Saturday, December 19, 2020

Apple likens market definition in antitrust case against Apple Arcade game subscription service to gerrymandering of electoral districts

NOTE: In the other article I published this weekend, you can read about my Viral Days real-time strategy game for Android and iOS. There are no plans at this point, and I don't anticipate that there will be, to make that game available on subscription services like Apple Arcade. Thus I don't have a conflict of interest when commenting on Pistacchio v. Apple.

About two months ago, class action lawyers brought a case against Apple over its Apple Arcade game subscription service for iOS, alleging that consumers overpaid because Apple didn't allow other game services such as Microsoft xCloud, Google Stadia, Facebook Gaming, and GeForce Now to be offered on the iPhone and the iPad. The consumer plaintiff's name is John Pistacchio.

When the deadline for responding to a complaint is up, a defendant must either file an answer to the complaint or a motion to dismiss the case at this earliest procedural juncture. For example, Google brought a motion to dismiss Epic Games' antitrust complaint over its Google Play terms and policies, while Apple decided to defend itself against Epic's App Store case, though some of Apple's defenses would also be typical arguments in favor of outright dismissal.

The Pistacchio case, however, is not on the same schedule as various other App Store cases pending before Oakland-based Judge Yvonne Gonzalez Rogers in the Northern District of California. And that case is now falling even further behind as Apple elected to ask the court to toss that complaint (this post continues below the document):

20-12-17 Apple Motion to Di... by Florian Mueller

In the Pistacchio case, Apple is represented by Paul Weiss attorneys Karen Dunn and Bill Isaacson, who already counted Apple among their clients while they were with Boies Schiller.

Apple's lawyers say "[Pistacchio] attempts to stake a flag all his own in a little corner of the broader App Store actions by implausibly alleging that Apple’s innovative subscription service, Apple Arcade, is a monopoly." There's no question that the Pistacchio case is an outlier. While other cases such as Pepper v. Apple and Epic Games v. Apple tackle the alleged App Store monopoly (some from a consumer and others from a developer perspective), Pistacchio is narrowly focused on the Apple Arcade gaming service.

Antitrust plaintiffs always seek to define the relevant antitrust market(s) as narrowly--and defendants as broadly--as possible. A narrow definition may be perfectly appropriate. However, implausibly narrow definitions result in dismissal, as the Ninth Circuit held a couple of years ago in Hicks v. PGA Tour. A market definition must be "natural" as opposed to "contorted to meet [a given plaintiff's] litigation needs."

Apple's motion criticizes that the relevant product market according to the Pistacchio complaint (the "iOS Subscription-Based Mobile Gaming Services Market") is not only about a single company (Apple) and a single product (Apple Arcade) but defined "by the way that users pay for it: a subscription fee."

According to Apple, courts don't accept that criterion. Instead, even if one focused only on iOS games, one would have to take into consideration that "the App Store offers offer more than 900,000 third-party mobile games, many of them free" (I just added one such game to the list). Apple argues that anybody could do what Apple Arcade does and offer such games on the App Store, and offer a subscription covering multiple titles. That may not be the business model of the alternative gaming services Pistacchio says Apple prevents from competing, but Apple notes that others can't force Apple to do business with them on their preferred terms. Much less, according to Apple, could a consumer like Pistacchio bring a complaint over a denial of access to what is allegedly an essential facility. That is the second part of Apple's argument for dismissal.

Getting back to the first part, Apple's motion says Pistacchio's proposed market definition is "a gerrymandered market." Gerrymandering is a term that describes an opportunistic definition of an electoral district. On maps, gerrymandered districts are often characterized by a shape that is contiguous, but simply not natural.

What may be seen as another aspect of Apple's allegation of gerrymandering is that the Pistacchio complaint doesn't claim Apple disallowed all other subscription-based gaming services than Apple Arcade. Even Pistacchio acknowledges that some are indeed allowed--and others would be allowed if "the requirement that games must be downloaded directly from the App Store" was met.

Apple's motion also disputes the plausibility of Pistacchio's allegation of overcharging, given that the $4.99 monthly subscription price Pistacchio claims to have paid for Apple Arcade "is exactly in line with, or lower than, that of the other subscription gaming services that entered the market after Apple."

I wouldn't bet money on the Pistacchio complaint surviving this motion to dismiss. It may simply have been an overly ambitious and somewhat premature case. Whatever happens in that particular case, subscription-based gaming services are a topic worth watching. For instance, Microsoft will offer its xCloud streaming service on iOS--not in the form of a native iOS app (for the time being), but a web app (HTML5). There's certainly a potential for conflict between Apple and the providers of such services. It appears that Google allows certain business models and technical approaches on Android that wouldn't pass Apple's app review. But it may take a gaming service provider to complain. A consumer class action might be the wrong vehicle.

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