Alivecor, Inc. v. Apple, Inc.

Background

AliveCor alleged that Apple unlawfully monopolized and attempted to monopolize markets under Section 2 of the Sherman Act, and also violated California’s Unfair Competition Law. The complaint focused on Apple Watch heart-rate analysis apps, including AliveCor’s SmartRhythm app, which used Apple Watch heart-rate data to identify irregularities and alert users that they might need an ECG recording.

AliveCor proposed several relevant product markets: ECG-capable smartwatches, broader smartwatch or ECG-capable wearable-device markets, and an alleged aftermarket for watchOS heart-rate analysis apps. AliveCor alleged that Apple had substantial or complete control over the watchOS app market and that switching costs and consumer lock-in limited competition after users purchased an Apple Watch. It also alleged that Apple changed its heart-rate algorithm in a way that prevented third-party apps from accurately analyzing heart rates, and that Apple made the changes to exclude competition.

Requests for Judicial Notice and Incorporation by Reference

Apple asked the court to consider twelve exhibits cited in the complaint. The court denied Apple’s request to incorporate Exhibits A through C and L by reference because the complaint did not rely on them extensively and they did not form the basis of AliveCor’s claims. The court granted Apple’s request to incorporate Exhibits D through K by reference because AliveCor cited them as support for its allegations about the relevant app market and Apple’s market share. The court stated that it would not interpret those documents to contradict well-pleaded factual allegations in the complaint.

Legal Standard

Apple moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. At this stage, the court accepted the complaint’s material factual allegations as true and drew reasonable inferences in AliveCor’s favor. The court explained that a complaint must contain enough facts to make a claim plausible, although it need not prove the claim or plead every detail.

Hardware-Based Markets

The court granted Apple’s motion to dismiss based on AliveCor’s proposed hardware markets. The complaint described a smartwatch as a wrist-worn mobile computing device with a touchscreen and substantial additional functionality, while describing the KardiaBand as a wristband used with an Apple Watch. Based on those allegations, the court concluded that the KardiaBand was not itself a smartwatch or an ECG-capable smartwatch and therefore was not included in the proposed smartwatch markets.

The court also found AliveCor’s broader proposed market for all ECG-capable wearable devices implausible. That market could include products on which apps could not run, such as the KardiaBand, even though the complaint focused on heart-rate analysis apps and the devices on which those apps operate. The court further found that AliveCor had not adequately alleged why ECG-capable portable or mobile devices were not reasonable substitutes for ECG-capable wearable devices. The court therefore concluded that AliveCor had not plausibly alleged any proposed hardware-based market and granted Apple’s motion on that basis.

WatchOS Heart-Rate Analysis App Aftermarket

The court denied Apple’s motion as to AliveCor’s alleged watchOS heart-rate analysis app aftermarket. An aftermarket is a secondary market dependent on a primary market; under the court’s analysis, it may be legally relevant when switching costs or other market problems prevent consumers from understanding how their initial purchase will affect later choices.

The court found that AliveCor plausibly alleged that the watchOS app market was dependent on the Apple Watch market, that Apple’s market power arose after the initial device purchase, and that users and developers faced high switching costs when changing operating systems. Those allegations were sufficient at the pleading stage for AliveCor to pursue its aftermarket theory.

Market Share

The court denied Apple’s motion challenging AliveCor’s allegations of market power. AliveCor alleged that Apple had a 100 percent share of the watchOS heart-rate analysis app market because Apple controlled both watchOS and distribution of watchOS apps. It also alleged switching costs and consumer lock-in. The court found those allegations sufficient at this stage to plead a dominant market share.

The court also declined to reject AliveCor’s market-share calculations for the ECG-capable smartwatch market as a matter of law. It treated Apple’s arguments as challenges to the interpretation of evidence and found AliveCor’s allegations plausible when taken as true for purposes of the motion.

Anticompetitive Conduct

The court denied Apple’s motion challenging the alleged anticompetitive conduct. It explained that a product-design change generally does not violate Section 2 merely because it harms a competitor, particularly when the change improves the product for consumers. But a design change may support an antitrust claim when it is accompanied by conduct that abuses or leverages monopoly power.

AliveCor alleged that Apple’s updated heart-rate algorithm made it effectively impossible for third-party developers to identify irregular heart-rate situations and offer competing analysis apps. It also alleged that the update applied to earlier Apple Watch models, did not improve the user experience, and was intended to prevent competition. The court found those allegations sufficient to plausibly establish associated anticompetitive conduct.

California Unfair-Competition Claim

Apple argued that AliveCor’s California Unfair Competition Law claim rose or fell with the Sherman Act claims. Because the court found that AliveCor had plausibly alleged its antitrust claims, it denied Apple’s motion to dismiss the California claim.

Disposition

The court granted in part and denied in part Apple’s motion to dismiss. The order required the parties to appear for a case-management conference and submit a joint case-management statement, but it did not decide whether AliveCor would ultimately prevail on its claims.