Rare “Single-Brand Market” Case Against Apple Clears Initial Hurdle in Court
Antitrust claims alleging that a single brand constitutes a market may be rare, but they can still pack a punch as Apple Inc. found out this week.
On Monday, Judge Jeffrey White of the U.S. District Court for the Northern District of California granted in part and denied in part Apple’s motion to dismiss AliveCor’s antitrust claims in AliveCor, Inc. v. Apple Inc. Judge White’s opinion is notable because it allowed AliveCor’s antitrust claim alleging a single-brand product market to proceed.
Single-brand market claims have historically been very difficult for plaintiffs to plead successfully. But Judge White’s opinion could set a precedent that will result in the prosecution of more single-brand market antitrust lawsuits. This could have an impact on large technology platforms, which continue to face increased scrutiny and pressure from antitrust enforcers and private plaintiffs.
AliveCor’s complaint alleged exclusionary conduct by Apple regarding heart rate analysis apps used with the Apple Watch, including AliveCor’s app. According to AliveCor, Apple made changes to the Watch’s heart rate algorithm that precluded third parties, such as AliveCor, from offering heart rate analysis apps to compete with Apple’s. AliveCor alleged that this amounts to an abuse of Apple’s monopoly power in the market for “watchOS heart rate analysis apps” – a single-brand market of which Apple purportedly has a 100% market share.
Apple moved to dismiss AliveCor’s claim on the ground that AliveCor failed to plausibly allege that “watchOS” heart rate analysis apps are a separate market from a broader market of heart rate analysis apps, such as those that work with other manufacturers’ smart watches.
While acknowledging that single-brand markets are “extremely rare,” Judge White held that AliveCor had plausibly alleged a single-brand aftermarket for watchOS apps “that is derivative from and dependent on the primary device market.”
The key factor that makes a single-brand market plausible, as highlighted by Judge White, is whether “market imperfections,” such as information and switching costs “prevent consumers from realizing that their choice in the initial market will impact their freedom to shop in the aftermarket.” In such cases, consumers are effectively “locked in” to a single brand product with no meaningful ability to purchase a substitute. AliveCor alleged that such was the case with watchOS heart rate apps: after a consumer purchases an Apple Watch, high switching costs prevent consumers from switching to a different manufacturer’s operating system and consumers are thus locked in to using a watchOS heart rate app.
Section 2 monopolization claims are hard for Plaintiffs to win. Section 2 claims premised on alleged monopolization of a single-brand product market are even harder, mostly because they rarely survive past the pleading stage. But after AliveCor, potential antitrust plaintiffs may perceive the beginning of a tidal shift that emboldens them to assert single-brand market Section 2 claims against the world’s largest platform developers.
If you have any questions about single-brand markets, do not hesitate to contact Constantine Cannon today.
Written by David A. Scupp
Edited by Gary J. Malone