Tuesday, October 11, 2022

We now know the three judges who will decide Epic Games' appeal against Apple--and the composition of the Ninth Circuit panel, two of whose members ruled against the NCAA, likely favors Epic

It's no longer a secret to which three judges the United States Court of Appeals for the Ninth Circuit has assigned the Epic Games v. Apple App Store antitrust appeal. The hearing will take place in San Francisco in ten days (October 21), in the mid to late morning by local time. And these are the three judges:

S.R. THOMAS, and M. SMITH, Jr., Circuit Judges, and McSHANE (Oregon), District Judge

I'm thrilled! I want the fundamentally flawed ruling by the district judge overturned, and my initial resarch indicates that this panel is very unlikely to be hostile to Epic's case for political reasons.

While I consider myself more of a Republican than a Democrat on a number of important issues, I was a bit worried about the possibility of a Republican "antitrust minimalist" majority in this case (though things have changed: Justice Kavanaugh tipped the scales in favor of an iPhone user class action against Apple in the Pepper App Store antitrust case, and conservative justices strengthened antitrust law in NCAA v. Alston). The Ninth Circuit used to be very liberal until President Trump got to nominate a number of judges. So it took a bit of luck, and that's what Epic deserves because the district judge made some really bad and unnecessary mistakes that favored Apple.

Now that we have a complete cast of characters, I'll

Spoiler: "Advantage Epic" in each of those four respects. That still doesn't mean that the outcome is a foregone conclusion. Anything can happen in a complex, high-stakes case like this. But the stage looks like it's set for a reversal (which Apple will then appeal to the Supreme Court, of course).

Panel composition

  1. Former Ninth Circuit Chief Judge Sidney R. Thomas:

    Judge Sidney Thomas, a Democrat, was nominated by President Clinton to the Ninth Circuit in 1996, and served as the appeals court's chief judge from late 2014 to late 2021. He has heard well over 11,000 (!) appeals and authored more than 400 precedential opinions. He took senior status this year.

    Judge Thomas came close to a nomination for the Supreme Court: President Obama interviewed him in 2010 (but chose now-Justice Elena Kagan).

    The most important antitrust decision he authored was the 2020 per curiam in the NCAA case (In Re NCAA Athletic Grant-in-Aid Cap Antitrust Litig.) that the Supreme Court affirmed last year under the caption of National Collegiate Athletic Assn. v. Alston. That bodes well for Epic's appeal in multiple ways, including but not limited to the application of Sherman Act Section 1 and, especially, the rule of reason: NCAA distinguishes between truly procompetitive justifications and other excuses. That may make it harder for Apple to score points with its security and privacy pretexts.

  2. Circuit Judge Milan D. Smith was appointed by President George W. Bush, but is neither a Republican nor a Democrat.

    Not only did he vote for then-Chief Judge Thomas's NCAA opinion, but he also filed a concurrence in which he even went beyond. In particular, Judge Milan Smith is concerned about precedent that permits "defendants to offer procompetitive effects in a collateral market as justification for anticompetitive effects in the defined market"--that is also an issue in Epic v. Apple. The final paragraph of his concurrence in NCAA is really interesting in this regard:

    "Lacking a robust justification, I fear that our cross-market Rule of Reason analysis frustrates the very purpose of the antitrust laws, in this case to the great detriment of Student-Athletes. I hope our court will reconsider this issue in a case that squarely raises it."

    Epic's case against Apple is an opportunity to clarify a number of things, and (apart from single-brand markets) the admissibility of certain "justifications" for anticompetitive conduct is an issue Epic and its amici raise.

  3. Sitting on the Ninth Circuit by designation is District Judge Michael J. McShane. He was appointed to the United States District Court for the District of Oregon by President Obama in 2012. I haven't been able to research anything more specific about his political affiliation than the fact that he's an Obama appointee, a fact that Apple won't find encouraging.

Epic's amici are as good as it gets.
Apple has little more than astroturfers and shills.

Epic v. Apple is David v. Goliath in some ways, but when it comes to support for the parties' positions in the form of amicus curiae briefs, one would think that Epic, not Apple, is the world's richest corporation.

Epic's amici include, but are not limited to,

There was no way that Apple could have counterbalanced this even if the United Nations had filed a statement in its support following a vote by its General Assembly. Apple's App Store terms, policies, and practices are against the interests of the wider economy and of society, and nothing says it like the fact that Apple has almost no support beyond Roblox (another gatekeeper whose treatment of creators is highly controversial) and astroturfers and other lobbyists who are paid by Apple (and/or Google):

In its patent dispute with Ericsson, Apple is essentially telling the United States International Trade Commission that by virtue of its profitability, whatever is good for Apple is good for the United States: even patent infringement would be great--so long as it benefits Apple. But as an early-stage venture investor pointed out, Apple is harming small businesses (even outside the technology industry). Apple's App Store rules are even an inflationary force. And it ruthlessly cashes in on classism, which hurts many low-income American families. The Biden Admistration and three dozen U.S. states are absolutely right to support Epic against Apple.

Epic's appeal is clearly meritorious

Using chess terminology, the adjudication of an antitrust claim has an opening, a middlegame, and an endgame.

  • Opening

  • Middlegame: The key issue here is the standard for tying. One part of that overlaps with a question relevant to market definition: whether there can be a market for something Apple doesn't sell separately. (That's also an issue in the Apple Pay case I mentioned further above.)

    While I have a firm opinion that Apple engages in tying, I have yet to analyze that part more fully in order to elaborate on it, which I intend to do before the Ninth Circuit hearing.

  • Endgame: rule-of-reason balancing. I discussed that part a few days ago, and would like to refer you to my analysis, which led me to conclude that Judge YGR failed to perform the balancing required under the rule of reason. The district court's judgment cannot stand in that regard either. The question is just whether the appeals court can directly enter a liability judgment or whether there will be a remand.

While even a sloppy judgment could be well-reasoned, the close to 300 typos and similar errors in the district court's judgment are symptomatic of a fundamentally flawed decision.

The lawyers: Tom Goldstein (plus the DOJ) v. Mark Perry

Epic will be represented by Goldstein & Russell founder Thomas C. "Tom" Goldstein. He's a machine and did an incredible job for Qualcomm against the FTC.

While Mr. Goldstein is going to be Epic's frontman, I wish to mention the brilliant strategic mastermind behind this case: Cravath Swaine & Moore's Gary Bornstein. He deserved to win in district court, but for the reasons I discussed in various other posts it didn't work out. Justice may now be done at the appellate level.

Nickolai Levin from the Antitrust Division of the United States Department of Justice will deliver oral argument on the Biden Administration's behalf. Deputy Solicitor General Joshua Patashnik will speak for the State of California.

Apple's counsel, Mark Perry, joined Weil during the pendency of this case. While I don't doubt for a second that he's outstanding, Tom Goldstein has an even more impressive track record in the nation's highest courts.

Apple's principal brief on appeal was replete with rhetoric (really too much for my taste, though I enjoy creative and persuasive writings), but very weak on substance, which--to be clear--is not the lawyers' fault, except that I consider it a surprising blunder on their part to concede away the foremarket part of Epic's proposed single-brand market definition by acknowledging that iOS competes with Android while claiming that there is no such thing as a smartphone operating system market for antitrust purposes. When I read that admission, I couldn't believe my eyes and immediately blogged about it.