No. 17-204
`
`In the
`Supreme Court of the United States
`
`Apple INc.,
`
`v.
`
`RobeRt peppeR, et al.,
`
`Petitioner,
`
`Respondents.
`
`On Writ Of CertiOrari tO the United StateS
`COUrt Of appealS fOr the ninth CirCUit
`
`Brief of ACT | The App AssoCiATion
`As Amicus curiAe in supporT
`of peTiTioner
`
`BrIan ScarpellI
`Counsel of Record
`Joel thayer
`act | the app aSSocIatIon
`1401 K Street, NW, Suite 501
`Washington, DC 20005
`(517) 507-1446
`bscarpelli@actonline.org
`jthayer@actonline.org
`
`Counsel for Amicus Curiae
`
`283125
`
`A
`
`(800) 274-3321 • (800) 359-6859
`
`
`
`In the
`Supreme Court of the United States
`
`Apple INc.,
`
`v.
`
`RobeRt peppeR, et al.,
`
`Petitioner,
`
`Respondents.
`
`On Writ Of CertiOrari tO the United StateS
`COUrt Of appealS fOr the ninth CirCUit
`
`Brief of ACT | The App AssoCiATion
`As Amicus curiAe in supporT
`of peTiTioner
`
`BrIan ScarpellI
`Counsel of Record
`Joel thayer
`act | the app aSSocIatIon
`1401 K Street, NW, Suite 501
`Washington, DC 20005
`(517) 507-1446
`bscarpelli@actonline.org
`jthayer@actonline.org
`
`Counsel for Amicus Curiae
`
`283125
`
`A
`
`(800) 274-3321 • (800) 359-6859
`
`
`
`i
`
`tAble oF coNteNtS. . . . . . . . . . . . . . . . . . . . . . . . . . i
`
`tAble oF cIteD AUtHoRItIeS . . . . . . . . . . . . . . iii
`
`INteReSt oF AmiCus CuRiAe . . . . . . . . . . . . . . . .1
`
`SUmmARy oF ARgUmeNt . . . . . . . . . . . . . . . . . . . .2
`
`ARgUmeNt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
`
`I. the Ninth circuit Factually Ignoring the
`procompetitive Agency-Sale Relationship
`App Developers Have with App Stores
`Fatally Skews its Reasoning and conclusions. . .5
`
`
`
`A. t he benef it s of the sy mbiot ic
`relationship between app developers
`and app platforms . . . . . . . . . . . . . . . . . . . . . .7
`
`
`
`1. platforms lower overhead costs that
`simplify market entry . . . . . . . . . . . . . . .7
`
`
`2. platforms give app developers
`instant access to international
` markets . . . . . . . . . . . . . . . . . . . . . . . . . .11
`
`3. before platforms, app developers
`struggled to build trust with end
`users. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
`
`
`
`TABle of ConTenTs
`
`Page
`
`
`
`ii
`
`4. platforms strengthen intellectual
`property protections for app
`developers . . . . . . . . . . . . . . . . . . . . . . . .13
`
`
`
`b. by Ignoring the Roles of market
`participants in the App economy, the
`Ninth circuit’s Functional Approach
`of the Direct Sellers Rule Implicitly
`categorizes petitioner as a Reseller of
`all Apps it Hosts on its platform . . . . . . . .15
`
`
`
`II. the Ninth circuit misapplies illinois
`Brick, and Would Allow consumers to
`Interject into the platform and App
`Developer business Relationship . . . . . . . . . . . .18
`
`
`
`coNclUSIoN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
`
`Table of Contents
`
`Page
`
`
`
`iii
`
`CAses
`
`Dastar Corp. v.
`Twentieth Century Fox Film Corp.,
`539 U.S. 23 (2003). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
`
`
`
`Delaware Valley surgical supply, inc. v.
`Johnson & Johnson,
`523 F.3d 1116 (9th Cir. 2008). . . . . . . . . . . . . .20, 21, 23
`
`
`
`Hanover shoe, inc. v.
`united shoe machinery Corp.,
`392 U.S. 481 (1968). . . . . . . . . . . . . . . . . . . . . . . . .18, 19
`
`
`
`illinois Brick Co. v. illinois,
`431 U.S. 720 (1977). . . . . . . . . . . . . . . . . . . . . . . passim
`
`
`in re Apple iPhone Antitrust Litig.,
`846 F.3d 313 (9th Cir. 2017). . . . . . . . . . . . . . . . . .20, 21
`
`
`in re Apple iPhone Antitrust Litig.,
` No. 11-CV-06714-YGR, 2013 WL 6253147
`(N.D. cal. Dec. 2, 2013), rev’d and remanded
`sub nom. in re Apple iPhone Antitrust Litig.,
`846 F.3d 313 (9th Cir. 2017). . . . . . . . . . . . . . . . . .19, 21
`
`
`
`Kansas v. utiliCorp united, inc.,
`497 U.S. 199 (1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
`
`
`Petrella v. metro-Goldwyn-mayer, inc.,
`134 S. Ct. 1962 (2014) . . . . . . . . . . . . . . . . . . . . . . . . . . .1
`
`
`TABle of CiTeD AuThoriTies
`
`Page
`
`
`
`iv
`
`united states v. microsoft Corp.,
`
`253 F.3d 34 (D.C. Cir. 2001) . . . . . . . . . . . . . . . . . . . . .1
`
`sTATuTes AnD oTher AuThoriTies
`
`15 U.S.C. § 15(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
`
`Rule 12(b)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
`
`Act | the App Association, The symbiotic
`Relationship Between App Developers
`and Platforms: A Ten-Year Retrospect,
` Website (last checked, August 7, 2018) . . . . . . . . . . .21
`
`Adam Jaffe & benjamin Jones, The Changing
`F r o n t i e r : R e t h i n k i n g s c i e n c e a n d
`innovation Policy, National bureau of
` Economic Research (2015) . . . . . . . . . . . . . . . . . . . . . .9
`
`Dan Russell-pinson, OmG! someone Copied
`my Ap p. W h at Do i Do No w?, a c t
`| the app aSSocIatIon (August 30, 2017) . . . . . . .14
`
`
`
`Deloitte, The App economy of the united
`states: A Rev iew of the mobil e Ap p
`market its Contribuiton to the united
` states, Report (forthcoming 2018) . . . . . . . . . . .7, 8, 10
`
`Cited Authorities
`
`Page
`
`
`
`v
`
`erik brynjolfssn & michael Smith, Frictionless
`Commerce? A Comparison of internet
` and Conventional Retailers, MIT (1999) . . . . . . . . .12
`
`H u g o D e l g a d o , T h e A p p e c o n o m y
`Forecast: A $6 Trillion market in the
` making, App Annie (2017) . . . . . . . . . . . . . . . . . .11, 22
`
`K e l l y Jo h n s o n S w a n , un i t e d s t a t e s :
`The Tr ue Cost of Defending Against
`Co p yr i gh t inf r in ge m e n t Li ti ga ti o n ,
` Scott & Scott LLP (August 19, 2015) . . . . . . . . . . . .14
`
`Ket a n p r at ap, Ap pl e says De vel o p e r s
`earned Over $70 Billion since App store’s
` Launch, Gadget 360 (Jun. 1, 2017). . . . . . . . . . . . . . .11
`
`milton Handler, Changing Trends in Antitrust
`Doctrines: An unprecedented supreme Court
` Term—1977, 77 Colum. L. Rev. 979 (1977) . . . . . . . .16
`
`Roya Stephens & Adarsh mahesh, state of the App
` economy, Act | the App Association (2018) . . . .3, 5
`
`Sarah perez, Paid Apps on the Decline: 90% of
`iOs Apps Are Free, up From 80-84% During
`2010 -2012 , says Flur r y, techcr unch
`(Jul. 18, 2013). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
`
`
`
`Cited Authorities
`
`Page
`
`
`
`vi
`
`Steve yo ung, making $1.5 million with
`educatio nal Ap ps w ith Pier re Abel,
` App Masters (Apr. 30, 2015) . . . . . . . . . . . . . . . . . . . .10
`
`Stew chyou, The History of shareware,
` Thunderbolt (May 5, 2011) . . . . . . . . . . . . . . . . . .12, 13
`
`teDx talks, the New Startup economics:
`S t e p h e n F o r t e a t t e D x H K U S t ,
` youtube (Apr. 2, 2013) . . . . . . . . . . . . . . . . . . . . . . . . . .9
`
`timothy F. bresnahan, Jason p. David, and
`pai-ling yin, economic Value Creation
`in mobile Applications, Un I v e r S I t y o f
` chIcago preSS (July 2015) . . . . . . . . . . . . . . . . . . . . .8
`
`Zack Whittaker, millions of steam game
`k e y s s t o l e n a f t e r h a c k e r b r e a c h e s
`gaming site, ZDNet (2016), . . . . . . . . . . . . . . . . . . . . .13
`
`
`
`Cited Authorities
`
`Page
`
`
`
`1
`
`inTeresT of Amicus curiAe1
`
`Act | the App Association (“App Association”)
`is an international grassroots advocacy and education
`organization representing more than 5,000 small app
`developers and technology firms in the digital economy.
`It is the only organization focused on the needs of small
`business innovators from around the world. the App
`Association advocates for an environment that inspires
`and rewards innovation while giving resources to help its
`members leverage their intellectual assets to raise capital,
`create jobs, and continue innovating.
`
`the App Association has participated as an amicus
`curiae in the Supreme court and other courts in cases
`related to antitrust and technological innovation. see,
`e.g., Petrella v. metro-Goldwyn-mayer, inc., 134 S. ct.
`1962 (2014); Dastar Corp. v. Twentieth Century Fox Film
`Corp., 539 U.S. 23 (2003); united states v. microsoft
`Corp., 253 F.3d 34 (D.C. Cir. 2001) (en banc) (per curiam).
`technological innovation plays a critical role in enhancing
`competition and improving the welfare of consumers;
`therefore, the App Association has a keen interest in
`ensuring courts properly apply federal antitrust law to the
`dynamic industries and innovative technologies that drive
`the app ecosystem. the App Association’s members rely
`on app platforms give innovative products and services to
`
`1. Pursuant to Rule 37.6, amicus affirms that no counsel for
`a party authored this brief in whole or in part and that no person
`other than amicus and its counsel made a monetary contribution
`to its preparation or submission. both parties have consented to
`the filing of this brief.
`
`
`
`2
`
`billions of consumers in the United States and around the
`globe. If the Ninth circuit’s ruling stands, it will directly
`affect the viability of app platforms, as well as developers’
`ability to give services.
`
`summAry of ArgumenT
`
`Act | the App Association (“the App Association”)
`urges the court to overturn the Ninth circuit’s decision
`in this case on the basis that Respondent’s case relies on
`the misguided assumption that they are direct purchasers
`of petitioners. As an association that represents actual
`developers who rely on platforms such as the petitioner’s
`App Store, we find the Respondent’s characterization of
`the relationship between platforms and app developers to
`be factually inaccurate and disingenuously self-serving,
`especially their blatant disregard for how our members
`structure their pricing for their innovative products.
`
`Today, the app economy represents $568.47 billion of
`the United States’ economy and has 317,673 companies
`active in the U.S.’s mobile app market; the app economy
`is also responsible for creating 5,744,481 American jobs.
`the App Association has long believed that agency-sale
`relationships are procompetitive arrangements that
`lower costs for consumers and has contributed to the
`app economy’s success. the agency-sale approach gives
`independent app developers autonomy and flexibility in
`how they offer their apps to consumers, whether it be free
`with in-app purchases, subscription-based sales, one-time
`purchase, etc. see App Store guidelines. Successful app
`platforms, like petitioner’s App Store, have revolutionized
`the app ecosystem by providing app developers with
`eased access to a much broader swath of consumers and
`
`
`
`3
`
`platform users, resulting in a flourishing app economy that
`has enabled our members to grow and create 4.7 million
`American jobs. see Roya Stephens & Adarsh mahesh,
`state of the App economy, Act | the App Association
`(2018) Available at: http://actonline.org/wp-content/
`uploads/Act_2018-State-of-the-App-economy-Report_4.
`pdf. the App Association implores courts and lawmakers
`to avoid disrupting the symbiotic and pro-consumer
`relationship that exists between app developers and app
`platforms.
`
`In the instant case, the Ninth circuit completely
`ignored how our members interact with various mobile
`platforms by suggesting that petitioner owns and controls
`the relationship with our members’ customers. this
`implies that platforms serve more as resellers of apps it
`hosts on its platform and, thus, allows them to dictate the
`price of those apps to consumers. to assist this court,
`we explain and explore the realities of the relationship
`between app developers and app platforms. Additionally,
`we examine the net effects on American consumers; and
`why, ultimately, the Ninth circuit’s interpretation of this
`relationship, at the core of the matter at hand, is misguided
`and, if upheld, could damage and disrupt an ecosystem
`that has demonstrated significant societal value.
`
`moreover, the Ninth circuit’s interpretation of
`consumers as direct buyers from the petitioner incorrectly
`assumes the petitioner has ownership rights in app
`developers’ apps. to draw this conclusion, the Ninth
`circuit relies on its misunderstanding of the agency-sale
`relationship app developers have with platform owners.
`In reality, the petitioner is only entitled to the agreed
`upon percentage of the app developers’ app fee. Aside
`
`
`
`4
`
`from this fee, the petitioner has no ownership rights to
`the app. In addition, app developers can offer their apps
`on platforms not owned by the petitioner, unencumbered
`by the petitioner. All creative rights solely belong to the
`app developer and are uninhibited by the petitioner.
`moreover, when a consumer agrees to the “terms of
`service” for each app he or she buys, the app’s developer
`keeps sole responsibility for any breach of those terms.
`App developers are also solely responsible for any
`disruption in their service because of a lack of integrity
`in their code, and the onus is on them to fix it. Thus, the
`Ninth circuit appears to be confused as to what or from
`whom the consumer is buying when they purchase an app.
`by any estimation, it is clear that the consumer is the app
`developer’s customer, not the platform’s.
`
`the Ninth circuit also is indifferent as to who sets
`the prices of apps. Again, this point is undisputed from
`our perspective: the app developer sets this price. the
`petitioner is not making app developers set a price for the
`consumers who purchase their apps through the App Store
`platform, which is categorically inaccurate. moreover, this
`interpretation, in effect, misappropriates and confuses
`who pays for what in the app economy, which is precisely
`what illinois Brick sought to prevent from happening.
`
`At the heart of the illinois Brick doctrine, this
`court expressed concern of indirect purchasers taking
`issue with upstream negotiations and providing indirect
`purchasers the ability to object to the negotiated price
`from upstream agreements to which they were not a party.
`central in an illinois Brick analysis is examining where
`the direct contractual relationship exists; put another
`way: who is selling to whom. As a result, for purposes of
`
`
`
`5
`
`antitrust standing, people or entities can only sue those
`companies that have direct control over the product and
`its pricing.
`
`For these reasons, we respectfully request the court
`overturn the Ninth circuit’s decision in this case.
`
`ArgumenT
`
`i. The ninth Circuit factually ignoring the
`procompetitive Agency-sale relationship App
`Developers have with App stores fatally skews its
`reasoning and Conclusions
`
`the app ecosystem has developed alongside the rise of
`the smartphone and has experienced substantial growth
`in its less than ten years of existence. Small-to-medium
`entities (SMEs) are leaders in the $950.6 billion app
`ecosystem that has revolutionized the software industry
`and influenced every sector of the economy, representing
`approximately 4.7 million American jobs. Roya Stevens
`& Adarsh mahesh, state of the App economy, act |
`the app aSSocIatIon (2018) at http://actonline.org/wp-
`content/uploads/ Act_2018-State-of-the-App-economy-
`Report_4.pdf (App economy Report). to facilitate the
`rise of the internet of things (Iot)2, trusted and curated
`app stores will be vital to providing the apps that serve
`as the interface for Iot devices. the opportunities and
`potential for Iot will hinge on the app economy’s continued
`innovation, investment, and growth.
`
`2. Iot is an encompassing concept where everyday products
`use the internet to share data collected from sensors, enabling
`greater efficiency in processes, products, and services across
`every sector.
`
`
`
`6
`
`the App Association has long believed, and our
`experience for over a decade demonstrates, that agency-
`sale relationships are procompetitive arrangements that
`lower costs for consumers in the context of software apps.
`brief for Act | the App Association as Amicus curiae, p.
`11, Apple, inc, v. u.s., Case No. 15-565 (2015). The agency-
`sale approach gives independent app developers autonomy
`and flexibility in how they offer their apps to consumers,
`whether it be free with in-app purchases, subscription-
`based sales, one-time purchase, etc. see App Store
`guidelines. Successful app platforms, like petitioner’s App
`Store, have changed the app ecosystem, which provides
`app developers with ubiquitous access to a far broader
`swath of consumers and platform users worldwide than
`could be reached through the sole efforts of the developer.
`this scenario has led to a flourishing app economy
`that has benefited our members and consumers both.
`chuck Jones, Apple’s App store Generating meaningful
`Revenue, forBeS (Jan. 6, 2017, 2:10 PM), https://www.
`forbes.com/sites/chuckjones/2017/01/06/apples-app-
`store-generating-meaningful-revenue/#305d93011eb6
`(reporting developers receiving $20 billion in revenue).
`the App Association implores courts and lawmakers not
`to disrupt the symbiotic relationship existing between
`these two entities.
`
`In the instant case, the Ninth circuit completely
`ignored how our members interact with various mobile
`platforms by suggesting that petitioner owns and
`controls the relationship with our members’ customers.
`this implies platforms serve more as resellers of apps it
`hosts on its platform and, thus, allows them to dictate the
`price of those apps to consumers. to assist this court,
`we explain and explore the realities of the relationship
`between app developers and app platforms, and the net
`
`
`
`7
`
`effects on American consumers; and why, ultimately,
`the Ninth circuit’s interpretation of this relationship,
`at the core of the matter at hand, is misguided and, if
`upheld, could damage and disrupt an ecosystem that has
`demonstrated significant societal value.
`
`A. The benefits of the symbiotic relationship
`between app developers and app platforms
`
`the relationship between platforms and app companies
`is mutually beneficial, and one that should be fostered and
`supported. Not only do platforms provide app companies
`with secure market access, consumer trust, developer
`autonomy, dispute resolution, and meaningful consumer
`analytics; they provide a vital resource to bring the
`ingenuity and innovations of app companies to consumers
`around the globe. see App economy Report. Further,
`the developer-platform partnership is procompetitive
`and lowers costs for consumers. these relationships
`provide app developers with a significant amount of
`disintermediation to reach consumers around the globe
`without having the developer forfeit the ability to control
`their business and pricing structure. see Deloitte, The App
`economy of the united states: A Review of the mobile
`App market its Contribution to the united states, Report
`(forthcoming 2018) (finding that “app stores do not set the
`prices of apps, this decision being the sole prerogative of
`developers”) (Deloitte Study).
`
`1. platforms lower overhead costs that
`simplify market entry
`
`before centralized platforms, app developers were
`forced to absorb significant costs and manage various
`relationships to distribute their product to a wide
`
`
`
`8
`
`consumer base. see timothy F. bresnahan, Jason p.
`David, and pai-ling yin, economic Value Creation in
`mobile Applications, UniverSity Of ChiCagO preSS
`(July 2015). Available at http://www.nber.org/chapters/
`c13044.pdf (writing “[t]he rapid growth of mobile devices
`has been accompanied by an equally rapid growth in
`app development, in substantial part because platform
`providers Apple and google have lowered the costs of
`development and distribution of mobile applications.”).
`much more complex than a direct developer-consumer
`exchange, software companies used distributors to reach
`and engage with end users. Developers had to sacrifice
`valuable time from product development to establish
`relationships with distributors and were beholden to
`strict and costly rules even before they made their
`products available to consumers. today, the app economy
`represents $568.47 billion of the United States’ economy
`and has 317,673 companies active in the U.S.’s mobile app
`market; the app economy is also responsible for creating
`5,744,481 American jobs. see Deloitte Study.
`
`In simplest terms, independent software developers
`either paid to offload the overhead to a publisher or
`absorbed the cost and uncertainty of sales internally.
`these barriers to entry impacted hundreds of thousands
`of software developers and companies around the world;
`thus resulting in higher prices and fewer choices for
`consumers.
`
`While the concept of mobile platforms existed in both
`blackberry and Windowsce, it did not gather steam until
`2008, when petitioner paired its then-new iphone with
`an integrated application storefront. multiple companies
`quickly followed petitioner’s direction and launched stores
`
`
`
`9
`
`or marketplaces designed for various products. this
`created an entirely new internet-enabled economy that
`incorporated small businesses and reduced financial and
`temporal costs for developers.
`
`As we alluded to earlier, software companies incurred
`an extraordinary financial burden to bring their products
`to market before the introduction of mobile platforms. For
`instance, they had to engage in costly and time-consuming
`marketing campaigns to establish consumer trust and
`contract others to process financial transactions for them.
`Adam Jaffe & benjamin Jones, The Changing Frontier:
`Rethinking science and innovation Policy, National
`Bureau of Economic Research (2015) Available at https://
`books.google.com/books?id=QdopcwAAQbAJ&pg.
`platforms have since created a one-stop shop that
`mitigates these costs so that more small businesses, like
`our members, can take part in the app economy. see id.
`At p. 238 (2015) (writing “[t]he rapid emergence of many
`demanders, together with the very low barriers of entry
`created by the platform providers, has led to a rapid
`and very substantial expansion in the number of overall
`apps.”).
`
`In the late ‘90s, a software company had to spend
`about $10 million just to get up and running. see teDx
`talks, the New Startup economics: Stephen Forte
`at teDxHKUSt, youtube (Apr. 2, 2013), https://www.
`youtube.com/watch? v=t4IiyetJU_s.
`
`today, the advent of free or inexpensive cloud services,
`internet connectivity, and software tools have enabled
`small-business app developers to bring their innovative
`products to market with just a $100,000 check. see id.
`
`
`
`10
`
`platforms help lower the barrier to entry for small app
`companies by shouldering the costs of privacy measures,
`security, and intellectual property protections for their
`users, thereby freeing up substantial amounts of capital
`that startups can use to build and grow their business.
`
`With lower costs and barriers to entry, both fledgling
`and established app developers can succeed. For example,
`French educational app company l’escapadou secured
`1.3 million downloads and earned more than $1.5 million
`from app sales. Steve young, making $1.5 million with
`educational Apps with Pierre Abel, App masters (Apr. 30,
`2015) Available at: http://bit.ly/2hgDzZH. Founder pierre
`Abel specialized the language, content, and pricing of each
`of his apps based on consumers and market needs and
`marketed them on different platforms to reach a variety
`of consumers around the world. l’escapadou attributes
`its success to the centralized nature of platforms. see id.
`
`this lower overhead is why the app economy is highly
`competitive and one of the most innovative spaces on the
`internet-enabled ecosystem. see Deloitte Study (finding
`a causal relationship between app developers’ lowered
`overhead through the use of mobile platforms and the app
`economy’s success). For example, petitioner’s App Store
`provides a service that eases financial transactions (such as
`billing to consumers) and provides consumers assurances
`that all the apps sold are compliant with relevant tax
`codes—something that software developers had to handle
`themselves. popular platforms also may choose to absorb
`credit card fees to prevent them from transferring the cost
`to the developer. Without this platform-enabled service, it
`would fall on the app developer to handle each transaction;
`again, falling outside the bounds of an app developer’s
`
`
`
`11
`
`core competencies which, at times, is almost exclusively
`limited to writing the code for their app.
`
`2. platforms give app developers instant
`access to international markets
`
`Successful platforms, like petitioner’s App Store or
`google play, have changed the app ecosystem by providing
`app developers ubiquitous access to a broader swath of
`consumers. platforms provide a centralized framework for
`app developers to engage and secure visibility with the
`3.4 billion app users worldwide. Hugo Delgado, The App
`economy Forecast: A $6 Trillion market in the making,
`App Annie (2017) Available at: http://bit.ly/2xfDqtb.
`For instance, Petitioner’s App Store is available in 155
`countries around the globe. Ketan pratap, Apple says
`Developers earned Over $70 Billion since App store’s
`Launch, Gadget 360 (Jun. 1, 2017) http://gadgets.ndtv.com/
`apps/news/apple-says-app-store-earned-developers-70-
`billion-since-launch-1706781. by petitioner hosting an app
`company’s product on its platform, that app company now
`has immediate access and reach to the same markets as
`petitioner for a nominal fee without having to build a brick-
`and-mortar store or pay for an expensive an international
`ad campaign.
`
`3. Before platforms, app developers struggled
`to build trust with end users
`
`In the internet economy, end user trust – an established
`relationship between the app company and consumer
`where the consumer demonstrates confidence to disclose
`otherwise personal information to an app company – is
`extremely difficult to earn and maintain, especially
`
`
`
`12
`
`when a single incident (e.g., a breach or cyberattack) can
`permanently damage a business’s trust easily with their
`customer. However, for a small business app developer,
`this event can easily spell death for their company. While
`brick-and-mortar retailers may be able to operate without
`the use of most of a customer’s personal information, app
`companies need different types of personal information to
`develop and provide their innovative services to customers
`(e.g., geolocation data, financial information, health data).
`App companies are also different in that, without end
`user trust, consumers are unlikely to disclose essential
`information to an app company. therefore, consumer trust
`and willingness to share information are critical for an
`app developer to succeed in the market, more so than for
`brick-and-mortar.
`
`even before the advent of digital commerce, consumer
`trust was a critical aspect of a software developer’s ability
`to bring a product to market. erik brynjolfssn & michael
`Smith, Frictionless Commerce? A Comparison of internet
`and Conventional Retailers, MIT (1999) Available at:
`http://bit.ly/2yreJ8W (writing “[r]ecent scholars have
`argued that trust is among the most important components
`of any effective Internet marketing program.”). prior to
`platforms, software developers often had to hand over
`their products to companies with a significant reputation
`to break through the trust barrier. even “shareware”
`products that could be digitally distributed would end up
`partnering with trusted brands to gain consumer trust.
`Stew chyou, The History of shareware, thunderbolt (may
`5, 2011) Available at: http://bit.ly/2xvpuJ7. For example,
`in 1996, developers of the computer game ultimate Doom
`contracted with chex cereal to augment its consumer
`base. Developers converted their game software to create
`
`
`
`13
`
`the child-friendly game chex Quest. see id. today, most
`games, like ultimate Doom, are free to download on
`platforms in app form like petitioner’s App Store, google
`Play, or game-specific, independent platform Steam. These
`platforms not only lower cost but can reach consumers
`beyond those who buy a particular brand of cereal or
`trusted product. Now, platforms are the trusted product.
`
`but the trust mechanism provided by the platforms
`is not merely an aspect of size. consumer trust requires
`constant maintenance and vigilance because a loss of trust
`hurts platforms and the developers that depend on them.
`Zack Whittaker, millions of steam game keys stolen after
`hacker breaches gaming site, ZDNet (2016), Available at:
`http://zd.net/2bybRlV (reporting “[t]he data also includes
`an estimated 3.3 million unique site and forum accounts.”).
`the immediate consumer trust embedded into platforms’
`brands is worth billions of dollars. The economics Of
`Trust, Forbes (2010), Available at: http://bit.ly/2wJr76Y
`(writing “[t]he reason why the U.S. is richer than Somalia
`is mostly not because of culture. the great thing about
`formal systems, when well designed, is that they make a
`little bit of public spirit, altruism or professionalism go a
`long way,” says paul Seabright, an economics professor at
`the University of toulouse.”). platforms’ trusted brands
`allow developers to clear the critical hurdle of achieving
`trust from consumer adoption.
`
`4. platforms strengthen intellectual property
`protections for app developers
`
`In the age of retail software distribution, companies
`struggled to secure and protect their intellectual property
`from theft and copyright abuse. platforms not only
`
`
`
`14
`
`provide an important framework for app companies to
`engage with consumers, but they also assist in preventing
`infringement of app companies’ intellectual property.
`For example, petitioner’s platform provides a content
`dispute mechanism that allows app companies to submit a
`claim to connect with entities that have allegedly violated
`their intellectual property. Apple Inc., iTunes App store
`Content Dispute, Available at: http://apple.co/2xrvK9c.
`While maintaining a database of all the apps it hosts,
`the platform provides a mechanism that reduces the
`hurdles companies must go through to tackle copyright
`infringement. e.g., Dan Russell-pinson, OmG! someone
`Copied my App. What Do i Do Now?, act | the app
`aSSocIatIon (August 30, 2017) Available at: http://bit.
`ly/2wKvm23.
`
`Without the dispute resolution mechanisms of
`platforms, app companies are often left with an untenable
`alternative: copyright infringement litigation in federal
`court. Federal litigation poses an oppressive burden on
`app developers, particularly small businesses with limited
`resources. Within these cases, the rightful owners of the
`copyright may be faced with several thousand dollars per
`month in legal fees, the expense of new license compliance,
`and months or years diverted from company matters, not
`to mention the cost if the litigation is unsuccessful. Kelly
`Johnson Swan, united states: The True Cost of Defending
`Against Copyright infringement Litigation, Scott & Scott
`LLP (August 19, 2015) Available at: http://bit.ly/2xsdovf.
`platforms provide a vital, cost-effective avenue for app
`developers and copyright holders to dispute and address
`intellectual property theft and infringement.
`
`
`
`15
`
`B. By ignoring the roles of market participants
`in the App economy, the ninth Circuit’s
`functional Approach of the Direct sellers rule
`implicitly Categorizes petitioner as a reseller
`of all Apps it hosts on its platform
`
`the Ninth circuit’s decision at issue before this court
`radically expanded the eligible parties that may seek
`antitrust class action relief against digital commerce
`companies that utilize the agency sales approach by
`baselessly disregarding the fact that petitioner possesses
`no property right in an app developer’s product. Under
`Section 4 of the clayton Act, “any person who shall be
`injured in his business or property by reason of anything
`forbidden in the antitrust laws may sue…and shall recover
`threefold the damages by him sustained.” 15 U.S.C. § 15(a).
`by virtue of the clause “any person,” courts may apply the
`statute broadly. However, illinois Brick Co. v. illinois
`limited that definition by only permitting courts to grant
`antitrust standing under Rule 12(b)(6) if the plaintiff is
`the direct purchaser of the company that overcharged
`as opposed to “others in the chain of manufacture or
`distribution.” 431 U.S. 720, 729 (1977).
`
`In illinois Brick, the State of Illinois sued a concrete
`block manufacturer, Illinois Brick, for allegedly fixing
`prices of concrete blocks. the manufacturer had sold the
`blocks to masonry contractors who used the blocks to
`build structures. those contractors then subcontracted
`other companies to build those structures to later sell to
`the State of Illinois. the State then sued Illinois brick
`for passing on its unlawful overcharge at both stages
`of the distribution chain; thus, driving up the State’s
`
`
`
`16
`
`cost downstream when buying the structures from the
`contractors. In this case, this court rejected the State’s
`argument because, if it were to accept such an analysis,
`then it would make it almost impossible for a court to
`discern where the harm—in this case, an overcharged
`concrete block—actually occurred. Additionally, the
`policy behind this ruling was that holding indirect
`purchasers liable for passed-on overcharges would clog
`up the court sy
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