Antitrust or Innovation? Dealer's choice.

Feature Image: HackerNoon’s Stable Diffusion AI, Prompt” Dealer’s choice”

III. ANALYSIS

The Court finds it appropriate to evaluate, once again, Apple's actions with respect to (i) Epic Games specifically, including the delisting of Fortnite and other games authorized under Epic Games’ contract with Apple, and (ii) the attempt to suspend and terminate developer rights authorized under other contracts, such as the one controlling Unreal Engine.

A. Likelihood of Success on the Merits

Epic Games brings ten claims for violations of Sherman Act, the California Cartwright Act, and California Unfair Competition. For purposes of the motion for preliminary injunction, Epic Games focuses on two: the monopoly maintenance claim under section 2 of the Sherman Act, and the tying claim under section 1 of the Sherman Act. Accordingly, the Court cabins its analysis with respect to these only. Having reviewed the limited record, while Epic Games raises serious questions on the merits, the Court cannot conclude that Epic Games will likely succeed on the merits of those claims. Too many unknowns remain.

Preliminary Considerations

The current legal landscape cautions against preliminarily finding antitrust violations based on less than a full record. As the parties acknowledge, this matter presents questions at the frontier edges of antitrust law in the United States. Simply put, no analogous authority exists. The questions and issues raised in this litigation concern novel and innovative business practices in the technology market that have not otherwise been the subject of antitrust litigation.[10]

As the Ninth Circuit recently recognized in Federal Trade Commission v. Qualcomm Inc., "novel business practices—especially in technology markets—should not be ‘conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have cause or the business excuse for their use.’ "

This is "[b]ecause innovation involves new products and business practices, courts[’] and economists[’] initial understanding of these practices will skew initial likelihoods that innovation is anticompetitive and the proper subject of antitrust scrutiny."

(explaining how "antitrust economists, and in turn lawyers and judges, tend to treat novel products or business practices as anticompetitive" and "are likely to decide cases wrongly in rapidly changing dynamic markets," which can have long-lasting effects particularly in technological markets, where innovation "is essential to economic growth and social welfare" and "an erroneous decision will deny large consumer benefits").

The Court therefore has an even greater obligation to conduct an "elaborate inquiry" before determining that the alleged practices violate antitrust law.

Second, the record remains insufficient to conclude that Epic Games will likely succeed on the merits of its claims. As discussed below, the record includes conflicting evidence in support of both Epic Games and Apple; a lack of crucial evidence without which the merits cannot be determined; and fundamental disagreement by expert witnesses that is not resolvable at this stage of the case. With respect to the last, the Court highlights that the parties’ retained expert witnesses are all accomplished and distinguished individuals. Epic Games submits declarations from Dr. David S. Evans, an economist with degrees from the University of Chicago, whose scholarly work has been widely read and cited, including by the Supreme Court in Ohio v. American Express Co.

Apple submits declarations from Dr. Richard Schmalensee—an economist with degrees from the Massachusetts Institute of Technology ("MIT"), whose work is also widely read and cited, including in Amex and Microsoft —and Dr. Lorin Hitt—an academic with a business management background and degrees from MIT and Brown University, who has background in electrical engineering and technology. These expert reports reflect fundamental disagreements from luminaries in the field as to  the foundational questions of this matter. While ultimately one view will likely prevail, at this juncture, the Court concludes that reasonable minds differ.

With these considerations in mind, the Court turns to the merits of the claims.

[10] The exceptions involve the related In re Apple Antitrust , 4:11-cv-06714-YGR (N.D. Cal.) (Pepper ), and Donald Cameron v. Apple Inc. , 4:19-cv-03074-YGR (N.D. Cal.), matters that are currently before this Court. Both Pepper and Cameron are in the middle of discovery, with motions for class certification anticipated in early 2021. No substantive rulings as to the merits of the claims have otherwise been made in those cases. Similar issues arise in Epic Games, Inc. v. Google LLC , 3:20-cv-05671-JD (N.D. Cal.), filed at the same time but which does not have similar motions for preliminary injunctive relief.

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This court case 4:20-cv-05640-YGR published on Oct 9, 2020, is part of the public domain. The court-created documents are works of the federal government, and under copyright law, are automatically placed in the public domain and may be shared without legal restriction.