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Case number 25, 7017, Fandom Alert Inc.

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Appellant versus Apple Inc.

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Mr. Sommers for the appellant.

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Mr. Kleinbrook for the appellee.

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Morning, Mr. Sommers.

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You may proceed when you're ready.

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Morning.

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May it please the court.

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This market definition appeal arises because the district court got the antitrust law resoundingly wrong.

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For example, it fails to equate pricing quality and it focuses on Apple's status as a global company.

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This court should reverse on the merits, but a narrower path also exists.

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That would mirror this court's decision in MOYAR,

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in which the court found that there were concerns for the district court's futility analysis and remanded for dismissal without prejudice.

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That would avoid affirming an incorrect decision or writing an antitrust treatise on this record.

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And it would avoid jumping ahead of the district court and merits questions about content moderation on the App Store that the district court did not decide below.

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My impression was that the dismissal was without prejudice.

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Is that wrong?

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So the dismissal of the initial complaint was without prejudice, but the court found that that amendment would be futile.

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So if we were to affirm that would be the end of the case.

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That's correct.

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Is there no dismissal without prejudice that could also be the end of a case?

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I mean, the question about whether it's preclusive and whether if it were not time barred, a new case could be filed.

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I suppose that's possible.

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I think it's also possible that a dismissal without prejudice can lead to the end of a case if a plaintiff decides that the district court's analysis was right.

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And in fact, there is no way for them to cure.

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I think this is not that case.

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This is a case where dismissal with prejudice and a reversal or remand of the finding of futility would allow plaintiffs to either proceed on the amended complaint or

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file an additional complaint that addresses some of the concerns that the district court raised.

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Why should we take that route?

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It seems that Phantom Alert actually was responsible for some of the procedural confusion in the district court.

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Your brief says something about how it's standard to respond to a motion to dismiss with an amended complaint.

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I'm not aware of that actually being standard.

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So the fact that

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that Phantom Alert filed late, it did a non-standard response to a motion to dismiss.

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You've had a lot of bites at the apple already.

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Why should we do a remand on the ground that maybe the complaint was inadequate and therefore should have been dismissed under 12b6, but

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another opportunity should be made available.

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Why is that appropriate in this case?

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A, is that what you're asking for?

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And B, why is that appropriate here?

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I think either of two paths are appropriate.

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One would be a reversal on the merits, finding that the amended complaint did adequately state a claim.

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And I can walk through the various reasons why that's true.

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And I think we do that in our briefs extensively.

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Alternatively, the sort of MOYAR remand that I'm discussing would contemplate a potential dismissal without prejudice that allows us to refile.

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And I think the reason that it's appropriate is because

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I think it hinges on what we're challenging.

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What we're challenging is not that we had perfect procedure below.

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That's not our argument.

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What we're arguing is that the district court's futility finding below was in error.

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And so plaintiffs were entitled to, under 1582, where leave to amend is freely given, there is a valid claim to be stated.

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In fact, that was stated here.

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that we can substantiate and have substantiated already.

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I think the court's finding a futility, just like in Moliar, I think the court called it premature or inappropriate in that case.

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And I think that's what we have here, where there are specific errors of antitrust law that if affirmed by this circuit would have ramifications in this circuit and beyond.

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And I think correcting those, pointing out that there are flaws in the district court's futility analysis and allowing the case to proceed would correct those and allow plaintiffs to proceed on their case.

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I want to talk about the domestic market for COVID tracing apps because I think that highlights one of the district court's errors, which is that

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I think the correct way to read it is that Kodak's lock-in factors can be satisfied by policy changes that impact things like quality or innovation or choice.

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It doesn't just have to be price.

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But that's what the district court held.

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In three different places, it says...

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think that the proposition that the App Store is a relevant market is a predicate for all of your claims?

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Absolutely not, Your Honor.

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Why not?

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Because in Count 3, which is a monopolization claim for the COVID tracing app market, there's no need to plead the App Store.

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That would also, you know, Count 3 avoids the Amex concerns.

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The way your Count 3 is pledged is that because the App Store is the only way for iPhone users to access apps,

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they are essentially hostages as to the sub market also of COVID-19 tracing apps.

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And so if it were the case that iPhone users can get apps elsewhere or just access them on their browser, your count three claim doesn't really hold together, right?

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So that would depend on a number of factual questions, Your Honor.

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It absolutely would.

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And as the plaintiff, it's your burden to plead under the interchangeability standards and cross elasticity, at least some factual allegations that support your market definition.

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And we've put forward that.

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I think paragraph 87 and surrounding paragraphs as well as the complaint as a whole does talk about why COVID tracing apps are different than health apps and why they do require things like user-provided data that don't really make sense in the website context.

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I would point out that in every case that Apple cites in which there was some obvious alternative that the district court figured out that the plaintiffs hadn't figured out, that those cases

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had multiple opportunities.

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And in fact, usually after that decision, we're given an opportunity to amend.

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That's things like Hicks and CyStar and Riley.

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I think Hicks is instructive because there, the Ninth Circuit said, look, in-person golf advertising is not its own market.

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Like every other kind of advertising would be a totally valid and substitutable alternative.

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But we're remanding with instruction to dismiss without prejudice because what's obvious to us

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it isn't really how factual determination should be made at the pleading stage.

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Plaintiffs ought to be given an opportunity because we think things like websites are actually obviously not substitutes.

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And while I think we've pled enough facts to suggest that, certainly if that's the district court's primary concern and if that's this court's primary concern, there are myriad allegations, like even more allegations that would make that even clearer.

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The coronavirus reporter case said, among other things, that the plaintiff needs to make an effort to define the markets, needs to distinguish the markets from one another, and can't leave the court guessing of the boundaries of each.

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In looking at the complaint and amended complaint and briefing, we're just going to list 10

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articulations of markets, and then if you catch any of them, well, I'll go ask the question.

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The US smartphone slash tablet market, markets for the iPhone and its own tablets, the app store, smartphone, COVID-19 related tracing apps in the app store for use in the United States, access to apps via the app store,

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Coronavirus apps, access to COVID-19 tracing apps, COVID tracing apps on iPhone.

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It seems like there's some gap between each of those.

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In other words, that none of those have the exact same boundaries.

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So number one, if that's wrong, tell me why you think that's wrong.

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If it's right, tell me why we shouldn't conclude that you have failed to distinguish markets from one another and left the core guessing at the boundaries of each.

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Thank you for the detailed question.

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The first thing I would say is I don't agree that those are each distinguishable.

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If you want to talk about, I could go through each of them and say why they fit into the three buckets.

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But I would just point out that the district court also agreed, the same way that we're arguing about on appeal, that there are those three distinct markets.

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And those, just for clarity, are the smartphone market, the app store market, and the COVID tracing apps market.

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So if my colleagues will indulge me and you, I do want to give you the opportunity to say what you said that you would be able to do, which is say how, I forget exactly how you phrased it, but on that point right there, even just like the first bucket you listed, the smartphone market, you talk here about the US smartphone slash tablet market.

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Also, the markets for the iPhone and its own tablets.

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Those seem like quite different boundaries than the smartphone market.

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I'll grant that I think tablets are a challenging part of that.

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And I can talk about why I think we could proceed even in spite of that.

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But I just want to talk about the difference between sort of I think it was like smartphones in the United States and iPhones.

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Market definition includes those two components, right?

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It's both the product itself and the geography in which it sits.

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And so I don't think there's a distinction between smartphones and iPhones within the iPhone market within the United States.

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I think similarly the access markets, some of which you listed.

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I think, admittedly, it could have been clearer, but I do think that access

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The difference between the app store and access to the app store, at least to me, I don't see daylight between those.

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I don't see why those ought to be considered different markets.

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I think that to go off the coronavirus reporter case, which I think you cited at the beginning of your question, I do think that that was a case in which plaintiffs had seven different opportunities to reconfigure their complaint.

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And that's what they ended up with, was 15 different, as the Ninth Circuit said, scattershot markets that have no boundaries between them.

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I respect the question, of course, and I agree that we certainly could have been clearer on some points about perhaps the exact precise boundaries.

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Can you now give us your clearest definition, market definition,

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just tell us what market you're talking about, and are the market participants that are relevant, the app developers or the phone users?

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Spell it out for us as clearly as you can.

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What market you are contending is at issue here.

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I would love to do that.

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So first, we have the smartphone market.

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And all of these are within the United States.

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And there are three different markets, just to be very clear.

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The first is the smartphone market.

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And that includes Apple's products, as well as Google's smartphones, anyone that's making smartphones.

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I would say the participants in that market are, one, the companies that make the smartphones, and two, the consumers like you and I that own those smartphones.

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I'll move on to the next one if there's no questions on smartphones.

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The app store market is the, I think the best way to think about it is like the way that consumers access apps on the iPhone.

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And the participants in that market are Apple, which provides the app store and the consumers that are using that app store.

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Apple's not a participant in the market.

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Presumably the app makers would be participants.

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I mean, Apple also makes its app, but... So, certainly there are developers that are engaged in that market, right?

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Because otherwise there would be nothing on the App Store, right?

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But the App Store is

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I think the best way to understand the App Store is... Can I try it?

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Of course.

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Are you saying that the market is ways for iPhone users to access apps like this, and the only product in that market is the Apple App Store?

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With the exception of the phrase, like this, I would agree.

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I mean, obviously, this is one of the apps that you can access.

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Well, I think that's even harder for you.

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So the market is...

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methods of accessing apps for iPhone users.

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As the Riley case and as Common Sense would say, if I want an app and I have an iPhone, I could download it through the App Store, but I also could look at it on my browser.

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I could also go over to my laptop and use it on my laptop.

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And so I would expect in a complaint that says,

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wants this market definition to have some allegations that go to those questions which are essentially cross elasticity questions about your market definition.

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So I do want to make a distinction here because I think it's important to think about the fact that market definition right has to be defined in relation to the conduct that's being challenged and so I think

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It kind of pushes me into the COVID tracing app market, which I do think is kind of the central market here, to explain why that's so distinct.

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I'll do that, but then I promise I'll come right back to the app store, which is thinking about websites specifically.

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So the first thing is to know that on iPhones, the reason Apple's the only participant that's providing an app store is because no one else is allowed to.

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The Epic litigation clearly makes that clear.

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The reason that web, like, so you can't download, you couldn't download the Phantom Alert app if it wasn't allowed on the app store.

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And the reason that you can't use something like Phantom Alert on your web browser, whether it's on your laptop or even on your phone, is because there's just fundamentally different capabilities here.

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And we allege... So a well-treated complaint would talk about those different capabilities, right?

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It wouldn't just say COVID-19 tracing is different from other health apps.

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That's your best allegation.

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That has nothing to do with suitability of your service on a web browser.

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So I think that there are allegations about the sort of specific reliance on user-provided data and other things like that.

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A lot of that comes down to things like continuous location tracking, which doesn't happen on websites.

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If you were, as I and many other people were, traveling either between states or cities during the heart of the pandemic, put yourself in that

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in those shoes, it would be important to you potentially to have an app that was, you know, as you pass through a hotspot, would tell you something like, with any push notification saying, hey, like maybe don't stop at a restaurant here.

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And that's not substitutable for me, like pulling over and like opening up my laptop or even like trying to go on my phone and none of that is alleged in the complaint, even argued in your briefing.

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So we do certainly in the briefing, in the reply brief, we talk about the importance of push notifications and continuous location monitoring.

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And I think all of that is in response to what I think the reason that it's not played in the complaint is

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You know, my client is an app developer.

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To him, I believe it is obvious that things like websites are not substitutes.

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And so the district court submitting that it thinks those are obvious substitutes are the reason that Hicks and CyStar and Riley gave plaintiffs a chance to amend in response to it.

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But at least you would have argued on appeal the district court got that wrong

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for that reason.

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And you said that the third market is COVID tracing app market.

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You also have alleged and argued a sub market of access to COVID tracing apps.

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or the COVID tracing app market.

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Is the word access doing work for you?

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Personally, I don't think it is.

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I think the complaint is talking, when it uses that word or not, is talking about the consumers needed the apps.

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And whether you call that access or whether you call that a market for those apps, I think is indistinguishable.

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And I think that certainly, just to bring us back to the futility analysis here, I respect that there are ways that the complaint

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could have been clearer.

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But the district court's finding wasn't that the complaint wasn't perfectly clear.

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It was that no complaint could have stated a claim on the facts here.

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That's the test under FOMON.

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That's the test under MOYAR.

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For the district court's finding to be correct and to be affirmed wholesale, it has to be the case that there is no complaint, that it would be futile for us to amend.

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And I do think that we were clear both in the pleadings.

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I think there's enough there.

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And certainly in our briefs on appeal.

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But even in this discussion, if there are ways that it could have been clearer, that doesn't get it over the line into futility.

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Because if striking the word access, for example, from the complaint would have made it adequately state a claim or striking the word tablets,

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That doesn't mean that the amendment would be futile.

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I think that's sort of where I'd hope the court would focus, is whether or not there is a claim that can be stated here.

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I think it was stated in the amended complaint.

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But I certainly think that there's more.

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On the geography point, the amended complaint, and I think it's at paragraph 24, talks about international uses, including use in Africa.

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In light of that, what effects do you think are alleged in the complaint that explain why the App Store and the COVID tracing markets are limited to the United States?

[00:20:03] Speaker 04:
So first, I think there's two parts of that, as I understand it.

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One part is the allegation that it is limited to the United States.

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And the other part is why that's justified.

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So the first part, I would point, Your Honor, to paragraph 16 for the smartphone market.

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Paragraph 87, which talks about COVID-related tracing apps in the App Store for use in the United States.

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And so I think all of that makes pretty clear like we are talking about the United States.

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And then for why that's justified, there's a few reasons.

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One, we do talk about how there are dramatically different regulations within the United States versus elsewhere.

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Versus Europe.

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But I don't know about the United States versus everywhere.

[00:20:48] Speaker 04:
That's true.

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It's true.

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We didn't list every other continent that might have different rules.

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But I think that the sort of regulatory framework within the United States that I think in paragraph 16, we also allege that consumers in the US could not avoid or defeat an increase by purchasing and importing from abroad.

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That would include the whole rest of the world.

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I think that there are reasons to think.

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To be really concrete about what this geographic market means, it's limited to what users can access within the United States.

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That might be the US App Store.

[00:21:26] Speaker 01:
I think I'm following that part, but it's the why that I'm still a little unclear on.

[00:21:31] Speaker 01:
As I understand it, an app developer in the US can sell on the app store in the US and can sell to a consumer using the app store in Africa.

[00:21:41] Speaker 01:
A developer in Africa can sell to a user of the app store in Africa and a user of the app store in the US.

[00:21:48] Speaker 01:
So why have you drawn, why have you properly defined the market as just the US?

[00:21:54] Speaker 04:
I want to be really clear about one of those points, which is that the apps that are developed in Africa that are available for users in the United States are within our market.

[00:22:07] Speaker 01:
What about an app developed in the U.S.

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that's available to a user in Africa?

[00:22:14] Speaker 04:
So an app developed in the US for a user in Africa wouldn't be included.

[00:22:18] Speaker 04:
And the reason I think is pretty straightforward that the question under, you know, colon and other cases is that the question is what users can like functionally switch to to defeat a price increase.

[00:22:32] Speaker 04:
And so I do think there are facts sufficient to this in the complaint, but I think the logic of it is important to explain here, if I may, which is that a user, let's say users, even like tons of users were really upset about the restrictions that Apple put in the United States.

[00:22:49] Speaker 04:
And they said, we really don't like that.

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We want our COVID tracing apps from Phantom Alert and the hundreds or thousands of others that were kind of clear cut by Apple here.

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The question is like could they successfully defeat, could and would they successfully defeat a price increase by going abroad to get like another app that might not even be designed for the United States?

[00:23:09] Speaker 04:
And I think sort of at an intuitive level that doesn't make a lot of sense, right?

[00:23:12] Speaker 04:
It was a global pandemic.

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We talk about deaths and infection and spread.

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Having the idea that people would like

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travel to get access to apps abroad in order to defeat Apple's price increase is another one of those things that I just don't think makes that much sense, but was one of the foundations of the district court's holding, in part because of another error the district court made, which was focusing on where Apple sells.

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kind of similarly to thinking about US app developers selling and that operates internationally or something, that's just not the right test.

[00:23:42] Speaker 04:
The right test is what consumers have access to because antitrust law looks at that interaction between what consumers can do and how the company will respond.

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And here, we have a circumstance in which consumers

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whether or not Apple operates abroad doesn't affect consumers' ability to go abroad to get COVID tracing apps.

[00:24:06] Speaker 04:
If that were true, it would mow down lots and lots of the Supreme Courts and this courts and other antitrust cases that have a U.S.

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market despite having a global enterprise.

[00:24:17] Speaker 01:
Returning to where we started, I just want to make sure that I understand.

[00:24:21] Speaker 01:
As you understand it, at the end of the day, as the case comes to us, the district court dismissed with prejudice.

[00:24:28] Speaker 04:
functionally yes by finding that their amendment was futile.

[00:24:32] Speaker 04:
And that's what I'm saying is even if you're not with me sort of all the way on all of these factual predicates or that the complaint did quite enough, the amended complaint did quite enough to cross that line, there's still a big hurdle for the district court to jump.

[00:24:46] Speaker 04:
And that's why I think the narrow path following MOYAR might be appropriate here and might be what this court opts to do.

[00:24:52] Speaker 00:
So that sounds like an argument that you're saying that both the district court thought it was holding that no other amended complaint could state a claim and that we ought to remand because it did that analysis.

[00:25:06] Speaker 00:
And I'm not sure you presented that argument.

[00:25:11] Speaker 00:
The reply brief says, this court need only evaluate de novo whether the amended complaint stated a claim.

[00:25:18] Speaker 00:
That sounds very different from the argument you're making today.

[00:25:20] Speaker 04:
I just want to be clear that that is, I stand by that being all that this court needs to do.

[00:25:25] Speaker 04:
And I think...

[00:25:27] Speaker 04:
you know we can if there's other like questions on the other parts of the merits analysis here that the court got wrong and for why the amended complaint like substantiated those and is enough i think that's that would be perfect perfect personally that is my preferred holding for this court to say on the merits the amended complaint stated a valid claim so i'm saying that that is all this court has to you

[00:25:48] Speaker 04:
But I guess I wasn't saying that that's all the court can do.

[00:25:52] Speaker 02:
But the other side of that is you presented it, all we're doing is evaluating whether the proffered amended complaint stated a claim.

[00:26:00] Speaker 02:
And I took that to be that we could say, no, it doesn't.

[00:26:05] Speaker 02:
And the

[00:26:08] Speaker 02:
order of the district court, although appealable, it's not clear that it forecloses your refiling.

[00:26:16] Speaker 02:
But you've just said you think it is clear that it forecloses your refiling a new suit with better allegations.

[00:26:24] Speaker 04:
I think it's clear, but I would be very happy if this court didn't think so and remanded saying- You've waived that expressly in response to Judge Walker's question.

[00:26:38] Speaker 04:
Would you mind explaining how, Your Honor?

[00:26:40] Speaker 02:
He said, you understand the dismissal to be with prejudice.

[00:26:42] Speaker 02:
And you said yes, because the district court decided that amendment was futile.

[00:26:50] Speaker 02:
Judge Garcia said, OK, you're understanding that to be more than saying that the amendment you proffered was futile, but that generally any amendment would be futile.

[00:27:03] Speaker 04:
I want to be clear that that is how I understand the district court's orders.

[00:27:07] Speaker 04:
What I'm saying is if this court has a different opinion and thinks that reading the district court docket, it would be appropriate to amend.

[00:27:14] Speaker 04:
And any kind of clarification of that would be very much appreciated and would allow the case to proceed.

[00:27:20] Speaker 04:
That's a perfectly fine outcome for us.

[00:27:22] Speaker 04:
I appreciate that I didn't.

[00:27:26] Speaker 04:
That wasn't our sort of forward position.

[00:27:29] Speaker 04:
But if this court has a very different understanding, and certainly you know much more than I do about how both district courts and circuit courts review these kinds of orders, and if that's the finding is that we do have an opportunity to amend, that's a perfectly fine outcome for us.

[00:27:51] Speaker 02:
Thank you.

[00:27:51] Speaker 02:
Thank you.

[00:27:52] Speaker 02:
Thank you.

[00:28:02] Speaker 02:
Mr. Kleinbrot, morning.

[00:28:09] Speaker 03:
Thank you, Your Honors.

[00:28:10] Speaker 03:
May it please the Court, Julian Kleinbrot, on behalf of Apple.

[00:28:14] Speaker 03:
And I think I'd like to begin where Judge Garcia's questions were leaving us off, which is that the standard that the district court applied under this court's precedent to evaluate whether amendment would be futile

[00:28:30] Speaker 03:
has been undisputed in this appeal, at least up until a few moments ago.

[00:28:35] Speaker 03:
Under this court's precedent, when a plaintiff tenders a proposed amended complaint, futility is evaluated on whether the proposed amended complaint states a claim, applying as typical 12b6 analysis.

[00:28:51] Speaker 03:
That is what the district court did.

[00:28:52] Speaker 03:
It properly concluded that no claim was stated on multiple grounds, and it therefore deemed

[00:28:59] Speaker 03:
the proposed amended complaint to be futile.

[00:29:03] Speaker 03:
I think that the district court, like this court, was grappling with the fact that the allegations can be a bit difficult to parse, to borrow Judge McFadden's words.

[00:29:14] Speaker 03:
But I would like to say that while we've heard a lot about the COVID-19 app market, again, to one of the questions you asked Judge Garcia, I think the app store only market is the best one to start with because Phantom Alert has said

[00:29:27] Speaker 03:
that its arguments to define a single brand COVID-19 market, whether it's a submarket or not, are the same as the ones it advances for the App Store only market.

[00:29:38] Speaker 03:
And so if the App Store only market goes, then I think so goes the rest of the case.

[00:29:46] Speaker 03:
And if I can address a couple of points that were made by Phantom Alert,

[00:29:53] Speaker 03:
I want to start with allegations about substitution across elasticity of demand and this case's similarity to coronavirus reporter from the Ninth Circuit in that regard.

[00:30:08] Speaker 03:
The markets in coronavirus reporter were admittedly alleged in a confusing manner, but the Ninth Circuit went on to say that

[00:30:16] Speaker 03:
Even if we evaluate them as the plaintiff there had tried to articulate them more clearly, which indisputably included an app store only market identical to the one that Phantom Alert alleges here, they have failed to substantively allege a plausible app store only market.

[00:30:35] Speaker 03:
And the reasons the Ninth Circuit reached that conclusion are the same reasons that apply to the complaint here, which is the failure to allege the prerequisites to a single brand market under Kodak.

[00:30:46] Speaker 03:
as well as the general failure for any market to allege facts proving up or that would prove up a market under general principles of cross elasticity of demand and reasonable interchangeability of use.

[00:31:00] Speaker 03:
And the Ninth Circuit there found the amendment to be futile as well.

[00:31:05] Speaker 03:
Importantly,

[00:31:06] Speaker 03:
in a very similar posture.

[00:31:08] Speaker 03:
While the plaintiff there had taken multiple amendments prior to the dismissal order, the district court there did not give the plaintiff an attempt to amend again after its dismissal order.

[00:31:22] Speaker 03:
And the reason it did not do so is it said the plaintiff has had an opportunity to amend.

[00:31:27] Speaker 03:
It has had an opportunity to amend in the face of Apple's arguments, and it has failed to state a claim in this proposed, in the amended complaint there.

[00:31:35] Speaker 03:
It's the same point here.

[00:31:38] Speaker 03:
Phantom Alert filed an original complaint.

[00:31:40] Speaker 03:
Apple moved to dismiss.

[00:31:41] Speaker 03:
It put on the table all of the defects that the district court found in the complaint.

[00:31:48] Speaker 03:
And when it tendered a proposed amendment complaint in the face of all of Apple's arguments, it still failed to state a claim.

[00:31:56] Speaker 03:
And I think on that record, just as in Coronavirus Reporter, it's perfectly appropriate to find an amendment to be futile.

[00:32:04] Speaker 03:
With respect to the COVID-19 app market, the allegations which Council was pointing, I don't think support

[00:32:21] Speaker 03:
The argument that a COVID-19 market was appropriately bled.

[00:32:30] Speaker 03:
There is a distinction, Judge Pollard, between an access market and an app market.

[00:32:37] Speaker 03:
You were expressing some, I think, understandable confusion about how does an app store market work?

[00:32:43] Speaker 03:
And the reality is these are what we call two-sided transaction platforms.

[00:32:47] Speaker 03:
where Apple is providing a platform that intermediates between two sets of participants, developers, and consumers.

[00:32:54] Speaker 03:
So when we're talking about access, typically that is a shorthand for a transactions market, which is what the App Store market is defined to be.

[00:33:03] Speaker 03:
If the plaintiff is trying to allege a submarket, that would be a submarket of COVID-19 app transactions.

[00:33:13] Speaker 03:
That is not adequately alleged in the complaint.

[00:33:19] Speaker 03:
And it seems to be conceded on appeal that that would not be a proper submarket.

[00:33:24] Speaker 03:
So there must be a distinction then in the plaintiff's mind of what the app

[00:33:29] Speaker 03:
market itself is, which is not some kind of two-sided market, but some other kind of market in which the developer is the supplier and consumers are the purchaser.

[00:33:42] Speaker 03:
And COVID-19 apps themselves, not the transactions, the apps themselves must be sufficiently unique.

[00:33:49] Speaker 00:
And I think- Council, you said that as to the app store market,

[00:33:52] Speaker 00:
You think the deficiencies with those allegations can be framed as entirely independent of the Kodak single brand aftermarket analysis.

[00:34:04] Speaker 00:
And the Ninth Circuit and the coronavirus reporter treated this issue through the lens of the Kodak factors, information switching costs, et cetera.

[00:34:15] Speaker 00:
So could you just explain what the defects are that you see as completely independent of the Kodak type analysis?

[00:34:22] Speaker 03:
Yeah, so in the Ninth Circuit, under the precedent there, which begins in a case called New Cal carried through to Epic and then Coronavirus Reporter, the Kodak factors essentially form a preliminary set of threshold inquiries for a single brand market.

[00:34:37] Speaker 03:
These are the switching costs, the information costs, the change in policy considerations.

[00:34:44] Speaker 03:
What the Ninth Circuit says under its precedent is the last step in that inquiry is

[00:34:49] Speaker 03:
even if you pass all of those threshold steps to define a single brand market, is the single brand market consistent with principles across elasticity of demand and reasonable interchangeability of use?

[00:35:01] Speaker 03:
And that again actually comes from Kodak itself where it looked at all these things and said we still need to check if our general market definition principles are consistent.

[00:35:10] Speaker 03:
So we can look at the threshold Kodak factors

[00:35:13] Speaker 03:
or we can look at the generally applicable market definition principles.

[00:35:18] Speaker 03:
And in this case, I think both support the district court's decision.

[00:35:23] Speaker 03:
With respect to the COVID-19 app market, the allegations I think most critically that council was pointing to go to what Judge Garcia was flagging, which is

[00:35:34] Speaker 03:
Whether or not COVID-19 apps are sufficiently distinct from other kinds of iOS apps, the critical lack of allegations here goes to whether there are sufficient allegations to show they are different from other forms of digital technology or software products that could be reasonably interchangeable.

[00:35:54] Speaker 03:
And so, for example, council was pointing to some allegations in the complaint about them being web browsing being distinct.

[00:36:02] Speaker 03:
Actually, what's referred to as distinct in paragraph 15 of the complaint are smartphones being distinct from feature phones because smartphones have more powerful web browsing technology.

[00:36:13] Speaker 03:
That doesn't say anything.

[00:36:14] Speaker 03:
about whether a COVID-19 iOS app is sufficiently non-substitutable with an Android COVID-19 app or a website.

[00:36:26] Speaker 03:
What the complaint does say about COVID-19 apps and what Phantom Alert has argued on appeal is that they are portable or that Phantom Alert's own app was intended to be able to have users input data about their symptoms and show

[00:36:43] Speaker 03:
users information about the spread of the pandemic.

[00:36:47] Speaker 03:
There are no allegations that a website which could be accessed from the browser on your phone or tablet is not portable or that websites or web apps among all other sorts of things couldn't perform similar functionalities.

[00:37:02] Speaker 03:
So it is the fundamental lack of allegations that go to create cross elasticity of demand

[00:37:09] Speaker 03:
and reasonable interchangeability of use that the district court principally cited as the flaw in the amended complaint and I think is a clear path to affirmance here.

[00:37:21] Speaker 03:
I'll just very briefly note that on the geographic market, similarly, the allegation that

[00:37:27] Speaker 03:
counsel was pointing to in paragraph 16 of the complaint is actually about phones, again, not apps or app stores.

[00:37:35] Speaker 03:
So the problem was that even if we assume that they were trying to define domestic markets, there are not allegations that would support that anywhere in the complaint.

[00:37:46] Speaker 03:
The court did mention the fact that Apple is a global enterprise.

[00:37:50] Speaker 03:
But this court in Hecht and the Fourth Circuit in Cologne say that where the seller operates is part of the analysis.

[00:37:57] Speaker 03:
So the district court said, I have no allegations about where consumers can turn.

[00:38:01] Speaker 03:
I do have one allegation that suggests the seller operates globally.

[00:38:05] Speaker 03:
That seems at least inconsistent with the US market.

[00:38:09] Speaker 03:
It's similar, Judge Walker, to the allegations you were pointing out that the restriction, it says, affected developers around the world and denied those developers access.

[00:38:22] Speaker 03:
to global users, that's a paragraph 38 of the complaint on page 79 of the appendix.

[00:38:29] Speaker 03:
Again, part of the geographic market inquiry is who are the customers affected by the challenge practice.

[00:38:37] Speaker 03:
So the geographic market allegations are virtually non-existent, but the few things that do seem to speak to parts of that analysis do not support a U.S.

[00:38:48] Speaker 03:
market, and that is what Judge McFadden was citing, and we think that was perfectly appropriate.

[00:38:54] Speaker 03:
I see my time has expired, so unless the court has questions, we will otherwise rest on the papers.

[00:39:00] Speaker 03:
Thank you, Your Honors.

[00:39:06] Speaker 02:
Mr. Summers reserved time for rebuttal.

[00:39:10] Speaker 02:
Take your three minutes.

[00:39:24] Speaker 02:
Do you have any beef with the way Council for Apple described the epic factors in their applicability?

[00:39:33] Speaker 04:
I do think the Ninth Circuit has a slightly more expansive approach to the epic factors than Kodak itself does, but I think overall they pretty accurately describe and they do include sort of a general understanding of cross elasticity.

[00:39:48] Speaker 04:
I think that's why we talked about that and the hypothetical monopolist test and the things that support that.

[00:39:55] Speaker 01:
You mentioned Moyer a couple of times, our unpublished judgment from last year.

[00:40:02] Speaker 01:
And I took a look since the last time we were up here.

[00:40:06] Speaker 01:
There, the district court had dismissed with prejudice.

[00:40:12] Speaker 01:
The panel here faulted the district court for doing that.

[00:40:14] Speaker 01:
But it faulted the district court for doing that because there was a government regulation

[00:40:21] Speaker 01:
In the record, the district court cited it and quoted from it.

[00:40:27] Speaker 01:
On the one hand, the district court said, well, the plaintiff hasn't identified any relevant regulations, but if you just read the regulation that the district court quoted, it was arguably relevant.

[00:40:41] Speaker 01:
our panel concluded it was premature to declare futility.

[00:40:47] Speaker 01:
That seems different than here because your argument on futility seems to be

[00:40:55] Speaker 01:
that even if there is nothing in the amended complaint and nothing in whatever record exists, which obviously it's hard to have much of record that the motion is misstaged.

[00:41:03] Speaker 01:
I get that.

[00:41:03] Speaker 01:
But your argument seems to be regardless of what's in the amended complaint or the record, the district court should not declare futility unless it can be sure that something outside the complaint

[00:41:19] Speaker 01:
doesn't exist to save your suit.

[00:41:22] Speaker 01:
That seems not what Moyer said.

[00:41:24] Speaker 04:
So I want to clarify that Moyer is a mechanism that looks at the futility analysis and finds problems with it.

[00:41:33] Speaker 04:
Admittedly, those are different problems in Moyer versus here.

[00:41:37] Speaker 04:
I think here, the problems with the district court's futility analysis are primarily legal, although it does also assume and assert its own facts, like iPhone users probably also own Android devices.

[00:41:48] Speaker 04:
But I think the reason for this court that I would encourage this court to think about that approach is because there were legal deficiencies in how the district court approached antitrust law for this purpose.

[00:42:01] Speaker 04:
And so it's possible to look at that and then say, well, that was incorrect.

[00:42:07] Speaker 04:
And then Moyard.

[00:42:08] Speaker 01:
We would still have to find something in your proposed amended complaint that would, under the correct legal understanding, save your suit.

[00:42:18] Speaker 04:
And I think we've provided that, both obviously in the complaint and in the opening reply briefs, showing why that's sufficient.

[00:42:25] Speaker 04:
I just want to be very clear that we do think that the amended complaint is sufficient and can stand on its two feet, and reversal on the merits is appropriate for that.

[00:42:34] Speaker 04:
We think there's just sort of a narrower path that can avoid addressing some of those sort of like treatise-like antitrust questions of dispute between the two parties.

[00:42:44] Speaker 01:
If we were to conclude that your amended complaint still does not state a claim, what is there beyond that that you think we're supposed to look to to say, well, it should have been a dismissal without prejudice?

[00:43:00] Speaker 04:
Part of the, I think one of, there's a number of legal errors, right, that we outline in the briefs.

[00:43:05] Speaker 04:
I think one of those legal errors is the finding of futility, that the basis for that finding of futility was incorrect, used the court's own suppositions, that those are the kinds of things.

[00:43:15] Speaker 01:
So if we read your proposed amendment complaint and we think this is not stated claim, then we should say that this should be dismissed with prejudice.

[00:43:28] Speaker 04:
I think this court could still say that it would be dismissed without prejudice because the futility, right?

[00:43:34] Speaker 01:
I guess if you're saying, if the court, obviously if the court believes that the complaint is, that it's futile to amend, then yeah, finding that dismissal... I know you think that your amended complaint stated a claim, but if we were to conclude that your proposed amended complaint does not state a claim, then it would be proper to dismiss the suit with prejudice, correct?

[00:43:53] Speaker 01:
No, without prejudice.

[00:43:57] Speaker 01:
What outside the amended complaint are we supposed to look to to save a faulty amended complaint?

[00:44:05] Speaker 04:
The district court's reasoning.

[00:44:08] Speaker 04:
Can I?

[00:44:10] Speaker 00:
You can try to persuade.

[00:44:11] Speaker 00:
I think it would be right.

[00:44:12] Speaker 00:
If there was a three page section at the end of your brief that said, if given leave to amend, we would add the following facts and those would address any deficiencies, even though we think this complaint is enough.

[00:44:22] Speaker 00:
And if you had moved for that in the district court and been denied, then that is kind of how these things usually come up to us.

[00:44:29] Speaker 00:
But there isn't a section like that in your brief or sorry.

[00:44:33] Speaker 00:
That's what you would like us to think about is aren't there other facts they could allege?

[00:44:39] Speaker 04:
I do think that's a little stronger than the position I'm advocating for.

[00:44:46] Speaker 04:
Think about it this way.

[00:44:48] Speaker 04:
I think here's an easy example from the district court, or one that seems easy to me at least, but might be wrong.

[00:44:54] Speaker 04:
But the district court says that the submarket, add addition of the letters like the word sub in front of market,

[00:45:02] Speaker 04:
means that it's incomprehensible and can't be a real market.

[00:45:07] Speaker 04:
So the district court says, if the district court's opinion were just that, we're saying that it would have been fine if it had just said market, but it said sub-market and that's no good.

[00:45:17] Speaker 04:
That would be, and then said, therefore it's futile.

[00:45:20] Speaker 04:
That's what I'm saying.

[00:45:20] Speaker 04:
That kind of analysis that's sort of facially wrong and facially sort of admits on its own terms why futility is wrong, that would be the kind of thing that I think it might serve to remand saying that's not how we do futility analysis or that's not how it ought to be done.

[00:45:39] Speaker 04:
And I think that's the kind of circumstance here where we have a number of errors that facially ought to be corrected.

[00:45:46] Speaker 04:
And I think dismissal without prejudice would be one way to do that.

[00:45:50] Speaker 04:
Even if this court disagrees with me, that our amended complaint adequately states the claim.

[00:45:55] Speaker 02:
All right.

[00:45:56] Speaker 02:
Thank you.

[00:45:56] Speaker 02:
The case is submitted.

[00:45:57] Speaker 02:
Thank you.