Apple wins some and loses some in big Epic Games lawsuit
On the eve of the iPhone 13 launch, we’ve finally been handed a ruling in the lawsuit filed by Epic Games last year. Epic Games, the developer of Fortnite, sued Apple last year over claims the company was violating U.S. antitrust law by prohibiting developers from implementing alternative in-app purchase methods. Today, Judge Yvonne Gonzalez-Rogers issued her ruling in the Epic Games v. Apple lawsuit, handing app developers a major win in the fight for app payment freedom.
As part of her ruling, Judge Gonzalez-Rogers issued a permanent injunction against Apple that orders the company to lift its restrictions on iOS apps and App Store pages providing buttons, external links, and other “calls to action” that direct consumers to other purchasing mechanisms. The injunction essentially orders Apple to abandon its anti-steering policy, which prohibited app developers from informing users of alternative purchasing methods. However, it is unclear if the injunction opens up the App Store to direct alternative in-app payment methods. Likely in anticipation of a ruling against them, Apple recently partially lifted its anti-steering policy on its own, though they stopped short of allowing developers to inform users of alternative purchasing methods from within their iOS app.
This injunction will take effect in 90 days, meaning Apple has until December 9th to adjust its App Store policy to comply, provided the injunction isn’t enjoined by a higher court. Apple is expected to appeal this ruling to the U.S. Court of Appeals for the Ninth Circuit and finally the U.S. Supreme Court if necessary.
Apple wins on all but one important claim
Last year, Epic Games intentionally circumvented Apple’s App Store policy by introducing direct payments for in-app purchases in Fortnite. Immediately after, Apple pulled Fortnite from the App Store and suspended Epic’s developer account, citing a violation of the App Store guidelines regarding in-app payments. When Epic sued Apple in response, they sought to have the latter reinstate their developer account so they could re-release Fortnite on iOS. Apple argued that Fortnite and Epic’s developer account should not be restored as Epic intentionally breached the contract between the two companies (a contract that, of course, Epic argues is illegal.)
However, Judge Gonzalez-Rogers today ruled in favor of Apple on its counterclaim of breach of contract. “Apple’s termination of the DPLA and the related agreements between Epic Games and Apple was valid, lawful, and enforceable,” said the Judge in her ruling. Because of this, it’s unlikely Apple will ever reinstate Fortnite or Epic’s developer account, because they were found to be correct in suspending them in the first place. The Judge also ordered Epic to pay 30% the revenue the company collected from Fortnite on iOS through Epic Direct Payment since it was implemented.
The Court also ruled that Epic Games “failed in its burden to demonstrate Apple is an illegal monopolist” in the narrowly-defined “digital mobile gaming transactions” market rather than both parties’ definition of the relevant market. The market in question is a $100 billion industry, and while Apple “enjoys considerable market share of over 55% and extraordinarily high profit margins,” Epic failed to prove to the Court that Apple’s behavior violated antitrust law. “Success is not illegal,” said Judge Gonzalez-Rogers in her ruling.
In response to this ruling, Apple issued the following statement to reporters:
“Today the Court has affirmed what we’ve known all along: the App Store is not in violation of antitrust law. As the Court recognized ‘success is not illegal.’ Apple faces rigorous competition in every segment in which we do business, and we believe customers and developers choose us because our products and services are the best in the world. We remain committed to ensuring the App Store is a safe and trusted marketplace that supports a thriving developer community and more than 2.1 million U.S. jobs, and where the rules apply equally to everyone.”
Apple’s initial statement notably left out any mention of an appeal, but the company followed up by stating it is exploring all legal options. Apple SVP and General Counsel Kate Adams commented on the ruling with the following statement:
“We are very pleased with the Court’s ruling and we consider this a huge win for Apple. This decision validates that Apple’s ‘success is not illegal,’ as the judge said. As the Court found ‘both Apple and third-party developers like Epic Games have symbiotically benefited from the ever-increasing innovation and growth in the iOS ecosystem.’ P. 3.
The Court has confirmed, after reviewing evidence from a 16-day trial, that Apple is not a monopolist in any relevant market and that its agreements with app developers are legal under the antitrust laws. Let me repeat that: The Court found that Apple is not a monopolist under ‘either federal or state antitrust laws.’
We are still analyzing the decision which is 180 pages long but the headline is that Apple’s app store business model has been validated. The Court correctly rejected Epic’s ‘artificial’ view of the competitive environment in which Apple operates and determined that ‘developers like Epic Games have benefited from Apple’s development and cultivation of the iOS ecosystem, including its devices and underlying software.’ Underlying the App Store business is a framework, including App Review, curation and protection of the security and privacy of our users. The Court has ruled that this framework is lawful and Apple was justified in terminating Epic’s status as a developer on the App Store. Apple’s rigorous process for app review protects consumers. As the Court observed, ‘security and privacy have remained a competitive differentiator for Apple.’ The Court agreed, and I quote, that ‘by providing these protections, Apple provides a safe and trusted user experience on iOS, which encourages both users and developers to transact freely and is mutually beneficial.’ Importantly, the Court also recognized the value of Apple’s ever-increasing innovation and growth of the iOS ecosystem.
In short, this is a resounding victory and underscores the merit of our business both as an economic and competitive engine.”
Tim Sweeney, the CEO of Epic Games, took to Twitter to express his disappointment with the ruling. Epic’s only victory in this case came from successfully arguing to the Court that Apple’s App Store policies on in-app purchases and anti-steering ran afoul of California’s Unfair Competition Law, but they lost on all the other counts. While the outcome of Epic’s lawsuit will help other developers, Epic itself won’t reap the benefits of a more permissive App Store.
Today’s ruling isn’t a win for developers or for consumers. Epic is fighting for fair competition among in-app payment methods and app stores for a billion consumers. https://t.co/cGTBxThnsP
— Tim Sweeney (@TimSweeneyEpic) September 10, 2021
Although Epic failed to force Apple to open up the App Store to third-party app markets, the company isn’t giving up yet. The company has appealed the case to the United States Court of Appeals for the Ninth Circuit.
Apple can’t breathe a sigh of relief just yet
The United States is not the only country that Apple has to worry about. Epic Games recently filed an antitrust complaint against Apple in the EU, which has already launched inquiries into how the company conducts its app store business. South Korea recently passed a law that forces larger app stores to accept alternative payment options, and similar legislation has been proposed in other countries including the United States. Today’s ruling could influence how other countries and legal systems approach similar lawsuits against Apple.
Google could be next
While Epic Games has focused its efforts on Apple, they have also sued Google for similar reasons. A ruling has yet to be made in the Epic Games v. Google case, however.
Update 1 (9/10/2021 @ 5:17 PM ET): This article’s headline and content were updated to reflect that Apple’s loss was not as big as it seems, and that it’s not clear if direct alternative in-app payment methods will be allowed under the terms of the injunction.
Update 2 (9/11/2021 @ 6:53 PM ET): Added a statement from Apple SVP and General Counsel Kate Adams.
Update 3 (9/12/2021 @ 4:12 PM ET): Added Epic’s appeal to the U.S. Court of Appeals for the Ninth Circuit.