Apple Mostly, But Not Entirely, Wins Against Epic; No Antitrust Violation, But Must Tweak Practices To Comply With CA Law

Legal Issues

from the antitrust-is-hard dept

If there’s something that’s been made clear over the last year or so in the world of antitrust it’s that just because some people don’t like big companies and their practices, that doesn’t mean it’s an antitrust violation. It rarely is. In the well, rather epic lawsuit that Epic brought against Apple, we initially described it as a contract negotiation by lawsuit and predicted that it didn’t seem likely to actually meet the bar for an antitrust violation. It seems that District Court Judge Yvonne Gonzalez Rogers agreed with us, rejecting the antitrust claims entirely. As the judge wrote:

Given the trial record, the Court cannot ultimately conclude that Apple is a monopolist under either federal or state antitrust laws. While the Court finds that Apple enjoys considerable market share of over 55% and extraordinarily high profit margins, these factors alone do not show antitrust conduct. Success is not illegal. The final trial record did not include evidence of other critical factors, such as barriers to entry and conduct decreasing output or decreasing innovation in the relevant market. The Court does not find that it is impossible; only that Epic Games failed in its burden to demonstrate Apple is an illegal monopolist.

Key to any antitrust ruling is the market definition and everyone always wants that definition to fall in their own favor. Those bringing antitrust lawsuits like to narrow down the market to basically “exactly what this company provides and no more,” while defendants try to define the market as broadly as possible. The judge rejected both Apple’s and Epic’s market definitions here and found something more reasonable in the middle — but in the end the definition helped Apple much more than it did Epic.

Ultimately, after evaluating the trial evidence, the Court finds that the relevant market here is digital mobile gaming transactions, not gaming generally and not Apple?s own internal operating systems related to the App Store. The mobile gaming market itself is a $100 billion industry. The size of this market explains Epic Games? motive in bringing this action. Having penetrated all other video game markets, the mobile gaming market was Epic Games? next target and it views Apple as an impediment.

Further, the evidence demonstrates that most App Store revenue is generated by mobile gaming apps, not all apps. Thus, defining the market to focus on gaming apps is appropriate. Generally speaking, on a revenue basis, gaming apps account for approximately 70% of all App Store revenues. This 70% of revenue is generated by less than 10% of all App Store consumers. These gaming-app consumers are primarily making in-app purchases which is the focus of Epic Games? claims. By contrast, over 80% of all consumer accounts generate virtually no revenue, as 80% of all apps on the App Store are free.

The ruling itself is a rather epic 185 pages, but the key point is what’s above. The judge knows this is going on appeal, and it seems like the massively thorough ruling is more about covering all the bases for the 9th Circuit judges, than for the parties in the case.

Almost all of the claims are dismissed with one partial exception. The court did find that Apple violates California’s unfair competition law. Epic doesn’t get a complete win on this claim either. The court notes that it failed to show any unlawful practices under California’s law, but some unfair ones. But even then the victory is somewhat limited, and many of Epic’s claims of unfairness fail as well. The only bit that succeeded regarded Apple’s anti-steering provisions. These are the rules Apple places on app store developers preventing them from telling people about ways to pay outside of the iOS App Store.

As explained before, Apple uses anti-steering provisions prohibiting apps from including ?buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than in-app purchase,? and from ?encourag[ing] users to use a purchasing method other than in-app purchase? either ?within the app or through communications sent to points of contact obtained from account registrations within the app (like email or text).? Thus, developers cannot communicate lower prices on other platforms either within iOS or to users obtained from the iOS platform. Apple?s general policy also prevents developers from informing users of its 30% commission.

The court found that a step too far — and frankly, that makes sense. It was always a really shitty thing to do in the first place, and extremely anti-consumer. And the court found that even if there weren’t actual antitrust violations by Apple, the anti-steering provisions “threaten an incipient violation of an antitrust law” by restricting information from consumers.

Thus the court grants the only remedy to Epic: an injunction against such practices:

While Apple?s conduct does not fall within the confines of traditional antitrust law, the conduct falls within the purview of an incipient antitrust violation with particular anticompetitive practices which have not been justified. Apple contractually enforces silence, in the form of anti-steering provisions, and gains a competitive advantage. Moreover, it hides information for consumer choice which is not easily remedied with money damages. The injury has occurred and continues and can best be remedied by invalidating the offending provisions. In terms of balancing, Apple?s business justifications focus on other parts of the Apple ecosystem and will not be significantly impacted by the increase of information to and choice for consumers. Rather, this limited measure balances the justification for maintaining a cohesive ecosystem with the public interest in uncloaking the veil hiding pricing information on mobile devices and bringing transparency to the marketplace.

[….]

Accordingly, a nationwide injunction shall issue enjoining Apple from prohibiting developers to include in their:

Apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to IAP.

Nor may Apple prohibit developers from: Communicating with customers through points of contact obtained voluntarily from customers through account registration within the app.

Frankly, this seems like the right outcome overall. Apple’s restrictions on companies providing information to their users was always pretty shady. But the rest of the antitrust claims were pretty silly in the first place.

Another interesting tidbit in the opinion suggests that Epic’s arguments may have gone a step too far and undermined a stronger antitrust case that it could have made:

While the Court has found that evidence suggests Apple?s 30% rate of commission appears inflated, and is potentially anticompetitive, Epic Games did not challenge the rate. Rather, Epic Games challenged the imposition of any commission whatsoever

Oops.

Either way, this has to be seen as a pretty big victory for Apple, and I’m confused by some reports saying it’s a “major win for Epic Games.” It’s not.

But, of course, this is just the District Court. There is no way that Epic is not going to appeal this ruling.

Filed Under: antitrust, california, competition, fortnite, unfair competition
Companies: apple, epic