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Sermons V. Apple Case 4:19-cv-03796-DMR Document 1 Filed 06/28/19 Page 1 of 121 1 Guido Saveri (22349) R. Alexander Saveri (173102) 2 SAVERI & SAVERI, INC. 706 Sansome Street, #200 3 San Francisco, CA 94111 4 Telephone: (415) 217-6810 Facsimile: (415) 217-6813 5 [email protected] [email protected] 6 Kimberly A. Justice (pro hac vice forthcoming) 7 Jonathan M. Jagher (pro hac vice forthcoming) 8 FREED KANNER LONDON & MILLEN LLC 923 Fayette Street 9 Conshohocken, PA 19428 Telephone: (610) 234-6487 10 Facsimile: (224) 632-4521 11 [email protected] [email protected] 12 Attorneys for Plaintiff and The Proposed Class 13 [Additional Counsel Listed on Signature Page] 14 15 UNITED STATES DISTRICT COURT 16 NORTHERN DISTRICT OF CALIFORNIA 17 SAN FRANCISCO DIVISION 18 ) 19 Barry Sermons, on behalf of himself and all ) Case No.: 3:19-cv-3796 others similarly situated, ) 20 ) Plaintiff, ) CLASS ACTION COMPLAINT 21 ) 22 v. ) VIOLATION OF THE SHERMAN ) ANTITRUST ACT 23 APPLE INC., a California corporation, ) ) 24 Defendant. ) ) JURY TRIAL DEMANDED 25 ) 26 27 28 CLASS ACTION COMPLAINT Case 4:19-cv-03796-DMR Document 1 Filed 06/28/19 Page 2 of 121 1 TABLE OF CONTENTS 2 Page(s) 3 NATURE OF THE ACTION .............................................................................................................. 1 4 JURISDICTION AND VENUE .......................................................................................................... 4 5 PARTIES ............................................................................................................................................. 4 6 A. Plaintiff .................................................................................................................................... 4 7 B. Defendant ................................................................................................................................. 5 FACTUAL ALLEGATIONS .............................................................................................................. 5 8 A. Apple’s App Store ................................................................................................................... 5 9 B. iOS App Developers ................................................................................................................ 7 10 C. Apple Acquires and Maintains Monopoly Power Through Anticompetitive Conduct ........... 8 11 i. Apple Has Monopoly And Market Power In The Relevant Market ..................................... 8 12 ii. Apple Harms App Developers With Its Pricing Requirements And Mandates .................. 10 13 iii. Apple’s Anticompetitive Practices Harm Competition, Developers, And Consumers Of 14 Apps And In-App Products ................................................................................................ 13 15 iv. Apple Admits That iOS Developers Have Antitrust Standing ........................................... 15 16 INTERSTATE TRADE AND COMMERCE ................................................................................... 17 17 RELEVANT MARKET .................................................................................................................... 17 18 ANTITRUST INJURY AND CAUSATION .................................................................................... 18 19 CLASS ACTION ALLEGATIONS .................................................................................................. 19 20 APPLICABILITY OF CALIFORNIA LAW TO THE CLASS........................................................ 22 21 CLAIMS FOR RELIEF ..................................................................................................................... 23 22 PRAYER FOR RELIEF .................................................................................................................... 30 23 JURY TRIAL DEMANDED ............................................................................................................. 31 24 25 26 27 28 i CLASS ACTION COMPLAINT Case 4:19-cv-03796-DMR Document 1 Filed 06/28/19 Page 3 of 121 1 Plaintiff Barry Sermons, a developer of Apple iOS applications or in-app products as 2 defined below, individually and on behalf of the Class described below, brings this class action 3 against Defendant Apple Inc. for damages and injunctive relief under the antitrust laws of the 4 United States, and hereby demands trial by jury. Plaintiff alleges that Defendant has gained and 5 maintains monopoly power in the U.S. market for iOS app and in-app products in violation of 6 Section II of the Sherman Act and California’s Unfair Competition Law. As a result of Apple’s 7 unlawful conduct, Plaintiff and members of the proposed Class are being harmed in a manner they 8 otherwise would not have been in a competitive market. 9 NATURE OF THE ACTION 10 1. This lawsuit is brought by iOS app developers against Apple for the following 11 anticompetitive practices: acquiring and maintaining a monopoly in the market for apps and in-app 12 products developed for the Apple iOS operating system; refusing to allow other entities to distribute 13 apps and related digital products to U.S. owners of its Apple iOS devices; and pricing requirements 14 and mandates, including charging the same 30% supra-competitive commission on the sale of all 15 paid apps and in-app purchases (since the App Store opened in 2008) and dictating minimum and 16 greater price points that prevent developers from offering products for sale at lower prices. 17 2. Apple launched its App Store in 2008 to coincide with the release of its iPhone 3G. 18 The App Store provides a setting for users to access or purchase millions of software applications 19 (apps) for their Apple iOS devices. Through the App Store, Apple hosts apps created by developers 20 and makes the apps available for browsing and downloading by users. Within this environment, 21 developers create apps that compete with other apps for user downloads. The App Store has 22 hundreds of millions of customers who have downloaded apps more than tens of billions of times. 23 3. App Store apps can be downloaded directly to iOS devices such as the iPhone 24 smartphone, the iPod Touch handheld device, the iPad tablet computer, the Apple Watch, or Mac 25 devices. Apps are available for purchase or through a free download, which often utilize a 26 “freemium” payment model, that allows the user to download the app without upfront costs but 27 generates revenues through in-app purchases. 28 1 CLASS ACTION COMPLAINT Case 4:19-cv-03796-DMR Document 1 Filed 06/28/19 Page 4 of 121 1 4. The popularity of the App Store has been stunning. Within the first 18 months of the 2 App Store’s existence, nearly 150,000 apps were released (at a rate of approximately 275 apps per 3 day) and nearly 4 billion apps had been downloaded worldwide. Today, there are currently more 4 than two million apps available in Apple’s App Store. 5 5. Apps today have become an everyday tool for persons throughout the U.S., and 6 worldwide. In fact, apps, and their in-app product purchase options, are one of the largest growing 7 markets in the electronic commerce industry, with astonishing worldwide growth from less than $10 8 billion annual revenue in 2011 to an expected $189 billion by 2020. 9 6. The App Store has been a money-making machine for Apple. From 2014 to 2016 10 alone, Apple’s App Store revenue rose from $4.5 billion to $8.8 billion. Revenue for Apple from 11 the App Store in 2017 was approximately $11.5 billion. Users of the App Store spent an estimated 12 $46.6 billion in 2018. The enormous increase in the development and sales of apps and in-app 13 products has resulted in a substantial corresponding increase in Apple’s revenues. 14 7. Apple has achieved such staggering growth and revenue because it designed its iOS 15 operating system to lock its Apple iOS device users into buying applications only from the App 16 Store. Applications created for other mobile devices not sold by Apple through its App Store will 17 not work on Apple iOS devices. 18 8. Through this exclusive distribution service, Apple has obtained and maintains a 19 dominant position in the market for iOS app and in-app product distribution services. Apple uses 20 this dominant position over iOS developers to charge developers supra-competitive fees. The App 21 Store contractual guidelines limit choice and stifle innovation by charging developers a 30% tax, or 22 commission (the exact same amount Apple has charged since the App Store opened despite the 23 accrual of experience and economies of scale), on the sale of paid apps and in-app products and a 24 $99 annual fee just to sell their products through the App Store. Apple further limits developers’ 25 choice and stifles their innovation by mandating that developers charge a minimum price of $0.99 26 for all paid apps and greater price points (all ending in $.99) for more expensive apps. 27 9. Even as Apple’s revenue from the App Store has continued to grow, it has further cut 28 app developers’ earnings. In June 2017, Apple introduced rule 4.2.6 into the App Store guidelines 2 CLASS ACTION COMPLAINT Case 4:19-cv-03796-DMR Document 1 Filed 06/28/19 Page 5 of 121 1 which gave it the right to ban any apps that share a code base or template with another app. The rule 2 was subsequently revised in December 2017 so that template apps could be submitted, but more 3 significantly, Apple made another change: to successfully submit apps to the App Store, developers 4 had to create individual accounts for each submission. The result is that
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