Epic Games, Inc. v. Apple, Inc.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

EPIC GAMES, INC., No. 21-16506

Plaintiff-counter-

defendant-Appellant, D.C. No.

4:20-cv-05640-

v. YGR

APPLE, INC.,

Defendant-counter- OPINION

claimant- Appellee.

EPIC GAMES, INC., No. 21-16695

Plaintiff-counter-

defendant-Appellee, D.C. No.

4:20-cv-05640-

v. YGR

APPLE, INC.,

Defendant-counter-

claimant-Appellant.

Appeal from the United States District Court

for the Northern District of California

Yvonne Gonzalez Rogers, District Judge, Presiding

Argued and Submitted November 14, 2022

San Francisco, California

2 EPIC GAMES, INC. V. APPLE, INC.

Filed April 24, 2023

Before: SIDNEY R. THOMAS and MILAN D. SMITH,

JR., Circuit Judges, and MICHAEL J. MCSHANE, *

District Judge.

Opinion by Judge Milan D. Smith, Jr.;

Partial Concurrence and Partial Dissent by Judge S.R.

Thomas

SUMMARY **

Antitrust

The panel affirmed in part and reversed in part the

district court’s judgment, after a bench trial, against Epic

Games, Inc., on its Sherman Act claims for restraint of trade,

tying, and monopoly maintenance against Apple, Inc.; in

favor of Epic on its claim under California’s Unfair

Competition Law; against Epic on Apple’s claim for breach

of contract; and against Apple on its claim for attorney

fees. The panel affirmed except for the district court’s ruling

respecting attorney fees, where it reversed and remanded for

further proceedings.

*

The Honorable Michael J. McShane, United States District Judge for

the District of Oregon, sitting by designation.

**

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

EPIC GAMES, INC. V. APPLE, INC. 3

The panel explained that, when Apple opened the iPhone

to third-party app developers, it created a “walled garden,”

rather than an open ecosystem in which developers and users

could transact freely without mediation from Apple. Epic

alleged that Apple acted unlawfully by restricting app

distribution on iOS devices to Apple’s App Store, requiring

in-app purchases on iOS devices to use Apple’s in-app

payment processor, and limiting the ability of app

developers to communicate the availability of alternative

payment options to iOS device users. These restrictions

were imposed under the Developer Program Licensing

Agreement (“DPLA”), which developers were required to

sign in order to distribute apps to iOS users. The district

court rejected Epic’s Sherman Act §§ 1 and 2 claims

challenging the first and second restrictions, principally on

the factual grounds that Epic failed to propose viable less

restrictive alternatives to Apple’s restrictions. The district

court concluded that the third restriction was unfair pursuant

to the California UCL and enjoined Apple from enforcing it

against any developer. The district court held that Epic

breached its contract with Apple but was not obligated to pay

Apple’s attorney fees.

On Epic’s appeal, the panel affirmed the district court’s

denial of antitrust liability and its corresponding rejection of

Epic’s illegality defense to Apple’s breach of contract

counter-claim. The panel held that the district court erred as

a matter of law in defining the relevant antitrust market and

in holding that a non-negotiated contract of adhesion, such

as the DPLA, falls outside the scope of Sherman Act § 1, but

those errors were harmless. The panel held that,

independent of the district court’s errors, Epic failed to

establish, as a factual matter, its proposed market definition

and the existence of any substantially less restrictive

4 EPIC GAMES, INC. V. APPLE, INC.

alternative means for Apple to accomplish the

procompetitive justifications supporting iOS’s walled-

garden ecosystem.

On Apple’s cross-appeal, the panel affirmed as to the

district court’s UCL ruling in favor of Epic, holding that the

district court did not clearly err in finding that Epic was

injured, err as a matter of law when applying California’s

flexible liability standards, or abuse its discretion when

fashioning equitable relief. Reversing in part, the panel held

that the district court erred when it ruled that Apple was not

entitled to attorney fees pursuant to the DPLA’s

indemnification provision.

Concurring in part and dissenting in part, Judge S.R.

Thomas wrote that he fully agreed with the majority that the

district court properly granted Epic injunctive relief on its

California UCL claims. Judge S.R. Thomas also fully

agreed that the district court properly rejected Epic’s

illegality defenses to the DPLA but that, contrary to the

district court’s decision, the DPLA did require Epic to pay

attorney fees for its breach. On the federal claims, Judge

S.R. Thomas also agreed that the district court erred in

defining the relevant market and erred when it held that a

non-negotiated contract of adhesion falls outside the scope

of Sherman Act § 1. Unlike the majority, however, Judge

S.R. Thomas would not conclude that these errors were

harmless because they related to threshold analytical steps

and affected Epic’s substantial rights. He would remand for

the district court to re-analyze the case using the proper

threshold determination of the relevant market.

EPIC GAMES, INC. V. APPLE, INC. 5

COUNSEL

Thomas C. Goldstein (argued), Goldstein & Russell P.C.,

Bethesda, Maryland; Christine A. Varney, Katherine B.

Forrest, Gary A. Bornstein, Peter T. Barbur, Antony L.

Ryan, Yonatan Even, Omid H. Nasab, M. Brent Byars, and

Wes Earnhardt, Cravath Swaine & Moore LLP, New York,

New York; Paul J. Riehle, Faegre Drinker Biddle & Reath,

San Francisco, California; for Plaintiff-counter-defendant-

Appellant.

Mark A. Perry (argued), Weil Gotshal & Manges LLP,

Washington, D.C.; Cynthia Richman, Joshua M. Wesneski,

Anna Casey, and Zachary B. Copeland, Gibson Dunn &

Crutcher LLP, Washington, D.C.; Theodore J. Boutrous Jr.,

Daniel G. Swanson, Richard J. Doren, Samuel Eckman,

Jason C. Lo, and Jagannathan Srinivasan, Gibson Dunn &

Crutcher LLP, Los Angeles, California; Rachel S. Brass and

Julian W. Kleinbrodt, Gibson Dunn & Crutcher LLP, San

Francisco, California; Karen L. Dunn, Paul Weiss Rifkind

Wharton & Garrison LLP, Washington, D.C.; for

Defendant-counter-claimant-Appellee.

Nickolai G. Levin (argued), Daniel E. Haar, Patrick M.

Kuhlmann, and Matthew C. Mandelberg, Attorneys; David

B. Lawrence, Policy Director; Doha G. Mekki, Principal

Deputy Assistant Attorney General; Antitrust Division,

United States Department of Justice; Washington, D.C.; for

Amicus Curiae United States of America.

Joshua Patashnik (argued), Deputy Solicitor General; Shira

Hoffman, Robert B. McNary, and Brian D. Wang, Deputy

Attorneys General; Paula Blizzard, Supervising Deputy

Attorney General; Kathleen Foote, Senior Assistant

Attorney General; Rob Bonta, Attorney General of

6 EPIC GAMES, INC. V. APPLE, INC.

California; Office of the California Attorney General; San

Francisco, California; for Amicus Curiae the State of

California.

Michael A. Carrier, Rutgers Law School, Camden, New

Jersey, for Amici Curiae 38 Law, Economics, and Business

Professors.

Geoffrey H. Kozen, Stacey P. Slaughter, Stephen P.

Safranski, and Kaitlin M. Ek, Robins Kaplan LLP,

Minneapolis, Minnesota; Lin Y. Chan, Lieff Cabraser

Heimann & Bernstein LLP, San Francisco, California;

Michelle J. Looby and Kaitlyn L. Dennis, Gustafson Gluek

PPLC, Minneapolis, Minnesota; Kristen G. Marttila,

Lockridge Grindal Nauen PLLP, Minneapolis, Minnesota;

for Amicus Curiae the Committee to Support the Antitrust

Laws.

Wendy Liu, Scott Nelson, and Allison M. Zieve, Public

Citizen Litigation Group, Washington, D.C., for Amicus

Curiae Public Citizen.

Peter D. St. Phillip Jr. and Margaret MacLean, Lowey

Dannenberg P.C., White Plains, New York, for Amici

Curiae the Consumer Federation of America and

Developers.

Christopher M. Wyant, K&L Gates LLP, Seattle,

Washington; Andrew Mann, K&L Gates, Washington, D.C.;

for Amici Curiae 14 Law, Economics, and Business

Professors.

Mitchell L. Stoltz, Electronic Frontier Foundation, San

Francisco, California, for Amicus Curiae the Electronic

Frontier Foundation.

EPIC GAMES, INC. V. APPLE, INC. 7

Aaron M. Panner and Julius P. Taranto, Kellog Hansen Todd

Figel & Frederick P.L.L.C., Washington, D.C., for Amicus

Curiae Microsoft Corporation.

David W. Kesselman and Eda Harotounian, Kesselman

Brantly Stockinger LLP, Manhattan Beach, California, for

Amici Curiae Unfair Competition Law Practitioners and

Scholars.

Stanford E. Purser, Deputy Solicitor General; Melissa A.

Holyoak, Solicitor General; Sean D. Reyes, Attorney

General of Utah; Office of the Utah Attorney General; Salt

Lake City, Utah; for Amici Curiae the State of Utah and 34

Other States.

Laura M. Alexander and Randy M. Stutz, American

Antitrust Institute, Washington, D.C., for Amicus Curiae the

American Antitrust Institute.

Michael Pepson and Jeffrey A. Ogar, Americans for

Prosperity Foundation, Arlington, Virginia, for Amicus

Curiae Americans for Prosperity Foundation.

Robert E. Dunn and Collin J. Vierra, Eimer Stahl LLP, San

Jose, California; James B. Speta, Eimer Stahl LLP, Chicago,

Illinois; for Amicus Curiae Act/The App Association.

Roy T. Englert Jr., Kramer Levin Naftalis & Frankel LLP,

Washington, D.C.; Leslie C. Esbrook, Robbins Russell

Englert Orseck & Untereiner LLP, Washington, D.C., for

Amici Curiae Former National Security Officials and

Scholars.

Fred J. Hiestand, Fred J. Hiestand APC, Sacramento,

California; William L. Stern, Law Offices of William L.

Stern, Berkeley, California; for Amicus Curiae the Civil

Justice Association.

8 EPIC GAMES, INC. V. APPLE, INC.

John M. Masslon II and Cory L. Andrews, Washington

Legal Foundation, Washington, D.C., for Amicus Curiae

Washington Legal Foundation.

Stephanie A. Joyce, Potomac Law Group, Washington,

D.C.; Krisztian Katona, Computer & Communications

Industry Association, Washington, D.C., for Amicus Curiae

Computer & Communications Industry Association.

Steve A. Hirsch and Benjamin Berkowitz, Keker Van Nest

& Peters LLP, San Francisco, California, for Amicus Curiae

Chamber of Progress.

Jack E. Pace III and Gina M. Chiappetta, White & Case LLP,

New York, New York; George L. Paul and Nicholas J.

McGuire, Washington, D.C.; for Amici Curiae International

Center for Law & Economics and Scholars of Law and

Economics.

Donald M. Falk, Schaerr Jaffe LLP, San Francisco,

California, for Amici Curiae Law and Economics Scholars

Alden Abbott, Henry N. Butler, Thomas A. Lambert, Alan

J. Messe, Aurilien Portuese, and John M. Yun.

Lori Alvino McGill, Washington, D.C.; Ryan J. Walsh,

Eimer Stahl LLP, Madison, Wisconsin; for Amicus Curiae

Information Technology & Innovation Foundation.

Douglas M. Tween, James R. Warnot Jr., and John W.

Eichlin, Linklaters LLP, New York, New York, for Amici

Curiae Law Professors.

James Orenstein, ZwillGen PLLC, New York, New York;

Marc J. Zwilinger, ZwillGen PLLC, Washington, D.C.; for

Amicus Curiae the Center for Cybersecurity Policy and Law.

EPIC GAMES, INC. V. APPLE, INC. 9

Paul T. Llewellyn and Marc R. Lewis, Lewis & Llewellyn

LLP, San Francisco, California, Amicus Curiae Roblox

Corporation.

Gregory G. Garre and Charles S. Dameron, Latham &

Watkins LLP, Washington, D.C.; Aaron T. Chiu, Latham &

Watkins LLP, San Francisco, California; for Amici Curiae

Former Federal Antitrust Enforcers Ethan Glass, Abbot B.

Lipsky Jr., Leslie Overton, Bilal Sayyed, James Tierney, and

Joshua Wright.

Kathleen R. Hartnett, Cooley LLP, San Francisco,

California; Heidi L. Keefer and Lowell D. Mead, Cooley

LLP, Palo Alto, California; for Amici Curiae Law and

Business Professors.

Peter D. St. Phillip Jr. and Margaret MacLean, Lowey

Dannenberg P.C., White Plains, New York, for Amici

Curiae Tile, Match Group Inc., Basecamp, Knitrino, and the

Coalition for App Fairness.

10 EPIC GAMES, INC. V. APPLE, INC.

OPINION

M. SMITH, Circuit Judge:

Epic Games, Inc. sued Apple, Inc. pursuant to the

Sherman Act, 15 U.S.C. §§ 1–2, and California’s Unfair

Competition Law (UCL), Cal. Bus. & Prof. Code § 17200 et

seq. Epic contends that Apple acted unlawfully by

restricting app distribution on iOS devices to Apple’s App

Store, requiring in-app purchases on iOS devices to use

Apple’s in-app payment processor, and limiting the ability

of app developers to communicate the availability of

alternative payment options to iOS device users. Apple

counter-sued for breach of contract and indemnification for

its attorney fees arising from this litigation.

After a sixteen-day bench trial involving dozens of

witnesses and nine hundred exhibits, the district court

rejected Epic’s Sherman Act claims challenging the first and

second of the above restrictions—principally on the factual

grounds that Epic failed to propose viable less restrictive

alternatives to Apple’s restrictions. The court then

concluded that the third restriction is unfair pursuant to the

UCL and enjoined Apple from enforcing it against any

developer. Finally, it held that Epic breached a contract with

Apple but was not obligated to pay Apple’s attorney fees.

Epic appeals the district court’s Sherman Act and breach of

contract rulings; Apple cross-appeals the district court’s

UCL and attorney fees rulings. We affirm the district court,

except for its ruling respecting attorney fees, where we

reverse and remand for further proceedings.

EPIC GAMES, INC. V. APPLE, INC. 11

FACTUAL AND PROCEDURAL HISTORY

I. The Parties

Apple is a multi-trillion-dollar technology company that,

of particular relevance here, sells desktop and laptop

computers (Macs), smartphones (iPhones), and tablets

(iPads). In 2007, Apple entered, and revolutionized, the

smartphone market with the iPhone—offering consumers,

through a then-novel multi-touch interface, access to email,

the internet, and several preinstalled “native” apps that

Apple had developed itself. Shortly after the iPhone’s debut,

Apple decided to move on from its native-apps-only

approach and open the iPhone’s (and later, the iPad’s)

operating system (iOS) to third-party apps. 1

This approach created a “symbiotic” relationship: Apple

provides app developers with a substantial consumer base,

and Apple benefits from increased consumer appeal given

the ever-expanding pool of iOS apps. Apple now has about

a 15% market share in the global smartphone market with

over 1 billion iPhone users, and there are over 30 million iOS

app developers. Considering only video game apps, the

number of iOS games has grown from 131 in the early days

of the iPhone to over 300,000 by the time this case was

brought to trial. These gaming apps generate an estimated

$100 billion in annual revenue.

Despite this general symbiosis, there is periodic friction

between Apple and app developers. That is because Apple,

when it opened the iPhone to third-party developers, did not

1

The iPad has its own operating system (iPadOS) that is derived from

iOS. For convenience, we use “iOS” to refer to both the iPhone and

iPad’s operating systems and collectively refer to iPhones and iPads as

“iOS devices.”

12 EPIC GAMES, INC. V. APPLE, INC.

create an entirely open ecosystem in which developers and

users could transact freely without any mediation. Instead,

Apple created a “walled garden” in which Apple plays a

significant curating role. 2 Developers can distribute their

apps to iOS devices only through Apple’s App Store and

after Apple has reviewed an app to ensure that it meets

certain security, privacy, content, and reliability

requirements. Developers are also required to use Apple’s

in-app payment processor (IAP) for any purchases that occur

within their apps. Subject to some exceptions, Apple

collects a 30% commission on initial app purchases

(downloading an app from the App Store) and subsequent

in-app purchases (purchasing add-on content within an app).

Epic is a multi-billion-dollar video game company with

three primary lines of business, each of which figures into

various aspects of the parties’ appeals. First, Epic is a video

game developer—best known for the immensely popular

Fortnite, which has over 400 million users worldwide across

gaming consoles, computers, smartphones, and tablets. Epic

monetizes Fortnite using a “freemium” model: The game is

free to download, but a user can purchase certain content

within the game, ranging from game modes to cosmetic

upgrades for the user’s character. Fortnite is also notable as

one of the first major video games to feature “cross-play,”

“cross-progression,” and “cross-wallet.” Cross-play permits

users on different platforms to play with one another.

Smartphone users, for example, can play against friends on

gaming consoles. Cross-progression allows users to retain

their in-game progress across every device they own. Users

2

Many game consoles—including the Microsoft Xbox, Nintendo

Switch, and Sony PlayStation—provide ecosystems that can similarly be

labeled “walled gardens.”

EPIC GAMES, INC. V. APPLE, INC. 13

can, for example, play Fortnite in the morning on their

smartphones and then pick up with their progress saved on

their gaming consoles in the evening. Cross-wallet allows

users to spend Fortnite’s in-game currency on one device

even if they purchased it on another. This cross-

functionality gives the estimated 32 to 52% of Fortnite users

who own multiple gaming devices flexibility regarding

where and how they play as well as on which devices they

make in-game purchases.

Second, Epic is the parent company of a gaming-

software developer. Epic International (a Swiss subsidiary)

licenses Unreal Engine to game developers. Unreal Engine

offers developers a suite of tools to create three-dimensional

content; in return, Epic International receives 5% of a

licensee’s gross revenue from a product developed using

Unreal Engine after that product generates $1,000,000 in

revenue. Although Unreal Engine is not on Apple’s App

Store, Epic International does offer several complementary

apps there. Unreal Remote and Live Link Face, for example,

allow users to capture live-action footage and then view it on

Unreal Engine. Thus, Epic—through its subsidiary—

continues to be affected by the policies that govern the App

Store.

Third, Epic is a video game publisher and distributor. It

offers the Epic Games Store as a game-transaction platform

on PC computers and Macs and seeks to do the same for iOS

devices. As a distributor, Epic makes a game available for

download on the Epic Games Store and covers the direct

costs of distribution; in exchange, Epic receives a 12%

commission—a below-cost commission that sacrifices

short-term profitability to build market share. The Epic

Games Store has over 180 million registered accounts and

over 50 million monthly active users. Through the Epic

14 EPIC GAMES, INC. V. APPLE, INC.

Games Store, Epic is a would-be competitor of Apple for

iOS game distribution and a direct competitor when it comes

to games that feature cross-platform functionality like

Fortnite.

II. The Developer Program Licensing Agreement

Apple creates its walled-garden ecosystem through both

technical and contractual means. To distribute apps to iOS

users, a developer must pay a flat $99 fee and execute the

Developer Program Licensing Agreement (DPLA). The

DPLA is a contract of adhesion; out of the millions of

registered iOS developers, only a handful have convinced

Apple to modify its terms.

By agreeing to the DPLA, developers unlock access to

Apple’s vast consumer base—the over 1 billion users that

make up about 15% of global smartphone users. They also

receive tools that facilitate the development of iOS aps,

including advanced application-programming interfaces,

beta software, and an app-testing software. In essence,

Apple uses the DPLA to license its IP to developers in

exchange for a $99 fee and an ongoing 30% commission on

developers’ iOS revenue.

The DPLA contains the three provisions that give rise to

this lawsuit and were mentioned in the introduction. First,

developers can distribute iOS apps only through the App

Store (the distribution restriction). Epic Games, for

example, cannot make the Epic Games Store available as an

iOS app and then offer Fortnite for download through that

app. Second, developers must use Apple’s IAP to process

in-app payments (the IAP requirement). Both initial

downloads (where an app is not free) and in-app payments

are subject to a 30% commission. Third, developers cannot

communicate out-of-app payment methods through certain

EPIC GAMES, INC. V. APPLE, INC. 15

mechanisms such as in-app links (the anti-steering

provision). “Apps and their metadata may not include

buttons, external links, or other calls to action that direct

customers to purchasing mechanisms other than [IAP].” Nor

can developers use “points of contact obtained from account

registration within the app (like email or text) [to] encourage

users to use a purchasing method other than [IAP].”

III. Apple and Epic’s Business Relationship

In 2010, Epic agreed to the DPLA. Over the next few

years, Epic released three games for iOS, each of which

Apple promoted at major events. In 2015, however, Epic

began objecting to Apple’s walled-garden approach. Epic’s

CEO Tim Sweeney argued, in an email seeking a meeting

with Apple senior leadership, that it “doesn’t seem tenable

for Apple to be the sole arbiter of expression and commerce”

for iOS users, and explained that Epic runs a competing

game-transaction platform that it “would love to eventually”

offer on iOS. Nothing came of this email, and Epic

continued to offer games on iOS while complying with the

DPLA’s terms. In 2018, Epic released Fortnite on iOS—

amassing about 115 million iOS users.

In 2020, Epic renewed the DPLA with Apple but sought

a “side letter” modifying its terms. In particular, Epic

desired to offer iOS users alternatives for distribution (the

Epic Games Store) and in-app payment processing (Epic

Direct Pay). Apple flatly rejected this offer, stating: “We

understand this might be in Epic’s financial interests, but

Apple strongly believes these rules are vital to the health of

the Apple platform and carry enormous benefits for both

consumers and developers. The guiding principle of the App

Store is to prove a safe, secure, and reliable experience for

users . . . .”

16 EPIC GAMES, INC. V. APPLE, INC.

Once Apple rejected its offer, Epic kicked into full gear

an initiative called “Project Liberty”: a two-part plan it had

been developing since 2019 to undermine Apple’s control

over software distribution and payment processing on iOS

devices, as well as Google’s influence over Android devices.

Project Liberty coupled a media campaign against Apple and

Google with a software update expressly designed to

circumvent Apple’s IAP restriction. On the media-campaign

side, Epic lowered the price of Fortnite’s in-app purchases

on all platforms but Apple’s App Store and Google’s Google

Play Store; it formed an advocacy group (the Coalition for

App Fairness), tasking it with “generating continuous media

. . . pressure” on Apple and Google; and it ran

advertisements portraying Apple and Google as the “bad

guys” standing in the way of Epic’s attempt to pass cost-

savings onto consumers.

On the IAP-circumvention side, Epic submitted a

Fortnite software update (which Epic calls a “hotfix”) to

Apple for review containing undisclosed code that, once

activated, would enable Fortnite users to make in-game

purchases without using Apple’s IAP. Unaware of this

undisclosed code, Apple approved the update and it was

made available to iOS users. Shortly thereafter Epic

activated the undisclosed code and opened its IAP

alternative to users. That same day, Apple became aware of

the hotfix and removed Fortnite from the App Store. Apple

informed Epic that it had two weeks to cure its breaches of

the DPLA, or otherwise Apple would terminate Epic Games’

developer account.

EPIC GAMES, INC. V. APPLE, INC. 17

IV. Procedural History

A. Pre-Trial Proceedings

Only three days after Apple removed Fortnite from the

App Store, Epic filed a 62-page complaint against Apple in

the Northern District of California seeking a temporary

restraining order (TRO) reinstating Fortnite and enjoining

Apple from terminating Epic’s iOS developer account. 3 The

district court granted Epic’s prayer in part and denied in

part—leaving Fortnite off the App Store but temporarily

preventing Apple from taking any adverse action regarding

Epic’s developer account. After the TRO expired, Apple

terminated Epic’s developer account. The court then issued

a preliminary injunction preventing Apple from terminating

the developer accounts of Epic’s subsidiaries (including

Epic International) and scheduled a bench trial on an

expedited basis, with trial beginning just about eight months

after Epic filed its complaint.

Epic brought claims for permanent injunctive relief

pursuant to the Sherman Act and the UCL. Epic’s requested

relief, though somewhat vague, would essentially convert

iOS into an entirely open platform: Developers would be

free to distribute apps through any means they wish and use

any in-app payment processor they choose. Taken together,

this relief would create a pathway for developers to bypass

Apple’s 30% commission altogether, though Epic made

open-ended assurances at trial that its relief would allow

3

The same day, Epic filed a 60-page complaint against Google,

challenging its policies regarding the Google Play Store on Android

devices—i.e., smartphones and tablets that use the main operating-

system alternative to iOS. See Complaint for Injunctive Relief, Epic

Games, Inc. v. Google LLC, No. 3:20-cv-05671 (filed Aug. 13, 2020

N.D. Cal.).

18 EPIC GAMES, INC. V. APPLE, INC.

Apple to collect a commission—just not in the manner that

the DPLA establishes. Apple brought counter-claims for

breach of contract and indemnification for its attorney fees

related to this litigation. 4

B. The District Court’s Rule 52 Order

After a sixteen-day bench trial, the district court issued a

180-page order pursuant to Federal Rule 52 detailing its

findings of facts and conclusions of law.

1. Market Definition

The district court began its analysis by defining the

relevant market for Epic’s Sherman Act claims. Epic

proposed two single-brand markets: the aftermarkets for

iOS app distribution and iOS in-app payment solutions,

derived from a foremarket for smartphone operating

systems. Apple, by contrast, proposed the market for all

video game transactions, whether those transactions occur

on a smartphone, a gaming console, or elsewhere. The

district court ultimately found a market between those the

parties proposed: mobile-game transactions—i.e., game

transactions on iOS and Android smartphones and tablets.

Compared to Epic’s proposed aftermarkets, the district

court’s relevant market was both broader and narrower—

broader in that it declined to focus exclusively on iOS, but

narrower in that it considered only video game transactions

instead of all app transactions. Compared to Apple’s

proposed market, the district court’s relevant market was

4

We omit any discussion of the following claims that the parties asserted

below but do not address before our court: (1) Epic’s Cartwright Act

claims; (2) Apple’s counter-claim for breach of the implied covenant of

good faith and fair dealing; and (3) Apple’s counter-claim for unjust

enrichment.

EPIC GAMES, INC. V. APPLE, INC. 19

narrower—excluding game-console and streaming-service

transactions.

The district court rejected Epic’s proposed single-brand

markets on several grounds. It held that there was no

foremarket for smartphone and tablet operating systems

because Apple does not license or sell iOS. More critically,

it analyzed Epic’s aftermarkets in the alternative and found

a failure of proof. Epic presented no evidence regarding

whether consumers unknowingly lock themselves into

Apple’s app-distribution and IAP restrictions when they buy

iOS devices. A natural experiment facilitated by Apple’s

removal of Fortnite from the App Store showed that iOS

Fortnite users switched about 87% of their pre-removal iOS

spending to other platforms—suggesting substitutionality

between the App Store and other game-transaction

platforms. The district court also rejected Apple’s relevant

market-definition expert as “weakly probative” and “more

interested in a result [that] would assist his client than in

providing any objective ground to assist the court in its

decision-making” (cleaned up). Among other flaws, the

expert’s analysis contradicted his own academic articles on

how to analyze two-sided markets; used consumer-survey

wording that departed from well-established market-

definition principles; failed to account for holiday-season

idiosyncrasies; and excluded minors (who are an important

segment of mobile-game purchasers). The district court then

turned to Apple’s proposed relevant market definition and

refined it from all game transactions to mobile game

transactions by relying extensively on the “practical indicia”

of markets enumerated in the Supreme Court’s decision in

Brown Shoe v. United States, 370 U.S. 294, 325 (1962).

20 EPIC GAMES, INC. V. APPLE, INC.

2. Sherman Act Section 1: Restraint of Trade

The district court then rejected Epic’s Sherman Act

Section 1 restraint-of-trade-claim. As a threshold matter, the

court held that the DPLA was not a “contract[]” that fell

within the scope of Section 1 because it was a “contract of

adhesion,” not a truly bargained-for agreement. It then, in

the alternative, applied the Rule of Reason—the antitrust

liability standard applicable to most cases.

At step one of the Rule of Reason, the district court found

that Epic proved substantial anticompetitive harms through

both direct and indirect evidence. Apple has for years

charged a supracompetitive commission on App Store

transactions that it set “without regard” for competition.

That commission, in turn, creates an “extraordinary high”

operating margin of 75% for App Store transactions.

Moreover, Apple has market power in the mobile-games-

transactions market, evidenced by its 52 to 57% market share

and barriers to entry in the form of network effects. Apple

uses that market power to prevent would-be competitors like

Epic from offering app-distribution and payment-processing

alternatives, reducing innovation and Apple’s own

investment in the App Store in the process.

At step two of the Rule of Reason, the district court

found that Apple established non-pretextual, legally

cognizable procompetitive rationales for its app-distribution

and IAP restrictions. The district court credited Apple’s

rationale that its restrictions seek to enhance consumer

appeal and differentiate Apple products by improving iOS

security and privacy. It also partially accepted Apple’s

rationale that the restrictions are a means of being

compensated for third-party developers’ use of its

intellectual property—crediting it generally but rejecting it

EPIC GAMES, INC. V. APPLE, INC. 21

“with respect to the [App Store’s] 30% commission rate

specifically.”

At step three of the Rule of Reason, the district court

rejected Epic’s proposed less restrictive alternatives (LRAs)

as severely underdeveloped. As a purported LRA to Apple’s

app-distribution restriction, Epic primarily advanced a

“notarization model” based on Apple’s approach to security

on the Mac operating system (macOS). On macOS, Apple

does not mandate an exclusive distribution channel, as it

does on iOS; nor does Apple condition distribution of an app

on first submitting that app to Apple for review. But when

a developer chooses to forego submitting an app to Apple,

that app—regardless of how it is distributed to Mac users—

will carry a warning that Apple has not scanned it for

malware. Critically, the macOS notarization model does not

contain a layer of human review as iOS app review does.

Given this discrepancy, the district court found that such a

model would not be as effective as Apple’s current model in

achieving Apple’s security and privacy goals. It briefly

considered whether Apple could close the gap by imposing

a security and privacy floor on third-party app stores, but

then noted that it is unclear whether doing so would comport

with Epic’s requested injunctive relief. In any event, the

court found that Epic failed to prove the notarization model

would accomplish Apple’s IP-compensation rationale

because Epic’s requested relief “leave[s] unclear whether

Apple can collect licensing fee royalties and, if so, how it

would do so.”

As a purported LRA for the IAP requirement, Epic

proposed opening in-app payment processing to competing

vendors. The district court again rejected the proposed LRA

as not being as effective as Apple’s current model in

accomplishing its security and privacy goals. More

22 EPIC GAMES, INC. V. APPLE, INC.

fundamentally, there was little in the record showing how

Epic envisioned Apple accomplishing its IP-compensation

goal through the proposed LRA. Because the court upheld

the app-distribution restriction, Apple would still be entitled

to its 30% commission on in-app purchases within apps

downloaded from the App Store. On its own initiative, the

district court floated the idea of Apple permitting multiple

in-app payment processors while reserving a right to audit

developers to ensure compliance with the 30% commission.

But it quickly rejected that as an alternative because it

“would seemingly impose both increased monetary and time

costs.”

3. Sherman Act Section 1: Tying

The district court rejected Epic’s Sherman Act claim that

Apple ties in-app payment processing (IAP) to app

distribution (the App Store). It did so on the grounds that

neither of the purported separate products were actually

separate. As a result, it did not decide which liability

standard—per se condemnation or the Rule of Reason—

would govern the arrangement’s lawfulness.

4. Sherman Act Section 2: Monopoly

Maintenance

The district court also rejected Epic’s claim that Apple

monopolized the market for mobile-games transactions.

Though Apple has significant market power, the court found

it to be insufficiently durable given the rapidly changing

nature of the market. In any event, the court reiterated its

Rule of Reason analysis to hold that Apple did not maintain

its power through anticompetitive conduct.

EPIC GAMES, INC. V. APPLE, INC. 23

5. Unfair Competition Law

The court then applied the UCL to Apple’s anti-steering

provision. The court found that Epic is sufficiently injured

to seek injunctive relief because Epic is a competing games

distributor and would earn additional revenue but for

Apple’s restrictions. On the merits, the court applied the

competitor-suit “tethering test” and consumer-suit

“balancing test” and found the anti-steering provision to be

“unfair” pursuant to both. The court concluded that Epic

satisfied all the requirements for injunctive relief and the

nature of Epic’s injury warranted an injunction preventing

Apple from enforcing the provision against any developer.

6. Breach of Contract

Turning to Apple’s counter-claims, the district found

Epic liable for breach of the DPLA. Epic had stipulated that

the Project Liberty hotfix breached the DPLA’s IAP

requirement, so the only dispute was whether Epic could

prove that the contract was illegal, void as against public

policy, or unconscionable. The district court rejected each

of these affirmative defenses.

7. Attorney Fees

Finally, the district court rejected Apple’s

indemnification claim, which asserted Epic was obligated to

pay its attorney fees incurred in this litigation. The DPLA

provides that Epic “agree[s] to indemnify and hold harmless

[Apple] . . . from any and all claims, losses, liabilities,

damages, taxes, expenses and costs, including without

limitation, attorneys’ fees and court costs . . . , incurred by

[Apple] and arising from or related to” Epic’s “breach of any

certification, covenant, obligation, representation or

warranty in [the DPLA].” Applying a principle of California

24 EPIC GAMES, INC. V. APPLE, INC.

contract law requiring a clear statement before finding an

indemnification clause to apply to disputes between the

parties themselves, the district court construed the provision

as applicable only to third-party claims.

C. Post-Trial Proceedings

Following the handing down of the district court’s order,

the parties timely appealed and cross-appealed. Apple also

moved to stay the UCL injunction pending appeal—arguing

that Epic lacked standing in light of its developer account

termination and that injunctive relief was inappropriate. The

district court denied the motion and a panel of our court

granted it in part.

JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction pursuant to 28 U.S.C. § 1291. In

an appeal following a bench trial, we review the district

court’s factual findings for clear error and its conclusions of

law de novo. Oakland Bulk & Oversized Terminal, LLC v.

City of Oakland, 960 F.3d 603, 612 (9th Cir. 2020). We

specify the applicable standards of review throughout our

opinion.

ANALYSIS

On appeal, Epic challenges the district court’s Sherman

Act and breach of contract rulings. We affirm the district

court’s denial of antitrust liability and its corresponding

rejection of Epic’s illegality defense to Apple’s breach of

contract counter-claim. Though the district court erred as a

matter of law on several issues, those errors were harmless.

Independent of the district court’s errors, Epic failed to

establish—as a factual matter—its proposed market

definition and the existence of any substantially less

restrictive alternative means for Apple to accomplish the

EPIC GAMES, INC. V. APPLE, INC. 25

procompetitive justifications supporting iOS’s walled-

garden ecosystem.

On cross-appeal, Apple challenges the district court’s

UCL and attorney fees rulings. We affirm in part and reverse

and remand in part. The district court did not clearly err in

finding that Epic was injured, err as a matter of law when

applying California’s flexible liability standards, or abuse its

discretion when fashioning equitable relief. The district

court did, however, err when it held that Apple was not

entitled to attorney fees pursuant to the DPLA’s

indemnification provision.

I. Market Definition

We begin with Epic’s appeal. Epic argues that the

district court incorrectly defined the relevant market for its

antitrust claims to be mobile-game transactions instead of

Epic’s proposed aftermarkets of iOS app distribution and

iOS in-app payment solutions. Epic contends both that the

district court erred as a matter of law by requiring several

threshold showings before finding a single-brand market and

that, once those errors are corrected, the record compels the

conclusion that Epic established its single-brand markets.

We agree that the district court erred in certain aspects of its

market-definition analysis but conclude that those errors

were harmless. Despite some threshold errors, the district

court proceeded to analyze Epic’s evidence pursuant to the

proper legal framework and did not clearly err in rejecting

Epic’s proposed relevant markets. In particular, Epic failed

to produce any evidence showing—as our precedent

requires—that consumers are generally unaware of Apple’s

app-distribution and IAP restrictions when they purchase

iOS devices.

26 EPIC GAMES, INC. V. APPLE, INC.

A. General Market-Definition Principles

The Sherman Act contains two principal prohibitions.

Section 1 targets concerted action, rendering unlawful

“every contract, combination . . . , or conspiracy, in restraint

of trade.” 15 U.S.C. § 1. Section 2 targets independent

action, making it unlawful to “monopolize, or attempt to

monopolize, or combine or conspire with any other person

or persons, to monopolize any part of the trade or commerce

among the several States.” Id. § 2; see Copperweld Corp. v.

Indep. Tube Corp., 467 U.S. 752, 767 (1984) (“The Sherman

Act contains a ‘basic distinction between concerted and

independent action.’” (quoting Monsanto Co. v. Spray-Rite

Serv. Corp., 465 U.S. 752, 761 (1984))). 5

There are two general categories of liability standards for

Sherman Act claims. Flaa v. Hollywood Foreign Press

Ass’n, 55 F.4th 680, 685 (9th Cir. 2022). “A small group of

restraints are unreasonable per se because they ‘always or

almost always tend to restrict competition and decrease

output.’” Id. (quoting Ohio v. Am. Express Co. (“Amex”),

138 S. Ct. 2274, 2283 (2018)). When a per se prohibition

applies, we deem a restraint unlawful without any “elaborate

study of the industry” in which it occurs. Id. (quoting

Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006)). Most

5

This concerted/independent distinction is somewhat imprecise because

Section 2 also encompasses certain concerted action—i.e., “conspiring

with any other person or persons” to monopolize a market. See

Dreamstime.com, LLC v. Google LLC, 54 F.4th 1130, 1137 (9th Cir.

2022) (“Section 2 of the Sherman Act prohibits concerted and

independent action that ‘monopolize[s] or attempt[s] to monopolize.’”).

However, because the distinction is a useful shorthand that is accurate in

the mine-run of cases and used throughout the Supreme Court’s and our

court’s decisions, we adopt it here as well.

EPIC GAMES, INC. V. APPLE, INC. 27

restraints, however, are subject to the Rule of Reason: a

multi-step, burden-shifting framework that “requires courts

to conduct a fact-specific assessment” to determine a

restraint’s “actual effect” on competition. Amex, 138 S. Ct.

at 2284 (quoting Copperweld, 467 U.S. at 768).

The Rule of Reason applies “essentially the same”

regardless of “whether the alleged antitrust violation

involves concerted anticompetitive conduct under § 1 or

independent anticompetitive conduct under § 2.” FTC v.

Qualcomm Inc., 969 F.3d 974, 991 (9th Cir. 2020); see also

Flaa, 55 F.4th at 685 (“Because the legal tests for sections 1

and 2 of the Sherman Act similar, we can ‘review claims

under each section simultaneously.’” (quoting Qualcomm,

969 F.3d at 991)).

In most, though not all, Rule of Reason cases, a

“threshold step” is defining the relevant market in which the

alleged restraint occurs. Qualcomm, 969 F.3d at 992; see

also Amex, 138 S. Ct. at 2285 (“[C]ourts usually cannot

properly apply the rule of reason without an accurate

definition of the relevant market.”). 6 Because Epic asserts

6

Despite dicta in Qualcomm suggesting the contrary, we have never held

that a precise market definition is an absolute requirement “in any

antitrust case.” Qualcomm, 969 F.3d at 992. We apply per se rules (e.g.,

the prohibition against price-fixing) without inquiring into market

power. See, e.g., Dagher, 547 U.S. at 5 (per se rules require “no

elaborate study of the industry”). Moreover, as the Supreme Court noted

in Amex, it has previously applied the Rule of Reason—in its so-called

“quick look” cases—without first defining the exact contours of the

relevant market. 138 S. Ct. at 2285 n.7 (citing FTC v. Ind. Fed’n of

Dentists, 476 U.S. 447 (1986), and Catalano, Inc. v. Target Sales, Inc.,

446 U.S. 643 (1980)); see also 1 Julian Von Kalinowski, Peter Sullivan

& Maureen, Antitrust Laws and Trade Regulation § 12.01[3] (2022)

28 EPIC GAMES, INC. V. APPLE, INC.

Rule of Reason claims and presented both direct and indirect

evidence of Apple’s market power, we begin our analysis

with market definition.

The relevant market for antitrust purposes is “the area of

effective competition”—i.e., “the arena within which

significant substitution in consumption or production

occurs.” Amex, 138 S. Ct. at 2285 (quoting Phillip E. Areeda

& Herbert Hovenkamp, Fundamentals of Antitrust Law §

5.02 (4th ed. 2017)); see also Image Tech. Servs., Inc. v.

Eastman Kodak Co., 125 F.3d 1195, 1202 (9th Cir. 1997)

(“The relevant market is the field in which meaningful

competition is said to exist.”). A relevant market contains

both a geographic component and a product or service

component. Hicks v. PGA Tour, Inc., 897 F.3d 1109, 1120

(9th Cir. 2018).

A market comprises “any grouping of sales whose

sellers, if unified by a monopolist or a hypothetical cartel”

could profitably raise prices above a competitive level.

Rebel Oil Co., Inc. v. Atl. Richfield Co., 51 F.3d 1421, 1434

(9th Cir. 1995). If the “sales of other producers [could]

substantially constrain the price-increasing ability of the

monopolist or hypothetical cartel, these other producers

must be included in the market.” Id. To conduct this inquiry,

courts must determine which products have a “‘reasonable

interchangeability of use’ or sufficient ‘cross-elasticity of

demand’” with each other. Hicks, 897 F.3d at 1120 (quoting

Brown Shoe, 370 U.S. at 325); see also United States v. E. I.

(“Usually, the ‘quick look’ does not require a detailed analysis of the

relevant market and market power.”); Phillip E. Areeda & Herbert

Hovenkamp, Antitrust Law ⁋ 1911a (4th ed. 2022) (“[D]ifferent

applications of the rule of reason require different types and levels of

inquiry.”).

EPIC GAMES, INC. V. APPLE, INC. 29

du Pont de Nemours & Co., 351 U.S. 377, 400 (1956)

(emphasizing “the responsiveness of the sales of one product

to price changes of [another]”).

Often, this inquiry involves empirical evidence in the

form of a “SSNIP” analysis. That analysis echoes Rebel Oil

and uses past consumer-demand data and/or consumer-

survey responses to determine whether a hypothetical

monopolist could profitably impose a Small, Significant,

Non-transitory Increase in Price above a competitive level.

As we have previously summarized this analysis:

[A]n economist proposes a narrow

geographic and product market definition

and then iteratively expands that

definition until a hypothetical monopolist

in the proposed market would be able to

profitably make a small but significant

non-transitory increase in price

(“SSNIP”). At each step, if consumers

would respond to a SSNIP by making

purchases outside the proposed market

definition, thereby rendering the SSNIP

unprofitable, then the proposed market

definition is too narrow. At the next step,

the economist expands the proposed

geographic or product market definition to

include the substituted products or area.

This process is repeated until a SSNIP in

the proposed market is predicted to be

profitable for the hypothetical monopolist.

Optronic Techs., Inc. v. Ningbo Sunny Elec. Co., 20 F.4th

466, 482 n.1 (9th Cir. 2021). SSNIP analyses are relevant to

30 EPIC GAMES, INC. V. APPLE, INC.

both Clayton Act merger challenges and Sherman Act

restraint-of-trade or monopolization cases. See id. (Sherman

Act section 2 monopolization claim); Saint Alphonsus Med.

Ctr.-Nampa Inc. v. St. Luke’s Health Sys., Ltd., 778 F.3d

775, 783 (9th Cir. 2015) (Clayton Act section 7 merger

challenge). 7

Courts also consider several “practical indicia” that the

Supreme Court highlighted in Brown Shoe: “[1] industry or

public recognition of the [market] as a separate economic

entity, [2] the product’s peculiar characteristics and uses, [3]

unique production facilities, [4] distinct customers, [5]

distinct prices, [6] sensitivity to price changes, and [7]

specialized vendors.” Brown Shoe, 370 U.S. at 325; Olin

Corp. v. FTC, 986 F.2d 1295, 1299 (9th Cir. 1993) (invoking

Brown Shoe indicia); see also Areeda & Hovenkamp,

Antitrust Law, supra, ⁋ 533 (describing these indicia as

having “evidentiary usefulness” in determining cross-

elasticity of demand).

B. Single-Brand Aftermarkets

“[I]n some instances one brand of a product can

constitute a separate market.” Eastman Kodak Co. v. Image

Tech. Servs., Inc., 504 U.S. 451, 482 (1992); see also Newcal

Indus., Inc. v. Ikon Office Sol., 513 F.3d 1038, 1048 (9th Cir.

7

Thus, to the extent the district court held that a SSNIP analysis applies

only to merger challenges, it erred. However, because Sherman Act

cases may involve markets in which a defendant has substantial market

power or monopoly power (and has already exercised that power to

charge a supracompetitive price), a SSNIP analysis in such cases “must

not be used uncritically, and alternative indicia of market power should

be explored.” Areeda & Hovenkamp, Antitrust Law, supra, ⁋ 539.

Otherwise, a court may risk a false negative: over-defining a market and

finding no market power where, in fact, it does exist.

EPIC GAMES, INC. V. APPLE, INC. 31

2008) (“[T]he law permits an antitrust claimant to restrict the

relevant market to a single brand of the product at issue[.]”).

More specifically, the relevant market for antitrust purposes

can be an aftermarket—where demand for a good is entirely

dependent on the prior purchase of a durable good in a

foremarket.

In Kodak, the Supreme Court considered the question of

whether a lack of market power in the foremarket

(photocopier machines, generally) categorically precludes a

finding of market power in the aftermarket (replacement

parts for and servicing of Kodak-brand photocopiers), which

Kodak had allegedly achieved by contractually limiting

customers to Kodak-provided parts and services. 504 U.S.

at 455, 466. The Supreme Court rejected Kodak’s invitation

to impose an across-the-board rule because it was not

convinced that the rule—which “rest[ed] on a factual

assumption about the cross-elasticity of demand” in

aftermarkets—would always hold true. Id. at 470. The

Supreme Court thus folded aftermarkets into the framework

for assessing markets generally, evaluating cross-elasticity

of demand to determine whether a hypothetical monopolist

could profitably charge a supracompetitive price. See id. at

469 (“The extent to which one market prevents exploitation

of another market depends on the extent to which consumers

will change their consumption of one product to a price

change in another, i.e., the ‘cross-elasticity of demand.’”

(quoting Du Pont, 351 U.S. at 400)).

Explaining its skepticism of the factual assumption

underlying Kodak’s proposed categorical rule, the Court

reasoned that “significant” (1) information costs and (2)

switching costs “could create a less responsive connection

between aftermarket prices and [foremarket] sales,”

particularly where the percentage of “sophisticated

32 EPIC GAMES, INC. V. APPLE, INC.

purchasers” able to accurately life-cycle price is low. Id. at

473, 475; see also id. 477 n.24 (a “crucial” element is that

the aftermarket restrictions were not “generally known” by

foremarket consumers). That is, these conditions might

“lock-in” unknowing customers such that competition in the

foremarket cannot “discipline [competition in] the

aftermarkets,” meaning a hypothetical monopolist could

price its aftermarket products at a supracompetitive level

without a substantial number of customers substituting to

other products. Id. at 486; see also Von Kalinowski et al.,

supra, § 24.02[5] (Kodak single-brand aftermarket requires

“high switching costs,” “high information costs,” and

“substantial” ability to “exploit ‘ignorant’ consumers”).

Whether a plaintiff has proven such a lock-in must be

resolved “on a case-by-case basis, focusing on the ‘particular

facts disclosed by the record.’” Kodak, 504 U.S. at 467

(quoting Maple Flooring Mfrs. Ass’n v. United States, 268

U.S. 563, 579 (1925)).

In Newcal, we considered how to square Kodak with our

prior holding in Forsyth that contractual obligations are

generally “not a cognizable source of market power.”

Newcal, 513 F.3d at 1047 (citing Forsyth v. Humana, Inc.,

114 F.3d 1467 (9th Cir. 2017)). We reasoned that the

“critical distinction” between Kodak, on the one hand, and

Forsyth, on the other, is that “the Kodak customers did not

knowingly enter a contract that gave Kodak the exclusive

right to prove parts and services for the life of the

equipment.” Id. at 1048. Put otherwise, the “simple

purchase of a Kodak-brand equipment” was not

“functionally equivalent to the signing of a contractual

agreement” limiting aftermarket choices. Id.; see also id. at

1049 (“[T]he law permits an inquiry into whether a

consumer’s selection of a particular brand in the competitive

EPIC GAMES, INC. V. APPLE, INC. 33

market is the functional equivalent of a contractual

commitment, giving that brand an agreed-upon right to

monopolize its consumers in an aftermarket.”). Kodak thus

differed markedly from Forsyth, which involved medical-

insurance policyholders who entered into insurance

contracts with Humana knowing that certain hospitals would

carry higher deductibles and co-payments than others. See

id. at 1048–49.

Our knowledge-based distinction in Newcal flowed

directly from the Supreme Court’s emphasis in Kodak on a

defendant’s ability to use not “generally known” aftermarket

restrictions to exploit unsophisticated consumers. Kodak,

504 U.S. at 477 n.24. And, as in Kodak, we made sure to

emphasize that the aftermarkets inquiry does not end as soon

as a plaintiff checks the Kodak-based boxes related to

consumer knowledge, information costs, and switching

costs. “Even when a submarket is an Eastman Kodak

market, though, it must bear the ‘practical indicia’ of an

independent economic entity in order to qualify as a

cognizable submarket under Brown Shoe.” Newcal, 513

F.3d at 1051.

In sum, to establish a single-brand aftermarket, a plaintiff

must show: (1) the challenged aftermarket restrictions are

“not generally known” when consumers make their

foremarket purchase; (2) “significant” information costs

prevent accurate life-cycle pricing; (3) “significant”

monetary or non-monetary switching costs exist; and (4)

general market-definition principles regarding cross-

34 EPIC GAMES, INC. V. APPLE, INC.

elasticity of demand do not undermine the proposed single-

brand market. 8

C. Standard of Review

“We review relevant market definitions as fact findings

reversible only if the evidence compels a conclusion

contrary to the [factfinder’s] verdict.” Optronic, 20 F.4th at

482; see also Saint Alphonsus, 778 F.3d at 784 (finding “no

clear error” in the district court’s market definition). Where

a plaintiff asserts a Kodak-style single-brand aftermarket, it

bears the burden of “rebut[ting] the economic presumption

that . . . consumers make a knowing choice to restrict their

aftermarket options when they decide in the initial

(competitive) market to enter a[] . . . contract.” Newcal, 513

F.3d at 1050.

D. Epic’s Legal Challenges

With these principles in mind, we now turn to Epic’s

arguments that the district court committed legal error when

it (1) held a market can never be defined around a product

that the defendant does not license or sell, (2) required lack

of consumer awareness to establish a Kodak-style market,

(3) purportedly required a change in policy to establish a

Kodak-style market, and (4) required Epic to establish the

“magnitude” of switching costs. We agree with Epic on its

first argument and, to the extent the district court did impose

8

Epic and the district court interpret Newcal to impose a different four-

part test. In doing so, they mistakenly rely on a portion of Newcal where

we determined that the specific complaint before us plausibly alleged

lack of consumer awareness such that it fell on the Kodak side of the

Kodak/Forsyth divide. See Newcal, 513 F.3d at 1049 (“In determining

whether this case is more like . . . Forsyth or more like Eastman Kodak,

there are four relevant aspects of the complaint.”).

EPIC GAMES, INC. V. APPLE, INC. 35

a change-in-policy requirement, Epic’s third argument. But

we reject Epic’s second and fourth arguments as squarely

foreclosed by Kodak and Newcal. 9

1. Unlicensed or Unsold Product Markets

First, the district court erred by imposing a categorical

rule that an antitrust market can never relate to a product that

is not licensed or sold—here smartphone operating systems.

To begin, this categorical rule flouts the Supreme Court’s

instruction that courts should conduct market-definition

inquiries based not on “formalistic distinctions” but on

“actual market realities.” Amex, 138 S. Ct. at 2285 (quoting

Kodak, 504 U.S. at 466–67).

Moreover, the district court’s rule is difficult to square

with decisions defining a product market to include

vertically integrated firms that self-provision the relevant

product but make no outside sales. For example, the D.C.

Circuit in Microsoft noted that “Apple had a not insignificant

share of worldwide sales of operating systems,” even though

Apple did not sell or license macOS but instead only

included it in its own Mac computers. United States v.

9

We also reject Apple’s suggestion that Epic’s antitrust claims should

have automatically failed as soon as the district court adopted a market

of mobile-game transactions, instead of Epic’s proposed aftermarkets.

None of the authorities Apple cites comes anywhere close to supporting

its radical argument that, where parties offer dueling market definitions,

the case immediately ends if the district court finds the record supports

the defendant’s proposed market (or a third in-between market, as was

the case here) rather than the plaintiff’s market. Instead, our precedent

squarely forecloses such an argument. See Rebel Oil, 51 F.3d at 1421

(rejecting the plaintiff’s proposed market but stating that such a rejection

was “not fatal” to its claim, and remanding to determine whether the

defendant possessed market power in the defendant-proposed market

that the court adopted).

36 EPIC GAMES, INC. V. APPLE, INC.

Microsoft Corp., 253 F.3d 34, 73 (D.C. Cir. 2001). While

the Microsoft court ultimately excluded macOS from its

market, it did so on fact-bound substitutability grounds, not

the categorical grounds that the district court used here. Id.

at 52.

Finally, the district court’s rule overlooks that there may

be markets where companies offer a product to one side of

the market for free but profit in other ways, such as by

collecting consumer data or generating ad revenue. See, e.g.,

FTC v. Facebook, Inc., 581 F. Supp. 3d 34, 44–45, 55

(D.D.C. 2022) (finding FTC plausibly alleged a market of

personal social networks even though “all [are] provided free

of charge” to users). It puts form over substance to say that

such products cannot form a market because they are not

directly licensed or sold.

2. Lack of Consumer Knowledge

Second, the district court did not err when it required

Epic to produce evidence regarding a lack of consumer

knowledge of Apple’s app-distribution and IAP restrictions.

Such a requirement comes directly from Kodak and Newcal.

The former stated that it is “crucial” that aftermarket

restrictions are not “generally known.” Kodak, 504 U.S. at

477 n.24. The latter placed the burden on a plaintiff to “rebut

the economic presumption that . . . consumers make a

knowing choice to restrict their aftermarket options” when

they make a foremarket purchase. Newcal, 513 F.3d at

1050. 10

10

As Epic correctly notes in its opening brief, Kodak does not impose a

requirement that a plaintiff show “complete ignorance” of a defendant’s

aftermarket restrictions; it need only show that the restrictions are not

EPIC GAMES, INC. V. APPLE, INC. 37

3. Change in Policy

Third, Epic argues that the district court erred by holding

that a plaintiff can establish a Kodak-style aftermarket only

if it shows that the defendant adopted its aftermarket

restrictions after some portion of consumers purchased their

foremarket durable goods. Had the district court actually

imposed such an absolute change-in-policy requirement, it

would have erred. As explained above, Kodak and Newcal

require a showing of a lack of consumer awareness regarding

aftermarket restrictions. Newcal, 513 F.3d at 1050. A

change in policy is of course one way of doing so; a

consumer cannot knowingly agree to a restriction that did

not exist at the time of the foremarket transaction. But it is

not the exclusive means of doing so. Indeed, Kodak itself

contemplated that some sophisticated, high-volume

consumers would be able to accurately life-cycle price goods

in the foremarket. Kodak, 504 U.S. at 476. Such life-cycle

pricing would be impossible if those consumers were

unaware that they would be restricted to certain vendors in

the aftermarket.

But contrary to Epic’s assertion, we do not read the

district court’s order as running counter to these principles.

The district court explained that “other circuits have aligned

with the contours of Newcal . . . regarding knowledge and/or

post-purchase policy changes” and that the “breadth of

antitrust law” requires that a restriction “must not have been

sufficiently disclosed to consumers.” It then quoted the

operative language from Newcal that focuses on lack of

“generally known.” Kodak, 504 U.S. at 477 n.24. We need not decide

what amounts to “general[]” unawareness because Epic presented no

evidence of consumer unawareness. See infra section I.E.

38 EPIC GAMES, INC. V. APPLE, INC.

knowledge, not the necessity of a policy change. Finally, it

examined the record to find neither a change in policy nor

proof that iOS device purchasers are unaware of the

distribution and IAP restrictions. See infra section I.E. The

district court appropriately treated a change in policy as one,

but not the exclusive, way of establishing Kodak and

Newcal’s general-lack-of-knowledge requirement.

4. Significant Switching Costs

Fourth, the district court did not err when it required Epic

to produce evidence about the magnitude of switching costs.

Kodak explicitly requires that switching costs—whether

monetary or non-monetary—be “significant.” Kodak, 504

U.S at 473. This showing need not be extensive; among

other things, a plaintiff can point to the “heavy initial outlay”

of the foremarket good and brand-specific purchases. Id. at

477. By requiring such a showing, the district court was

simply fulfilling its Kodak obligation of ensuring that

switching costs are “significant.” 11

E. Epic’s Clear-Error Challenge

We now turn to the main thrust of Epic’s market-

definition argument: that it is entitled, as a factual matter, to

a finding in favor of its proposed aftermarkets. Though Epic

attempts to avoid the clear-error label, its argument requires

it to carry the heavy of burden on appeal of showing that the

district court clearly erred in finding that (1) Epic failed to

show a lack of general consumer awareness regarding

Apple’s restrictions on iOS distribution and payment

processing, (2) Epic failed to show significant switching

11

As explained in the following section, we express no view on whether

the district court erred when applying this significance requirement to

Epic’s proffered evidence regarding switching costs.

EPIC GAMES, INC. V. APPLE, INC. 39

costs, and (3) the empirical evidence in the record and the

Brown Shoe practical indicia support a market of mobile-

game transactions, not Epic’s iOS-specific aftermarkets. 12

Beginning with the first prong, Epic had the burden of

showing a lack of consumer awareness—whether through a

change in policy or otherwise. Epic identified a purported

change in policy, contrasting the App Store’s now-immense

profitability with a pre-launch statement from Steve Jobs

that Apple did not “intend to make money off the App

Store[’s]” 30% commission. The district court reasonably

found this statement to simply reflect Jobs’s “initial

expectation” about the App Store’s performance, not an

announcement of Apple policy. Especially in light of the

district court’s finding that Apple has “maintained the same

general rules” for distribution and payment processing since

the App Store’s early days, it did not clearly err in

concluding that Epic failed to prove a lack of consumer

awareness through a change of policy.

Nor did the district court clearly err in finding that Epic

otherwise failed to establish a lack of awareness. Indeed, the

district court squarely found: “[T]here is no evidence in the

record demonstrating that consumers are unaware that the

App Store is the sole means of digital distribution on the iOS

platform” (emphasis added). And on appeal, Epic fails to

cite any evidence that would undermine the district court’s

characterization of the record.

Because of this failure of proof on the first prong of

Epic’s Kodak/Newcal showing, we need not reach—and do

12

The district court did not rule against Epic on the remaining prong of

the Kodak/Newcal test: the presence of significant information costs that

make accurate life-cycle pricing difficult.

40 EPIC GAMES, INC. V. APPLE, INC.

not express any view regarding—the other factual grounds

on which the district court rejected Epic’s single-brand

markets: (1) that Epic did not show significant switching

costs, and (2) that empirical evidence and the Brown Shoe

factors rebut Epic’s proposed aftermarkets.

Moreover, the district court’s finding on

Kodak/Newcal’s consumer-unawareness requirement

renders harmless its rejection of Epic’s proposed

aftermarkets on the legally erroneous basis that Apple does

not license or sell iOS as a standalone product. See supra

section I.D.1. To establish its single-brand aftermarkets,

Epic bore the burden of “rebut[ting] the economic

presumption that . . . consumers make a knowing choice to

restrict their aftermarket options when they decide in the

initial (competitive) market to enter a[] . . . contract.”

Newcal, 513 F.3d at 1050. Yet the district court found that

there was “no evidence in the record” that could support such

a showing. As a result, Epic cannot establish its proposed

aftermarkets on the record before our court—even after the

district court’s erroneous reasoning is corrected.

In his partial dissent, our colleague, Judge Thomas,

disagrees with our conclusion that the error discussed in

section I.D.1 is harmless. First, Judge Thomas contends that

we lack any “direct authority for [this] proposition.” While

we do not have a Kodak-specific case to cite, treating an

error as harmless in light of an independent and sufficient

alternative finding is standard fare in appellate courts. See,

e.g., United States v. Wright, 46 F.4th 938, 944 (9th Cir.

2022) (“[The district court’s . . . error was harmless in light

of its alternative holding . . . .” (capitalization

standardized)); Tommasetti v. Astrue, 533 F.3d 1035, 1042

(9th Cir. 2008) (“Although the ALJ’s step four

determination constitutes error, it is harmless error in light

EPIC GAMES, INC. V. APPLE, INC. 41

of the ALJ’s alternative finding at step five.”); United States

v. Koenig, 912 F.2d 1190, 1190 (9th Cir. 1990) (“We agree

[with the appellant’s assertion of error], but conclude that the

district court made alternative rulings that render any

error harmless.”). Second, and relatedly, Judge Thomas

argues that our harmless-error conclusion runs counter to

precedent instructing that, outside of certain exceptions,

“courts usually cannot apply the rule of reason without an

accurate definition of the relevant market.” Amex, 138 S. Ct.

at 2285. But that argument misconstrues the effect of the

district court’s finding on the consumer-unawareness prong.

If, as Judge Thomas requests, we were to just correct the

district court’s erroneous reasoning and then remand, the

district court’s market definition on remand would be

foreordained. Given the total lack of evidence on consumer-

unawareness, Epic cannot establish its proposed

aftermarkets. So, contrary to the partial dissent’s assertion,

we do not proceed to apply the Sherman Act’s liability

standards without first defining a relevant market. Epic’s

proposed aftermarkets fail, and Apple did not cross-appeal

the district court’s rejection of its proposed market. The

district court’s middle-ground market of mobile-games

transaction thus stands on appeal, and it is that market in

which we assess whether Apple’s conduct is unlawful

pursuant to the Sherman Act.

II. Sherman Act Section 1: Unreasonable Restraint

With the relevant market for Epic’s antitrust claims

established (mobile-game transactions), we turn to the

district court’s rejection of Epic’s Sherman Act Section 1

restraint-of-trade claim. Section 1 prohibits “[e]very

contract, combination . . . , or conspiracy, in restraint of

trade.” 15 U.S.C. § 1. Courts have long read Section 1 to

“outlaw only unreasonable restraints.” Amex, 138 S. Ct. at

42 EPIC GAMES, INC. V. APPLE, INC.

2283 (quoting State Oil v. Khan, 522 U.S. 3, 10 (1997)).

Thus, a Section 1 inquiry has both a threshold component

(whether there is a contract, combination, or conspiracy) and

a merits component (whether it is unreasonable).

Qualcomm, 969 F.3d at 988–89. While a restraint can be

unreasonable per se or pursuant to the Rule of Reason, the

parties agree that the latter standard applies here.

Epic contends that the district court (1) incorrectly found

that the DPLA was not a “contract[]” within the scope of

Section 1, (2) misapplied steps two and three of the Rule of

Reason, and (3) omitted a fourth balancing step after it found

that Epic failed to satisfy its step-three burden. Apple

asserts—as an alternative basis for affirming the district

court’s denial of Sherman Act liability—that the court erred

at step one of the Rule of Reason. We agree with Epic on its

first and third arguments but find the errors to be harmless;

we reject Epic’s and Apple’s remaining arguments.

A. Existence of a Contract

The district court erred when it held that a non-

negotiated contract of adhesion like the DPLA falls outside

of the scope of Section 1. That holding plainly contradicts

Section 1’s text, which reaches “[e]very contract,

combination . . . , or conspiracy” that unreasonably restrains

trade. 15 U.S.C. § 1 (emphasis added). To hold that a

contract is exempt from antitrust scrutiny simply because

one party “reluctant[ly]” accepted its terms “would be to

read the word[] ‘contract’” out of the statute. Systemcare,

Inc. v. Wang Lab’ys Corp., 117 F.3d 1137, 1143 (10th Cir.

1997).

Moreover, the district court’s contract-of-adhesion

exemption is difficult to square with numerous antitrust

cases involving agreements in which one party set terms and

EPIC GAMES, INC. V. APPLE, INC. 43

the other party reluctantly acquiesced. See, e.g., Amex, 138

S. ct. at 2282 (“Amex’s business model sometimes causes

friction with merchants”); Perma Life Mufflers, Inc. v. Int’l

Parts Corp., 392 U.S. 134, 142 (1968) (the plaintiff

“unwillingly complied with the restrictive . . . agreements”),

overruled on other grounds by Copperweld, 467 U.S. 752;

Barry v. Blue Cross of Cal., 805 F.2d 866, 869 (9th Cir.

1986) (contract “terms and structure were made by” the

defendant). Given the number of cases in which the district

court’s exemption would have been decisive, it is telling that

the dog never barked.

Additionally, as the district court itself recognized, its

holding is “not particularly consistent” with ties being

cognizable pursuant to Section 1. In a classic tie, the

defendant “exploit[s] . . . its control over the tying product

to force the buyer into the purchase of a tied product that the

buyer either did not want at all, or might have preferred to

purchase elsewhere on different terms.” Jefferson Par.

Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 12 (1984), overruled

on other grounds by Ill. Tool Works Inc. v. Indep. Ink, Inc.,

547 U.S. 28 (2006). “If such conduct were to be labelled

‘independent,’ virtually all tying arrangements would be

beyond the reach of Section 1.” Image Tech. Serv., Inc. v.

Eastman Kodak Co., 903 F.2d 612, 619 (9th Cir. 1990).

Moreover, Section 1 is primarily concerned with firms

that exercise market power—i.e., the “special ability . . . to

force a [a contracting partner] to do something that he would

not do in a competitive market.” Jefferson Parish, 466 U.S.

at 13–14. The district court’s rule would preclude Section 1

suits and illegality defenses to breach of contract claims

where they are most needed: when dealing with restraints

44 EPIC GAMES, INC. V. APPLE, INC.

imposed by firms that have market power but lack the

monopoly power that triggers Section 2 scrutiny. 13

Thus, the district court erred on this threshold issue. But

because the court, in the alternative, properly applied the

Rule of Reason, its error was harmless.

B. Rule of Reason Step One: Anticompetitive Effects

The district court did not err when it found that Epic

made the Rule of Reason’s required step-one showing. At

step one, “the plaintiff has the initial burden to prove that the

challenged restraint has a substantial anticompetitive effect

that harms consumers in the relevant market.” Amex, 138 S.

Ct. at 2284. Antitrust plaintiffs can make their step-one

showing either “directly or indirectly.” Id.; accord

PLS.Com, LLC v. Nat’l Ass’n of Realtors, 32 F.4th 824, 834

(9th Cir. 2022); Aya Healthcare Servs., Inc. v. AMN

Healthcare, Inc., 9 F.4th 1102, 1112 (9th Cir. 2021); Rebel

Oil., 51 F.3d at 1434.

13

The decisions that the district court relied on are readily

distinguishable. An express agreement is “direct evidence of ‘concerted

activity.’” Paladin Assocs., Inc. v. Mont. Power Co., 328 F.3d 1145,

1153 (9th Cir. 2003). But the district court relied exclusively on cases

in which there was no direct evidence of concerted activity and a plaintiff

instead produced circumstantial evidence to show that the defendants

were acting in concert. See, e.g., Monsanto Co. v. Spray-Rite Serv.

Corp., 465 U.S. 752 (1984). Where a plaintiff puts forward only

circumstantial evidence, courts must conduct a searching inquiry, lest

they mistake parallel conduct (which is legal) for concerted activity

(which is subject to Section 1 scrutiny). Id. at 768; see In re Musical

Instruments & Equip. Antitrust Litig., 798 F.3d 1186, 1193–94 (9th Cir.

2015). Where there is an express contract, that concern is simply not

present.

EPIC GAMES, INC. V. APPLE, INC. 45

“To prove a substantial anticompetitive effect directly,

the plaintiff must provide ‘proof of actual detrimental effects

[on competition],’ such as reduced output, increased prices,

or decreased quality in the relevant market.” PLS.Com, 32

F.4th at 834 (emphasis added) (quoting Amex, 138 S. Ct. at

2284). Importantly, showing a reduction in output is one

form of direct evidence, but it “is not the only measure.”

O’Bannon v. NCAA, 802 F.3d 1049, 1070 (2015) (emphasis

removed) (quoting Areeda & Hovenkamp, Antitrust Law,

supra, ⁋ 1503b(1)).

To prove substantial anticompetitive effects indirectly,

the plaintiff must prove that the defendant has market power

and present “some evidence that the challenged restraint

harms competition.” Amex, 138 S. Ct. at 2284. Market

power is the ability for a defendant to profitably raise prices

by restricting output. Id. at 2288; see also Jefferson Parish,

466 U.S. at 13–14 (market power is the ability “to force a

purchaser to do something that he would not do in a

competitive market”). In other words, a firm with market

power is a price-maker, not the price-takers that economic

theory expects in a competitive market. Pursuant to this

indirect-evidence route, “[t]he existence of market power is

a significant finding that casts an anticompetitive shadow

over a party’s practices in a rule-of-reason case.” Hahn v.

Or. Physicians’ Serv., 868 F.2d 1022, 1026 (9th Cir. 1988).

Market power is generally inferred from the defendant’s

possession of a high market share and the existence of

“significant barriers to entry.” Rebel Oil, 51 F.3d at 1434.

Whether a defendant possesses market power is a factual

question that we review for clear error. Cf. L.A. Land Co. v.

Brunswick Corp., 6 F.3d 1422, 1425 (9th Cir. 1993)

(possession of monopoly power is a fact question).

46 EPIC GAMES, INC. V. APPLE, INC.

A plaintiff must also present “some evidence” that the

defendant uses that market power to harm competition.

Amex, 138 S. Ct. at 2284; see also Aya Healthcare, 9 F.4th

at 1113 (citing Tops Mkts., Inc. v. Quality Mkts., Inc., 142

F.3d 90, 97 (2d Cir. 1998), for the proposition that “market

power alone does not suffice as indirect evidence for a rule-

of-reason analysis”). This inquiry need not always be

extensive or highly technical. It is sufficient that the plaintiff

prove the defendant’s conduct, as matter of economic theory,

harms competition—for example that it increases barriers to

entry or reduces consumer choice by excluding would-be

competitors that would offer differentiated products. See N.

Am. Soccer League, LLC v. U.S. Soccer Fed’n Inc., 883 F.3d

32, 42 (2d Cir. 2018).

Here, the district concluded that Epic produced both

sufficient direct and indirect evidence to show that Apple’s

distribution and IAP restrictions impose substantial

anticompetitive effects. In terms of direct evidence, the

court found that Apple has for years extracted a

supracompetitive commission that was set “almost by

accident” and “without regard” to its own costs and has

produced “extraordinarily high” operating margins that

“have exceeded 75% for years.” The court found that “the

economic factors driving” other platforms’ rates “do not

apply equally to Apple,” with “nothing other than legal

action seem[ing] to motivate Apple to reconsider pricing and

reduce rates.” With respect to indirect evidence, the district

court found that Apple has market power: Apple had a

mobile-games market share of 52 to 57% for the three years

in evidence, and network effects and information restrictions

create barriers to entry. The court found that Apple wielded

that market power to foreclose would-be competitors like

Epic from offering app-distribution and payment-processing

EPIC GAMES, INC. V. APPLE, INC. 47

alternatives—reducing innovation and Apple’s own

investment in the App Store in the process.

1. Direct Evidence

Apple challenges both the district court’s direct- and

indirect-evidence conclusions on several grounds—some

legal, some factual. We are not persuaded that the district

court erred at step one of the Rule of Reason. 14

First, Apple argues that the district court’s direct-

evidence conclusion cannot stand because Epic did not show

that Apple’s restrictions reduced output. We squarely

rejected this argument in O’Bannon. There, the NCAA

similarly argued that liability was foreclosed because output

in the relevant market “increased steadily over time.” 802

F.3d at 1070. “Although output reductions are one common

kind of anticompetitive effect in antitrust cases, a ‘reduction

in output is not the only measure of anticompetitive effect.’”

Id. (citation omitted). Nor does Amex displace our holding

in O’Bannon. A showing of decreased output was essential

in that case because the plaintiff “failed to offer any reliable

measure of Amex’s transaction price or profit margins” and

“the evidence about whether Amex charges more than its

competitors was ultimately inconclusive.” Amex, 138 S. Ct.

at 2288.

14

We also reject Apple’s threshold argument that the district court erred

by not isolating the effects of Apple’s unilateral product-design decisions

from the effects of the contractual restrictions that are properly within

the scope of Section 1. This argument runs counter to the record. When

conducting its Rule of Reason analysis, the district court noted that Epic

“appear[ed] to disclaim any challenge to Apple’s code signing

restrictions,” so the court “consider[ed] only the DPLA restrictions.”

48 EPIC GAMES, INC. V. APPLE, INC.

Second, Apple argues that Epic’s evidence of

supracompetitive pricing fails as a matter of law because

Apple never raised its commission. A supracompetitive

price is simply a “price[] above competitive levels.” Rebel

Oil, 51 F.3d at 1434. Apple cites no binding precedent in

support of its proposition that the charging of a

supracompetitive price must always entail a price increase,

though we recognize that it ordinarily does.

Third, Apple attacks the supracompetitive-pricing

finding on factual grounds by asserting that Apple charges a

substantially similar commission as its competitors. That

assertion is true as far as headline rates go, but the district

court reasonably based its supracompetitive-price finding on

effective commission rates instead of headline rates. The

district court found Apple’s reliance on headline rates to be

“suspect” because, unlike the App Store, other platforms

“frequently negotiate[] down” the rates they charge

developers. The court noted that Amazon has a headline rate

of 30% but an effective commission rate of 18%. And it

credited testimony that game-console transaction platforms

often “negotiate special deals for large developers.” While

the district court’s finding that the Google Play Store (the

App Store’s “main competitor”) charges a 30% rate

seemingly undermines the characterization of Apple’s

commission as supracompetitive, we cannot say that the

district court clearly erred absent evidence about the Google

Play Store’s effective commission—the metric that the

district court at trial found to be the key to determining the

competitiveness of a price in this market.

Fourth, Apple argues that the district court’s direct-

evidence finding fails as a matter of law because Amex

requires Epic to establish anticompetitive effects on both

sides of the two-sided market for mobile-game transactions

EPIC GAMES, INC. V. APPLE, INC. 49

(developers and users). Apple’s argument falls short both

legally and factually. We have previously held: “Amex does

not require a plaintiff to [show] harm to participants on both

sides of the market. All Amex held is that to establish that a

practice is anticompetitive in certain two-sided markets, the

plaintiff must establish an anticompetitive impact on the

‘market as a whole.’” PLS.com, 32 F.4th at 839 (quoting

Amex, 138 S. Ct. at 2287). In any event, the district court

found that, while Apple’s restrictions “certainly impact

developers,” there was “some evidence” that the restrictions

also “impact[] consumers when those costs are passed on.”

2. Indirect Evidence

We are not persuaded by Apple’s argument that the

district court erred in concluding that Epic established

indirect evidence of anticompetitive effects. Apple does not

take issue with the district court’s finding of a 52 to 55%

market share (other than noting it was the court’s “own

. . . calculation”); nor does Apple challenge the court’s

barriers-to-entry finding. It instead argues that the finding

that Apple wields its market power in an anticompetitive

manner is speculative. But, supported by basic economic

presumptions, the district court reasonably found that,

without Apple’s restrictions, would-be competitors could

offer iOS users alternatives that would differentiate

themselves from the App Store on price as well as consumer-

appeal features like searchability, security, privacy, and

payment processing. Indeed, it found competition in the PC-

gaming market to be a “vivid illustration”: Steam had long

charged a 30% commission, but upon Epic’s entry into the

market, it lowered its commission to 20%. Epic’s indirect-

evidence showing was sufficient. See N. Am. Soccer

League, 883 F.3d at 42 (market power combined with a

50 EPIC GAMES, INC. V. APPLE, INC.

restriction that “reduce[s] consumer choice” satisfies step

one).

C. Step Two: Procompetitive Rationales

The district court correctly held that Apple offered non-

pretextual, legally cognizable procompetitive rationales for

its app-distribution and IAP restrictions. If a plaintiff

establishes at step one that the defendant’s restraints impose

substantial anticompetitive effects, then the burden shifts

back to the defendant to “show a procompetitive rationale

for the restraint[s].” NCAA v. Alston, 141 S. Ct. 2141, 2160

(2021) (quoting Amex, 138 S. C.t at 2284). A procompetitive

rationale is “a [1] nonpretextual claim that [the defendant’s]

conduct is [2] indeed a form of competition on the merits

because it involves, for example, greater efficiency or

enhanced consumer appeal.” Qualcomm, 969 F.3d at 991.

Here, the district court accepted two sets of rationales as

non-pretextual and legally cognizable. First, it found that

Apple implemented the restrictions to improve device

security and user privacy—thereby enhancing consumer

appeal and differentiating iOS devices and the App Store

from those products’ respective competitors. Second, the

court partially accepted Apple’s argument that it

implemented the restrictions to be compensated for its IP

investment. While the court credited the IP-compensation

rationale generally, it rejected the rationale “with respect to

the 30% commission rate specifically.” On appeal, Epic

raises three arguments challenging Apple’s rationales as

legally non-cognizable.

EPIC GAMES, INC. V. APPLE, INC. 51

1. Partial Acceptance of Apple’s IP-

Compensation Rationale

Epic argues that the district court may not credit Apple’s

IP-compensation rationale while finding that the rationale

was pretextual “with respect to the 30% commission rate

specifically” (emphasis added). We have held that IP-

compensation is a cognizable procompetitive rationale,

Kodak, 125 F.3d at 1219 (“desire to profit from

. . . intellectual property” is presumptively procompetitive),

and we find no error in the district court’s partial crediting

of that rationale here.

The district court’s acceptance of the rationale generally,

while rejecting a specific application of it, resembles the

district court’s analysis in the NCAA litigation that

culminated in Alston, 141 S. Ct. 2141. There, the district

court credited the NCAA’s amateurism-as-consumer-appeal

rationale but found that the NCAA’s “rules and restrictions

on [amateurism] ha[d] shifted markedly over time,” that the

NCAA adopted some restrictions “without any reference to

considerations of consumer demand,” and that some were

“not necessary to consumer demand.” Id. at 2163. The court

did not, as Epic requests here, resolve the case at step two

and hold that the NCAA’s shaky proof meant it lacked any

procompetitive rationale. Instead, the “deficiencies in the

NCAA’s proof of procompetitive benefits at the second step

influenced the analysis at the third [step].” Id. at 2162.

Because the NCAA’s amateurism-as-consumer-appeal

rationale was nebulously defined and weakly substantiated,

the plaintiffs had more flexibility at step three to fashion less

restrictive alternatives.

The same is true here. Because the district court

accepted only a general version of Apple’s IP-compensation

52 EPIC GAMES, INC. V. APPLE, INC.

rationale (that Apple was entitled to “some compensation”),

Epic at step three needed only to fashion a less-restrictive

alternative calibrated to achieving that general goal, instead

of one achieving the level of compensation that Apple

currently achieves through its 30% commission. There is no

legal requirement—as Epic suggests—that district courts

make pretext findings on an all-or-nothing basis. When

district courts at step two partially credit a rationale, step

three will necessarily take that partial finding into account.

2. Cognizability of Apple’s Privacy/Security

Rationales

Epic and its amici next argue that Apple’s security and

privacy rationales are social, not procompetitive, rationales

and therefore fall outside the purview of antitrust law. We

reject this argument.

To begin, Epic waived this argument by failing to raise

it below. See Friedman v. AARP, Inc., 855 F.3d 1047, 1057

(9th Cir. 2017) (“Our general rule is that we do not consider

an issue not passed upon below.”). In the parties’ pre-trial

joint submission on elements and remedies, Epic agreed that

“enhancing consumer appeal”—the goal of Apple’s security

and privacy efforts—is a cognizable procompetitive

justification. At trial, one of Epic’s experts conceded that

“[p]rotecting iPhone users from security threats is a

procompetitive benefit.” And Epic made no reference to

cognizability in its proposed findings of fact and conclusions

of law.

Even setting aside Epic’s failure to raise this argument

below, we are not persuaded by it. See Carrillo v. County of

Los Angeles, 798 F.3d 1210, 1223 (9th Cir. 2015) (courts of

appeal have discretion to address pure questions of law if

doing so will not prejudice the opposing party). Epic’s

EPIC GAMES, INC. V. APPLE, INC. 53

argument characterizes Apple as asserting security and

privacy as independent justifications in and of themselves.

But, throughout the record, Apple makes clear that by

improving security and privacy features, it is tapping into

consumer demand and differentiating its products from those

of its competitors—goals that are plainly procompetitive

rationales. See, e.g., Qualcomm, 969 F.3d at 991 (listing

enhanced “consumer appeal” as a legitimate procompetitive

rationale); O’Bannon, 802 F.3d at 1072–73 (considering the

NCAA’s amateurism rationale that “plays a role in

increasing consumer demand”). Consumer surveys in the

record show that security and privacy is an important aspect

of a device purchase for 50% to 62% of iPhone users and

76% to 89% of iPad users worldwide. Even Epic’s CEO

testified that he purchased an iPhone over an Android

smartphone in part because it offers “better security and

privacy.” And the district court found that, because Apple

creates a “trusted app environment, users make greater use

of their devices.”

With Apple’s restrictions in place, users are free to

decide which kind of app-transaction platform to use. Users

who value security and privacy can select (by purchasing an

iPhone) Apple’s closed platform and pay a marginally higher

price for apps. Users who place a premium on low prices

can (by purchasing an Android device) select one of the

several open app-transaction platforms, which provide

marginally less security and privacy. Apple’s restrictions

create a heterogenous market for app-transaction platforms

which, as a result, increases interbrand competition—the

primary goal of antitrust law. See, e.g., Leegin Creative

Leather Prod., Inc. v. PSKS, Inc., 551 U.S. 877, 895 (2007);

54 EPIC GAMES, INC. V. APPLE, INC.

State Oil, 522 U.S. at 15. 15 Antitrust law assumes that

competition best allocates resources by allowing firms to

compete on “all elements of a bargain—quality, service,

safety, and durability—and not just the immediate cost.”

Nat’l Soc’y of Pro. Eng’rs v. United States, 435 U.S. 679,

695 (1978). If we were to accept Epic and its amici’s

argument, then no defendant could cite competing on non-

price features as a procompetitive rationale.

To avoid this conclusion, Epic and its amici rely on a line

of cases stemming from National Society of Professional

Engineers. But neither that case nor its progeny support

their argument that improved quality is a social, rather than

procompetitive, rationale. Instead, the Professional

Engineers line of cases holds that a defendant cannot

severely limit interbrand competition on the theory that

competition itself is ill-suited to a certain market or industry.

See id. at 694–96. Epic’s selection of quotes from

Professional Engineers and other cases—without

acknowledging the distinct context in which they occurred—

is unconvincing.

In Professional Engineers, a professional association

with about 12,000 engineers adopted a rule prohibiting its

members from engaging in competitive bidding on

15

Epic argues that interbrand competition in the smartphone market is

irrelevant because in the app-transactions market Epic is Apple’s would-

be competitor—i.e., the DPLA prevents interbrand competition between

the App Store and the Epic Games Store in the game-transactions

market. But this was also true in Kodak: The independent service

operators were would-be competitors of Kodak in the service market.

Still, the Court entertained (while ultimately rejecting on factual

grounds) Kodak’s procompetitive rationale that its service restrictions

ensured high-quality products and thus promoted interbrand competition

in the foremarket for photocopiers. Kodak, 504 U.S. at 482–84.

EPIC GAMES, INC. V. APPLE, INC. 55

construction projects. Id. at 681. This “absolute ban” on

competitive bidding imposed substantial anticompetitive

effects, and the Society’s sole justification was that

competition in the construction-engineering market would

lead engineers to perform “inferior work with consequent

risk to safety and health.” Id. at 692–94. In other words,

competition in the construction engineering industry was not

in the “public benefit.” Id. The Supreme Court rejected this

request for a judge-made exemption from the Rule of

Reason, which “does not support a defense based on the

assumption that competition itself is unreasonable,” and

stated that the Society’s argument should be “addressed to

Congress.” Id. at 696.

Indiana Federation of Dentists likewise involved a

request for an exemption from the Rule of Reason. There,

an association of dentists, which had a nearly 100% market

share in one area and a nearly 70% market share in another,

adopted a rule prohibiting its members from submitting x-

rays to dental insurers. Ind. Fed. of Dentists, 476 U.S. at

448–49. The rule made it prohibitively expensive for

insurers to impose cost-containment measures and thus

eliminated interbrand competition regarding cooperation

with patients’ insurers. Id. at 449. The Federation argued

that competition would undermine “quality of care”—that,

without the rule, consumers would make “unwise and even

dangerous choices” regarding dental procedures. Id. at 463.

The Supreme Court rejected this argument—that

competition was ill-suited for the dental industry—as

squarely foreclosed by Professional Engineers. Id.

Trial Lawyers Association followed a similar track, but

with respect to a requested exemption from a per se rule. A

professional association comprising about 90% of “regulars”

appointed for indigent criminal defense in the Superior Court

56 EPIC GAMES, INC. V. APPLE, INC.

of the District of Columbia entered into a group boycott

against the District until it “substantially increase[d]” hourly

rates. FTC v. Sup. Ct. Trial Lawyers’ Ass’n, 493 U.S. 411,

416 (1990). The Association argued that its actions were not

unlawful because the District had a “constitutional duty” to

provide adequate representation to indigent defendants,

which required it to provide meaningful compensation to

their attorneys. Id. at 423. The Court refused to exempt the

Association’s conduct from the normal application of

antitrust’s per se prohibition on group boycotts, concluding

that “[t]he social justifications proffered for respondents’

restraint of trade . . . do not make it any less unlawful.” Id.

at 424.

The Supreme Court followed suit last term in Alston

when it rejected the NCAA’s sweeping plea for leniency.

The NCAA argued that something more deferential than the

Rule of Reason should apply to its restrictions on student-

athlete compensation because the NCAA’s amateurism

restrictions advance the “societally important non-

commercial objective of higher education.” Alston, 141 S.

Ct. at 2158. The Supreme Court held that this argument—

that the NCAA “should be exempt from the usual operation

of the antitrust laws”—should be directed to Congress, not a

court. Id. at 2160.

Apple’s rationales categorically differ from those

asserted in the above cases. Apple did not agree with other

app-transaction platforms (e.g., the Google Play Store) to

eliminate interbrand competition and then invoke security

and privacy to avoid the “normal operation” of the Rule of

Reason. Id. at 2147. Rather, Apple imposed intrabrand

limitations (that iOS devices use Apple distribution and

payment-processing channels) and contends that these

restrictions tap into consumer demand for a private and

EPIC GAMES, INC. V. APPLE, INC. 57

secure user experience and distinguish the App Store from

its open-platform competitors.

3. Cognizability of Cross-Market Rationales

Epic finally argues that, even if Apple’s security and

privacy restrictions are procompetitive, they increase

competition in a different market than the district court

defined and in which Epic showed step-one anticompetitive

effects, and thus are not legally cognizable at step two. In

Epic’s view, Apple’s rationales relate to the market for

smartphone operating systems (or the market for

smartphones), while the anticompetitive effects of Apple’s

restrictions impact the market for mobile-game transactions.

The Supreme Court’s precedent on this issue is not clear.

While amici argued in Alston that cross-market justifications

fail as a matter of law, the Supreme Court “express[ed] no

view[]” on the argument. 141 S. Ct. at 2155. Dicta from one

per se decision provides some support for Epic’s position.

See United States v. Topco Assocs., Inc., 405 U.S. 596, 609–

10 (1972) (courts are unable “to weigh, in any meaningful

sense, destruction of competition in one sector of the

economy against promotion of competition in another

sector”). But the Supreme Court has considered cross-

market rationales in Rule of Reason and monopolization

cases. See Kodak, 504 U.S. at 482–84 (relevant market of

Kodak-brand service and parts; procompetitive rationale in

market for photocopiers); NCAA v. Bd. of Regents of Univ.

of Okla., 468 U.S. 85, 104–08, 115–17 (1984) (relevant

market of college football television; procompetitive

rationale of protecting the market for college football

tickets). Our court’s precedent is similar. While we have

never expressly confronted this issue, we have previously

considered cross-market rationales when applying the Rule

58 EPIC GAMES, INC. V. APPLE, INC.

of Reason. See O’Bannon, 802 F.3d at 1069–73; In re NCAA

Athletic Grant-in-Aid Cap Antitrust Litig., 958 F.3d 1239,

1266–71 (9th Cir. 2020) (M. Smith, J., concurring).

We decline to decide this issue here. Like Epic’s general

cognizability argument, Epic did not raise this argument

below. Nor did it raise this argument in its opening brief

before our court, denying Apple an opportunity to respond.

See Miller v. Fairchild Indus., Inc., 797 F.2d 727, 738 (9th

Cir. 1986).

More importantly, we need not decide this issue because

Epic’s argument rests on an incorrect reading of the record.

Contrary to Epic’s contention, Apple’s procompetitive

justifications do relate to the app-transactions market.

Because use of the App Store requires an iOS device, there

are two ways of increasing App Store output: (1) increasing

the total number of iOS device users, and (2) increasing the

average number of downloads and in-app purchases made

by iOS device users. Below, the district court found that a

large portion of consumers factored security and privacy into

their decision to purchase an iOS device—increasing total

iOS device users. It also found that Apple’s security- and

privacy-related restrictions “provide[] a safe and trusted user

experience on iOS, which encourages both users and

developers to transact freely”—increasing the per-user

average number of app transactions.

D. Step Three: Substantially Less Restrictive Means

The district court did not clearly err when it held that

Epic failed to prove the existence of substantially less

restrictive alternatives (LRAs) to achieve Apple’s

procompetitive rationales. At step three of the Rule of

Reason, “the burden shifts back to the plaintiff to

demonstrate that the procompetitive efficiencies could be

EPIC GAMES, INC. V. APPLE, INC. 59

reasonably achieved through less anticompetitive means.”

Alston, 141 S Ct. at 2160 (quoting Amex, 138 S. Ct. at 2284).

When evaluating proposed alternative means, courts “must

give wide berth to [defendants’] business judgments” and

“must resist the temptation to require that enterprises employ

the least restrictive means of achieving their legitimate

business objectives.” Id. at 2163, 2166; see also id. at 2161

(“[A]ntitrust law does not require businesses to use anything

like the least restrictive means of achieving legitimate

business purposes.”). As such, this circuit’s test—which the

Supreme Court approved in Alston—requires a

“substantially less restrictive” alternative. O’Bannon, 802

F.3d at 1070 (emphasis added) (quoting Tanaka v. Univ. of

S. Cal., 252 F.3d 1059, 1063 (9th Cir. 2001)). To qualify as

“substantially less restrictive,” an alternative means “must

be ‘virtually as effective’ in serving the [defendant’s]

procompetitive purposes . . . without significantly increased

cost.” Id. at 1074 (quoting County of Tuolumne v. Sonora

Cmty. Hosp., 236 F.3d 1148, 1159 (9th Cir. 2001)).

Because LRAs inform the injunctive relief that a district

court may enter if a plaintiff prevails, courts must also keep

in mind “a healthy respect for the practical limits of judicial

administration” when evaluating proposed LRAs. Alston,

141 S. Ct. at 2163. Courts should not “impose a duty . . . that

it cannot explain or adequately and reasonably supervise.”

Id. (quoting Verizon Commc’ns Inc. v. L. Offs. Of Curtis V.

Trinko, LLP, 540 U.S. 398, 415 (2004)).

We review a district court’s findings on the existence of

substantially less restrictive means for clear error. See, e.g.,

NCAA Antitrust Litig., 958 F.3d at 1260; O’Bannon, 802

F.3d at 1074. This includes both the “virtually as effective”

and “significantly increased cost” components encompassed

in that finding. See NCAA Antitrust Litig., 958 F.3d. at 1260.

60 EPIC GAMES, INC. V. APPLE, INC.

1. Proposed LRA to the Distribution Restriction

Epic argues that Apple already has an LRA at its disposal

for the distribution restriction: the “notarization model” that

Apple uses for app distribution on its desktop and laptop

operating system (macOS). 16 The notarization model sits

somewhere between iOS’s “walled garden” and the open-

platform model that characterizes some app-transaction

platforms. Unlike on iOS, the Mac Store (the Apple-run

equivalent of the iOS App Store for Mac computers) is not

the exclusive means for macOS users to download apps;

instead, users can download apps from the Mac Store or

anywhere else on the internet. Also unlike on iOS, a

developer can distribute a macOS app to users without first

submitting it to Apple. But, regardless of how the developer

distributes that app, it will carry a warning that Apple has

not scanned it for malware. The developer, however, can

choose to submit the app to Apple. If the app passes Apple’s

malware scan, then the developer can distribute the app to

users—again, through the Mac Store or otherwise—without

the warning that accompanies unscanned apps.

The malware scanning that Apple performs in the

notarization model is not the same as the full app review that

it conducts on iOS apps. Importantly, the notarization model

does not include human review—a contextual review that,

as found by the district court, cannot currently be automated.

As part of iOS human review, a reviewer confirms that an

app corresponds to its marketing description to weed out

“Trojan Horse” apps or “social engineering” attacks that

16

In the district court, Epic also proposed the “enterprise model” (which

Apple already implements for some iOS apps), but Epic does not

advance that model on appeal as a proposed LRA.

EPIC GAMES, INC. V. APPLE, INC. 61

trick users into downloading by posing as something they are

not. The reviewer also checks that the app’s entitlements are

reasonable for its purpose—rejecting, for example, a Tic-

Tac-Toe game that asks for camera access and health data,

while approving camera access for a social media app. On

occasion, human review also detects novel, well-disguised

malware attacks. Despite Epic carrying the burden at step

three of the Rule of Reason, it was not clear before the

district court—and still is not entirely clear—how Epic

proposes that the notarization model translates from macOS

to iOS. In particular, it is unclear whether the proposed

model would incorporate human review and what type (if

any) of licensing scheme Apple could implement to

complement the notarization model. 17 Whatever the precise

form of Epic’s proposed notarization model, the district

court did not err in rejecting it.

First, to the extent Epic argues that Apple could jot-for-

jot adopt macOS’s notarization model without adding

human review, Epic failed to establish that this model would

be “virtually as effective” in accomplishing Apple’s

procompetitive rationales of enhancing consumer appeal and

distinguishing the App Store from competitor app-

transaction platforms by improving user security and

privacy. See O’Bannon, 802 F.3d at1073. The district court

17

There is even some discrepancy between the injunctive relief Epic

requests and the basic mechanics of the notarization system. As

explained, the notarization model labels unscanned apps with a warning.

Yet Epic requested an injunction that would prohibit Apple from in any

way “impeding or deterring the distribution of iOS apps” through non-

App Store “distribution channel[s].” A malware warning would

seemingly steer some consumers back to the App Store—raising some

question of whether it would violate the “impeding or deterring”

prohibition.

62 EPIC GAMES, INC. V. APPLE, INC.

ultimately found that the record contained “some evidence”

that macOS computers experience higher malware rates than

iOS devices. It also noted a third-party report that Android

devices have higher malware rates than iOS ones due to

Trojan Horse apps being distributed through open app-

transaction platforms. And it credited Apple’s anecdotal

evidence that human review sometimes detects novel

malware attacks that slip through malware scans. Moreover,

the district court found “compelling” Apple’s explanation of

why human review is necessary “against certain types of

attacks.” And it found that “Epic Games did not explain

how, if at all” a purely automated process could screen for

such threats. It also noted that Epic’s security expert

testified that he did not consider fraud-prevention in his

security analysis, that his opinion on the value-added of

human app review “may change” if he did, and that

automated protections “do not protect users against” social-

engineering threats. Based on this record, the district court

did not clearly err in finding that a process without human

app review would not be “virtually as effective” as Apple’s

current model.

Second, to the extent Epic proposes a notarization model

that incorporates human app review, Epic failed to develop

how Apple could be compensated in such a model for third-

party developers’ use of its IP. Epic argues that “app review

can be relatively independent on app distribution” and

envisions a model in which a developer would submit an

app, Apple would review it, and then “send it back to the

developer to be distributed directly or in another store.” For

example, Epic could submit a gaming app to Apple; Apple

would scan it for malware and subject it to human review;

and then Epic could choose to distribute it through the App

Store, the Epic Games Store, or both.

EPIC GAMES, INC. V. APPLE, INC. 63

While such a model would clearly be “virtually as

effective” in achieving Apple’s security and privacy

rationales (it contains all elements of Apple’s current

model), Epic simply failed to develop how such a model

would allow Apple to be compensated for developers’ use of

its IP. At closing argument, the district court asked Epic

whether its requested injunctive relief would allow Apple to

impose some sort of licensing fee. Epic responded that

“Apple can charge,” but it offered no concrete guidance on

how to do so. Instead, Epic stated only that Apple “could

charge certain developers more than others based on the

advantage that they take of the platform” and that it

“expect[s], given the innovation in Cupertino, that [Apple]

would find ways to profit from their intellectual property and

other contributions.” The district court accordingly found

that Epic’s proposed distribution LRAs “leave unclear

whether Apple can collect licensing royalties and, if so, how

it would do so” and thus declined to consider them as “not

sufficiently developed.”

On appeal, Epic attempts to transfigure into an LRA the

district court’s off-hand statement noting the absence of

“evidence that Apple could not create a tiered licensing

scheme[,] which would better correlate the value of its

intellectual property to the various levels of use by

developers.” It is, however, Epic’s burden at step three to

prove that a tiered licensing scheme (or some other payment

mechanism) could achieve Apple’s IP-compensation

rationale. Without any evidence in the record of what this

tiered licensing scheme would look like, we cannot say that

it would be “virtually as effective” without “significantly

increased cost.” O’Bannon, 802 F.3d at 1074. Nor can we

even “explain” it, let alone direct the district court to craft an

64 EPIC GAMES, INC. V. APPLE, INC.

injunction that it could “adequately and reasonably

supervise.” Alston, 141 S. Ct. at 2163.

2. Proposed LRA to the IAP Requirement

Epic proposes access to competing payment processors

as an LRA to Apple’s IAP requirement. Like the distribution

requirement LRA, this LRA suffers from a failure of proof

on how it would achieve Apple’s IP-compensation

rationale. 18 As the district court noted, in a world where

Apple maintains its distribution restriction but payment

processing is opened up, Apple would still be contractually

entitled to its 30% commission on in-app purchasers. Apart

from any argument by Epic, the district court “presume[d]”

that Apple could “utilize[e] a contractual right to audit

developers . . . to ensure compliance with its commissions.”

But the court then rejected such audits as an LRA because

they “would seemingly impose both increased monetary and

time costs.”

E. Step Four: Balancing

Epic—along with several amici, including the United

States and thirty-four state attorneys general—argue that the

district court erred by not proceeding to a fourth, totality-of-

the-circumstances step in the Rule of Reason and balancing

18

As Epic argues, the district court’s ultimate conclusion on the security

rationale (that opening up payment processing would undermine Apple’s

“competitive advantage on security issues”) seems difficult to square

with several of the court’s antecedent factual findings (e.g., that “Apple

has not show how its [IAP] process is any different” and that “any

potential for fraud prevention [through IAP] is not put into practice”).

Because Epic’s LRA fails on the IP-compensation aspect, we need not

decide whether the district court clearly erred when it also rejected the

LRA for not being virtually as effective in accomplishing Apple’s

security and privacy rationales.

EPIC GAMES, INC. V. APPLE, INC. 65

the anticompetitive effects of Apple’s conduct against its

procompetitive benefits. We hold that our precedent

requires a court to proceed to this fourth step where, like

here, the plaintiff fails to carry its step-three burden of

establishing viable less restrictive alternatives. However,

the district court’s failure to expressly do so was harmless in

this case.

We have been inconsistent in how we describe the Rule

of Reason. Some decisions, when describing the Rule of

Reason, contemplate a fourth step. See, e.g., Qualcomm, 969

F.3d at 991; County of Tuolumne, 236 F.3d at 1160. Others

do not. See, e.g., NCAA Antitrust Litig., 958 F.3d at 1263;

Tanaka, 252 F.3d at 1063. Because of the paucity of cases

that survive step one (let alone require a court to exhaust the

three agreed-upon steps), most of our decisions have not

required us to actually proceed to the portion of the analysis

where Epic and its amici argue balancing would occur. 19

The exception is County of Tuolumne, which provides

the most on-point guidance regarding the existence of a

fourth step. There, we held: “Because plaintiffs have failed

to meet their burden of advancing viable less restrictive

alternatives, we reach the balancing stage. We must balance

the harms and benefits of the [challenged restrictions] to

determine whether they are reasonable.” 236 F.3d at 1160

(citation omitted). We then concluded, with just one

sentence of analysis, that “any anticompetitive harm is offset

19

In Alston, the Supreme Court cited an amicus brief reporting that

courts have decided 90% of Rule of Reason cases since 1977 at step one.

141 S. Ct. at 2160–61. A similar amicus brief filed in this case echoes

this statistic and reports that the figure rises to 97% when considering

only post-1999 cases.

66 EPIC GAMES, INC. V. APPLE, INC.

by the procompetitive effects of [defendant’s] effort to

maintain the quality of patient care that it provides.” Id.

Supreme Court precedent neither requires a fourth step

nor disavows it. In the Court’s two most recent Rule of

Reason decisions, it discussed only the three agreed-upon

steps. See Alston, 141 S. Ct. at 2160; Amex, 138 S. Ct. at

2284. But the Court did not characterize that test as the

exclusive expression of the Rule of Reason. Alston stated

that the Court “has sometimes spoken of ‘a three-step,

burden-shifting framework,” emphasized that those “steps

do not represent a rote checklist” or “an inflexible substitute

for careful analysis,” and approvingly cited one of the

Areeda and Hovenkamp treatises as using a “slightly

different ‘decisional model.’” 141 S. Ct. at 2160 (emphasis

added).

We are skeptical of the wisdom of superimposing a

totality-of-the-circumstances balancing step onto a three-

part test that is already intended to assess a restraint’s overall

effect. Neither Epic nor any amicus has articulated what this

balancing really entails in a given case. Epic argues only

that the district court must “weigh[]” anticompetitive harms

against procompetitive benefits, and the United States

describes step four as a “qualitative assessment of whether

the harms or benefits predominate.” Nor is it evident what

value a balancing step adds. Several amici suggest that

balancing is needed to pick out restrictions that have

significant anticompetitive effects but only minimal

procompetitive benefits. But the three-step framework is

already designed to identify such an imbalance: A court is

likely to find the purported benefits pretextual at step two, or

step-three review will likely reveal the existence of viable

LRAs. We are thus “wary about [this] invitation[] to ‘set sail

on a sea of doubt.’” Alston, 141 S. Ct. at 2166 (quoting

EPIC GAMES, INC. V. APPLE, INC. 67

United States v. Addyston Pipe & Steel Co., 85 F. 271, 284

(6th Cir. 1898) (Taft, J.)).

Nonetheless, we are bound by County of Tuolumne and

mindful of Alston’s warning that the first three steps of the

Rule of Reason are not a “rote checklist.” Therefore, where

a plaintiff’s case comes up short at step three, the district

court must proceed to step four and balance the restriction’s

anticompetitive harms against its procompetitive benefits.

In most instances, this will require nothing more than—as in

County of Tuolumne—briefly confirming the result

suggested by a step-three failure: that a business practice

without a less restrictive alternative is not, on balance,

anticompetitive. But the Sherman Act is a flexible statute

that has and will continue to evolve to meet our country’s

changing economy, so we will not “embarrass the future” by

suggesting that will always be the case. Nw. Airlines, Inc. v.

Minnesota, 322 U.S. 292, 300 (1944).

Turning to the record here, the district court’s failure to

explicitly reach the fourth step was harmless. Even though

it did not expressly reference step four, it stated that it

“carefully considered the evidence in the record and

. . . determined, based on the rule of reason,” that the

distribution and IAP restrictions “have procompetitive

effects that offset their anticompetitive effects” (emphasis

added). This analysis satisfied the court’s obligation

pursuant to County of Tuolumne, and the court’s failure to

expressly give this analysis a step-four label was harmless.

III. Sherman Act Section 1: Tying

In addition to its general restraint-of-trade claim, Epic

brought a Section 1 claim asserting that Apple unlawfully

tied together app distribution (the App Store) and in-app

payment processing (IAP). On appeal, Epic argues that (1)

68 EPIC GAMES, INC. V. APPLE, INC.

the district court clearly erred when it found that Epic did not

identify separate products, and (2) we can enter judgment in

its favor because the tie is unlawful, either per se or pursuant

to the Rule of Reason. We agree with Epic that the district

court clearly erred in its separate-products finding, but we

find that error to be harmless. The Rule of Reason applies

to the tie involved here, and, for the reasons already

explained, Epic failed to establish that Apple’s design of the

iOS ecosystem—which ties the App Store and IAP

together—is anticompetitive.

A. Existence of a Tie

“A tying arrangement is ‘an agreement by a party to sell

one product but only on the condition that the buyer also

purchases a different (or tied) product, or at least agrees that

he will not purchase that product from any other supplier.’”

Kodak, 504 U.S. at 461 (quoting N. Pac. R. Co. v. United

States, 356 U.S. 1, 5–6 (1958)). To prove the existence of a

tie, a party must make two showings.

First, the arrangement must, of course, involve two (or

more) separate products. Pursuant to Jefferson Parish and

Kodak, we apply a consumer-demand test when conducting

this inquiry: To constitute two separate products, “[t]here

must be sufficient consumer demand so that it is efficient for

a firm to provide” the products separately. Kodak, 504 U.S.

at 462 (citing Jefferson Parish, 466 U.S. at 21–22).

Importantly, the separate-products inquiry “turns not on the

functional relation between them, but rather on the character

of the demand for the two items.” Jefferson Parish, 466 U.S.

at 19 & n.30. This consumer-demand test, in turn, has two

parts: (1) that it is possible to separate the products, and (2)

that it is efficient to do so, as inferred from circumstantial

EPIC GAMES, INC. V. APPLE, INC. 69

evidence. See Areeda & Hovenkamp, Antitrust Law, supra,

⁋⁋ 1743–45.

The efficiency showing does not require a full-blown

economic analysis. Because the showing is just a threshold

step to reaching the merits of a tie (including, sometimes, the

application of a per se rule), it would be incongruous to

require a resource-intensive showing. See N. Pac. R. Co.,

356 U.S. at 5 (per se rules are meant to “avoid[] the necessity

for an incredibly complicated and prolonged economic

investigation”). Accordingly, the existence of separate

products is inferred from “more readily observed facts.”

Areeda & Hovenkamp, Antitrust Law, supra, ⁋ 1745c.

These include consumer requests to offer the products

separately, disentangling of the products by competitors,

analogous practices in related markets, and the defendant’s

historical practice. See Jefferson Parish, 466 U.S. at 22

(noting that patients and surgeons “often request specific

anesthesiologists [the tied service] to come to a hospital [the

tying service]” and “other hospitals often permit

anesthesiologic services to be purchased separately”);

Kodak, 504 U.S. at 463 (finding sufficient at the 12(b)(6)

stage allegations that “consumers would purchase service

without parts” and that the defendant had sold them

“separately in the past”).

Second, even where a transaction involves separate

products, it is not necessarily a tie; the seller must also “force

the buyer into the purchase of a tied product that the buyer

either did not want at all, or might have preferred to purchase

elsewhere on different terms.” Jefferson Parish, 466 U.S. at

12. Were a buyer merely to agree “to buy [a] second product

on its own merits” absent any coercion, there would be no

tie. Areeda & Hovenkamp, Antirust Law, supra, ⁋ 1752.

70 EPIC GAMES, INC. V. APPLE, INC.

We review a finding that no tie occurred for clear error.

Krehl v. Baskin-Robbins Ice Cream Co., 664 F.2d 1348,

1354 (9th Cir. 1982) (reviewing separate-products finding

for clear error); Mozart Co. v. Mercedes-Benz of N. Am.,

Inc., 833 F.2d 1342, 1346 (9th Cir. 1987) (treating coercion

as a fact question).

Here, the district court found that there was no tie

because app distribution and IAP are not separate products.

It based this finding on four rationales—each of which is

either clearly erroneous or incorrect as a matter of law.

To begin, the district court erred as a matter of law when

it concluded that IAP was not separate from app distribution

because IAP is “integrated into . . . iOS devices.” Jefferson

Parish expressly rejects an approach to the separate-

products inquiry based on the “functional relation” between

two purported products. 466 U.S. at 19.

Next, the district court clearly erred when it found that

“Epic Games presented no evidence showing that demand

exists for IAP as a standalone product.” Here, the App Store

and IAP clearly can be separated because Apple already

does so in certain contexts, namely that IAP is not required

for in-app purchases of physical goods. The efficiency

showing is also met. Epic produced evidence that it,

Facebook, Microsoft, Spotify, Match, and Netflix, have all

tried to convince Apple to let them develop their own in-app

payment solutions. The Epic Games Store—a direct

competitor of Apple in the mobile-games submarket—

delinks distribution from payment processing. And prior to

IAP’s development in 2009, Apple distributed apps through

the App Store but permitted developers to use their own in-

app payment systems.

EPIC GAMES, INC. V. APPLE, INC. 71

Relatedly, the district court clearly erred when it

reasoned that, even if Apple did not require IAP, Apple

would still be entitled to collect a commission on payments

made and, therefore, “no economically rational developer

would choose to use the alternative [payment] processor.”

The district court itself found that “Epic Games raises

legitimate concerns” about the non-price features of IAP,

including that: “Apple does a poor job of mediating disputes

between a developer and its customers”; that Apple’s one-

size-fits-all refund approach “leads to poor [customer]

experiences”; and that IAP’s exclusion of developers from

transactions “can also increase fraud.”

Finally, the district court erred as a matter of law when it

concluded that a product in a two-sided market can never be

broken into multiple products. Despite Apple’s strained

effort to portray this as a factual finding, the district court

imposed a bright-line legal rule. But Amex simply does not

stand for the proposition that any two-sided platform will

necessarily relate only to one market. Instead, it emphasized

that market definition must “reflect[] commercial realities.”

138 S. Ct. at 2285. Indeed, if Amex truly required a one-

platform, one-market rule, then the district court’s market

definition—mobile gaming transactions, instead of all app

transactions—would be erroneous, despite the court’s

extensive findings that game and non-game apps are

characterized by significantly different demand. 20

20

We also reject Apple’s argument that that there is no tie because

“thousands of developers . . . offer no in-app purchase[s].” True, a

classic tie is: “I will sell you X widgets only if you buy Y bolts from

me.” Here, the DPLA essentially provides: “Apple will sell you app-

distribution transactions only if you buy your in-app-purchase-

72 EPIC GAMES, INC. V. APPLE, INC.

B. Lawfulness of the Tie

A tie can be unlawful pursuant to either a modified per

se rule or the Rule of Reason. A tie is per se unlawful if (1)

the defendant has market power in the tying product market,

and (2) the “tying arrangement affects a ‘not insubstantial

volume of commerce’ in the tied product market.” Blough

v. Holland Realty, Inc, 574 F.3d 1084, 1089 (9th Cir. 2009)

(quoting Cascade Health Solutions v. PeaceHealth, 515

F.3d 883, 912–13 (9th Cir. 2008)). The first prong requires

the market-power inquiry standard throughout antitrust law.

The second prong requires only that the tie affect an amount

of commerce in the tied product market that is not “de

minimis.” Datagate, Inc. v. Hewlett-Packard Co., 60 F.3d

1421, 1426 (9th Cir. 1995). These requirements are met

here: Apple has market power in the app-distribution market.

And the tie affects a non “de minimis” amount of commerce

in the in-app-payment-processing market: Apple requires

IAP to be used for more than half of the transactions that

comprise a $100 billion market.

Nonetheless, we join the D.C. Circuit in holding that per

se condemnation is inappropriate for ties “involv[ing]

software that serves as a platform for third-party

applications.” Microsoft, 253 F.3d at 89. “It is only after

considerable experience with certain business relationships

that courts classify them as per se violations.” Broad.

Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 9

(1979) (quoting Topco Assocs., 405 U.S. at 606). That is

processing requirements from Apple.” Substituting a requirements term

for a quantity term does not change the nature of the agreement. See

Kodak, 504 U.S. at 461 (ties include agreement[s] “to sell one product

but only on the condition that the buyer . . . not purchase that product

from any other supplier” (citation omitted)).

EPIC GAMES, INC. V. APPLE, INC. 73

because per se condemnation embodies a judicial

assessment that a category of restraints is “plainly

anticompetitive” and “lack[ing] . . . [in] any redeeming

virtue” such that it can be “conclusively presumed illegal.”

Id. at 7–8 (citations omitted). Given the costs of improperly

condemning a practice across the board, extending a per se

rule requires caution and judicial humility. See White Motor

Co. v. United States, 372 U.S. 253, 263 (1963) (“We need to

know more than we do about the actual impact of these

arrangements on competition to decide whether they

. . . should be classified as per se violations of the Sherman

Act.”); Microsoft, 253 F.3d at 94 (“We do not have enough

empirical evidence regarding the effect of [the] practice

. . . to exercise sensible judgment regarding that entire class

of behavior.”). Based on the record, we do not have the level

of confidence needed to universally condemn ties related to

app-transaction platforms that combine multiple

functionalities. See Microsoft, 253 F.3d at 93 (“[B]ecause of

the pervasively innovative character of platform software

markets, tying in such markets may produce efficiencies that

courts have not previously encountered and thus the

Supreme Court had not factored into the per se rule as

originally conceived.”).

The tie in this case differs markedly from those the

Supreme Court considered in Jefferson Parish and prior

tying cases. Particularly, “[i]n none of these cases was the

tied good . . . technologically integrated with the tying

good.” Microsoft, 253 F.3d at 90. Moreover, none of the

ties presented any purported procompetitive benefits that

could not be achieved by adopting quality standards for

third-party suppliers of the tied good, as Apple does here.

Id.; see also Int’l Salt Co. v. United States, 332 U.S. 392, 398

(1947) (noting purported benefit can be achieved by

74 EPIC GAMES, INC. V. APPLE, INC.

implementing quality control for machine consumables),

abrogated on other grounds by Ill. Tool, 547 U.S. 28; Int’l

Bus. Machs. Corp. v. United States, 298 U.S. 131, 139

(1936) (same).

Moreover, while Jefferson Parish’s separate-products

test filters out procompetitive bundles from per se scrutiny

in traditional markets, we are skeptical that it does so in the

market involved here. Software markets are highly

innovative and feature short product lifetimes—with a

constant process of bundling, unbundling, and rebundling of

various functions. In such a market, any first-mover product

risks being labeled a tie pursuant to the separate-products

test. See Microsoft, 253 F.3d at 92. If per se condemnation

were to follow, we could remove would-be popular products

from the market—dampening innovation and undermining

the very competitive process that antitrust law is meant to

protect. The Rule of Reason guards against that risk by

“afford[ing] the first mover an opportunity to demonstrate

that an efficiency gain from its ‘tie’ adequately offsets any

distortion of consumer choice.” Id.

Applying the Rule of Reason to the tie involved here, it

is clearly lawful. Epic’s tying claim (that app distribution

and payment processing are tied together) is simply a

repackaging of its generic Section 1 claim (that the

conditions under which Apple offers its app-transactions

product are unreasonable). For the reasons we explained

above, Epic failed to carry its burden of proving that Apple’s

structure of the iOS ecosystem is unreasonable. See supra

section II.

IV. Sherman Act Section 2: Monopoly Maintenance

We now consider Epic’s Sherman Act Section 2 claim

that Apple unlawfully maintained a monopoly. Section 2

EPIC GAMES, INC. V. APPLE, INC. 75

makes it unlawful to “monopolize, or attempt to monopolize,

or combine or conspire . . . to monopolize” a market. 15

U.S.C. § 2. A Section 2 monopolization claim “has two

elements: (1) the possession of monopoly power in the

relevant market and (2) the willful acquisition or

maintenance of that power as distinguished from growth or

development as a consequence of a superior product,

business acumen, or historic accident.” United States v.

Grinnell Corp., 384 U.S. 563, 570–71 (1966); accord

Qualcomm, 969 F.3d at 990; Microsoft, 253 F.3d at 50.

At step one, the plaintiff must establish that the

defendant possesses monopoly power, which is the

substantial ability “to control prices or exclude competition.”

Grinnell, 384 U.S. at 571; accord United States v. Syufy

Enters., 903 F.2d 659, 664 (9th Cir. 1990). Monopoly power

differs in degree from market power, requiring “something

greater.” Kodak, 504 U.S. at 481; see also Areeda &

Hovenkamp, Antitrust Law, supra, ⁋ 600b (market power

and monopoly power exist along a spectrum). Like market

power, monopoly power can be established either directly or

indirectly. Rebel Oil, 51 F.3d at 1434; see Microsoft, 253

F.3d at 51.

At step two, the plaintiff must show that the defendant

acquired or maintained its monopoly through

“anticompetitive conduct.” Trinko, 540 U.S. at 407. This

anticompetitive-conduct requirement is “essentially the

same” as the Rule of Reason inquiry applicable to Section 1

claims. Qualcomm, 969 F.3d at 991; see also Microsoft, 253

F.3d at 59 (“[I]t is clear . . . that the analysis under section 2

is similar to that under section 1 regardless whether the rule

of reason label is applied.” (citation omitted)). Where, like

here, the plaintiff challenges the same conduct pursuant to

Sections 1 and 2, we can “review claims under each section

76 EPIC GAMES, INC. V. APPLE, INC.

simultaneously.” Qualcomm, 969 F.3d at 991. And if “a

court finds that the conduct in question is not anticompetitive

under § 1, the court need not separately analyze the conduct

under § 2.” Id.

At step one in this case, the district court found that

although Apple possesses “considerable” market power in

the market for mobile-game transactions, that power is not

durable enough to constitute monopoly power given the

influx nature of the market. It then, at step two, echoed its

Rule of Reason conclusion that Epic failed to establish

Apple’s restrictions were anticompetitive.

We affirm the district court’s rejection of Section 2

liability. Epic does not argue on appeal that the district court

clearly erred in finding that Apple lacks monopoly power in

the mobile-games market. It argues only that the district

court erred in rejecting its single-brand markets in which

Apple would have a 100% market share—an argument we

reject above. See supra section I. Moreover, even assuming

Apple has monopoly power, Epic failed to prove Apple’s

conduct was anticompetitive. See supra sections II–III.

V. Breach of Contract

Apple counter-sued Epic for breach of contract. Epic

stipulated that it breached the DPLA when it implemented

the Fortnite hotfix, which allowed it to process in-game

transactions in violation of Apple’s IAP restriction. Epic

raised several affirmative defenses, however, and argued

that the DPLA is illegal, void as against public policy, and

EPIC GAMES, INC. V. APPLE, INC. 77

unconscionable. The district court rejected each defense,

and Epic now challenges the illegality holding on appeal. 21

The parties agree that Epic’s illegality defense rises and

falls with its Sherman Act claims. Because we affirm the

district court’s holding that Epic failed to prove Apple’s

liability pursuant to the Sherman Act, we also affirm its

rejection of Epic’s illegality defenses.

VI. California’s Unfair Competition Law

We now turn to Apple’s cross-appeal, beginning with its

arguments concerning the UCL. The district court found that

Epic suffered an injury sufficient to confer Article III

standing, concluded that Apple’s anti-steering provision

violates the UCL’s unfair prong, and entered an injunction

prohibiting Apple from enforcing the anti-steering provision

against any developer. Apple challenges each aspect on

appeal. We affirm.

A. Standing

Article III limits federal courts’ jurisdiction to “[c]ases”

and “[c]ontroversies.” U.S. Const. art. III, § 2. “One

21

In its briefs, Epic also asserts that the district court erred in ruling that

the DPLA was neither void-against-public-policy nor unconscionable,

but the only substantive argument it makes is that the DPLA violates the

Sherman Act. These doctrines, however, do not sound in express

illegality. See Cal. Civ. Code § 1667(2) (a contract is void if it is

“contrary to the policy of express law, though not expressly prohibited”);

Lhotka v. Geographic Expeditions, Inc., 181 Cal. App. 4th 816, 821, 824

(2010) (a contract is unconscionable if there is a disparity in bargaining

power and the contract “reallocates risks in an objectively unreasonable

or unexpected manner”). As such, Epic’s invocation of these doctrines

without any relevant argument is insufficient to raise them on appeal.

See Singh v. Am. Honda Fin. Corp., 925 F.3d 1053, 1075 n.22 (9th Cir.

2019).

78 EPIC GAMES, INC. V. APPLE, INC.

essential aspect of this [limitation] is that any person

invoking the power of a federal court must demonstrate

standing to do so.” Va. House of Delegates v. Bethune-Hill,

139 S. Ct. 1945, 1950 (2019) (quoting Hollingsworth v.

Perry, 570 U.S. 693, 704 (2013)). Constitutional standing

requires a showing of: “(1) a concrete and particularized

injury, that (2) is fairly traceable to the challenged conduct,

and (3) is likely to be redressed by a favorable decision.” Id.

Article III requires “that an ‘actual controversy’ persist

throughout all stages of litigation.” Id. at 1951 (quoting

Hollingsworth, 570 U.S. at 705).

Apple terminated Epic’s iOS developer account in

August 2020. Then in September 2021 after the district

court issued its order holding that Epic breached the DPLA,

Apple informed Epic that it had no intention of reinstating

Epic’s developer account. As a result, Epic has no apps

remaining on the App Store. Apple therefore argues that

Epic is no longer injured by the anti-steering provision.

Apple’s argument, however, overlooks two critical aspects

of the record. First, while Epic itself has no apps on the App

Store, its subsidiaries do—causing Epic to be injured

through the anti-steering provision’s effects on its

subsidiaries’ earnings. Second, Epic is a competing game

distributor through the Epic Games Store and offers a 12%

commission compared to Apple’s 30% commission. If

consumers can learn about lower app prices, which are made

possible by developers’ lower costs, and have the ability to

substitute to the platform with those lower prices, they will

do so—increasing the revenue that the Epic Games Store

generates. As such, the district court did not clearly err in

finding that Apple’s anti-steering provision injures Epic.

EPIC GAMES, INC. V. APPLE, INC. 79

B. Merits

As relevant here, the UCL prohibits “any [1] unlawful,

[2] unfair or [3] fraudulent business act or practice.” Cal.

Bus. & Prof. Code § 17200. As the UCL’s three-prong

structure makes clear, a business practice may be “unfair,”

and therefore illegal under the UCL, “even if not specifically

proscribed by some other law.” Cel-Tech Commc’ns, Inc. v.

L.A. Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999). The

unfair prong is “intentionally framed in its broad, sweeping

language, precisely to enable judicial tribunals to deal with

the innumerable ‘new schemes which the fertility of man’s

invention would contrive.’” Id. (quoting Am. Philatelic Soc.

v. Claibourne, 3 Cal. 2d 689, 698 (1935)); see also People

ex rel. Mosk v. Nat’l Research Co. of Cal., 201 Cal. App. 2d

765, 772 (1962) (the UCL covers unfair practices that “may

run the gamut of human ingenuity and chicanery”).

The California Supreme Court has refined this “wide

standard,” Cel-Tech, 20 Cal. 4th at 181, into two tests

relevant to this litigation. First, to support “any finding of

unfairness to competitors,” a court uses the “tethering” test,

which asks whether the defendant’s conduct “threatens an

incipient violation of an antitrust law, or violates the policy

or spirit of one of those laws because its effects are

comparable to or the same as a violation of the law, or

otherwise significantly threatens or harms competition.” Id.

at 186–87 (emphasis added). Second, to support a finding of

unfairness to consumers, a court uses the balancing test,

which “weigh[s] the utility of the defendant’s conduct

against the gravity of the harm to the alleged victim.”

Progressive W. Ins. Co. v. Super. Ct., 135 Cal. App. 4th 263,

285 (2005) (citation omitted). These tests “are not mutually

exclusive.” Lozano v. AT&T Wireless Servs., Inc., 504 F.3d

80 EPIC GAMES, INC. V. APPLE, INC.

718, 736 (9th Cir. 2007) (citing Schnall v. Hertz Corp., 78

Cal. App. 4th 1144 (2000)).

Here, the district court applied both tests. Through the

Epic Games Store, Epic is a games-distribution competitor

of Apple—triggering the competitor test. Through its

subsidiaries that have apps on the App Store, Epic consumes

the app transactions that Apple offers in a two-sided

market—triggering the consumer test. Cf. Amex, 138 S. Ct.

at 2286 (each side of two-sided market “jointly consume[s]

a single product” (citation omitted)). Applying the tethering

test, the court found that the anti-steering provisions

“decrease [consumer] information,” enabling

supracompetitive profits and resulting in decreased

innovation. It relied on Apple’s own internal

communications for the proposition that the anti-steering

provision prevents developers from using two of the three

“most effective marketing activities,” push notifications and

email outreach. It then reiterated these factual findings to

conclude that the provision also violates the balancing test.

Apple does not directly challenge the district court’s

application of the UCL’s tethering and balancing tests to the

facts of this case. Instead, Apple makes two arguments

attacking UCL liability as a matter of law. Neither is

supported by California law.

1. Safe-Harbor Doctrine

Apple argues that Epic’s failure to establish Sherman Act

liability forecloses UCL liability pursuant to the UCL’s “safe

harbor” doctrine, which bars a UCL action where California

or federal statutory law “absolutely preclude[s] private

causes of action or clearly permit[s] the defendant’s

conduct.” Zhang v. Sup. Ct., 57 Cal. 4th 364, 379–80 (2013).

The safe-harbor doctrine emphasizes that there is a

EPIC GAMES, INC. V. APPLE, INC. 81

“difference between (1) not making an activity unlawful, and

(2) making that activity lawful.” Cel-Tech, 20 Cal. 4th at

183; accord Zhang, 57 Cal. 4th at 379. Accordingly, in

every instance where a court found the Sherman Act to

preclude a UCL action, a categorical antitrust rule formed

the basis of the decision. We held that the judge-made

baseball exemption—that “the business of providing public

baseball games for profit . . . [is] not within the scope of the

federal antitrust laws”—precluded a UCL action. City of

San Jose v. Off. of the Com’r of Baseball, 776 F.3d 686, 689

(9th Cir. 2015) (quoting Toolson v. N.Y Yankees, Inc., 346

U.S. 356, 357 (1953)). A California Court of Appeal

similarly held that the Colgate doctrine—that it is lawful for

a company to unilaterally announce the terms on which it

will deal—precluded a UCL action. Chavez v. Whirlpool

Corp., 93 Cal. App. 4th 363, 367, 373, 375 (2001).

Neither Apple nor any of its amici cite a single case in

which a court has held that, when a federal antitrust claim

suffers from a proof deficiency, rather than a categorical

legal bar, the conduct underlying the antitrust claim cannot

be deemed unfair pursuant to the UCL. Indeed, in a leading

case on the safe-harbor exception, the California Supreme

Court permitted a UCL claim against a predatory-price

scheme to proceed even though the plaintiff failed to

prove—as state antitrust law requires—that the defendant

intended to harm competition through the scheme. Cel-

Tech, 20 Cal. 4th at 183. Apple’s rule would convert any

Rule of Reason shortcoming into a UCL defense and

undermine the UCL’s three-prong structure by collapsing

the “unfair” and “unlawful” prongs into each other. We

82 EPIC GAMES, INC. V. APPLE, INC.

reject Apple’s proposed rule as foreclosed by California

law. 22

2. Importation of Sherman Act Principles

Apple next argues that two principles from Sherman Act

case law preclude UCL liability here. We find neither

argument persuasive. First, Apple contends that the

Supreme Court’s decision in Amex—finding in favor of

American Express in a suit challenging its anti-steering

provision—bars UCL liability stemming from Apple’s anti-

steering provision. Apple does not explain how Amex’s fact-

and market-specific application of the first prong of the Rule

of Reason establishes a categorical rule approving anti-

steering provisions, much less one that sweeps beyond the

Sherman Act to reach the UCL. Amex was based on the

plaintiff’s failure to establish direct evidence of

anticompetitive effects through a reduction in output,

supracompetitive pricing, or excessively high profit

margins; it was not a blanket approval of anti-steering

provisions. See Amex, 138 S. Ct. at 2288.

Second, Apple argues that the UCL mandates trial courts

to define a relevant market and then conduct the balancing

test within that market (similar to the Rule of Reason).

Again, Apple does not cite any California authority for this

proposition. Moreover, such a rule runs contrary to

California courts’ repeated instruction that “[n]o inflexible

rule can be laid down as to what conduct will constitute

unfair competition.” E.g., Pohl v. Anderson, 13 Cal. App.

22

Several amici contend that, under current California case law, the UCL

provides insufficient guidance to businesses. That argument, however,

fundamentally misunderstands our role when we interpret and apply state

law while exercising diversity or supplemental jurisdiction.

EPIC GAMES, INC. V. APPLE, INC. 83

2d 241, 242 (1936) (citation omitted). It also contradicts a

California Supreme Court decision that conducted

something akin to quick-look review (in which a precise

market-definition is not needed) when confronted with

significant restrictions on the free flow of price information.

See Oakland-Alameda Cnty. Builders’ Exch. v. F. P. Lathrop

Constr. Co., 4 Cal. 3d 354, 363–64 (1971) (invalidating a

prohibition on unsealing competitor bids after bidding had

culminated on the grounds that it “restrain[ed] open price

competition and unlawfully tamper[ed] with the pricing

structure”).

C. Injunctive Relief

Apple also argues that (1) the district clearly erred when

it found that Epic’s injuries were irreparable, and (2) it

abused its discretion when applying the injunction against all

developers, not just Epic’s subsidiaries that have apps on the

App Store. We disagree.

Even where the UCL authorizes injunctive relief

pursuant to state law, a federal court must also ensure that

the relief comports with “the traditional principles governing

equitable remedies in federal courts.” Sonner v. Premier

Nutrition Corp., 971 F.3d 834, 844 (9th Cir. 2020). To issue

an injunction, the court must find: “(1) that [the plaintiff] has

suffered an irreparable injury; (2) that remedies available at

law, such as monetary damages, are inadequate to

compensate for that injury; (3) that, considering the balance

of hardships between the plaintiff and defendant, a remedy

in equity is warranted; and (4) that the public interest would

not be disserved by a permanent injunction.” Galvez v.

Jaddou, 52 F.4th 821, 831 (9th Cir. 2022) (quoting eBay Inc.

v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006)).

Moreover, injunctive relief must be no “more burdensome to

84 EPIC GAMES, INC. V. APPLE, INC.

the defendant than necessary to provide complete relief to

the plaintiff[].” L.A. Haven Hospice, Inc. v. Sebelius, 638

F.3d 644, 664 (9th Cir. 2011) (quoting Califano v. Yamasaki,

442 U.S. 682, 702 (1979)). We review a district court’s

decision to grant a permanent injunction, and the scope of

that injunction, for an abuse of discretion and review the

factual findings underlying the injunction

for clear error. NCAA Antitrust Litig., 958 F.3d at 1253.

1. Issuance of the Injunction

First, the district court did not clearly err in finding that

Epic suffered an injury for which monetary damages would

be inadequate. While economic injury is generally not

considered irreparable, it is where the underlying injury does

not readily lend itself to calculable money damages. See

Rent-A-Ctr., Inc. v. Canyon Television & Appliance Rental,

Inc., 944 F.2d 597, 603 (9th Cir. 1991). Here, the district

court found that the anti-steering provision “is not easily

remedied with money damages,” a finding that has ample

support in the record. In 2019, there were over 300,000

games on the App Store. Calculating the damages caused by

the anti-steering provision would require a protracted and

speculative inquiry into: the availability of each of those

300,000 games on the Epic Games Store, the percentage of

revenue on each game that comes from users who multi-

home and can therefore substitute, and how high the

substitution rate would be among those multi-home users. 23

23

Apple also asserts—in one sentence and without any authority—that

the district court abused its discretion in failing to hold that Apple’s

unclean-hands argument precluded injunctive relief. This passing

statement was insufficient to raise this issue on appeal. See Singh, 925

F.3d at 1075 n.22.

EPIC GAMES, INC. V. APPLE, INC. 85

2. Scope of the Injunction

Second, the district court did not abuse its discretion

when setting the scope of the injunctive relief because the

scope is tied to Epic’s injuries. The district court found that

the anti-steering provision harmed Epic by (1) increasing the

costs of Epics’ subsidiaries’ apps that are still on the App

Store, and (2) preventing other apps’ users from becoming

would-be Epic Games Store consumers. Because Epic

benefits in this second way from consumers of other

developers’ apps making purchases through the Epic Games

Store, an injunction limited to Epic’s subsidiaries would fail

to address the full harm caused by the anti-steering

provision.

VII. Attorney Fees

We reverse the district court’s holding that the DPLA’s

indemnification provision does not require Epic to pay

Apple’s attorney fees related to this litigation. Based on the

DPLA’s choice-of-law provision, we interpret its

indemnification provision pursuant to California contact-

interpretation principles. We review the district court’s

interpretation of a contract de novo. Shivkov v. Artex Risk

Sols., Inc., 974 F.3d 1051, 1058 (9th Cir. 2020).

California courts presume that “[a] clause that contains

the words ‘indemnify’ and ‘hold harmless’ generally

obligates the indemnitor to reimburse the indemnitee for any

damages the indemnitee becomes obligated to pay third

persons—that is, it relates to third party claims, not attorney

fees incurred in a breach of contract action between the

parties to the indemnity agreement itself.” Alki Partners, LP

v. DB Fund Servs., LLC, 4 Cal. App. 5th 574, 600 (2016)

(emphasis added). However, courts also look to “the context

in which the language appears.” Id. A contract, therefore,

86 EPIC GAMES, INC. V. APPLE, INC.

can rebut this presumption with language that “specifically

provide[s] for attorney’s fees in an action on the contract.”

Id. at 600–01 (emphasis omitted) (citation omitted). For

example, the California Court of Appeal read an

indemnification clause to cover intra-party disputes when

the clause covered all losses “whether or not arising out of

third party [c]laims.” Dream Theater, Inc. v. Dream

Theater, 124 Cal. App. 4th 547, 556–57 (2004). And it did

the same where an indemnification clause was accompanied

by a clause clarifying that, in addition to the remedies listed

in the indemnification clause, each party could also seek

specific performance for certain breaches of the contract—a

provision that “would be unnecessary if indemnification

only referred to third party claims.” Zalkind v. Ceradyne,

Inc., 194 Cal. App. 4th 1010, 1028 (2011).

Turning to the facts here, section 10 of the DPLA

provides that Epic “agree[s] to indemnify and hold harmless,

and upon Apple’s request, defend, Apple[] . . . from any and

all claims, losses, liabilities, damages, taxes, expenses and

costs, including without limitation, attorneys’ fees and court

costs . . . , incurred by [Apple] and arising from or related

to” several enumerated grounds. One grounds, clause (i),

applies to Epic’s “breach of any certification, covenant,

obligation, representation or warranty in [the DPLA].”

Clause (i) rebuts the Alki Partners presumption by

“specifically provid[ing] for attorney’s fees in an action on

the contract.” 4 Cal. App. 5th at 600–01. It expressly refers

to Epic’s “breach” of its obligations pursuant to the DPLA—

contemplating an intra-party action for breach of contract,

not claims by third parties. The surrounding context of

section 10 buttresses this conclusion. Section 14.3 of the

DPLA disclaims that the agreement “is not for the benefit of

any third parties.” Indeed, Epic has not identified a single

EPIC GAMES, INC. V. APPLE, INC. 87

situation in which a third-party could possibly sue Apple

pursuant to clause (i). Therefore, we hold that clause (i)

contemplates intra-party disputes and Apple is entitled to

attorney fees pursuant to it. 24

CONCLUSION

To echo our observation from the NCAA student-athlete

litigation: There is a lively and important debate about the

role played in our economy and democracy by online

transaction platforms with market power. Our job as a

federal Court of Appeals, however, is not to resolve that

debate—nor could we even attempt to do so. Instead, in this

decision, we faithfully applied existing precedent to the facts

as the parties developed them below. For the foregoing

reasons, we AFFIRM IN PART AND REVERSE AND

REMAND IN PART.

S.R. THOMAS, Circuit Judge, concurring in part and

dissenting in part:

I agree with much of the majority opinion. I fully agree

that the district court properly granted Epic injunctive relief

on its California Unfair Competition Law claims. I also fully

agree that the district court properly rejected Epic’s illegality

defenses to the Developer Program Licensing Agreement

(“DPLA”) but that, contrary to the district court’s decision,

the DPLA does require Epic to pay attorney fees for its

breach. On the federal claims, I also agree that the district

24

We express no opinion on what portion of Apple’s attorney fees

incurred in this litigation can be fairly attributed to Epic’s breach of the

DPLA, such that they fall within the scope of clause (i).

88 EPIC GAMES, INC. V. APPLE, INC.

court erred in defining the relevant market and erred when it

held that a non-negotiated contract of adhesion falls outside

of the scope of Section 1 of the Sherman Act. However,

unlike the majority, I would not conclude that these errors

were harmless. An error is harmless if it “do[es] not affect

the substantial rights of the parties.” 28 U.S.C. § 2111. The

district court’s errors relate to threshold analytical steps, and

the errors affected Epic’s substantial rights. Thus, I would

reverse the district court and remand to evaluate the claims

under the correct legal standard.

“A threshold step in any antitrust case is to accurately

define the relevant market . . . .” Fed. Trade Comm’n v.

Qualcomm Inc., 969 F.3d 974, 992 (9th Cir. 2020).

“Without a definition of [the] market there is no way to

measure [the defendant’s] ability to lessen or destroy

competition.” Ohio v. Am. Express Co., 138 S. Ct. 2274,

2285 (2018) (alterations in original) (quoting Walker

Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S.

172, 177 (1965)).

I agree with the majority that the district court erred in

rejecting Epic’s proffered foremarket. The district court

rejected the foremarket of mobile operating systems because

Apple does not sell or license its operating system separately

from its smartphones. But we have previously recognized

that such a market can exist. See Digidyne Corp. v. Data

Gen. Corp., 734 F.2d 1336, 1338–39 (9th Cir. 1984),

implicitly overruled on other grounds by Ill. Tool Works Inc.

v. Indep. Ink, Inc., 547 U.S. 28, 31 (2006) (holding that

separate markets existed for software and hardware even

when they were always bundled together).

The district court then rejected Epic’s proposed

aftermarket of solutions for iOS app payment processing

EPIC GAMES, INC. V. APPLE, INC. 89

(“IAP”) because IAP is integrated into the operations

system. This conclusion was not only legally erroneous, but

in contradiction to the district court’s factual finding of

separate demand. See Jefferson Parish Hosp. Dist. No. 2 v.

Hyde, 466 U.S. 2, 19 (1984) (“[W]hether one or two

products are involved turns . . . on the character of the

demand for the two items . . . . not on the functional relation

between them . . . .”).

I also agree with the majority that the district court erred

in holding that a non-negotiated contract of adhesion falls

outside of the scope of § 1 of the Sherman Act and, therefore,

the Developer Program License Agreement was not a

contract covered under § 1. “‘[E]very commercial

agreement’. . . among two or more entities” qualifies as a §

1 agreement. Paladin Assocs., Inc. v. Mont. Power Co., 328

F.3d 1145, 1154 n.7 (9th Cir. 2003) (emphasis in original)

(quoting Nw. Wholesale Stationers, Inc. v. Pac. Stationery

& Printing Co., 472 U.S. 284, 289 (1985)). This includes a

contract of adhesion. See Perma Life Mufflers, Inc. v. Int’l

Parts Corp., 392 U.S. 134, 141–142 (1968), overruled on

other grounds by Copperweld Corp. v. Indep. Tube Corp.,

467 U.S. 752, 777 (1984).

The majority holds that the errors were harmless given

the district court’s analysis of the remaining steps in the Rule

of Reason analysis. However, there is no direct authority for

that proposition, and it amounts to appellate court fact-

finding. Indeed, the Supreme Court has instructed that

“courts usually cannot properly apply the rule of reason

without an accurate definition of the relevant market.” Am.

Express, 138 S. Ct. at 2285.

Correction of these errors would have changed the

substance of the district court’s Rule of Reason analysis. See

90 EPIC GAMES, INC. V. APPLE, INC.

Qualcomm, 969 F.3d at 992. Unless the correct relevant

market is identified, one cannot properly assess

anticompetitive effects, procompetitive justifications, and

the satisfaction of procompetitive justifications through less

anticompetitive means. The analysis is different; therefore,

the errors affected substantial rights and cannot be

considered harmless.

Relying

This text is long and has been trimmed here. Open the source document for the complete record.