Alivecor, Inc. v. Apple, Inc.

Background

AliveCor sued Apple, alleging antitrust violations and unfair competition under California law. AliveCor alleged that Apple changed the heart-rate algorithm in the Apple Watch and watchOS, making AliveCor’s heart-rate analysis app unable to provide reliable analysis.

Apple alleged that AliveCor was a party to a license agreement governing access to Apple’s software and services and distribution through the App Store. Section 10 of that agreement required the app developer to indemnify and hold Apple harmless from specified claims, losses, liabilities, damages, expenses, and costs, including attorney’s fees and court costs. Apple relied on Section 10(vi), which addressed the developer’s use of Apple software and services, its applications, and related activities.

Apple asserted a counterclaim seeking indemnification for the fees and costs it incurred defending AliveCor’s lawsuit and pursuing the counterclaim. AliveCor moved to dismiss that counterclaim under Rule 12(b)(6), which permits dismissal when a pleading does not state a legally sufficient claim.

The Court’s Analysis

The court applied the Rule 12(b)(6) standard, accepting well-pleaded factual allegations as true but requiring facts that plausibly showed an entitlement to relief.

The court held that Section 10(vi) was limited to indemnification for third-party claims. Under California law, the words “indemnify” and “hold harmless” generally indicate an obligation to reimburse losses that the protected party becomes obligated to pay to third persons, rather than attorney’s fees incurred in a dispute between the parties to the agreement.

The court found several additional indicators that Section 10 was intended to cover third-party claims. Other subsections referred to third-party intellectual-property rights, end-user claims, and obligations under an end-user license agreement. Section 10 also prohibited the app developer from entering into a settlement with a third party that affected Apple’s rights or bound Apple. The agreement did not expressly refer to disputes between Apple and the app developer or to fees for the prevailing party.

The court considered Apple’s argument that Section 10(i), which addressed breaches of certifications, covenants, obligations, representations, or warranties, might cover disputes between the contracting parties. But Apple’s counterclaim relied on Section 10(vi), not Section 10(i), and Apple did not allege that AliveCor breached one of the obligations listed in Section 10(i). The court therefore concluded that the possible scope of Section 10(i) did not change its interpretation of Section 10(vi).

The court also distinguished the cases cited by Apple because those agreements expressly extended indemnification to losses that did not arise from third-party claims or otherwise covered disputes between the contracting parties. The court agreed with the reasoning of a prior Northern District of California decision involving a similar Apple indemnification counterclaim.

Disposition

The court granted AliveCor’s motion to dismiss Apple’s indemnification counterclaim. Because the court concluded as a matter of law that Section 10(vi) applied to third-party claims, it found that amendment would be futile and dismissed the counterclaim without leave to amend. The court did not address AliveCor’s separate arguments concerning fee-shifting in federal antitrust and California unfair-competition claims. Judge Jeffrey P. White vacated the scheduled hearing and entered the order on May 16, 2022.