There was an interesting development at the intersection of Big Tech and medical devices in California this week, as Justice Jeffrey S. White largely denied Apple’s motion to dismiss a claim from AliveCor in the US District Court, Northern District of California, alleging that Apple unlawfully monopolised the U.S. market for watchOS heart rate analysis apps.
The case is one of the first to progress in a new potential battleground in antitrust: the entry of Big Tech into life sciences and healthcare.
AliveCor’s claim
AliveCor develops personal electrocardiogram (ECG) technology and services. Its products include KardiaBand, a wristband for the Apple Watch, capable of recording an ECG, the Kardia app, which analyses readings from the KardiaBand on the Apple Watch, and SmartRhythm, a heart rate analysis app with the ability to monitor a user’s heart rate and alert the user of an irregularity suggesting they should record an ECG. KardiaBand was the first Apple Watch accessory that was cleared by the FDA.
According to AliveCor, when Apple saw the success of AliveCor’s products, Apple copied its technology and then informed AliveCor that SmartRhythm violated App Store guidelines, and made changes to watchOS that created technical problems for SmartRhythm. AliveCor alleges that Apple’s changes to the heart rate algorithm prevented third-party developers from being able to detect heart rate fluctuations and irregularities. As a result of these changes, SmartRhythm could not provide accurate heart rate analysis, and AliveCor removed it from the market. AliveCor alleges that Apple made these changes to exclude competition, and not to provide benefits to users.
On 26 May 2021, AliveCor filed a federal antitrust lawsuit against Apple over its exclusion of other heartrate analysis providers from the Apple Watch. It alleged that Apple’s monopolistic conduct harmed not only AliveCor but also patients and consumers. AliveCor has also brought multiple patent infringement actions alleging that Apple stole AliveCor’s cardiological detection and analysis technology.
This week’s Court order
Apple filed a motion to dismiss the claim, and on 21 March 2022, Justice White granted the motion on one point, but dismissed it on all others, allowing the case to continue on those.
Orders dealing with a motion to dismiss are by their nature very high-level. However, there was an interesting discussion on Apple’s claim that AliveCor’s allegations that it had engaged in anti-competitive conduct should be dismissed. In particular, Apple relied on the Allied Orthopedic case to say that it had simply made product improvements. In this respect, the Court recalls that under US antitrust law, a design change that improves a product by providing a new benefit to consumers does not violate the antitrust laws “absent some associated anticompetitive conduct.” “If a monopolist’s design change is an improvement, it is necessarily tolerated by the antitrust laws, unless the monopolist abuses or leverages its monopoly power in some other way when introducing the product.” (Order, citing Allied Orthopedic Appliances Inc v Tyco Health Care Group LP).
Apple claimed, first, that AliveCor had failed to allege associative anticompetitive conduct, because it had not alleged that Apple and AliveCor compete on the relevant functionality. However, the Court pointed out that AliveCor alleged that Apple’s heart rate analysis app indicates when a user should consider taking an ECG and that Apple uses the data from its heart rate algorithm to provide diagnostic aspects to competitors like AliveCor’s products. The Court therefore disagreed with Apple’s claim.
Apple also argued on the basis of various reasons that AliveCor failed to show associated anticompetitive conduct. However, the Court held that Apple’s arguments ignore that AliveCor’s complaint alleged that Apple abused or leveraged its monopoly power “in some other way” as contemplated by the Court in Allied Orthopedic. AliveCor alleged that Apple made changes to the heart rate algorithm that made it effectively impossible for third parties to inform a user when to take an ECG. AliveCor alleged that the updated heart rate algorithm, which was pushed out to all earlier Apple Watch models, did not improve user experience; the purpose and effect of the update was to prevent third parties from identifying irregular heart rate situations and from offering competing heart rate analysis apps. These allegations present the type of “associated conduct” that makes antitrust law applicable to product design changes.
Apple’s motion to dismiss was therefore largely denied.
When does a design change go further than competition on the merits?
The case raises an interesting point, which features in many digital antitrust cases, namely when design changes implemented by a dominant tech firm may be anti-competitive. In EU competition law, this question was answered recently in the General Court’s Google Shopping judgment. There, Google had promoted its own product comparison service on its general results page whilst degrading competitors’ comparison services. Google claimed that the promotion of its own service in ‘boxes’ on the results page was a quality improvement and such improvements are not anti-competitive, even when they drive other competitors off the market.
However, the General Court held that Google’s conduct went further than just promoting its own comparison service. In fact, Google had committed a “leveraging abuse”, which consisted not only of promoting its own service, but also of degrading competing services by subjecting them to Google’s algorithm which systematically ranked competing services lower. It was also shown that traffic from Google’s results page to competing comparison services had dropped, and that this traffic was irreplaceable for comparison services. The Court concluded that Google’s conduct did not constitute “competition on the merits”, essentially because it included not only the claimed improvement of its search results, but also, to take the liberty of using the language of Allied Orthopedic, “associated anticompetitive conduct”. Indeed, it had abused its dominant position “in some other way”.
In the AliveCor case, we also see a design change: the changes to Apple’s heart rate algorithm. However, if AliveCor’s claim is accurate, this design change was accompanied by a familiar playbook of associated conduct, first saying the SmartRhythm app “violated” unwritten App Store guidelines, then rewriting the rules, and then – after AliveCor adapted SmartRhythm multiple times to meet these rules – making changes to watchOS’s heartrate algorithm that ensured SmartRhythm and other competing apps would not work.
We are not US antitrust lawyers, but applying the framework used in Google Shopping for the sake of argument, and assuming AliveCor’s allegations are true, Apple may struggle to pass the “competition on the merits” test.
First, regardless of whether Apple’s update to its heart rate algorithm also improved Apple’s own products and services, it seems that Apple made it impossible for third party heart monitoring apps to work. AliveCor went as far as to remove its own SmartRhythm app from the market entirely. If proven, that would go further than Google’s actions in Google Shopping where product comparison services were ranked lower on Google’s results page and saw a drop in internet traffic, but were at least still ranked on the results page and able to continue doing business.
Second, it seems clear that being able to perform accurate heart rate analysis is essential for heart rate app developers.
Finally, it is not clear why an improvement to Apple’s own product had to lead to third party heart rate analysis products no longer being compatible. This seems to be an element of the design change that could be difficult to justify, particularly when those third-party products did first have access.
Health apps and wearables: could leveraging be a risk?
Smartwatches, especially if paired with a smartphone, have huge future potential to help patients and healthcare providers not only for monitoring heart rate, but also in many other areas of healthcare, including blood oxygen levels, blood pressure, calorie counting and helping people get fit. However, access to iPhone and Apple Watch app stores and operating systems (known as iOS and watchOS) is controlled by Apple. This gives Apple, in the words of AliveCor, “complete control over both watchOS and distribution for watchOS apps”.
It may also, as the CMA points out in its Interim Report in the mobile ecosystems market study, have an incentive to use data from its app store to identify fast-growing or successful apps. Apple can choose to develop apps similar to those that have proven to be popular and valuable to users. The CMA is concerned that Apple provides the upstream operating system and app store while also competing with, and disadvantaging, third party products downstream.
This combination of copying and excluding is essentially what AliveCor alleges happened in its various US suits against Apple, and it would come down to Apple leveraging its strong position operating the watchOS and iPhone and watch app stores to gain a position in health apps. As the Google Shopping case shows, that may well be anticompetitive if the allegations prove accurate.
Apple denies in response to the CMA Interim Report that there is any competition problem. It claims that its investments “resulted in an incredibly rich assortment of high-quality apps”, including “the development of health-tracking apps (using ECG and oxygen sensors in wearables)”. It will be interesting to see the outcome of AliveCor’s patent case against Apple, in which it claims that Apple intentionally copied AliveCor’s patented technology – including the ability to take an ECG reading on the Apple Watch, and to perform heart rate analysis.
Future regulation of digital markets
Self-preferencing conduct is also intended to be covered by the prospective Digital Markets Unit (DMU) rules in the UK and Digital Markets Act (DMA) in the EU. However, for the UK it is not yet 100% clear that such rules would cover Apple Watch. As proposed, the regime would apply to firms who are designated as having “Strategic Market Status” (SMS), but only with respect to those activities in which they have substantial and entrenched market power. Therefore, whether the new rules apply to the Apple Watch operating system and App Store depends on whether Apple is designated as having SMS, and whether its activities in relation to the watch operating system and watch apps is covered by the relevant designation decision.
Under the DMA, the rules’ applicability will depend on whether Apple provides a “core platform service” and is designated as a gatekeeper. Operating systems are a core platform service. However, the designation as a gatekeeper also depends, among other things, on whether more than 45 million people within the EU use that service. Apple would also be able to try to rebut the presumption that it is a gatekeeper for watchOS or the Apple Watch app store.
There is a risk that wearables are a bit of a blind spot in the prospective regulations. Health and fitness apps are most likely to have specific uses for smartwatches, unlike, say, music streaming where the use case is pretty similar across watch and phone. Therefore, it is not necessarily the case that benefits achieved at the level of the phone’s operating system or app store will permeate through to the specific healthcare uses of watch features and apps.
We are only scratching the surface of what could be achieved in healthcare with wearable devices. It is good that the DMA and DMU retain flexibility for future designations insofar as wearables like Apple Watch and Google FitBit are not immediately included. In any case, health apps that rely on Apple Watch or a combination of Apple Watch and iPhone should pay close attention to developments in this area.
Looking ahead
Apple’s CEO Tim Cook said in 2019 that “If you zoom out into the future, and you look back, and you ask the question, ‘What was Apple’s greatest contribution to mankind?’ It will be about health”. That may well be so, but let us hope it is on the basis of fair, open markets with the levels of innovation that only free competition can generate. The AliveCor litigation may play an important role in this respect, as may future regulations.
Stijn Huijts is a partner at Geradin Partners. He specialises in EU and UK antitrust law. Photo by Ryan Stone on Unsplash.
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