Ashley Ulrich is a J.D. candidate, 2021 at NYU School of Law.
Recent news articles have documented Apple’s use of its App Store to identify and copy ideas from best-performing third-party applications. Apple then incorporates these ideas into its own applications or phone features, to the detriment of third-party app sellers. The conduct is common enough to have an industry moniker – “getting Sherlocked,” a reference to Apple copying many features of a third-party application to design its desktop search tool, “Sherlock.”
Whereas Apple’s conduct raises anti-competitive and IP infringement concerns, it likely falls short of an actionable claim for third-party developers. This blog post explores why third-party developers are unlikely to be successful in an anti-trust, copyright or patent infringement case against Apple.
Overview of Apple’s practices
A recent Washington Post article identified several instances from the mid-2000s to present where Apple used ideas from third party developers’ applications to inspire its own applications or phone features. These included ideas for a phone flashlight, screen cast function, type-by-swiping tool, and walk-talkie function, among others.
Whereas many developers take inspiration from existing applications, Apple’s practice is unique because the company chooses which ideas to incorporate based on user data it gathers in its App Store. Apple collects data from third-party applications about users’ downloads, time spent in-app, and spending on in-app purchases. Third-party developers, however, do not have the same access to user data across all applications sold in the App Store.
The article also outlined several instances where Apple integrated ideas from third-party developers into existing applications like Apple Music or the phone’s operating system, which are typically closed to third-party developers. Further, Apple typically offers its applications and features to buyers for free, while existing applications charge consumers per download, require in-app purchases, or display ads.
The result of Apple’s conduct is that many third-party developers whose ideas Apple used have lost significant or all revenue and have been forced to exit the market. Flashlight application myLite, for example, had 10 million monthly users in 2013 but saw its revenue fell to “essentially zero” in the months after Apple integrated this function into its standard tools.
Under Section 2 of the Sherman Act (the “Act”), it is a felony for any person (or corporation) to “monopolize, or attempt to monopolize” in trade or commerce. Merely having market power is not a violation of the Act, but a firm’s having market power and engaging in conduct that is undesirable and exclusionary is prohibited. This distinction recognizes that a company might gain and maintain market power through competition on the merits, which is permitted.
A plaintiff can establish that the defendant has market power through showing that the firm raised prices substantially above competitive levels or possesses a dominant market share in the relevant market. The latter and more common approach defines “relevant market” as the market for all products reasonably interchangeable for the same purpose as the defendant’s product.
Here, a third-party application developer will likely struggle to show that Apple has market power in the relevant market – the market for application sales. Apple only sells about 40 of the two million applications sold through its App Store, and it does not sell some of the most popular applications like YouTube, Facebook, Instagram, and Netflix. Apple’s dominance in the markets for smartphone hardware (largest U.S. smartphone hardware sales) and/or operating software (largest U.S. smartphone OS provider) are irrelevant.
Even if a third-party application developer could show that Apple has market power in the relevant market, it likely cannot show that Apple’s conduct is undesirable and exclusionary. Existing case law requires that Apple’s conduct results in an “anticompetitive effect” to consumers, typically shown through increased prices, decreased output, and/or decreased quality. Merely showing harm to a competitor or competitors in insufficient; instead, a plaintiff must show that the defendant firm’s conduct harmed competition in the relevant market.
Here, a third-party developer will likely struggle to show that Apple’s conduct, while harmful to competitors, harmed overall market competition. Apple has never required users to exclusively download its applications, and it has never barred third-party sellers from selling through its store because their applications competed with Apple. While a third-party developer could try to argue that Apple’s free applications reflect predatory pricing, many applications are free to consumers through use of advertisements. Further, Apple could rebut any credible anti-competitive effect with a showing that its actions were pro-competitive, for example, through offering consumers access to a desired feature at a favorable price point and better integration.
A third-party developer could try to argue that Apple’s use of its App Store to pick “winning” ideas from third-party developers tends to destroy competition itself, through lowering investment incentives for developers. However, app developers always face the risk that new market entrants will win market share by offering cheaper or higher quality applications to market. And, the number of app developers who sell through Apple’s store each year continues to rise, suggesting that overall, developers are not deterred from entering the market due to Apple’s behavior.
Of course, Apple is in part able to compete in this manner because it has market power in adjacent markets – the markets for smartphone hardware and operating software. Developers must sell through the App Store if they want to reach the half of U.S. smartphone users who are iOS users – a $46.6B market (by total revenue) in 2018. However, without more evidence of Apple’s anti-competitive conduct in the market for application sales, third-party developers are unlikely to have a triable anti-trust case.
Copyright infringement implications
Copyright law protects literary, musical, dramatic, pictorial, architectural, and other works. Courts have long recognized the copyrightability of original computer source code and object code, the literal or textual elements of software. Copyright law also affords protection to non-literal elements of a computer program, including its sequences, structure, organization, and user interface. Non-literal protection for computer code, however, does not extend to protection of the idea underlying a work.
Assuming that a third-party developer has a valid copyright for her application, she is unlikely to be able to prove a case arising from infringement of the literal or non-literal elements of her software. It is unlikely that Apple is using the literal code underlying a third-party developer’s application in its own work. Further, without access to a third-party developer’s code base, it is unlikely that Apple is using a third-party developer’s sequences, structures, or organization. In addition, any non-literal code similarities due to reasons of efficiency, necessity, or public availability are permissible.
Thus, a third-party developer likely only has an actionable copyright claim if she can show substantial similarities with elements of pictorial and graphic elements in her application. If not, a third-party developer likely can only establish that the idea of Apple’s application is the same as her own, which is not protectable under copyright law.
Patent infringement implications
Patent law serves to protect discoveries. Such protection does extend to the idea, procedure, process or system that underlies a work. However, practically speaking, most software developers do not seek patent protection, because this process is much more complex, costly and time-consuming than copyright protection. Further, protecting patents against infringement is costly, typically involving a drawn-out legal battle in federal court.
To the extent that a developer does have patent protection for the idea underlying his application, he needs to show both that his patent is valid – i.e., the idea, procedure, process or system that it describes is novel and non-obvious – and that the defendant makes, uses, offers to sell or sells something that contains every element of the patented claim. The defendant’s non-use of even one claim element will prevent liability.
As such, patent protection may be the most fruitful way for developers to enjoin Apple’s practice of using their ideas in its own applications. However, because patent protection remains under-utilized in the software development community, this recourse will be available to few.