Epic v. Apple: Amicus Brief of the State of California in Support of Neither Party

• Publication year: 2022
• Author: Written by Kathleen Foote, Paula Blizzard, Shira Hoffman, Robert B. McNary, and Brian D. Wang

EPIC V. APPLE: AMICUS BRIEF OF THE STATE OF CALIFORNIA IN SUPPORT OF NEITHER PARTY

Written by Kathleen Foote, Paula Blizzard, Shira Hoffman, Robert B. McNary, and Brian D. Wang

The State of California recently filed an amicus brief regarding California's Unfair Competition Law (UCL) in the Epic v. Apple appeal pending before the Ninth Circuit. In that dispute between game developer Epic and app store owner Apple, the trial court found that Apple's app-related policies did not violate federal or state antitrust laws, but one of those policies-Apple's anti-steering policy—did violate the UCL. The Attorney General of California enforces the UCL and regularly brings actions in the name of the People under the statute to protect consumers and competition, and California has a strong interest in the UCL's proper interpretation and development. Accordingly, to assist the Ninth Circuit, the State submitted the following amicus brief focused on the "unfair" prong of the UCL.

The amicus brief discusses the history and development of the UCL, the current UCL tests recognized by the California Supreme Court, the relation of the UCL to federal and state antitrust laws, and the appropriate scope of injunctive relief when a plaintiff establishes a violation of the "unfair" prong. The amicus brief does not support either party in the Epic v. Apple case, nor does it take a position on whether the judgment below should be affirmed or reversed.

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I. BRIEF OF THE STATE OF CALIFORNIA AS AMICUS CURIAE IN SUPPORT OF NEITHER PARTY

A. INTEREST OF AMICUS

The State of California has a strong interest in the proper interpretation and development of its Unfair Competition Law (UCL), Cal. Bus. & Prof. Code § 17200 et seq., which is among the State's most important consumer protection and business regulation statutes.¹ The Attorney General of California enforces the UCL and regularly brings actions in the name of the People under the statute to protect consumers and competition.

Apple's cross-appeal raises issues related to the proper application of the UCL. The district court found that Apple's anti-steering provisions violated the UCL, while at the same time concluding that Epic had not established that Apple's conduct

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violated the federal Sherman Act or California's Cartwright Act. Based on Apple's UCL violation, the district court enjoined Apple from enforcing its anti-steering polices. After the district court denied Apple's motion for a stay of the injunction pending appeal, Apple renewed its motion for a stay in this Court, which the Court granted on December 8, 2021, citing City of San Jose v. Office of the Comm'r of Baseball, 776 F.3d 686, 691-92 (9th Cir. 2015) and Chavez v. Whirlpool Corp., 93 Cal. App. 4th 363, 375 (2001). Among the issues before the Court are the appropriate scope of the UCL's "unfair" prong and the availability of injunctive relief under California law against a California company.

To assist the Court in deciding this matter, the State submits this brief focused on the "unfair" prong of the UCL. In particular, the State will discuss the history and development of the UCL, the current UCL tests recognized by the California Supreme Court, the relation of the UCL to federal and state antitrust laws, and the appropriate scope of injunctive relief when a plaintiff establishes a violation of the "unfair" prong. The State's legal analysis is based on the Attorney General's expertise and experience as the chief enforcer of California antitrust and unfair competition laws. This brief does not support either party or take a position on whether the judgment below should be affirmed or reversed. The State's arguments on the limited issues addressed in this brief do not indicate agreement or disagreement with the trial court's rulings on other issues, or with any other party's arguments on those issues.

B. SUMMARY OF ARGUMENT

I. As a broad and equitable statute, the UCL provides courts with discretion to identify and prohibit unfair conduct. This authority is essential to business regulation and consumer protection in California, and a proper understanding of the UCL is essential to the resolution of this case.

First, the UCL creates a broad equitable standard that enables courts to redress myriad forms of unfair, unlawful, or fraudulent business behavior. In operation for almost a century, the UCL expanded traditional elements of the unfair competition tort both to cover more types of conduct and to protect consumers in addition to competitors.

Second, the California Supreme Court has identified three tests governing the "unfair" prong of the UCL: a balancing test; a test that asks whether the finding of unfairness was "tethered" to a legislatively declared policy or proof of some actual or threatened impact on competition; and a three-part test borrowed from the test used to determine unfairness under Section 5 of the Federal Trade Commission (FTC) Act. While the balancing test is the traditional standard, the California Supreme Court has held that the tethering test applies in an action by a competitor alleging anticompetitive practices. Importantly, that Court has not endorsed a single universal test for all claims under the "unfair" prong.

Third, as the district court recognized below, a UCL plaintiff need not establish a concurrent antitrust violation. Chavez and San Jose are not to the contrary. Those cases recognized a safe harbor under the UCL for conduct affirmatively authorized by law, but that exception does not apply when no source of law affirmatively authorizes conduct being challenged under the UCL.

Fourth, the California Supreme Court has not required the strictures of a typical antitrust analysis when evaluating conduct for unfairness under the UCL. Trial courts are free to consider a variety of factors. Those factors include limits on the free flow of price information, which the California Supreme Court has explicitly recognized as anticompetitive.

II. The UCL does not allow a California company to avail itself of the privileges of California law while simultaneously violating California law in its interactions with individuals or entities located in other States. Courts do not contravene the dormant Commerce Clause when they enforce that prohibition against a California company.

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III. Finally, if this Court is unsure about any questions of UCL interpretation, this Court should certify those questions to the California Supreme Court.

C. ARGUMENT

1. THIS COURT'S ANALYSIS SHOULD BE INFORMED BY A PROPER UNDERSTANDING OF THE UCL

a. THE CALIFORNIA LEGISLATURE ENACTED THE UCL TO ADDRESS A BROAD RANGE OF WRONGFUL BUSINESS CONDUCT

California's Unfair Competition Law imposes "broad" and "sweeping" prohibitions against unfair, unlawful, or fraudulent business acts or practices. Cel-Tech Commc'ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999); see Cal. Bus. & Prof. Code § 17200 et seq. In enacting the statute, the Legislature sought "to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services." Kwikset Corp. v. Superior Court, 51 Cal. 4th 310, 320 (2011). The UCL thus authorizes courts to use their equitable power to combat the varied forms of unfair practice that "may run the gamut of human ingenuity and chicanery." People ex rel. Mosk v. Nat'l Research Co., 201 Cal. App. 2d 765, 772 (1962).

The UCL originated in 1887 in California Civil Code Section 3369 to enforce basic rules of "common honesty and accepted business ethics." See, e.g., Hesse v. Grossman, 152 Cal. App. 2d 536, 540 (1957). The Legislature expanded Section 3369 in 1933 to authorize courts to enjoin "unfair practices." See Krause v. Trinity Mgmt. Servs. Inc., 23 Cal. 4th 116, 129 (2000). Section 3369 authorized injunctive relief against "any person performing or proposing to perform an act of unfair competition," where injunctive relief could be pursued by the Attorney General and others. Cal. Civ. Code § 3369(2) (1933) (as amended by 1933 Cal. Stat. ch. 953, § 1 at 2482). The modern UCL is broader than the original 1887 version, extending to consumers the protection once afforded only to direct competitors. Barquis v. Merch. Collection Ass'n, 7 Cal. 3d 94, 109 (1972). "With passage of time and accompanying epochal changes in industrial and economic conditions, the legal concept of unfair competition broadened appreciably . . . partly by the flexibility and breadth of relief afforded by equity, and partly by changing methods of business and changing standards of commercial morality." Nat'l Research, 201 Cal. App. 2d at 770.

The UCL provides law enforcers a broad and flexible tool for combating unfair business practices harming competitors or consumers. See, e.g., id. at 770-72; see generally Thomas A. Papageorge, The Unfair Competition Statute: California's Sleeping Giant Awakens, 4 Whittier L. Rev. 561, 564-65 (1982). Indeed, California courts have recognized that the Legislature intentionally framed the UCL in broad language to address the innumerable "new schemes which the fertility of man's invention would contrive." American Philatelic Soc'y v. Claibourne, 3 Cal. 2d 689, 698 (1935); accord, e.g., Cel-Tech, 20 Cal. 4th at 181. As the Claibourne court observed: "When a scheme is evolved which on its face violates the fundamental rules of honesty and fair dealing, a court of equity is not impotent to frustrate its consummation because the scheme is an original one. . . . [A]n equity court must not lose sight...