Reilly v. Apple Inc.

• Decision Date: 07 January 2022
• Docket Number: 21-cv-04601-EMC
• Court: U.S. District Court — Northern District of California
• Parties: THOMAS M REILLY, Plaintiff, v. APPLE INC., Defendant.

THOMAS M REILLY, Plaintiff, v. APPLE INC., Defendant.

No. 21-cv-04601-EMC

United States District Court, N.D. California

January 7, 2022

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS DOCKET NO. 24

EDWARD M. CHEN, United States District Judge.

I. INTRODUCTION

Plaintiff Thomas M. Reilly, the developer of an app called Konverti which facilitates peer-to-peer, in-person currency exchanges alleges antitrust violations and unfair and anticompetitive conduct by Apple, Inc. (“Apple”) through its monopolist operation of its App Store. Docket No. 1 (“Compl.”). Plaintiff's app was allegedly approved and then abruptly removed by Apple from the App Store in 2017. Id. ¶ 7. In this action Plaintiff seeks damages and injunctive relief to restore the Konverti app to the App Store and to alter Apple's operation of the App Store.

Now pending is Apple's motion to dismiss Plaintiff's complaint. Docket No. 24. For the reasons explained below, the Court GRANTS Apple's motion to dismiss.

II. BACKGROUND

A. Summary of Allegations

1. Apple's App Approval Process

According to the Complaint, “Apple designs, markets and sells smartphones, personal computers, tablets, wearables and accessories, and sells a variety of related services.” Compl. ¶ 2. Apple has created an ecosystem for its iOS devices, such as the iPhone and iPad. See Id. ¶¶ 18, 20, 52. Apple also operates the App Store, a platform through which iOS users and developers can transact. Id. ¶ 2. While Apple develops and distributes its own apps to users, id. ¶ 27, most native apps offered for download on the App Store are developed by third-party developers, id. ¶ 23. Apps for iOS devices can only be purchased through the App Store. Id. ¶¶ 22, 24.

To license Apple's proprietary software and distribute apps through its ecosystem, developers agree to abide by a Developer Program License Agreement (“DPLA”). Compl. ¶¶ 12, 66. This alleged “contract of adhesion” is standardized and imposes the same terms on all developers. Id. ¶ 38; see also Id. ¶ 41. Pursuant to the DPLA, developers agree to abide by Apple's App Review Guidelines. While these Guidelines guide Apple's app review team, Apple retains “sole discretion” to reject any app that a developer seeks for distribution through Apple's App Store. Docket No. 25, Exh. 1 (DPLA) § 6.9(b); see also id., Exh. 2 (“Guidelines”) at 1^[1] (“We do this by offering a highly curated App Store where every app is reviewed by experts. . . For everything else there is always the open Internet. If the App Store model and guidelines are not best for your app or business idea that's okay, we provide Safari for a great web experience too.”).

2. Plaintiff's App and Removal from the App Store

Plaintiff Thomas Reilly alleges that he is the developer of Konverti, which he describes as “a Peer to Peer Currency Exchange.” Compl. ¶ 5. Konverti allegedly “facilitates person to person exchanges of small amounts of currency.” Id. Aside from alleging that each user's “identification is vetted through Apple's identity management system, ” id. ¶ 6, the Complaint does not otherwise describe Konverti's function or operation. Plaintiff alleges that Konverti was approved by the Google Play Store and is currently available through Google Play for Android system users. Id. ¶ 6.

Konverti was allegedly “approved and placed” in Apple's App Store in June 2017 before it was “abruptly removed weeks later without clear cause.” Compl. ¶¶ 7, 15, 26. Apple allegedly provided two reasons for Konverti's removal. First, Apple determined that the app was not safe. Id. ¶ 15. Second, Apple determined Konverti violated Guideline 5.0. Id. This Guideline provides:

Apps must comply with all legal requirements in any location where you make them available (if you're not sure, check with a lawyer). We know this stuff is complicated, but it is your responsibility to understand and make sure your app conforms with all local laws, not just the guidelines below. And of course, apps that solicit, promote, or encourage criminal or clearly reckless behavior will be rejected. In extreme cases, such as apps that are found to facilitate human trafficking and/or the exploitation of children, appropriate authorities will be notified.

Exh. 2 § 5.0. Plaintiff alleges that Apple explained that it “continue[d] to find [Plaintiff's] app still facilitates individuals meeting in person for currency exchange, which is not an appropriate concept for the App Store” and that Plaintiff should “review [his] app concept and remove all content and features that are illegal in the locations where your app is available.” Compl. ¶ 15 (quotation marks omitted). Plaintiff alleges that he unsuccessfully appealed Konverti's removal “multiple times” between June 2017 and 2020. Id. Plaintiff alleges that he is aware of no “security, legal or reporting requirements” triggered by Konverti. Id. ¶ 6. Plaintiff alleges that because Konverti was initially “approved and placed” on the App Store, Plaintiff was induced “to pay [Apple] monies and spend over $150k developing and marketing Konverti for over two years.” Id. ¶ 17. Plaintiff alleges he “has been damaged in that Apple's conduct and delays in providing access [to] the [App] Store have caused significant loss of opportunity and impacted the market for Konverti.” Id.

3. Plaintiff's Antitrust Claim Theory

Plaintiff brings suit under federal and state antitrust law. He explains that “mobile device suppliers, commonly known in the industry as original equipment manufacturers (“OEMs”), will select and install an OS [operating system] prior to shipping their respective devices for sale.” Id. ¶ 19. He alleges that the “overwhelming majority of mobile devices sold by these OEMs use the Android OS, which is licensed by Google, ” but, in contrast, “Apple uses a proprietary operating system called iOS, which it installs on the iPhone” and iPad. Id. ¶ 20. The “only channel for distributing iOS apps” (apps that are functional on Apple devices that use iOS) is through Apple's App Store. Id. ¶ 22.

Plaintiff alleges that Apple monopolizes the “iOS App Distribution Market” through “technical” and “contractual” restrictions. Compl. ¶¶ 18-42. He claims that:

• Apple “unlawfully maintains its monopoly power in the iOS App Distribution Market” in violation of Section 2 of the Sherman Act by “prevent[ing] the distribution of iOS apps through means other than the Apple Store and prevent[ing] developers from distributing competing app stores to iOS users, ” Compl. ¶ 55 (Count 1);

• Apple violates Section 2 by denying Konverti access to a purported essential facility, “iOS, ” id. ¶¶ 58-61 (Count 2); and

• The “Developer Agreement and the terms of the Apple Store Review Guidelines unreasonably restrain competition” in violation of Section 1, id. ¶ 67 (Count 3).

Plaintiff contends that the same conduct violates California's Cartwright Act (Count 4) and Unfair Competition Law (Count 5). Id. ¶¶ 71-88.

Plaintiff defines the relevant market for his antitrust claims as the “market for distribution of apps compatible with iOS to users of iOS devices” which is comprised of “all of the channels through which apps may be distributed to iOS devices, ” which, in turn, is limited to Apple's App Store because it is the “only channel for distributing apps” to iOS devices. Id. ¶ 28. Plaintiff alleges that the “geographic scope of the iOS App Distribution Market is worldwide, as consumers and developers can access iOS worldwide.” Id. ¶ 29. B. Procedural Background

In December 2018, Mill Lane Productions, LLC, purporting to be the developer of the Konverti app and which was represented by the same counsel as Plaintiff, sued Apple in the Superior Court of California, County of Santa Clara alleging negligent misrepresentation and violation of California's unfair competition law for Apple's removal of Konverti from the App Store. Docket No. 25, Exh. 3 (“State Court Compl.”). After twice amending its complaint in response to Apple's demurrers, id., Exh. 4, Mill Lane voluntarily dismissed its case without prejudice on February 5, 2020, id., Exh. 5.

Plaintiff Reilly filed this case in June 2021, alleging that he is the developer of Konverti. Compl. ¶ 5. Mill Lane is not mentioned in this action; Plaintiff has not filed a disclosure of non-party interested entities pursuant to Local Rule 3-15.

Now pending is Apple's motion to dismiss the complaint for failure to state a claim. Docket No. 24 (“Motion”).

III. LEGAL STANDARD

A. Failure to State a Claim (Rule 12(b)(6))

Federal Rule of Civil Procedure 8(a)(2) requires a complaint to include “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). A complaint that fails to meet this standard may be dismissed pursuant to Rule 12(b)(6). See Fed. R. Civ. P. 12(b)(6). To overcome a Rule 12(b)(6) motion to dismiss after the Supreme Court's decisions in Ashcroft v. Iqbal, 556 U.S. 662 (2009) and Bell Atlantic Corporation v. Twombly, 550 U.S 544 (2007), a plaintiff's “factual allegations [in the complaint] ‘must . . . suggest that the claim has at least a plausible chance of success.'” Levitt v. Yelp! Inc., 765 F.3d 1123, 1135 (9th Cir. 2014). The court “accept[s] factual allegations in the complaint as true and construe[s] the pleadings in the light most favorable to the nonmoving party.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). But “allegations in a complaint . . . may not simply recite the elements of a cause of action [and] must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively.” Levitt, 765 F.3d at 1135 (quoting Eclectic Props. E., LLC v. Marcus & Millichap Co., 751 F.3d 990, 996 (9th Cir. 2...