YGR Document 118 Filed 10/09/20 Page 2 of 39
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`early ruling of likelihood of success on the merits. Epic Games has strong arguments regarding
`Apple’s exclusive distribution through the iOS App Store, and the in-app purchase (“IAP”) system
`through which Apple takes 30% of certain IAP payments. However, given the limited record,
`Epic Games has not sufficiently addressed Apple’s counter arguments. The equities, addressed in
`the temporary restraining order, remain the same.
`
`I.
`
`BACKGROUND
`The Court summarizes the limited record before it on this motion for preliminary
`injunction. To expedite issuance of this Order, the Court cites to some of the basic background
`from its prior order2 as the background is equally relevant here. The Court notes disputes in the
`evidence where otherwise appropriate.
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`A.
`The Players
`With respect to Epic Games:
`
`Epic Games is a United States-based tech-company that specializes in
`video games, including, as relevant here, the popular multi-platform3
`game, Fortnite. Fortnite is structured around “seasons,” whereby
`narratives, themes, and events are introduced for a limited time.
`Cross-platform play is enabled for all users so long as those users
`remain on the same version of the game. . . .
`Epic Games International, S.a.r.l (“Epic International”) is a related
`company based in Switzerland and hosts, among others, the Unreal
`Engine. The Unreal Engine is a graphics engine created by Epic
`International to assist in its development of video games that it later
`began licensing to other developers. The Unreal Engine 4, the current
`version of the engine on the market, is used by third-party developers
`for the development of video games for both console and mobile
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`STATES HOUSE OF REPRESENTATIVES, (Oct. 6, 2020). The Court finds it appropriate to take
`judicial notice of public documents generated by Congress, although the Court does not consider
`the content therein for purposes of this motion. See Vasserman v. Henry Mayo Newhall Mem’l
`Hosp., 65 F. Supp. 3d 932, 942-43 (C.D. Cal. 2014) (noting that court can take notice of ‘[o]fficial
`acts of legislative, executive, and judicial departments of the United States’”); Del Puerto Water
`Dist. v United States Bur. of Reclamation, 271 F. Supp. 2d 1224, 1234 (E.D. Cal. 2003) (taking
`judicial notice of House Reports).
`2 See Epic Games, Inc. v. Apple Inc., 4:20-cv-05640-YGR, 2020 WL 5073937 (N.D. Cal.
`Aug. 24, 2020) (Dkt. No. 48).
`3 These platforms include Android, iOS, macOS, Windows, Sony PlayStation 4, Microsoft
`Xbox One, Nintendo Switch. Fortnite is also available for download through the Epic Games
`Store, as discussed herein.
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`Case 4:20-cv-05640-YGR Document 118 Filed 10/09/20 Page 3 of 39
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`platforms, including for games currently offered in the iPhone App
`Store. These third parties range from smaller game developers to
`larger corporations, such as Microsoft Corporation. The Unreal
`Engine has also been used by third parties for architecture projects,
`film and television production, and medical training.
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`Epic Games, 2020 WL 5073937 at *1 (Dkt. No. 48 at 2). Epic Games has released twenty-five
`(25) updates to Unreal Engine since 2014, and anticipates releasing future updates to ensure that
`Unreal Engine remains compatible with new versions of Apple’s software, such as the now
`released iOS 14. Developers can use Unreal Engine commercially on a royalty model or
`negotiated license, but it is otherwise free for non-commercial use. Although more applications on
`the iOS platform are powered by a rival game engine, Unity, a significant number of iOS
`applications are constructed based on Unreal Engine, including Fortnite competitor
`PlayerUnknown’s Battlegrounds (“PUBG”).
`Epic Games also maintains or controls other affiliates including: Epic International, Life
`on Air, Inc. (both in San Francisco, California and Austin, Texas), KA-RA S.a.r.l., Psyonix LLC,
`and Quixel AB (collectively, “Epic Affiliates”). The Epic Affiliates maintain control over certain
`applications and software within the Epic Games business. These identified applications include:
`Unreal Engine, Unreal Remote 2, Unreal Match 3, Action RPG Game Sample, Unreal Remote,
`Live Link Face, and House Party, among others. Meanwhile, Epic Games itself controls Battle
`Breakers, Infinity Blade Stickers, Spyjinx, and, as relevant here, Fortnite.
`
`Beyond these games and applications, Epic Games also operates a digital marketplace to
`sell game software called the Epic Games Store. As pled in the operative complaint: the Epic
`Games Store was created to compete against the leading multi-publisher digital video game
`marketplace on computer platforms, Steam, which is operated by Valve Corporation. The Epic
`Games Store provides access to more than 250 games from more than 200 developers. Like other
`video game digital distribution platforms, the Epic Games Store offers personalized features,
`including friends list management and game matchmaking services. As alleged, absent Apple’s
`alleged anti-competitive conduct, Epic Games would also create an analogous Epic Games Store
`for the iOS platform independent of Apple’s digital marketplace.
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`With respect to Apple:
`
`Apple is a ubiquitous tech-company that makes products ranging
`from hardware to software. Apple, as relevant here, maintains an App
`Store for the iOS platform that is geared for its mobile devices, the
`iPhones [and iPads]. The App Store allows third-party developers an
`opportunity to create and thereafter sell applications to iPhone [and
`iPad] users. Apple generally takes 30% of the sale of the application
`or of the IAP made within the third-party application itself. Apple’s
`agreements with developers and the App Store guidelines do not
`generally permit third-party developers to circumvent the IAP system.
`Id. at *2 (Dkt. No. 48 at 2). In addition to preventing developers from circumventing the IAP
`system, developers are also prohibited from distributing applications outside of the App Store on
`the iOS platform.4 In short: Apple maintains the iOS platform as a walled garden or closed
`platform model, whereby Apple has strict and exclusive control over the hardware, the operating
`system, the digital distribution, and the IAP system.
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`In order to access the App Store and to obtain developer tools, developers are required to
`comply with Apple’s rules and regulations through a web of agreements and guidelines:
`
`As relevant here, Apple maintains separate developer agreements and
`developer program licensing agreements between Epic Games, Epic
`International and four other affiliated entities. Apple also maintains
`a separate agreement, “Xcode and Apple SDKs Agreement,”
`regarding its developer tools (software development kits, or “SDKs”).
`Epic Games, 2020 WL 5073937 at *1 (Dkt. No. 48 at 2-3). These agreements have broad
`language including terminable at-will clauses.5
`The relationship between Epic Games and Apple dates to at least 2011, when Epic Games
`released its first Infinity Blade game on the iOS platform. Epic Games and Apple collaborated for
`several Apple events, showcasing Epic Games’ iOS games and the earlier iterations of the Unreal
`Engine running on the iOS and macOS platforms. Following the success of Fortnite on other
`
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`4 For purposes of this motion, the parties refer to the operating system for both iPhones
`and iPads as iOS. (See Opp’n at 4, n.2 (Dkt. No. 73 at 10).) Moreover, Epic Games pleads that
`there are no differences between iOS and iPadOS to the allegations in the complaint. (Compl. ¶
`39, n.1 (Dkt. No. 1).) Similarly, this Order refers to iOS to refer to both the iPhone and iPad
`platforms, and references to iPhones generally also apply to iPads.
`5 The record also contains two enterprise account agreements for Epic Games and
`YEVVO Entertainment, Inc. The parties do not otherwise discuss the significance of these
`agreements.
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`video game platforms, Epic Games launched Fortnite on iOS in April 2018, where it remained on
`the platform until, as discussed below, August 13, 2020. During this time period: (i) 116 million
`iOS device users accessed Fortnite, spending more than 2.86 billion hours in the game; (ii) the
`daily average users numbered approximately 2.5 million daily iOS players, representing nearly
`10% of Fortnite’s total average daily players; and (iii) 63% of iOS players on Fortnite have only
`accessed Fortnite from an iOS device. Finally, iOS users accounted for more IAPs within
`Fortnite than those on the Android platform, but iOS users spend less on IAPs than those on the
`console platforms, including the Sony PlayStation 4 and Microsoft Xbox One.
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`B.
`Relevant Background
`On June 30, 2020, the developer program licensing agreements for the Epic Games
`account, the Epic International account, KA-RA S.a.r.l. account, and the Epic Games enterprise
`account were renewed by the payment of separate consideration.6 That same day, Epic Games
`founder and Chief Executive Officer (“CEO”) Tim Sweeney sent an email to Apple executives,
`including Apple CEO Tim Cook, requesting the ability to offer iOS consumers: (1) competing
`payment processing options, “other than Apple payments, without Apple’s fees, in Fortnite and
`other Epic Games software distributed through the iOS App Store”; and (2) a competing Epic
`Games Store app “available through the iOS App Store and through direct installation that has
`equal access to underlying operating system features for software installation and update as the
`iOS App Store itself has, including the ability to install and update software as seamlessly as the
`iOS App Store experience.” (Sweeney Decl. ¶ 14, Ex. A (Dkt. No. 65-1 at 2).) Mr. Sweeney
`highlights that these two offerings would allow consumers to pay less for digital products, and
`allow developers to earn more money. Mr. Sweeney also wrote that he “hope[d] that Apple
`w[ould] also make these options equally available to all iOS developers in order to make software
`sales and distribution on the iOS platform as open and competitive as it is on personal computers.”
`(Id.) In this email, Mr. Sweeney does not provide any offer to pay Apple any portion of the 30
`
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`6 The renewal price for the enterprise accounts were each $299; the other agreements were
`each renewed at a price of $99.
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`percent it charges on either app distribution or for IAP.
`On July 10, 2020, Apple Vice President and Associate General Counsel Douglas G. Vetter
`responded to Mr. Sweeney’s email with a formal letter. In short, Apple’s response to Epic Games’
`requests was no. Both requests were unequivocally refused. (Sweeney Decl. ¶ 15, Ex. B (Dkt.
`No. 65-2).) As relevant here and with respect to the Epic Games Store request, Mr. Vetter wrote:
`
`Apple has never allowed this. Not when we launched the App Store
`in 2008. Not now. We understand this might be in Epic’s financial
`interests, but Apple strongly believes these rules are vital to the health
`of the Apple platform and carry enormous benefits for both
`consumers and developers. The guiding principle of the App Store is
`to provide a safe, secure and reliable experience for users and a great
`opportunity for all developers to be successful but, to be clear, when
`it comes to striking the balance, Apple errs on the side of the
`consumer.
`(Id.) Mr. Vetter also reiterated that Epic Games’ request to establish a separate payment processor
`would interfere with Apple’s own IAP system, the business model of which has been used in the
`App Store since its inception. (Id.)
`
`On July 17, 2020 Mr. Sweeney responded to what he described as a “self-righteous and
`self-serving screed,” writing that he hoped “Apple someday chooses to return to its roots building
`open platforms in which consumers have freedom to install software from sources of their
`choosing, and developers can reach consumers and do business directly without intermediation.”
`(Sweeney Decl. ¶ 16, Ex. C (Dkt. No. 65-3 at 2).) He stated that Epic Games “is in a state of
`substantial disagreement with Apple's policy and practices,” and promised that it would “continue
`to pursue this, as [it] ha[s] done in the past to address other injustices in [the] industry.” (Id.)
`
`In fulfilling Mr. Sweeney’s promise to “pursue this” perceived “injustice,” Epic Games
`covertly introduced a “hotfix” into the Fortnite version 13.40 update on August 3, 2020. Epic
`Games did not disclose the full extent of this hotfix to Apple, namely that this hotfix would enable
`a significant and substantive feature to Fortnite permitting a direct pay option to Epic Games that
`would be activated when signaled by Epic Games’ servers. Until this signal was sent out, this
`direct pay option would remain dormant. When activated, however, this direct pay option would
`allow iOS Fortnite players to choose a direct pay option that would circumvent Apple’s IAP
`system. Relying on the representations, that intentionally omitted the full extent and disclosure of
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`this hotfix, Apple approved of the Fortnite version 13.40 to the App Store.7
`The hotfix remained inactive until the early morning of August 13, 2020, when Epic
`Games made the calculated decision to breach its allegedly illegal agreements with Apple by
`activating the undisclosed code in Fortnite, allowing Epic Games to collect IAPs directly.
`Fortnite remained on the App Store until later that morning, when Apple removed Fortnite from
`the App Store, where it remains unavailable. Later that same day, Epic Games filed this action
`and began a pre-planned, and blistering, marketing campaign against Apple. This marketing
`campaign included: a large-scale twitter campaign, a releasing of a parody video of the iconic
`Apple 1984 commercial, a Fortnite tournament in support of its lawsuit with in-game prizes, and a
`releasing of a limited time skin in Fortnite called the Tart Tycoon,8 among other actions.
`The following day, Apple responded sternly. It informed Epic Games that, based on its
`breaches of the App Store guidelines, and the developer program license agreement, it would be
`revoking all developer tools, which would preclude updates for its programs and software. Apple
`gave two weeks to comply with the App Store guidelines and the agreements. Apple also
`identified general consequences for any failure to comply, but specifically cited Unreal Engine as
`potentially being subject to harm should Epic Games fail to comply within the two-week period.
`Thereafter on August 17, 2020, Epic Games filed the request for a temporary restraining
`order, requesting the reinstatement of Fortnite with its activated hotfix onto the App Store, and to
`enjoin Apple from revoking the developer tools belonging to the Epic Affiliates. The Court
`declined to reinstate Fortnite onto the App Store, but temporarily restrained Apple from taking any
`action with respect to the Epic Affiliates’ developer tools and accounts.
`
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`7 Epic Games disputes that its use of the hotfix was deceptive where it is common practice
`in the gaming and software industry. The deceptive conduct does not derive from Epic Games’
`use of the hotfix specifically, but from using a hotfix to clandestinely add features in violation of
`the guidelines and its agreements with Apple, and then failing to disclose such code. Moreover,
`Epic Games did this despite receiving an unambiguous refusal from Apple only a few weeks prior
`to the introduction of its hotfix. The record further reflects that while hotfixes are commonly used
`in the industry, their uses are generally to fix or patch critical bugs or defects—not to enact
`substantive and significant new features. Epic Games’ adamant refusal to understand this basic
`distinction is not only baffling, but undermines its credibility with this Court.
`8 Modeled presumably on Mr. Cook’s likeness.
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`On August 27, 2020, as planned by Epic Games, an updated version containing season four
`of Fortnite was released on all platforms except for the iOS platform, which Epic Games could no
`longer update due to its breaches of the Apple agreements and guidelines. By design, Fortnite
`users can only play amongst other users currently operating the same version. Because of this
`release, iOS Fortnite players no longer had the ability to play cross-platform with other players
`(unless these players chose not to update their version, forgoing playing the new season).
`On August 28, 2020, on the expiration of the two-week deadline, Apple terminated Epic
`Games’ developer program account, referenced as Team ID ’84, stating “Apple is exercising its
`right in Apple’s sole discretion to terminate your status as a registered Apple Developer pursuant
`to the Apple Developer Agreement and is terminating the Developer Agreement and the Program
`License Agreement pursuant to their terms. . . . [W]e will deny your reapplication to the Apple
`Developer Program for at least a year.” (Grant Decl. ¶ 35, Ex. H (Dkt. No. 63-8 at 2).)9
`Following this, the parties engaged in briefing on the motion for preliminary injunction on
`a slightly expedited basis. The Court heard oral argument on the motion on September 28, 2020.
`
`II.
`
`LEGAL FRAMEWORK
`Preliminary injunctive relief, whether in the form of a temporary restraining order or a
`preliminary injunction, is an “extraordinary and drastic remedy,” that is never awarded as of right.
`Munaf v. Geren, 553 U.S. 674, 689-90 (2008) (internal citations omitted). “It is so well settled as
`not to require citation of authority that the usual function of a preliminary injunction is to preserve
`the status quo ante litem pending a determination of the action on the merits.” Tanner Motor
`Livery, Ltd. v. Avis, Inc., 316 F.2d 804, 808 (9th Cir. 1963). A preliminary injunction is “not a
`preliminary adjudication on the merits but rather a device for preserving the status quo and
`preventing the irreparable loss of rights before judgment.” Sierra On-Line, Inc. v. Phoenix
`Software, Inc., 739 F.2d 1415, 1422 (9th Cir. 1984) (citation omitted).
`
`
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`9 The record also reflects that Apple made moves in early September to cancel Epic
`Games’ ability to use the Sign in with Apple (“SIWA”) on the Fortnite game. Apple eventually
`relented to allowing its continued use without waiving any right to revoke SIWA in the future.
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`In order to obtain such relief, plaintiffs must establish four factors: (1) they are likely to
`succeed on the merits; (2) they are likely to suffer irreparable harm in the absence of preliminary
`relief; (3) the balance of equities tips in their favor; and (4) an injunction is in the public interest.
`Winter v. Natural Res. Def. Council. Inc., 555 U.S. 7, 20 (2008). With respect to the success on
`the merits and balance of harms factors, courts permit a strong showing on one factor to offset a
`weaker showing on the other, so long as all four factors are established. Alliance for the Wild
`Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th Cir. 2011). In other words, “if a plaintiff can only
`show that there are serious questions going to the merits—a lesser showing than likelihood of
`success on the merits—then a preliminary injunction may still issue if the balance of hardships tips
`sharply in the plaintiff’s favor, and the other two Winter factors are satisfied.” Shell Offshore, Inc.
`v. Greenpeace, Inc., 709 F.3d 1281, 1291 (9th Cir. 2013) (citations and quotations omitted). Thus,
`under the Ninth Circuit’s “‘sliding scale’ approach to these factors,” “when the balance of
`hardships tips sharply in the plaintiff’s favor, the plaintiff need demonstrate only ‘serious
`questions going to the merits.’” hiQ Labs, Inc. v. LinkedIn Corp., 938 F.3d 985, 992 (9th Cir.
`2019) (quoting Alliance for the Wild Rockies, 632 F.3d at 1131). The Court addresses each.
`III. ANALYSIS
`The Court finds it appropriate to evaluate, once again, Apple’s actions with respect to
`(i) Epic Games specifically, including the delisting of Fortnite and other games authorized under
`Epic Games’ contract with Apple, and (ii) the attempt to suspend and terminate developer rights
`authorized under other contracts, such as the one controlling Unreal Engine.
`
`A.
`Likelihood of Success on the Merits
`Epic Games brings ten claims for violations of Sherman Act, the California Cartwright
`Act, and California Unfair Competition. For purposes of the motion for preliminary injunction,
`Epic Games focuses on two: the monopoly maintenance claim under section 2 of the Sherman
`Act, and the tying claim under section 1 of the Sherman Act. Accordingly, the Court cabins its
`analysis with respect to these only. Having reviewed the limited record, while Epic Games raises
`serious questions on the merits, the Court cannot conclude that Epic Games will likely succeed on
`the merits of those claims. Too many unknowns remain.
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`Preliminary Considerations
`1.
`The current legal landscape cautions against preliminarily finding antitrust violations based
`on less than a full record. As the parties acknowledge, this matter presents questions at the
`frontier edges of antitrust law in the United States. Simply put, no analogous authority exists.
`The questions and issues raised in this litigation concern novel and innovative business practices
`in the technology market that have not otherwise been the subject of antitrust litigation.10
`As the Ninth Circuit recently recognized in Federal Trade Commission v. Qualcomm Inc.,
`“novel business practices—especially in technology markets—should not be ‘conclusively
`presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm
`they have cause or the business excuse for their use.’” 969 F.3d 974, 990-91 (9th Cir. 2020)
`(emphasis in original) (quoting United States v. Microsoft Corp., 253 F.3d 34, 91 (D.C. Cir. 2001)
`(en banc)). This is “[b]ecause innovation involves new products and business practices, courts[’]
`and economists[’] initial understanding of these practices will skew initial likelihoods that
`innovation is anticompetitive and the proper subject of antitrust scrutiny.” Id. at 991 (internal
`quotation marks omitted) (quoting Geoffrey A. Manne & Joshua D. Wright, Innovation and the
`Limits of Antitrust, 6 J. COMP. L. & ECON. 153, 167 (2010)); see also Rachel S. Tennis &
`Alexander Baier Schwab, Business Model Innovation and Antitrust Law, 29 YALE J. ON REG. 307,
`319 (2012) (explaining how “antitrust economists, and in turn lawyers and judges, tend to treat
`novel products or business practices as anticompetitive” and “are likely to decide cases wrongly in
`rapidly changing dynamic markets,” which can have long-lasting effects particularly in
`technological markets, where innovation “is essential to economic growth and social welfare” and
`“an erroneous decision will deny large consumer benefits”). The Court therefore has an even
`greater obligation to conduct an “elaborate inquiry” before determining that the alleged practices
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`10 The exceptions involve the related In re Apple Antitrust, 4:11-cv-06714-YGR (N.D.
`Cal.) (Pepper), and Donald Cameron v. Apple Inc., 4:19-cv-03074-YGR (N.D. Cal.), matters that
`are currently before this Court. Both Pepper and Cameron are in the middle of discovery, with
`motions for class certification anticipated in early 2021. No substantive rulings as to the merits of
`the claims have otherwise been made in those cases. Similar issues arise in Epic Games, Inc. v.
`Google LLC, 3:20-cv-05671-JD (N.D. Cal.), filed at the same time but which does not have
`similar motions for preliminary injunctive relief.
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`violate antitrust law.
`Second, the record remains insufficient to conclude that Epic Games will likely succeed on
`the merits of its claims. As discussed below, the record includes conflicting evidence in support
`of both Epic Games and Apple; a lack of crucial evidence without which the merits cannot be
`determined; and fundamental disagreement by expert witnesses that is not resolvable at this stage
`of the case. With respect to the last, the Court highlights that the parties’ retained expert witnesses
`are all accomplished and distinguished individuals. Epic Games submits declarations from Dr.
`David S. Evans, an economist with degrees from the University of Chicago, whose scholarly work
`has been widely read and cited, including by the Supreme Court in Ohio v. American Express Co.,
`138 S. Ct. 2274 (2018) (Amex). Apple submits declarations from Dr. Richard Schmalensee—an
`economist with degrees from the Massachusetts Institute of Technology (“MIT”), whose work is
`also widely read and cited, including in Amex and Microsoft—and Dr. Lorin Hitt—an academic
`with a business management background and degrees from MIT and Brown University, who has
`background in electrical engineering and technology. These expert reports reflect fundamental
`disagreements from luminaries in the field as to the foundational questions of this matter. While
`ultimately one view will likely prevail, at this juncture, the Court concludes that reasonable minds
`differ.
`With these considerations in mind, the Court turns to the merits of the claims.
`
`2.
`
`Monopoly Maintenance under Section 2 of the Sherman Act11
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`Legal Framework
`a.
`In order to prevail on its theory that Apple engaged in unlawful monopolization under
`section 2 of the Sherman Act, Epic Games must show: “(a) the possession of monopoly power in
`the relevant market; (b) the willful acquisition or maintenance of that power; and (c) causal
`antitrust injury.” Qualcomm, 969 F.3d at 990 (internal quotation marks omitted); see also United
`States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966) (stating that a section 2 claim requires “(1)
`
`
`11 The Court’s discussion of the section 2 claim before the section 1 claim mirrors the
`parties’ briefing.
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`the possession of monopoly power in the relevant market and (2) the willful acquisition or
`maintenance of that power as distinguished from growth or development as a consequence of a
`superior product, business acumen, or historic accident”).
`“A threshold step in any antitrust case is to accurately define the relevant market, which
`refers to ‘the area of effective competition.’” Qualcomm, 969 F.3d at 992 (quoting Amex, 138 S.
`Ct. at 2285); see also Image Tech. Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1202 (9th
`Cir. 1997) (“The relevant market is the field in which meaningful competition is said to exist.”).
`Monopoly power under the first element can be defined as “the power to control prices or exclude
`competition”12 and may be inferred from defendant’s predominant market share in the relevant
`market. Grinnell, 384 U.S. at 571. In addition, “courts usually cannot properly apply the rule of
`reason without an accurate definition of the relevant market.” Amex, 138 S. Ct. at 2285. Without
`a relevant market definition, “there is no way to measure the defendant's ability to lessen or
`destroy competition.” Id. (brackets and citation omitted).
`“The relevant market must include both a geographic market and a product market.” Hicks
`v. PGA Tour, Inc., 897 F.3d 1109, 1120 (9th Cir. 2018). The latter “must encompass the product
`at issue as well as all economic substitutes for the product.” Newcal Indus., Inc. v. Ikon Office
`Sol., 513 F.3d 1038, 1045 (9th Cir. 2008); see also id. (“The consumers do not define the
`boundaries of the market; the products or producers do [and] the market must encompass the
`product at issue as well as all economic substitutes for the product.”). “Economic substitutes have
`a ‘reasonable interchangeability of use’ or sufficient ‘cross-elasticity of demand’ with the relevant
`product.” Hicks, 897 F.3d at 1120 (quoting Newcal, 513 F.3d at 1045); see also United States v.
`E.I. du Pont de Nemours &