It's pretty common and has almost become a ritual that Apple responds to any U.S. antitrust lawsuit with a motion to dismiss. Epic Games v. Apple is an exception owing to a procedural agreement. Apple's motions to dismiss antitrust complaints have succeeded a few times, though in the most important one of those cases--Pepper v. Apple, which is potentially about tens of billions of dollars that Apple might have to dole out to consumers--the United States Court of Appeals for the Ninth Circuit and, ultimately, the Supreme Court disagreed with the district court.
The latest target of such a motion is now the case Hagens Berman brought on behalf of credit card issuers--with Affinity Credit Union being the first named plaintiff--in July, a complaint that I said is one of the best ones I've ever seen in explanatory terms. Here's Apple's motion:
The case was assigned to Judge Jeffrey S. White, who is based in Oakland (same courthouse as the Epic v. Apple judge, Judge Yvonne Gonzalez Rogers). One of his orders in AliveCor v. Apple is cited by Apple's motion because the hardware-based markets proposed by the plaintiff in that case failed because AliveCor "ha[d] not alleged why seemingly similar products . . . [were] not reasonable substitutes." And that point is at the heart of Apple's motion. Apple essentially says it doesn't matter that Apple Pay is (as it always has been) the only digital wallet app for Apple's mobile devices that has full access to the NFC (Near-Field Communication) chip: after all, customers could also pay with, say, a Samsung phone, just with a credit card, and so forth.
It's true that iPhone users have alternatives to Apple Pay. I was an iPhone user for a few years until about 14 months ago, never activated Apple Pay, but figured out other ways to make payments: with cash, American Express, and VISA. As an owner of Samsung devices for a long time (even before I migrated from an iPhone to a Google Pixel), I could also have decided to activate Google Pay or Samsung Pay, but then I'd have had to carry two devices with me: a major inconvenience in many situations.
Still, there are more than a billion iPhone users in the world, and they're presumably a subset of the world's richest 1.2 or so billion people. So the problem that those credit card issuers pay is that they have to pay Apple supracompetitive fees. Most Apple customers would rather sign up for a different credit card (from an issuer who accepted the terms Apple dictates) than migrate to Android or carry an additional wireless device with them just for the purpose of making payments.
The European Commission recognized this problem, which is why its Directorate-General for Competition (DG COMP) sent Apple a Statement of Objections (SO) over the fact that it doesn't grant other payment apps full access to its NFC chip. But that preliminary decision isn't binding precedent, much less in a different jurisdiction.
I don't expect Apple's motion to dismiss to succeed to the extent that the Affinity case would be dismissed with prejudice, nor would I be too surprised if Judge White told the class action lawyers that they have to fine-tune their legal argument. In the meantime, Apple wants discovery stayed, and while I do consider Apple's conduct in the Apple Pay context anticompetitive, its motion to dismiss may very well result in a discovery stay.
As always, market definition is particularly key. Apple stresses that single-brand markets are rarely accepted in U.S. antitrust cases, and to the extent that Affinity argues Apple has market power in the U.S. smartphone, tablet, and smartwatch markets, market share alone isn't sufficient to support that assertion.
As for the single-brand market, Affinity's complaint doesn't contain an elaborate Kodak/Newcal market definition, which would consist of a foremarket and an aftermarket. The term "aftermarket" comes up only once, and only in parentheses (in para. 119 of the complaint Apple is attacking):
"b. Whether there is an antitrust market (or submarket or aftermarket) for Tap and Pay iOS Mobile Wallets;" (emphasis added)
There is a bit of parallel between Affinity v. Apple and Epic Games v. Apple. In Epic's case, Judge YGR got the foremarket part completely--even absurdly--wrong and Epic also has very strong aftermarket arguments. In less than two weeks, the Ninth Circuit will hear Epic's appeal, and then we'll see. If Epic prevails on a single-brand market, Affinity will be in a much better position than now, so it would still have to overcome the hurdle that the transactions enabled by Apple Pay could also be done--even if less conveniently so--without any digital wallet, while the App Store is the only iOS app distribution method for almost all purposes and the alternative to Fortnite Mobile obviously isn't a console game (not even Judge YGR included console games in her market definition) or a non-interactive board game.
Another parallel relates to tying. Epic says Apple ties its own in-app payment system to the App Store, and that's true. Apple argues that since its in-app payments aren't available separately, there can be no tying claim. Here, again, the first question is how Epic's appeal will fare--and the second is then whether even if Epic succeeded, the credit card issuers still wouldn't win. Apple argues Apple Pay isn't a tie because users can opt not to activate it (like I said, I know that it is an option because I declined to exercise it)--and that Affinity and other credit card issuers lack standing because they aren't the ones forced to use Apple Pay.
Apple furthermore argues that what Affinity really complains of is a refusal to deal, but without being able to make an Aspen Skiing/Trinko kind of case as Apple never abandoned a profitable course: Apple Pay was always the only digital wallet on the iPhone. However, that is more like an attack on a strawman. The real battlefields here are market definition and tying. Let's see what the Ninth Circuit says at the October 21 Epic v. Apple hearing--and sometime thereafter we'll see the class action lawyers' opposition to Apple's motion, or--potentially--a motion to amend their complaint with a concomitant motion to declare the motion to dismiss moot.
