`
`Nos. 21-16506 & 21-16695
`
`United States Court of Appeals for the Ninth Circuit
`
`
`EPIC GAMES, INC.,
`Plaintiff, Counter-defendant – Appellant, Cross-Appellee,
`
`v.
`
`APPLE INC.,
`Defendant, Counterclaimant – Appellee, Cross-Appellant.
`_____________________________
`
`Appeal from the U.S. District Court
`for the Northern District of California
`The Honorable Yvonne Gonzalez Rogers (No. 4:20-cv-05640-YGR-TSH)
`_____________________________
`
`OPENING BRIEF FOR
`APPELLANT, CROSS-APPELLEE EPIC GAMES, INC.
`_____________________________
`
`Paul J. Riehle
`FAEGRE DRINKER BIDDLE & REATH
`LLP
`Four Embarcadero Center
`San Francisco, CA 94111-4180
`(415) 591-7500
`
`Thomas C. Goldstein
`GOLDSTEIN & RUSSELL, P.C.
`7475 Wisconsin Avenue, Suite 850
`Bethesda, MD 20814-6902
`(202) 362-0636
`
`Counsel for Appellant, Cross-Appellee Epic Games, Inc.
`
`Christine A. Varney
`Katherine B. Forrest
`Gary A. Bornstein
`Peter T. Barbur
`Antony L. Ryan
`Yonatan Even
`Omid H. Nasab
`CRAVATH, SWAINE & MOORE LLP
`825 Eighth Avenue
`New York, NY 10019-7475
`(212) 474-1000
`
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`CORPORATE DISCLOSURE STATEMENT
`Pursuant to Federal Rule of Appellate Procedure 26.1, Epic Games,
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`Inc. (“Epic”) states that it has no parent corporation and that Tencent
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`Holdings Limited owns more than 10% of Epic stock.
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`TABLE OF CONTENTS
`TABLE OF AUTHORITIES ..................................................................... vi
`JURISDICTIONAL STATEMENT ........................................................... 1
`STATEMENT OF THE ISSUES ............................................................... 1
`STATUTORY PROVISIONS ..................................................................... 2
`INTRODUCTION ...................................................................................... 2
`STATEMENT OF THE FACTS ................................................................ 6
`I.
`Apple, Epic, and the Dispute ........................................................... 6
`A. Apple and Its Ecosystem ......................................................... 6
`B. App Distribution ..................................................................... 8
`C.
`Payment Solutions .................................................................. 9
`D. Epic ........................................................................................ 11
`E.
`The Dispute ........................................................................... 12
`II. Proceedings in the District Court .................................................. 13
`A.
`Section 1 Claims .................................................................... 14
`1. Whether Apple’s DPLA Is a “Contract” ....................... 14
`2.
`Rule of Reason Analysis ............................................... 14
`Section 2 Claims .................................................................... 20
`1.
`The Foremarket ........................................................... 21
`2.
`The iOS App Distribution and iOS In-App
`Payment Solutions Markets ........................................ 22
`The District Court’s Own Market ................................ 24
`3.
`C. Remaining Claims ................................................................. 27
`iii
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`B.
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`1.
`Tying ............................................................................. 27
`Cartwright Act ............................................................. 27
`2.
`Anti-Steering ................................................................ 28
`3.
`Apple’s Counterclaims ................................................. 28
`4.
`Post-Trial Proceedings .......................................................... 28
`D.
`SUMMARY OF THE ARGUMENT ........................................................ 29
`STANDARD OF REVIEW....................................................................... 32
`ARGUMENT ........................................................................................... 33
`I.
`THE DISTRICT COURT ERRED IN REJECTING EPIC’S
`SECTION 1 CLAIMS. .................................................................... 33
`A.
`The District Court Erred in Concluding that a Contract
`of Adhesion Is Not a “Contract” Under Section 1. ................ 34
`The District Court Erred in Concluding that Apple’s
`Restrictions Survive Rule of Reason Scrutiny...................... 38
`1.
`The District Court’s Conclusion that Epic Did Not
`Show Less Restrictive Alternatives Cannot Be
`Reconciled with Its Factual Findings. ......................... 39
`The District Court Erred in Failing To Perform
`the Required Balancing. .............................................. 47
`II. THE DISTRICT COURT ERRED IN REJECTING EPIC’S
`SECTION 2 CLAIMS. .................................................................... 55
`A.
`The District Court Erred in Rejecting Epic’s
`Smartphone Operating System Foremarket. ....................... 58
`The District Court Erred in Rejecting Epic’s
`Aftermarkets. ........................................................................ 60
`1.
`Information Barriers .................................................... 61
`
`2.
`
`B.
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`B.
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`2.
`Switching Costs ............................................................ 64
`III. THE DISTRICT COURT ERRED IN REJECTING EPIC’S
`TYING CLAIM. .............................................................................. 67
`IV. THE DISTRICT COURT SHOULD HAVE DETERMINED
`THAT APPLE’S CONTRACTUAL RESTRICTIONS ARE
`UNLAWFUL, VOID AS AGAINST PUBLIC POLICY, AND
`UNCONSCIONABLE. ................................................................... 74
`CONCLUSION ........................................................................................ 74
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`TABLE OF AUTHORITIES
`
`Page(s)
`
`
`Cases
`Aerotec Int’l, Inc. v. Honeywell Int’l, Inc.,
`836 F.3d 1171 (9th Cir. 2016) .............................................................. 37
`Am. Ad Mgmt., Inc. v. GTE Corp.,
`92 F.3d 781 (9th Cir. 1996) .................................................................. 50
`Am. President Lines, Ltd. v. Marine Terminals Corp.,
`234 F.2d 753 (9th Cir. 1956) ................................................................ 32
`Aspen Skiing Co. v. Aspen Highlands Skiing Corp.,
`472 U.S. 585 (1985) .............................................................................. 57
`Avaya Inc., RP v. Telecom Labs, Inc.,
`838 F.3d 354 (3d Cir. 2016) ........................................................... 63, 64
`Barry v. Blue Cross of Cal.,
`805 F.2d 866 (9th Cir. 1986) ................................................................ 36
`Bhan v. NME Hosps., Inc.,
`929 F.2d 1404 (9th Cir. 1991) .............................................................. 48
`Brantley v. NBC Universal, Inc.,
`675 F.3d 1192 (9th Cir. 2012) .............................................................. 73
`Cascade Health Sols. v. PeaceHealth,
`515 F.3d 883 (9th Cir. 2008) .......................................................... 57, 67
`Cnty. of Tuolumne v. Sonora Cmty. Hosp.,
`236 F.3d 1148 (9th Cir. 2001) ......................................................... 50-51
`Collins Inkjet Corp. v. Eastman Kodak Co.,
`781 F.3d 264 (6th Cir. 2015) ................................................................ 62
`Datagate, Inc. v. Hewlett-Packard Co.,
`60 F.3d 1421 (9th Cir. 1995) ................................................................ 37
`
`
`
`vi
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`
`
`Digidyne Corp. v. Data Gen. Corp.,
`734 F.2d 1336 (9th Cir. 1984) .................................................. 44, 59, 67
`Eastman Kodak Co. v. Image Tech. Servs., Inc.,
`504 U.S. 451 (1992) ...................................................................... passim
`Ford v. Alfaro,
`785 F.2d 835 (9th Cir. 1986) ................................................................ 32
`Freeman v. San Diego Ass’n of Realtors,
`322 F.3d 1133 (9th Cir. 2003) .............................................................. 52
`FTC v. Ind. Fed’n of Dentists,
`476 U.S. 447 (1986) .............................................................................. 53
`FTC v. Qualcomm Inc.,
`969 F.3d 974 (9th Cir. 2020) ........................................................ passim
`Hahn v. Or. Physicians’ Serv.,
`868 F.2d 1022 (9th Cir. 1998) .............................................................. 33
`Image Tech. Servs., Inc. v. Eastman Kodak Co.,
`125 F.3d 1195 (9th Cir. 1997) .................................................. 43, 62, 66
`Image Tech. Servs., Inc. v. Eastman Kodak Co.,
`903 F.2d 612 (9th Cir. 1990) .................................................... 37, 44, 59
`Impax Labs., Inc. v. FTC,
`994 F.3d 484 (5th Cir. 2021) ..................................................... 42, 48-49
`In re Data Gen. Corp. Antitrust Litig.,
`490 F. Supp. 1089 (N.D. Cal. 1980), aff’d sub nom.
`Digidyne Corp. v. Data Gen. Corp., 734 F.2d 1336
`(9th Cir. 1984) ...................................................................................... 73
`In re NCAA Grant-in-Aid Cap Antitrust Litig.,
`375 F. Supp. 3d 1058 (N.D. Cal. 2019), aff’d, 958 F.3d 1239
`(9th Cir. 2020), aff’d sub nom. NCAA v. Alston,
`141 S. Ct. 2141 (2021) ............................................................... 42-43, 49
`Jeanery, Inc. v. James Jeans, Inc.,
`849 F.2d 1148 (9th Cir. 1988) .............................................................. 36
`vii
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`Jefferson Parish Hosp. Dist. No. 2 v. Hyde,
`466 U.S. 2 (1984), abrogated on other grounds by Ill. Tool
`Works Inc. v. Indep. Ink, Inc., 547 U.S. 27 (2006) ....................... passim
`Kaiser Steel Corp. v. Mullins,
`455 U.S. 72 (1982) ................................................................................ 74
`L.A. Mem’l Coliseum Comm’n v. NFL,
`726 F.2d 1381 (9th Cir. 1984) .............................................................. 48
`Law v. NCAA,
`134 F.3d 1010 (10th Cir. 1998) ............................................................ 44
`Leegin Creative Leather Prods., Inc. v. PSKS, Inc.,
`551 U.S. 877 (2007) .................................................................. 48, 53, 54
`Lhotka v. Geographic Expeditions, Inc.,
`181 Cal. App. 4th 816 (2010) ............................................................... 74
`Monsanto Co. v. Spray-Rite Serv. Corp.,
`465 U.S. 752 (1984) .............................................................................. 36
`Mylan Pharms. Inc. v. Warner Chilcott Pub. Ltd.,
`838 F.3d 421 (3d Cir. 2016) ................................................................. 49
`Nat’l Soc’y of Pro. Eng’rs v. United States,
`435 U.S. 679 (1978) .................................................................. 39, 52, 53
`NCAA v. Alston,
`141 S. Ct. 2141 (2021) .............................................................. 46, 47, 48
`New York ex rel. Schneiderman v. Actavis PLC,
`787 F.3d 638 (2d Cir. 2015) ................................................................. 49
`Newcal Indus., Inc. v. IKON Off. Sol.,
`513 F.3d 1038 (9th Cir. 2008) ...................................................... passim
`O’Bannon v. NCAA,
`802 F.3d 1049 (9th Cir. 2015) ........................................................ 39, 40
`Ohio v. Am. Express Co.,
`138 S. Ct. 2274 (2018) ........................................................ 14, 25, 39, 71
`
`
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`Olin Corp. v. FTC,
`986 F.2d 1295 (9th Cir. 1993) .............................................................. 60
`OneBeacon Ins. Co. v. Hass Indus., Inc.,
`634 F.3d 1092 (9th Cir. 2011) .............................................................. 32
`Paladin Assocs., Inc. v. Mont. Power Co.,
`328 F.3d 1145 (9th Cir. 2003) .............................................................. 35
`Perdue v. Crocker Nat'l Bank,
`38 Cal. 3d 913 (1985) ........................................................................... 34
`Perma Life Mufflers, Inc. v. Int’l Parts Corp.,
`392 U.S. 134 (1968), overruled on other grounds by
`Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752
`(1984) ................................................................................................... 35
`PSI Repair Servs., Inc. v. Honeywell, Inc.,
`104 F.3d 811 (6th Cir. 1997) ........................................................... 70-71
`Re/Max Int’l, Inc. v. Realty One, Inc.,
`173 F.3d 995 (6th Cir. 1999) ................................................................ 58
`Rebel Oil Co. v. Atl. Richfield Co.,
`51 F.3d 1421 (9th Cir. 1995) ................................................................ 57
`Siegel v. Chicken Delight, Inc.,
`448 F.2d 43 (9th Cir. 1971) ............................................................ 42, 44
`Simpson v. Union Oil Co. of Cal.,
`377 U.S. 13 (1964) ................................................................................ 35
`Teradata Corp. v. SAP SE,
`No. 18-cv-03670-WHO, 2018 WL 6528009 (N.D. Cal.
`Dec. 12, 2018) ....................................................................................... 64
`Toscano v. PGA Tour, Inc.,
`201 F. Supp. 2d 1106 (E.D. Cal. 2002) ................................................ 37
`Toscano v. PGA,
`258 F.3d 978 (9th Cir. 2001) .......................................................... 36, 37
`
`
`
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`United States v. Cont'l Can Co.,
`378 U.S. 441 (1964) ......................................................................... 59-60
`United States v. Gen. Motors Corp.,
`384 U.S. 127 (1966) .............................................................................. 32
`United States v. Microsoft Corp.,
`253 F.3d 34 (D.C. Cir. 2001) (en banc) ........................................ passim
`Viamedia, Inc. v. Comcast Corp.,
`951 F.3d 429 (7th Cir. 2020) ................................................................ 49
`Virtual Maint., Inc. v. Prime Comput., Inc.,
`11 F.3d 660 (6th Cir. 1993) .................................................................. 66
`Ward v. Apple Inc.,
`No. 12-cv-05404-YGR, 2017 WL 1075049 (N.D. Cal.
`Mar. 22, 2017) ...................................................................................... 64
`Statutes & Rules
`15 U.S.C. § 1 .................................................................................... passim
`15 U.S.C. § 2 .................................................................................... passim
`Other Authorities
`Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An
`Analysis of Antitrust Principles and Their Application,
`(5th ed. 2020) ............................................................................... passim
`
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`
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`JURISDICTIONAL STATEMENT
`The district court had jurisdiction under 15 U.S.C. § 26 and
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`28 U.S.C. §§ 1331 and 1337, supplemental jurisdiction over Epic’s state
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`law claims under 28 U.S.C. § 1367, and diversity jurisdiction over those
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`claims under 28 U.S.C. § 1332. The district court entered a final judg-
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`ment that disposed of all parties’ claims on September 10, 2021. 1-ER-2.
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`Epic timely noticed this appeal on September 12, 2021. 4-ER-754; Fed.
`
`R. App. P. 4(a)(1). This Court has jurisdiction under 28 U.S.C. § 1291.
`
`STATEMENT OF THE ISSUES
`1. Whether the district court erred in holding that a contract of
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`adhesion is not a “contract” under Section 1 of the Sherman Act.
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`2. Whether the court erred in holding Apple Inc.’s (“Apple”)
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`prohibitions on competing software application (“app”) distribution
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`channels and competing in-app payment solutions for the iPhone
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`operating system (“iOS”) survive rule of reason scrutiny.
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`3. Whether the court erred in finding Apple is not a monopolist in
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`markets for iOS app distribution and payment solutions for the sale of
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`digital content within iOS apps.
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`4. Whether the court erred in rejecting Epic’s tying claim on the
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`ground that app distribution and in-app payment solutions are not
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`separate products.
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`STATUTORY PROVISIONS
`The Addendum reproduces the pertinent statutory provisions.
`
`INTRODUCTION
`With over a billion users, the iPhone may be the most profitable
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`technology ever, making Apple the largest company in history. The
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`iPhone’s success depends on millions of “apps” created by third-party
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`software developers who labor to make good on Apple’s tagline: “There’s
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`an app for that.” Apps bring the iPhone to life. They enable users to do
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`far more than make phone calls and check email—accessing social media,
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`purchasing goods, playing games, watching movies, listening to music,
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`ordering food, banking, reading the news, tracking exercise, hailing cars,
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`and more.
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`But apps enable these activities under a dark cloud: contractual
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`and technological restrictions that Apple imposes to maintain its
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`monopoly position and restrain competition. Apple has made itself the
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`exclusive distributor for all apps by prohibiting distribution of apps
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`outside Apple’s proprietary “App Store,” deploying software that blocks
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`any other apps, and threatening to evict developers that fail to comply.
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`Additionally, Apple requires developers to use Apple’s payment solution
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`to sell digital content through their apps, and charges a 30% commission
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`on each sale. These restrictions are unnecessary to further any
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`legitimate procompetitive purpose—Apple does not even impose them on
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`its Mac computers. Rather, Apple documents show it made a “policy
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`decision” to increase its own profits by restricting app distribution and
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`payment solutions for iPhones.
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`Absent these restrictions, iPhone users and app developers could
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`use alternative app stores, and users could get apps directly from
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`developers. Developers could procure payment mechanisms with
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`additional features and lower costs for their apps. Epic wants to—but
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`cannot—compete with Apple to fulfill that demand by providing an
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`iPhone app store and in-app payment solution. Epic would charge
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`developers much less than Apple’s 30% commission, increasing
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`innovation and reducing costs.
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`Apple prevents Epic and other potential competitors from offering
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`those choices. That is why Epic brought this antitrust suit. The district
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`court’s factual findings make clear that Apple’s conduct is precisely what
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`the antitrust laws prohibit. The court found that Apple’s contracts and
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`policies have allowed it to collect many billions of dollars in
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`“supracompetitive” profits from developers and consumers. Apple has
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`“increased prices,” “reduce[d] innovation,” “reduce[d] quality,” and
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`“foreclos[ed] competition.” The challenged restrictions “unreasonably
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`restrain competition and harm consumers,” and “Apple employs these
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`policies so that it can extract supracompetitive commissions.” But the
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`court nonetheless found no Sherman Act violation.
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`The court first erred in holding Section 1 inapplicable on the ground
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`that there is no “contract” in restraint of trade. It reasoned that the
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`“contracts of adhesion” between Apple and app developers that exclude
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`competing app stores and payment solutions are not contracts under
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`Section 1. But a “contract” in restraint of trade is still a “contract,”
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`whether the terms are negotiated or imposed by one party with
`
`overwhelming market power. When such a contract is unilaterally
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`imposed, it still unreasonably precludes competition—here, causing
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`billions of dollars in harm.
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`The district court further erred in holding that Apple’s conduct
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`survives rule of reason scrutiny. The court expressly found that Apple’s
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`scheme causes great harm to competition, innovation, and consumers,
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`yielding years of “extraordinarily high” supracompetitive profits. The
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`court’s own findings demonstrate that Apple’s justifications are largely
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`pretextual, and that there are less restrictive alternatives to achieve any
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`purported benefits. Not only did the court find that Apple successfully
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`employs far less restrictive alternatives on Mac computers, it also found
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`that Apple uses far less restrictive alternatives for certain in-app
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`purchases on the iPhone itself, permitting developers that sell physical
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`goods or services to use any payment solution they want. Inexplicably,
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`the district court ignored its factual findings and failed to conduct the
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`required balancing of competitive harms with any valid competitive
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`benefits. That balancing demonstrates that Apple’s restrictions violate
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`the Sherman Act.
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`The court also erred in rejecting Epic’s Section 2 monopoly
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`maintenance claims. Apple excludes competitors from iOS app
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`distribution and in-app payment solutions for digital content, giving it a
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`100% market share. In rejecting Epic’s Section 2 claims on these
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`undisputed facts, the court misapplied settled precedent establishing
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`that in these circumstances, an antitrust market may be defined by
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`reference to a single brand. See Eastman Kodak Co. v. Image Tech.
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`Servs., Inc., 504 U.S. 451 (1992); Newcal Indus., Inc. v. IKON Off. Sol.,
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`513 F.3d 1038 (9th Cir. 2008).
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`Finally, the court erred in rejecting Epic’s tying claim. Apple ties
`
`its app store to its in-app payment solution for digital content; third-party
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`developers who use the former must use the latter. The court’s conclusion
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`that they are a single product was error under the governing legal test
`
`because there is separate demand for each.
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`The judgment accordingly should be reversed.
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`I.
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`STATEMENT OF THE FACTS
`Apple, Epic, and the Dispute
`A. Apple and Its Ecosystem
`Apple is the largest corporation in history by market capitalization.
`
`Its empire spans Mac computers, iPhones, iPads, watches, headphones,
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`media streaming, messaging, browsing, and gaming software. 2-ER-
`
`356–57; 3-ER-556–57.
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`Launched in 2007, the iPhone is among the most successful
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`products ever, with over a billion users. 1-ER-30; 3-ER-558; 2-ER-444.
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`Like all computing devices, it requires an “operating system”—“a
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`foundational layer of software.” 1-ER-30; 2-ER-346; 2-ER-263. The
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`iPhone’s operating system—the core of its smartphone ecosystem—is
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`called “iOS”; it lets users install apps that provide enormous additional
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`functionality. 1-ER-30. There is only one other smartphone ecosystem:
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`Google’s Android. 1-ER-141; 2-ER-268; 2-ER-411. While Google licenses
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`the Android operating system to smartphone manufacturers, 2-ER-416,
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`Apple keeps iOS proprietary, 1-ER-48.
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`The district court recognized that when consumers purchase a
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`phone, they are “choos[ing] between the type of ecosystems.” 1-ER-48.
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`“[V]ery few consumers own both Android and iOS devices”; they typically
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`“single home”—i.e., choose one smartphone operating system. 1-ER-55.
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`Consumers incur costs to switch between ecosystems—for example, the
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`cost of buying a new smartphone and peripheral hardware, the challenge
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`of learning a different operating system, the time to transfer data, and
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`the costs of obtaining new apps since iOS apps do not work on Android,
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`and vice versa. 2-ER-391–93; 1-ER-53; 2-ER-354. Once a user picks an
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`ecosystem, “very low switching rates exist, with only about 2% of iPhone
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`users switching to Android each year.” 1-ER-55.
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`A cornerstone of Apple’s strategy is to make switching to Android
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`difficult. In 2010, Apple’s CEO, Steve Jobs, candidly wrote that he
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`wanted to “tie all of our products together, so [Apple] further lock[s]
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`customers into [its] ecosystem” and “make[s] [the] Apple ecosystem even
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`more sticky.” 3-ER-571–72. One example is Apple’s popular messaging
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`service app iMessage, which Apple refuses to make available for Android
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`so it is harder for iPhone users to switch. 2-ER-437; 3-ER-749–50;
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`3-ER-746–48.
`
`B. App Distribution
`Unlike consumers, who are locked into one ecosystem, developers
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`must “compete for single-homing users” and “cannot afford to forego
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`particular platforms without losing those other customers.” 1-ER-55.
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`Developers typically “multi-home” across both iOS and Android, 1-ER-55,
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`and have strong incentives to stay on both despite unfavorable
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`restrictions. See 2-ER-301; 2-ER-333; 2-ER-294.
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`To distribute an app to iOS users, developers must join Apple’s De-
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`veloper Program by executing a contract (the Developer Program License
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`Agreement, or “DPLA”) and paying Apple a $99 annual fee. 1-ER-31–32.
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`Apple requires all developers to “agree to abide by the App [Store Review]
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`Guidelines,” which together with the DPLA govern the distribution of
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`iOS apps. 1-ER-34 n.192. The DPLA requires developers to distribute
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`8
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`iOS apps exclusively through Apple’s App Store. 1-ER-96. Apple cements
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`this exclusivity with technology: iOS will not run apps that lack a digital
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`certificate Apple issues only to apps distributed through the App Store.
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`1-ER-95–96; 1-ER-111.
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`Apple’s complete control over iOS app distribution sharply con-
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`trasts with its approach for Mac computers, where developers can dis-
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`tribute software through Apple’s Mac App Store, competing app stores,
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`and directly through the developers’ own websites. 1-ER-99; 1-ER-115;
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`2-ER-448. Apple openly advises Mac users that apps from “the internet
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`can be installed worry-free.” 3-ER-563; see also 1-ER-116. When Apple
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`first launched the iPhone, it considered using that open Mac model, but
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`made a “policy decision”—driven by commercial goals, not security con-
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`cerns—to impose exclusive distribution. 1-ER-115.
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`C. Payment Solutions
`Developers often make digital products and features available for
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`purchase within their apps, such as extra swipes in a dating app or char-
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`acter outfits in a game app. 1-ER-35–36. Those “in-app” purchases typ-
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`ically occur “long after” consumers install the app on their phones, and
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`“the App Store does not participate in a meaningful way” in these trans-
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`actions. 1-ER-37. Developers need a “payment solution” that lets them
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`accept payment credentials (such as credit cards) from customers and
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`collect payment. 2-ER-275; 1-ER-6. In-app payment solutions facilitate
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`frictionless transactions, which is critical because users are less likely to
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`complete purchases if they instead occur outside the app. 1-ER-118;
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`2-ER-325–26; 2-ER-467–68.
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`With a few exceptions, Apple contractually requires exclusive use
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`of its in-app payment solution (“IAP”) for all in-app purchases of this
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`digital content, and charges a 30% commission on each purchase.
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`1-ER-34–36; 3-ER-619; 3-ER-692; 3-ER-580–81. Apple did not consider
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`intellectual property (“IP”) in setting that rate, 1-ER-117, nor does it list
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`specific IP covered by the commission in the DPLA, 1-ER-150. Apple does
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`not require use of IAP or charge any commission on in-app purchases of
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`physical goods and services for use outside the app; for those, developers
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`(such as Amazon and Uber) can use any non-IAP payment solution.
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`1-ER-36.
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`Apple “aggressively” enforces its IAP requirement. 2-ER-366. It
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`refuses developer requests to use other payment solutions to sell digital
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`content, and has retaliated against thousands of developers who used
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`different payment solutions by terminating their accounts. 2-ER-371.
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`Apple also imposes anti-steering provisions, which prevent developers
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`from informing consumers of non-IAP methods to purchase digital
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`content. 1-ER-166.
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`D. Epic
`Epic develops software, including game and non-game apps.
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`1-ER-7. It also provides other developers with software tools and ser-
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`vices. 1-ER-7. Epic’s most popular app is Fortnite, which has game and
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`non-game elements and connects millions of people across platforms.
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`1-ER-9–13. Fortnite debuted on iOS in 2018 and offers in-app purchases
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`including character outfits and emotes (actions that characters can per-
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`form). 1-ER-14; 1-ER-16. By August 2020, “more than 115 million reg-
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`istered players had accessed Fortnite on an iOS device.” 1-ER-17.
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`Epic also operates the Epic Games Store, which distributes Epic
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`and third-party apps on personal computers (“PCs”) and Macs. 1-ER-17–
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`20. Epic charges a 12% commission on the initial distribution of paid
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`apps and on in-app sales when the developer uses Epic’s payment solu-
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`tion. 1-ER-19. Epic does not require developers to use Epic’s payment
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`solution for in-app sales, and developers who do not pay Epic nothing.
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`1-ER-19. Absent Apple’s restrictions, Epic would make its store available
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`for iOS apps on the same terms. 1-ER-20. Epic has urged Apple to end
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`its iOS app distribution and payment solution restrictions since the mid-
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`2010s; Apple has refused. See 1-ER-22; 1-ER-27–28.
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`E. The Dispute
`Given Apple’s intransigence, Epic took a stand against Apple and
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`demonstrated that competition can exist on iOS—and that consumers
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`would welcome and benefit from it. 1-ER-28; 2-ER-309. On August 13,
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`2020, Epic launched its in-app payment solution in Fortnite, in
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`contravention of the DPLA’s mandatory exclusivity terms. 1-ER-28–29.
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`In response, Apple removed Fortnite from the App Store, terminated the
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`Fortnite Developer Program account, and threatened to terminate the
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`Developer Program accounts of all Epic affiliates. 1-ER-29.
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`Epic sued Apple for violations of Sections 1 and 2 of the Sherman
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`Act, as well as California’s Cartwright Act and Unfair Competition Law
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`(“UCL”). 1-ER-4; 1-ER-28. Epic sought a temporary restraining order
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`and preliminary injunction to prevent Apple from retaliating against
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`Epic, both of which the district court granted in part. 1-ER-29; 3-ER-
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`546–47. Epic seeks only to end Apple’s illegal anticompetitive business
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`practices; Epic does not seek any monetary damages.
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`On September 8, 2020, Apple filed counterclaims for breach of con-
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`tract and declaratory judgment, among others. 1-ER-171. Epic stipu-
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`lated to its noncompliance with the DPLA, but asserted that the relevant
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`provisions are unlawful, void against public policy, and unconscionable.
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`1-ER-171.
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`II. Proceedings in the District Court
`The district court held a three-week bench trial. On September 10,
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`2021, the district court issued an opinion finding every fact necessary to
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`establish that Apple is a monopolist. It also found that Apple’s prohibi-
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`tion against competing app distribution channels has substantial anti-
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`competitive effects, Apple’s proffered justifications were largely unper-
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`suasive, and less restrictive alternatives are available. The court made
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`similar findings regarding Apple’s payment restrictions. But the district
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`court ignored these findings in setting forth its legal conclusions, and
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`misapplied controlling precedent.
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`A. Section 1 Claims
`1. Whether Apple’s DPLA Is a “Contract”
`Section 1 applies to every “contract . . . in restraint of trade.”
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`15 U.S.C. § 1. The district court concluded that the DPLA is not a “con-
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