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`No. 23-___
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`IN THE
`
`
`
`Epic Games, Inc.,
`
`Petitioner,
`
`v.
`
`Apple, Inc.,
`
`Respondent.
`
`On Petition for a Writ of Certiorari to the United
`States Court of Appeals for the Ninth Circuit
`
`PETITION FOR A WRIT OF CERTIORARI
`
`
`
`Christine A. Varney
`Gary A. Bornstein
`Antony L. Ryan
`Yonatan Even
`CRAVATH, SWAINE
`& MOORE LLP
`825 Eighth Avenue
`New York, NY 10019-7475
`
`
`
`
`Paul J. Riehle
`FAEGRE DRINKER BIDDLE
`& REATH LLP
`Four Embarcadero Center
`San Francisco, CA 94111-4180
`
`Thomas C. Goldstein
`Counsel of Record
`4323 Hawthorne St., NW
`Washington, DC 20016
`(202) 674-7594
`tom@tomgoldstein.net
`
`Counsel for Petitioner
`
`
`
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`i
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`QUESTIONS PRESENTED
`
`This case presents two critical questions regarding the
`legal standards governing the Rule of Reason, which
`determines the outcome of nearly every Sherman Act case.
`It is well settled that a restraint that has both pro- and anti-
`competitive effects
`is unlawful
`if a “less-restrictive
`alternative” will achieve the same benefits while harming
`competition less. The circuits are divided, however, on two
`issues that were outcome-determinative in this case:
`(1) the
`legal
`test
`for
`identifying a
`less-restrictive
`alternative; and (2) if no less-restrictive alternative exists,
`whether the restraint is valid even when (as in this case)
`the court finds harms to competition that vastly outweigh
`the benefits.
`
`The Questions Presented are:
`
`1. Must a less-restrictive alternative be free from
`additional costs to the defendant?
`
`2. If there is no less-restrictive alternative, is the
`restraint invalid if the harms to competition substantially
`outweigh the restraint’s procompetitive justification?
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`ii
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`PARTIES TO THE PROCEEDING
`
`The parties to the proceeding are as follows:
`1. Petitioner is Epic Games, Inc. (“Epic”), which was
`plaintiff in the district court and appellant and cross-
`appellee in the court of appeals.
`2. Respondent is Apple Inc., which was defendant in
`the district court and appellee and cross-appellant in the
`court of appeals.
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`iii
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`RELATED PROCEEDINGS
`
`This case was designated under Northern District of
`California rules as related to the following cases:
`
`1. Cameron v. Apple Inc., No. 19-cv-03074 (N.D. Cal.),
`judgment entered June 10, 2022.
`2. In re Apple iPhone Antitrust Litigation, No. 11-cv-
`06714 (N.D. Cal.) judgment entered; Pepper v. Apple Inc.,
`No. 14-15000 (9th Cir.), judgment entered January 1, 2017,
`remanded to the district court July 16, 2019; Apple Inc. v.
`Pepper, No. 17-204 (S. Ct.), judgment entered June 17,
`2019.
`3. SaurikIT, LLC v. Apple Inc., No. 20-cv-08733
`(N.D. Cal.),
`judgment entered September 12, 2022;
`SaurikIT, LLC v. Apple Inc., No. 22-16527 (9th Cir.).
`4. Epic Games, Inc. v. Apple Inc., No. 20-cv-5640
`(N.D. Cal.), judgment entered September 10, 2021; Epic
`Games, Inc. v. Apple Inc., Nos. 21-16506, 21-16695
`(9th Cir.), judgment entered April 24, 2023.
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`iv
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`CORPORATE DISCLOSURE STATEMENT
`
`Pursuant to Supreme Court Rule 29.6, Epic states that
`it has no parent corporation and that Tencent Holdings Ltd.
`owns more than 10% of Epic stock.
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`v
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`TABLE OF CONTENTS
`QUESTIONS PRESENTED ................................................................ i
`
`PARTIES TO THE PROCEEDING .................................................. ii
`
`RELATED PROCEEDINGS .............................................................. iii
`
`CORPORATE DISCLOSURE STATEMENT ................................ iv
`
`PETITION FOR A WRIT OF CERTIORARI ................................. 1
`
`OPINIONS BELOW ............................................................................. 1
`
`JURISDICTION ..................................................................................... 1
`
`RELEVANT STATUTORY PROVISIONS ...................................... 1
`
`STATEMENT OF THE CASE ........................................................... 1
`
`REASONS FOR GRANTING THE WRIT.................................... 10
`
`I.
`
`II.
`
`This Court Should Determine the Test for What
`Constitutes a Less-Restrictive Alternative................. 11
`This Court Should Determine, If There Is No Less-
`Restrictive Alternative, Whether the Restraint Is
`Invalid If It Causes Substantial Harm to Competition
`on Balance. ............................................................................. 17
`
`III. The Importance of the Questions Presented and of
`This Specific Case Reinforce That Certiorari Is
`Warranted. ............................................................................. 27
`
`CONCLUSION .................................................................................... 29
`
`APPENDIX
`Appendix A, Court of Appeals Decision .................................. 1a
`
`Appendix B, District Court Decision ...................................... 96a
`
`Appendix C, Order Denying Rehearing ............................. 445a
`
`Appendix D, Relevant Statutory Provisions .................... 447a
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`vi
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`TABLE OF AUTHORITIES
`
`Cases
`
`
`
`Page(s)
`
`1-800 Contacts v. FTC, 1 F.4th 102 (2d Cir. 2021) ............... 16
`
`Apani Sw., Inc. v. Coca-Cola Enters., 330 F.3d 620
`(5th Cir. 2002) ........................................................................... 26
`
`AYA Healthcare Servs., Inc. v. AMN Healthcare, Inc.,
`9 F.4th 1102 (9th Cir. 2021) ......................................... 18, 21
`
`Cap. Imaging Assoc., P.C. v. Mohawk Valley Med.
`Assoc., Inc., 996 F.2d 537 (2d Cir. 1993) .......................... 16
`
`Chicago Bd. of Trade v. United States, 246 U.S. 231
`(1918) ........................................................................................... 19
`
`Cnty. of Tuolumne v. Sonora Cmty. Hosp., 236 F.3d
`1148 (9th Cir. 2001) ................................................... 8, 11, 13
`
`Cont’l T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36
`(1977) ........................................................................................... 19
`
`FTC v. Qualcomm Inc., 969 F.3d 974 (9th Cir. 2020) ... 18, 21
`
`Hairston v. Pacific 10 Conference, 101 F.3d 1315
`(9th Cir. 1996) ........................................................................... 19
`
`Impax Lab’ys, Inc. v. FTC, 994 F.3d 484 (5th Cir.
`2001) ...................................................................................... 16, 26
`
`Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551
`U.S. 877 (2007)................................................................... 19, 22
`
`
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`vii
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`Mylan Pharms., Inc. v. Warner Chilcott Pub. Ltd. Co.,
`838 F.3d 421 (3rd Cir. 2016) ............................................... 26
`
`N. Am. Soccer League, LLC v. United States Soccer
`Fed’n, Inc., 883 F.3d 32 (2d Cir. 2018) .............................. 16
`
`Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of
`Univ. of Okla., 468 U.S. 85 (1984) ....................................... 19
`
`Nat’l Soc’y of Prof. Engineers v. United States, 435
`U.S. 679 (1978).......................................................................... 13
`
`National Collegiate Athletic Association v. Alston,
`141 S. Ct. 2141 (2021) ........................................... 2, 3, 13, 20
`
`New York ex rel. Schneiderman v. Actavis PLC, 787
`F.3d 638 (2nd Cir. 2015) ....................................................... 26
`
`O’Bannon v. Nat’l Collegiate Athletic Ass’n, 802 F.3d
`1049 (9th Cir. 2015) ........................................................ 11, 18
`
`Ohio v. American Express, 138 S. Ct. 2274 (2018) .................. 2
`
`United States v. Brown Univ., 5 F.3d 658 (3d Cir.
`1993) ............................................................................................. 16
`
`United States v. Microsoft Corp., 253 F.3d 34 (D.C.
`Cir. 2001) ..................................................................................... 26
`
`Viamedia, Inc. v. Comcast Corp., 951 F.3d 429 (7th
`Cir. 2020) .............................................................................. 23, 26
`
`Statutes & Rules
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`28 U.S.C. § 1254(1) ............................................................................. 1
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`viii
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`Cartwright Act ..................................................................................... 6
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`Sherman Act ....................... 1, 2, 4, 6, 11, 13, 14, 15, 16, 18, 22,
`
`Other Authorities
`
`Gabe Feldman, The Demise of the Rule of Reason,
`24 Lewis & Clark L. Rev. 951 (2020) ..................16, 19, 25
`
`Michael A. Carrier, The Four-Step Rule of Reason,
`33 Antitrust 50 (2019) .............................................18, 20, 23
`
`7 Phillip E. Areeda & Herbert Hovenkamp, Antitrust
`Law (2023) .......................................................................... 22, 23
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`1
`
`PETITION FOR A WRIT OF CERTIORARI
`
`Petitioner respectfully petitions this Court for a writ of
`certiorari to review the judgment of the U.S. Court of
`Appeals for the Ninth Circuit.
`
`OPINIONS BELOW
`
`The opinion of the court of appeals (Pet. App. A) is
`reported at 67 F.4th 946 (9th Cir. 2023). The district
`court’s opinion (Pet. App. B) is reported at 559 F. Supp. 3d
`898 (N.D. Cal. 2021).
`JURISDICTION
`
`The court of appeals issued its opinion on April 24,
`2023. Pet. App. A. The court denied a timely petition for
`rehearing en banc on June 30, 2023. Pet. App. C. This Court
`has jurisdiction under 28 U.S.C. § 1254(1).
`
`RELEVANT STATUTORY PROVISIONS
`
`Relevant statutory provisions are reproduced in
`Appendix D to this Petition.
`
`STATEMENT OF THE CASE
`
`Petitioner Epic sued respondent Apple Inc. (Apple)
`under the Sherman Act, challenging agreements and
`practices that Apple applies to the ubiquitous iPhone.
`Specifically, Apple forecloses any competition for either its
`App Store or its payment solution, using that exclusivity to
`collect billions of dollars in supracompetitive profits. The
`Ninth Circuit held that Epic’s claims failed under the Rule
`of Reason. The court recognized that these restraints cause
`massive harm to competition, affecting one billion iPhone
`users, by imposing huge supracompetitive costs and
`diminishing innovation and quality. By contrast, the court
`found that the only procompetitive rationale that Apple
`could not achieve without blocking competition was its
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`2
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`“nebulously defined and weakly substantiated” interest in
`recovering “some compensation”
`for
`its
`intellectual
`property.
`
`The court concluded that Epic had not identified a
`“less-restrictive alternative”
`to achieve
`that vague
`compensation rationale, however, because the proposed
`alternative (an ordinary IP licensing program) would have
`entailed an additional administrative cost. The court then
`held that Epic’s claims were properly dismissed, reasoning
`that it was not necessary to separately balance the
`restraints’ pro- and anti-competitive effects. It thus made
`no difference that the restraints’ harms to competition
`obviously vastly outweigh any benefits.
`1. Overwhelmingly, Sherman Act cases are resolved
`under the “Rule of Reason,” which seeks to determine
`whether a restraint harms competition overall. In Ohio v.
`American Express, in which the parties had agreed that the
`Rule of Reason should be implemented through a three-
`step burden-shifting regime, this Court explained that:
`
`Under this framework, the plaintiff has the initial
`burden to prove that the challenged restraint has
`a substantial anticompetitive effect that harms
`consumers in the relevant market. If the plaintiff
`carries its burden, then the burden shifts to the
`defendant to show a procompetitive rationale for
`the restraint. If the defendant makes this showing,
`then the burden shifts back to the plaintiff to
`demonstrate that the procompetitive efficiencies
`could be reasonably achieved through
`less
`anticompetitive means.
`
`138 S. Ct. 2274, 2284 (2018) (citations omitted).
`Subsequently, this Court in National Collegiate Athletic
`Association v. Alston cautioned that American Express had
`
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`3
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`not in fact specified a legal test to be applied in all Rule of
`Reason cases. See 141 S. Ct. 2141, 2160 (2021).
`In the wake of American Express and Alston, this Court
`has not yet decided two recurring questions:
`1) What
`constitutes
`a
`“less-restrictive
`alternative”? All agree that it is one that achieves
`the restraint’s procompetitive benefits while
`causing less harm to competition. But must the
`alternative also be just as efficient and inexpensive
`for the defendant? Or is the fact that the
`alternative would impose an additional cost or
`burden disqualifying, even if that alternative is
`dramatically better for competition?
`
`2) What does the court do if the plaintiff fails to
`prove the existence of a less-restrictive alternative
`(however defined)? Does that end the Rule of
`Reason inquiry, such that the plaintiff’s failure to
`carry that burden means the case is over, and the
`defendant prevails even if the plaintiff has proven
`that the restraint causes competitive harm that far
`outweighs any benefit?
`
`2. This Petition arises from Epic’s antitrust challenges
`to two policies (“the restraints”) that Apple applies to (and
`enforces through agreements regarding) the iPhone. First,
`“[d]evelopers can distribute their apps to iOS [iPhone]
`devices only through Apple’s App Store.” Pet. App. 7a.
`Second, “[d]evelopers are also required to use Apple’s in-
`app payment processor (IAP) for any purchases [of digital
`goods] that occur within their [applications].” Ibid.
`In-app purchases notably occur directly between the
`developer and iPhone user. Apple is involved only because
`it inserts itself: Apple requires that the transactions be
`conducted using its own payment processor. Those
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`4
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`purchases are often made by consumers years after the app
`is downloaded. But Apple nonetheless takes 15-30% of
`each sale (generally in perpetuity), collecting billions of
`dollars in annual profits.
`
`Petitioner Epic is a software company. Its flagship
`product is Fortnite. Until barred by Apple for daring to offer
`users an alternative (cheaper) means to make in-app
`purchases within Fortnite, Epic distributed Fortnite to
`iPhone users through the App Store—the only access point
`developers have to their customers: a billion iPhone users.
`
`Epic also offers digital goods—such as outfits—that
`users can purchase for use within Fortnite. Epic has
`invested vast sums in developing not just Fortnite but those
`digital add-ons, to which Apple contributes nothing. But
`Apple required Epic to use its IAP and pay the 30%
`commission on every in-app purchase that any iPhone user
`made directly from Epic, no matter how many years after
`downloading Fortnite from the App Store.
`
`As relevant here, Epic challenged the restraints under
`the Sherman Act, seeking only injunctive relief. The district
`court analyzed the case under a market for “mobile-game
`transactions—i.e., game transactions on iOS and Android
`smartphones and tablets.” Pet. App. 14a. Apple has market
`power there; indeed, its “52 to 57% market share and
`barriers to entry,” id. at 16a, put it “near the precipice” of
`monopoly power, id. at 355a. The volume of commerce
`affected is also breathtaking: Over 300,000 developers
`have created iPhone gaming apps that “generate an
`estimated $100 billion in annual revenue.” Id. at 7a.
`
`At trial, the district court analyzed Epic’s claims under
`the Rule of Reason using the three-step, burden-shifting
`regime described in American Express. At the first step, the
`district court found that Apple’s restraints cause enormous
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`5
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`harm to competition. See e.g., Pet. App. 263a (“Apple’s
`initial rate of 30%, although set by historic gamble, has
`apparently allowed it to reap supracompetitive operating
`margins.”); id. at 312a (“Apple employs these policies so
`that it can extract supracompetitive commissions from this
`highly lucrative gaming industry.”); id. at 283a (“Because
`this
`competition
`is
`currently precluded, Apple’s
`restrictions reduce innovation in ‘core’ game distribution
`services.”); see also id. at 269a, 278a-83a, 311a-12a, 367a
`n.606.
`At the second step, the district court found that the
`restraints
`further
`two pro-competitive
`interests.
`Principally, the court thought that they create a “walled
`garden” that differentiates the iPhone as providing greater
`privacy and security than non-Apple phones. Pet. App.
`368a. The restraints also incidentally allow Apple to
`recoup its investment in its intellectual property. But the
`court found that Apple had identified neither the relevant
`IP nor its value. Id. at 158a.
`
`At the third step, the district court concluded that Epic
`had not identified a less-restrictive alternative to Apple’s
`restraints. Pet. App. 372a-76a. The court ruled that this was
`the “last step” of the analysis, id. at 372a, rejecting Epic’s
`argument that the court should further balance the
`restraints’ effects. On the district court’s view, it made no
`difference if the restraints’ harm to competition was vastly
`greater than any benefit.
`
`The district court then turned to certain of Epic’s
`related claims under state law, which it concluded were
`subject to the identical legal standard. See Pet. App. 391a-
`92a (in deciding the state law claims, “courts employ the
`rule of reason . . . as in the federal context”). It therefore
`held that those state claims failed under the same three-
`step inquiry, with respect to which the court (as noted) had
`
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`6
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`expressly rejected any inquiry into the balance of harms
`and benefits. Incorporating its conclusions with respect to
`the Sherman Act, the court held with respect to these state
`law claims:
`
`Here, the Court has carefully considered the
`evidence in the record and has determined, based
`on the rule of reason, that the [restraints] have
`procompetitive
`effects
`that
`offset
`their
`anticompetitive effects [i.e., steps one and two],
`and that Epic Games has not shown that these
`procompetitive effects can be achieved with other
`means that are less restrictive [i.e., step three].
`These findings, which defeat Counts 3 and 5
`[Epic’s federal claims], also defeat Counts 7 and 8
`[Epic’s state law claims].
`
`Id. at 392a-93a. See also Apple C.A. Br. 29 (“Epic’s claims
`under the Cartwright Act mirrored its claims under Section
`1 of the Sherman Act, and the district court rejected those
`claims on the same basis.”). The court accordingly rejected
`Epic’s state law claims. Id. at 393a, 417a.
`3. Epic appealed, supported in substance by numerous
`amicus briefs,
`including
`from
`the United States
`Government, a coalition of thirty-five states, and leading
`antitrust scholars. The Ninth Circuit affirmed in relevant
`part, however, by a divided vote. The panel unanimously
`held that the district court had “erred as a matter of law on
`several issues,” Pet. App. 21a, but the majority deemed all
`those errors “harmless,” id. at 22a, 38a, 40a-41a, 43a, 66a,
`69a-70a.
`
`The majority accepted the district court’s market
`definition. Pet. App. 40a. Then, applying the Ninth Circuit’s
`burden-shifting regime under the Rule of Reason, the
`
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`7
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`majority affirmed the district court’s findings at steps one
`and two.
`The Ninth Circuit first agreed that Epic had proved
`that Apple’s practices directly cause enormous anti-
`competitive harms. Pet. App. 45a-49a. Apple thus extracts
`many
`billions
`of
`dollars
`in
`“supracompetitive
`commissions”;
`and
`by
`“foreclos[ing] would-be
`competitors” from offering other app stores and payment
`providers, it “reduc[es] innovation” and “quality.” Id. at
`45a-46a.
`
`The majority then accepted that Apple had identified
`pro-competitive
`interests
`in both differentiating
`its
`product and recovering “some compensation” for its
`intellectual property. Pet. App. 51a. But it deemed the latter
`interest to be very narrow because (as the district court
`had found) Apple had not proved that it was entitled to a
`particular amount of compensation, or even identified the
`relevant intellectual property. Apple was thus strikingly
`left only with a “general goal” that was “nebulously defined
`and weakly substantiated.” Id. at 51a.
`At step three, the majority narrowed the case
`significantly by rejecting the district court’s reliance on the
`principal pro-competitive interest asserted by Apple:
`differentiating its product as providing greater privacy and
`security. The court agreed that it would be a less-restrictive
`alternative to prohibiting all competing app stores for
`Apple to continue to review all applications for privacy and
`security issues both electronically and with human review
`(as it does today), but then allow the reviewed applications
`to be distributed through third-party alternatives. Pet. App.
`63a-64a
`(discussing
`“a notarization model
`that
`incorporates human app review”); see also id. at 65a n.18
`(strongly suggesting that Epic is correct that privacy and
`security are not a justification for excluding competing
`
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`8
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`payment providers either, but finding it unnecessary to
`reach that question). Apple already deploys a similar
`model on its Mac computers, where Apple offers to scan all
`apps for malware but then scanned apps can be distributed
`by developers through Apple’s store, directly by the
`developer, or through third-party stores. This alternative,
`when augmented by human review, the court concluded,
`“would clearly be ‘virtually as effective’ in achieving
`Apple’s security and privacy rationales (it contains all the
`elements of Apple’s current model).” Id. at 64a.
`With respect to Apple’s indeterminate interest in
`receiving “some compensation”
`for
`its
`intellectual
`property, the panel applied the Ninth Circuit’s rule that a
`“less-restrictive alternative” must not impose significant
`additional costs. Pet. App. 60a (citing Cnty. of Tuolumne v.
`Sonora Cmty. Hosp., 236 F.3d 1148, 1159 (9th Cir. 2001)).
`Epic’s view was that Apple could simply license its IP to
`recoup
`its
`investment, without requiring
`that all
`transactions be handled by Apple itself. But with respect to
`competing app stores, the Ninth Circuit deemed it unclear
`how Apple could license its intellectual property. Pet. App.
`62a. With respect to payment processing, the court
`recognized that Apple could create a licensing regime, but
`accepted the district court’s conclusion that the burden of
`auditing the licensing payments was disqualifying because
`they “would seemingly impose both increased monetary
`and time costs.” Id. at 66a.
`
`The Ninth Circuit then addressed the legal question
`whether, when a plaintiff fails to establish a less-restrictive
`alternative, the court should go on to weigh the restraint’s
`pro- and anti-competitive effects. As noted, the court itself
`had expressly found harms that included billions of dollars
`in supracompetitive commissions, whereas the pro-
`competitive benefits in receiving some IP compensation
`
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`9
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`were nebulous and weak. In Epic’s view, with such
`disparity between harms and benefits, the restraints were
`unlawful, even if no less-restrictive alternative could
`produce the exact same, small benefits at the same cost.
`
`The panel majority accepted that it was “bound by”
`circuit precedent to recognize some form of weighing
`inquiry, but believed it was entirely free to determine the
`form of that inquiry because prior precedent had been
`“inconsistent.” Pet. App. 66a-68a. Although the Ninth
`Circuit had repeatedly cited a three-step inquiry that did
`not include balancing (see infra at 18), that was not
`uniformly true. In determining the form of that inquiry
`given this inconsistency, the majority explained that it was
`“skeptical of the wisdom of” any balancing, because it
`believed that the purpose of the three-step burden shifting
`inquiry was already to determine if a restraint was anti-
`competitive on balance. Id. at 68a.
`The majority resolved that inconsistency and its own
`skepticism by holding that any balancing is effectively
`duplicative of the first three steps: “In most instances, this
`will require nothing more than . . . briefly confirming the
`result suggested by a step-three failure: that a business
`practice without a less-restrictive alternative is not, on
`balance, anticompetitive.” Pet. App. 68a-69a. That
`confirmation could take the form of “just one sentence.” Id.
`at 67a. Here, the majority deemed it sufficient that the
`district court—despite having expressly refused to engage
`in balancing—had recited each of the first three steps and
`concluded that Epic’s claims failed as a result. Id. at 69a
`(holding that the district court’s summary of reasons for
`rejecting Epic’s parallel state law claims under the three-
`step federal law standard “satisfied the [district] court’s
`obligation”).
`
`
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`
`10
`
`Judge Thomas dissented on several grounds. He
`agreed with the majority that the district court committed
`serious legal errors. Pet. App. 92a. But unlike the majority,
`he “would reverse the district court and remand to
`evaluate the claims under the correct legal standard.” Ibid.
`According to Judge Thomas, the majority’s application of
`the Rule of Reason, despite rejecting fundamental aspects
`of the district court’s decision, “amounts to appellate court
`fact-finding.” Id. at 94a. Further, because the district court
`expressly “did not undertake” a balancing inquiry, Judge
`Thomas concluded that “[r]emand for a formal balancing
`should be required.” Id. at 95a.
`
`The Ninth Circuit denied rehearing en banc. Pet. App.
`C. This Petition followed.
`
`REASONS FOR GRANTING THE WRIT
`
`This Court should grant certiorari to decide both
`Questions Presented. First, the ruling below conflicts with
`the holding of this Court and other circuits that a “less-
`restrictive alternative” is one that achieves the restraint’s
`pro-competitive effects while causing less harm; the fact
`that it imposes some cost is not disqualifying. Part I, infra.
`Second, the ruling below conflicts with the holding of this
`Court and other circuits that the ultimate inquiry under the
`Rule of Reason is whether the restraint is anti-competitive
`on balance. Specifically, if the plaintiff fails to establish a
`less-restrictive alternative, the court must go on to
`determine whether the restraint is invalid because its anti-
`competitive harms outweigh its pro-competitive benefits.
`Part II, infra. Particularly given the importance of the
`Questions Presented and this case in particular—in which
`the
`restraints
`impose
`billions
`of
`dollars
`in
`supracompetitive costs and apply to one billion consumers,
`whereas the benefits are nebulous and weak—this Court’s
`intervention is required. Part III, infra.
`
`
`
`
`
`
`
`
`
`
`
`11
`
`I. This Court Should Determine the Test for What
`Constitutes a Less-Restrictive Alternative.
`
`Certiorari should be granted to review the Ninth
`Circuit’s holding that a “less-restrictive alternative” may
`not impose an additional burden or cost on the defendant.
`That ruling conflicts with this Court’s holding that a less-
`restrictive alternative is simply one that achieves the
`restraint’s pro-competitive benefits. The Ninth Circuit has
`appended a significant additional limitation to that rule
`that is inconsistent with both the letter and logic of this
`Court’s precedents, and that threatens to grant antitrust
`immunity to an array of anti-competitive practices. The
`Ninth Circuit’s ruling also conflicts with decisions of other
`courts of appeals that faithfully apply this Court’s
`decisions, holding that a pro-competitive substitute is a
`less-restrictive alternative if it can achieve the “same
`benefit” with less harm to competition, without regard to
`whether it puts a further burden on the defendant. As a
`consequence, the Ninth Circuit is far less likely than other
`courts to deem a severely anti-competitive restraint to be
`prohibited by the Sherman Act.
`
`1. The Ninth Circuit holds that no less-restrictive
`alternative exists unless “a restraint is patently and
`inexplicably stricter than is necessary to accomplish all of
`its procompetitive objectives.” O’Bannon v. Nat’l Collegiate
`Athletic Ass’n, 802 F.3d 1049, 1075 (9th Cir. 2015). Just as
`important here, the Ninth Circuit holds that a substitute
`that achieves all of a restraint’s pro-competitive benefits is
`nonetheless
`irrelevant unless
`it does so “without
`significantly increased cost” to the defendant. Cnty. of
`Tuolumne, 236 F.3d at 1159 (emphasis in original).
`Moreover, as this case demonstrates, that cost
`is
`disqualifying even if it is merely an indeterminate
`administrative burden.
`
`
`
`
`
`
`
`
`
`
`
`
`
`12
`
`This case is the perfect example of the Ninth Circuit’s
`rule in operation, as well as the damage it does to sound
`antitrust enforcement. The district court found and the
`Ninth Circuit accepted that Apple’s practices cause an array
`of serious anti-competitive harms: they impose billions of
`dollars in supracompetitive costs; and they impair both
`quality and innovation in app stores and payment solutions
`affecting hundreds of thousands of developers and one
`billion iPhone users. On the other hand, the court
`concluded that Apple had proved that its “walled garden”
`achieves two pro-competitive interests: it differentiates
`the iPhone as providing greater privacy and security; and
`it allows Apple to recoup
`from developers some
`indeterminate investment in its intellectual property. The
`Ninth Circuit rejected the parties’ challenges to those
`findings.
`
`The Ninth Circuit panel then concluded that Apple
`could achieve its valid pro-competitive interests through
`means that would not harm competition. See supra at 8. But
`it dismissed Epic’s complaint on the ground that the
`alternative that would accomplish the least important
`justification would impose on Apple a cost: the burden
`(borne by virtually all IP licensors) of auditing licensing
`payments from developers. Applying the Ninth Circuit’s
`extremely demanding standard, the court found that this
`burden compelled holding that there was no
`less-
`restrictive alternative to precluding competition. See ibid.1
`
`
`1 Because the district court and panel majority decided the case
`on the premise that the law permits Apple to charge a licensing fee, we
`assume so arguendo. Further proceedings relating to the scope and
`implementation of any injunction would address the details of any
`licensing scheme. Any such fee must not become a vehicle for Apple to
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`13
`
`2. The Ninth Circuit’s rule cannot be reconciled with
`this Court’s precedents, which straightforwardly ask
`whether “substantially less restrictive means exist to
`achieve any proven procompetitive benefits.” Alston, 141 S.
`Ct. at 2126. This Court has explored and elaborated on the
`Rule of Reason in numerous rulings that draw in turn on
`common law traditions, Nat’l Soc’y of Prof. Engineers v.
`United States, 435 U.S. 679, 688 (1978)—none of which
`suggest that the cost to the defendant of a pro-competitive
`alternative is a relevant consideration.
`Notably, the Ninth Circuit did not base its rule on any
`decision of this Court. Instead, it grafted the cost
`requirement onto the legal standard announced by this
`Court’s precedents without explanation, citing the Areeda
`& Hovenkamp
`treatise and providing no
`further
`explanation. Cnty. of Tuolumne, 236 F.3d at 1159. But the
`court of appeals weaponized that requirement. The
`treatise is unambiguous that if the court rejects a proposed
`alternative (for example, because of its cost), it must then
`go on to balance the restraint’s harms and benefits. See
`infra at 22-23.
`The Ninth Circuit’s rule elevates the question of “cost”
`dramatically above the considerations that this Court’s
`precedents deem most relevant under the Sherman Act.
`Properly understood, a substitute is a less-restrictive
`alternative where it causes substantially less harm, while
`achieving the restraint’s pro-competitive benefits. Here,
`for example, Epic proposed that Apple could permit
`
`
`
`reimpose its supracompetitive charges by another name. Instead, any
`fee must be tied to the actual value contributed by Apple’s intellectual
`property and the administrative costs Apple actually incurs for
`services it actually renders.
`
`
`
`
`
`
`
`
`
`
`
`
`
`14
`
`competing app stores and payment solutions, which is the
`exact opposite of its current exclusionary
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