#CaseoftheWeekCase LawVideo

#CaseoftheWeek Episode 15: Third Party Subpoenas and FRCP 45

This #caseoftheweek highlights the importance of understanding FRCP 45 as it relates to a third party subpoena. We specifically look at proportionality and redactions in the scope of a third party subpoena seeking significant competitive data under FRCP 45 in In re Apple iPhone Antitrust Litig., 2021 WL 718650.

Good morning and welcome to our #CaseoftheWeek for March 2, 2021. It’s very hard to believe that we are already into the third month of this year. Hopefully you’ve gotten some good news about vaccines being available in your area.

I am Kelly Twigger, CEO and founder of eDiscovery Assistant and the principal at ESI Attorneys. As you know, if you’ve watched our broadcast before through our partnership with ACEDS and eDiscovery Assistant, each week we choose and talk about a different case in eDiscovery and the practical implications on what that means for you, your practice and for your clients. Before we get started with our case this week, we wanted to let you know that our 2020 case law review report, which will be done in partnership with Doug Austin at eDiscovery Today, will be available Wednesday, March 3rd.

That will go out automatically to subscribers of eDiscovery Assistant or to subscribers and to, I should say, subscribers of eDiscovery today. If you’re not signed up to receive notifications or posts from either eDiscovery Assistant Blog or eDiscovery Today, you can jump to either one of those websites and do that. Also, links in the events page for whatever platform you’re watching me on. You will see the public link to our decision that we’re talking about today in the In re Apple iPhone Antitrust Litigation case.

This decision is from February 24th, 2021. So to see public link to that case. There are at least three other discovery decisions in that case that are part of eDiscovery Assistant. You’ll see those as related cases on the left side of the application as you go in. Those related cases are available to registered users.

Also, you’ll find the link to the University of Florida E-Discovery Conference. That’s coming up on March 18th. That conference is completely virtual and free. This year our theme is Work Smarter, Not Harder, and we’d love to have you join us. We are up to about 1,200 registrations already, we’re really excited and we’re still working on getting that content together for that conference. OK, let’s get into our case for this week.

As I mentioned, we’re looking at the February 24th, 2021 decision from Judge Thomas Hickson in the In re Apple iPhone Antitrust Litigation. This case has been going on for quite some time since 2012. There are now multiple lawsuits that are consolidated into the In re Apple iPhone Antitrust Litigation. One of them is from a class of iPhone users. One is from a class of software developers, who both allege that Apple has monopolized the distribution of apps on its iOS operating system by requiring that all of the apps on its iPhones be distributed through its app store. There’s a third case that has also been added now since 2018, which is a case brought by Epic Games against Apple, and we’ll get more into that, but that’s really where the subpoena from today comes into play.

In these cases, the plaintiffs allege that Apple requires distribution through its App Store in order to foreclose competition from other app distributors and enable it to charge developers a super competitive 30% commission on the sale of its applications. The developers also complain that Apple’s $99 annual fee for developers who wish to sell their products through the App Store and the mandatory app price points ending in .99 cents are super competitive.

The claim, of course, is that Apple is a monopolist in an aftermarket for software applications that can be used only on iPhones and in which competition between Apple and other device manufacturers and operating systems and app distributors play no part.

According to the complaint, if Apple facilitated the installation of apps from sources other than the App Store, it would be pressured to substantially lower its 30% commission because of price competition from other app distributors. That 30% commission and that allegation of pressure to lower its 30% commission is really going to come into play on considerations of relevance for the case that we’re talking about here, which is data on a third party subpoena. Apple intends to argue that it faces competition for app distribution from other app distributors, most directly from other mobile app marketplaces such as Google Play, Amazon’s App Store and the Samsung Galaxy Score store.As a result, says part of the discovery, Apple is served third party subpoenas on multiple third parties who sell games online or via mobile app stores.

One of the earlier decisions from October 2020 is about a third party subpoena that’s directed to Samsung. That’s not one that we’ve covered in our #CaseoftheWeek, but if you are responding to third party subpoenas under Federal Rule 45, I highly recommend taking a look at that decision and we can add that one to our links for the case as well for you to take a look at.

In these cases, what’s very important is the market definition that both plaintiffs and Apple are asking the court to consider. The plaintiffs are asking for a narrowly defined market that consists only of apps that are distributed on the iOS platform. That’s very different from what Apple is asking for, which is a broadly defined video game market that includes distribution on other platforms, including Microsoft Xbox, Sony PlayStation 4, is what’s listed in this decision, but I’m going to guess that 5 will come into play at some point, the Nintendo Switch and computer platforms and tablets. That’s a much broader market, right, because you’re talking about games and other applications that are outside the box store.

I already mentioned to you there’s an earlier decision from October 9, 2020, where Judge Hickson also ruled on the motion to compel Samsung to provide documents under Rule 45. That’s the one that I recommend you to read if you’re responding to subpoenas, in particular because of its analysis under Rule 45(d)3, which provides some protection for third parties who seek to protect confidential or proprietary information.

In this decision, the one that we’re looking at for today, Apple served a subpoena on Valve. Valve is the parent company that operates Steam. If you are the parent of a teenager or even of a middle schooler, you likely know Steam. Steam is an online platform that lets users purchase PC games on their laptops and desktops. Especially during this pandemic, I feel like I’ve spent a lot of money on Steam, but then again, I spend a lot of money with Apple as well.

We’re very familiar with Steam, and that is really a primary place where users go to download games for PCs and desktops PCs. 99% of the games that are on Steam are made by third party developers. That is pretty similar to Apple. Although 99% may actually be low for Apple. Steam users cannot buy or use mobile applications. These are strictly desktop games. Valve has described Steam as an “iOS app store like Marketplace for PC games.”

That’s going to be important, and you actually should see in the links to or in the comments section to this #CaseoftheWeek post, you’ll see the article from Valve that talks about that. It gives you some really good background on the relationship between Epic and Valve, that own Steam, that relates to the video game market and how that relationship has changed based on the game Fortnite.

I’m going to take just a minute to tell you a little bit about that. Again, if you have kids and you’re familiar with the game Fortnite, Fortnite has become a worldwide phenomenon and there are conferences and all kinds of stuff related to Fortnite.

At one point recently, the owners of Fortnite, which is Epic Games, were frustrated because they could provide an app to Fortnite on the store, but they did not want to incur the 30% commission fee for all in-app purchases on the iOS store. Epic created a workaround for allowing customers to purchase in app purchases on the app once it was purchased from the iOS store that precluded Apple from receiving 30% of those in app purchases. Apple got upset and took Fortnite’s game off the App Store, thus resulting in the litigation between Epic Games and Apple for antitrust considerations related to the super competitive 30%. That case was then consolidated into the iPhone antitrust litigation.

There’s also a relationship between Epic and Steam, and that’s what’s described in that Valve article. When Epic looked at providing their application online available for users to download, their option at the time was Steam and Apple. They did not want to subscribe to Steam’s business model either. So instead, in 2018, Epic Games, launched their own online game store where Fortnite is available where it can be downloaded.

In that article you’ll see that Epic says that they emphatically will not be a part of Valve’s game store unless and until Valve changes its business model to reduce the 30% commission. That’s what’s really key here, is you’ve got a mobile application in the store that’s charging 30% commissions on all games that are developed by third party developers and sold through the App Store. The same is true of Steam, you’ve got third party developers building games for PC, for download for desktop machines that are only available through Steam; Steam is also charging those consumers 30% commission rate.

That’s what to think about. Totally different markets from mobile to desktop, both using the same commission and it’s all going to come down to market definition for purposes of this antitrust case. As I mentioned, Apple’s sent a subpoena to Valve. They essentially wanted information to broaden that market. Like I described that Apple wants to have the broader market, that includes all games that are sold via commission, not just mobile games.

Valve did produce documents in response to the subpoena, but refused to produce documents in response to two RFPs, number thirty-two and number two and heavily redacted some data that was produced in response to RFP five. Apple then moved to compel full responses to their categories of documents on the subpoena. The two requests that Valve failed to respond to, number two, requested documents showing sales, advertising revenue, revenues from Steam and annual profits by app by individual app.

At first, Apple’s request really covered more than 30,000 applications from Steam and Steam objected. The parties met and conferred and Apple limited the time period from 2015 to the present during that meet and confer.

The second RFP in which they did not want to respond to the parties that conferred was number thirty-two. That one sought documents to show the names of all apps that were available, the date that they were available, and the price range from 2010 to the present. After the meet and confer between the parties, because that initial request was very broad, Apple limited the request to 436 applications that were available just on both the Steam and the Epic Games, or the Steam and the Apple Games. Ones that were the same, so 436 games that were between on both Apple and on Steam. Then we come here because Apple has moved to compel production of these documents from Valve.

What is our analysis from Judge Hickson? Judge Hickson looked at the three different categories, RFP number two, RFP number thirty-two, and the redacted information from RFP five and said that everything that Apple has sought is relevant and proportional to the related cases here.

As an overview, Judge Hickson found that the aggregate financial information was relevant to the market definition that Apple wants to put forward and that that market definition is a major dispute within the case, and that proper definition of the relevant market requires discovery and factual development. Because Steam is within Apple’s proposed market and this request data that’s relevant to the proposed market definition, then it’s relevant and should be produced.

Valve’s argument that it doesn’t sell on the mobile market was rejected for the same reason that Apple’s argument was granted, that the relevant market was not limited to mobile apps.

One of the things that the judge does make clear here is we still haven’t determined what the relevant market is here. If it’s broad, the way that Apple says that it should be, then this information will be included. If it’s narrow the way that the plaintiffs say that it should be, then the information may not be included. But there may also be another basis under which Apple can get it in. Either way, it’s discoverable right now.

Valve also made an argument that Fortnite was not available on Steam, and that Epic will not offer Fortnite unless Steam changes its business model, but the court rejected this because it didn’t have anything to do with the market definition and they’d already ruled that the market definition was really what was powering the analysis as far as relevance goes.

Then the court looked specifically at each of the individual requests. As to number thirty-two because that one was narrowed during the meet and confer, the court found that it was relevant to competition because the allegations that Apple’s 30% commission on sales is anti-competitive and that allowing iOS apps to be sold through other stores would force Apple to reduce its commission to a more competitive level because Steam also charges the same 30% commission, although Epic’s game store charges less than 30%. The evidence from Valve related to Steam and sales will be relevant to the competition claim. By narrowing the RFP to 436 games that are sold on both Steam and Epic stores, Apple wants discovery into whether the availability of the other stores does in fact affect the commission, as the plaintiffs allege. You’ve got 436 games that are sold on both Steam and Epic; Epic charges a 12% commission, Steam charges a 30 % commission. Apple gets discovery on whether or not the allegation by the plaintiffs that if they had competition or allowed apps to be sold in other ways into the iOS application, that would impact competition. That would impact the plaintiff’s allegation.

The court also found that per app data sought by request for production number two was relevant to the effects of competition, and that even if the market was narrow to mobile games only, Apple could still introduce evidence of competition, as in a similar or analogous market. That was really important here. The analysis for purposes of this third party subpoena is relevant. It’s kind of the core of it. What IT comes down to is how well the parties have articulated their positions in order to determine whether or not information is going to be relevant. That’s something to think about as you’re crafting these kinds of strategies in terms of defining class, whether or not you’ve agreed to a market definition or not, you’ve got to be able to show the court the true relevance of the information being sought.

Valve also attempted to argue proportionality, that providing all this information creates an undue burden. In effect, in its letter brief to the court, all it said was that there was an undue burden because it would have to query several different databases. The letter brief from Valve used only “adjectives” according to the court, and did not substantiate or quantify the burden in any way. We’re going to talk about the takeaways, but by failing to do that, you really put it in the court’s head that you’re just throwing proportionality out there as kind of a throw away.

The court does say that Valve provided more specifics at the hearing, but whatever specifics were provided were not enough to convince the court that it was burdensome and it was not even enough to convince the court to put them in the written decision. Probably not substantial there.

Valve also argued that responsive information for RFP’s thirty-two and two contained proprietary and confidential information and that Apple was required to establish a substantial need that could not otherwise be met without undue hardship as required by FRCP 45(d)3.

The court looked at this and rejected multiple arguments from Valve and held that Apple had met the substantial need because of the nature of the arguments on the market and the effects of competition. Both of those we already talked about and that Apple also could not obtain the information elsewhere without an undue burden. Now, that one’s kind of interesting to me because one of the arguments was that Valve said, well, look, we have pricing information, but you really should go to all these third party developers and get individual pricing information from each one of them. The court said that places an undue burden on Apple. Interestingly here, Valve is not a party to this litigation. This is a third party subpoena. So in effect, the court has said that a party to the litigation can’t have an undue burden placed upon it by a third party by requiring it to go out and get hundreds or maybe even thousands of subpoenas issued to find out individual pricing information when Valve has that information already available. That’s something that maybe you don’t expect.

Essentially relevance was established and proportionality was rejected for RFPs thirty-two and two, and with regard to the redactions, the court also rejected the arguments that Valve had raised to justify its redactions. Valve had argued that the redacted data about sales and pricing for third party names that belong to third party developers should require Apple to subpoena each individual developer. The court held that that would be the undue burden. We talked about that a bit. The court also noted that Valve had not shown that the pricing was confidential and that seems like an odd argument because I know for sure that if I go to Steam, the price of every single app is available right there. I know because my credit card information is often used to buy them. The fact that Steam redacted, confidential information for sales and revenue was not appropriate. Valve also argued that their redactions were appropriate because they were a private company which shields them from disclosure. The court rejected that argument and said that your status as a private company does not shield you from discovery and that the protective orders here were sufficient to allow for data to be designated confidential. As such, Valve was required to remove all of the redactions from anything they had redacted from data responsive to RFP number five, except for data that was privileged material.

In essence, total win for Apple, total lose for Valve here.

What are our takeaways from this case? First, if you’re responding to a third party subpoena for your client, make sure that you know and understand Rule 45 of the Federal Rules of Civil Procedure or your state equivalent, inside and out. Make sure you’re reading the case law under it and understand the types of information that can be protected by Rule 45(d)3. That section provides a basis for a subpoena to be quashed or modified and requires that a party seeking a trade secret or other confidential research, development or commercial information requires a showing of substantial need for the material that cannot otherwise be met without undue hardship. That’s the language of Rule 45(d)3.

Understand what that means as it applies to the facts of your case. If you look back at the earlier decision, the October 2020 decision from Judge Hickson, in this same case, you’ll see an analysis of 45(d)3 and what kind of confidential information is covered by that section and where the substantial need must be met. That case, I think we’re going to add the link to that one, to the comments as well, so you can take a look at that one.That one goes deeply into that issue and maybe we’ll cover that on a subsequent #CaseoftheWeek.

Second take away, be specific as to the process and the costs of providing information. If you’re going to argue undue hardship for failing to produce documents. Here, Valve didn’t provide enough specifics to the court so that the court even articulated them in the decision. I mean, they said it’s going to be hard for us. We have to search numerous databases, but they didn’t provide how much time and effort that would take, what the costs would be, what kinds of manipulation needed to be done to the data. Those are the kinds of specifics you’re going to have to give the court in order to be able to make an undue burden argument.

Next takeaway, if you’re going to be doing redactions for some reason other than privilege, the way that Valve did here, where they redacted based on what they thought was confidential or proprietary information, consider coding them as such in your review platform. When you do a redaction, create a section of your coding panel that talks about redactions and use it as marked as privileged, if you’re redacting confidential or proprietary information, do another checkbox for that. That will allow you, if you’re subsequently ordered to remove those redactions, to be able to search directly for anything that was redacted based on confidential or proprietary information, and then be able to bulk remove those redactions. If your review platform allows for that kind of functionality. That’s really just more of a practice tip. Also, if you code them, that allows you to be able to use that data more efficiently later. We usually always code all the privileged information so that we can also generate a privilege log. You can use the same functionality to be able to track your redactions as well.

One other tip that isn’t really related to this case, but that is to also include a redacted “yes or no” metadata field so that you can be able to examine redacted documents easier, rather than having to go through them on a document by document basis.

Final takeaway from this week, make sure that the protective order on file in the case, in which your client is responding to a third party subpoena, covers everything you need it to cover before producing documents subject to it. Make sure that the categories, the designations of confidential or confidential attorney’s eyes only are specifically delineated in that protective order. Any other specific items that you may need to have in a protective order are covered as well.

That is our #CaseoftheWeek for this week. Thanks for joining me. I’ll be back again next week with another edition of our #CaseoftheWeek. Please be sure to sign up for our 2020 Case Law and Review Report, that you can do at eDiscoveryAssistant.com/blog or at eDiscoveryToday.com. That will be coming out tomorrow. If you’re an ACEDS member and interested in using eDiscovery Assistant, there are discounts currently available to ACEDS members and a trial for folks taking the ACEDS exam. If you’re interested in either of those, just drop us a line at ACEDS@eDiscoveryAssistant.com and one of our team will be back with you.

Please remember to register for the UF Conference coming up on March 18th and share that information with your networks. This is some very high quality, Free CLE, right now where we’ve been approved for 9.5 hours of CLE with one of those being ethics credit. And for states that require technology credits, I believe there are three or four credits for technology credits as well. This is a great opportunity to hear from judges and top practitioners in the field, and we are excited to report that we have more than 1,200 registrations already.

Have a great week. Stay safe and healthy and we’ll see you next week. Thanks so much for joining me.

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