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In a highly anticipated decision, a California federal judge has handed down a nuanced ruling with respect to how Apple controls its app platform. Apple has escaped the determination that it is a monopolist, but thanks to conduct that a judge finds to be anti-competitive, Apple must now allow developers to tell consumers how to make purchases outside of apps.
The suit was brought a year ago by Epic Games upon the Fortnite maker’s attempt to bypass the 30 percent commission that Apple takes on in-app purchases. Apple fired back by booting Fortnite from its App Store, which then led to litigation. Epic claimed antitrust behavior. Apple responded that Epic had breached the terms of being in the App Store. A trial was held last May with the outcome potentially influencing the future of streaming since apps like Disney+ and HBO Max often rely on intermediaries like Roku and Amazon while selling premium access to just released movies.
In today’s ruling, U.S. District Court Judge Yvonne Gonzalez Rogers defines the market (valued at $100 billion) as digital mobile gaming transactions and finds that while 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,” she adds. “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.”
Largely finding Apple’s big commission cut to be ok, the judge gives Apple the win on its counterclaims and rules that Epic must pay 30 percent of all Fortnite revenue it’s collected since August 2020.
But Apple doesn’t walk away from this case unscathed because Rogers does find that Apple is engaging in anticompetitive conduct under California’s competition laws.
“The Court concludes that Apple’s anti-steering provisions hide critical information from consumers and illegally stifle consumer choice,” she writes. “When coupled with Apple’s incipient antitrust violations, these anti-steering provisions are anticompetitive and a nationwide remedy to eliminate those provisions is warranted.”
A permanent injunction will free some of the restrictions that Apple had placed on its developers, particularly in relation to communication on purchasing options. Apple may have seen the writing on the wall with respect to its anti-steering provisions. In a separate suit, the company recently agreed to a settlement that included allowing developers to inform customers of purchase options outside of their app. The injunction will increase developer freedom to do things like adding buttons and links within the app to external purchasing sites.
The detailed analysis finds fault with Epic’s definition of the product market and runs through the game company’s antitrust theories. For example, Epic had argued that the Apple iOS platform was an “essential facility,” incapable of being replicated, and under competition law, Apple had to provide access. The judge responds that “in terms of distribution of mobile apps, multiple avenues do exist to distribute the content to the consumer. Distribution can occur through web apps, by web access, and through other games stores. This doctrine does not require distribution in the manner preferred by the competitor, here native apps.”
Only on the issue of how Apple is restricting communication between app developers and their customers does Epic score a clear win. The judge finds that the lack of open flow of information “may create ‘lock-in’ for platforms as users lack information about the lifetime costs of an ecosystem.”
“Users may also lack the ability to attribute costs to the platform versus the developer, which further prevents them from making informed choices,” the judge continues in describing why Apple loses under California’s competition law. ” In these circumstances, the ability of developers to provide cross-platform information is crucial. While Epic Games did not meet its burden to show actual lock-in on this record, the Supreme Court has recognized that such information costs may create the potential for anticompetitive exploitation of consumers. Thus, although Epic Games has not proven a present antitrust violation, the anti-steering provisions ‘threaten an incipient violation of an antitrust law’ by preventing informed choice among users of the iOS platform.”
Overall, Apple will likely welcome the decision as the judge finds that Epic breached contract. That will ultimately cost Epic millions of dollars (assuming the decision survives appeal) and could dissuade others from similar challenges.
Rogers considered Epic’s argument that the contracts that Apple relied upon were “illegal and unenforceable” and against public policy. But she sees the “broad-brush” contention to be unpersuasive, rejecting the proposition that Apple’s imposition of a commission is out of bounds. The judge accepts that app guidelines go to “safety, privacy, performance, and reliability” and writes, “For the reasons discussed at length above, the Court has found and concluded that these DPLA [Developer Product Licensing Agreement] provisions are not contrary to the interests of the public as a whole and do not contravene some established interest of society, in the context of competition or otherwise.”
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