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

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.

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


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  • identicon
    Interested Party, 10 Sep 2021 @ 11:16am

    What About Mandatory IAP?

    Quoting the injunction:

    Apple Inc. and its officers, agents, servants, employees, and any person in active concert or participation with them (“Apple”), are hereby permanently restrained and enjoined from prohibiting developers from (i) including in their apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to In-App Purchasing and (ii) communicating with customers through points of contact obtained voluntarily from customers through account registration within the app.

    The key is whether this implies that Epic and others are allowed to charge users outside of Apple's in-app purchasing (IAP) system. Paragraph (i) seems to indicate that this is indeed allowed.

    If Epic and others can now avoid Apple's 30% margin, that's a pretty big deal. After all, that's what the lawsuit was about.

    reply to this | link to this | view in chronology ]

    • icon
      Mike Masnick (profile), 10 Sep 2021 @ 12:03pm

      Re: What About Mandatory IAP?

      Yeah, I wrote about that -- that's the anti-steering provisions. I think that part of the ruling makes perfectly good sense, and yes, it can allow developers to route around Apple's payment setup.

      But Epic was asking for a hell of a lot more. And they got almost none of it.

      reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 11 Sep 2021 @ 2:15am

      Re: What About Mandatory IAP?

      If you read the full judgment the judges reasoning makes it clear the injunction only applies to the anti-steering provision (i.e. providing links to where you can make purchases off-app).

      Earlier in the ruling the judge rejects [b]all[/b] of Epic's arguments over why Apple should be forced to allow other IAP options.

      The wording the judge uses in the injunction is taken from Apple's terms and she is basically telling Apple to delete the part of their terms about anti-steering which is a separate issue from IAP.

      reply to this | link to this | view in chronology ]

  • icon
    Koby (profile), 10 Sep 2021 @ 11:25am

    Bottom Dollar

    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.

    Apple took a pretty significant hit to its stock price today. Perhaps that's the perspective that they're coming from -- a financial one. From their view, it doesn't matter if it's an antitrust violation, or an injunction as a result of unfair steering practices. If customers escape from the Apple app store and take their money elsewhere, then they figure that Apple suffered a big loss.

    reply to this | link to this | view in chronology ]

    • identicon
      Ven'Tatsu, 10 Sep 2021 @ 12:13pm

      Re: Bottom Dollar

      It seems more like this is a big loss for both companies, Epic must pay Apple $3.65 million, and possibly face other repercussions and possibly worst of all might never be allowed back on the App Store. That $3.65 million is the 30% that apple would have gotten for three months of Fortnight in app purchases. I would assume that the 70% that Epic has not been getting for the last 6 months while they have taken out of the app store would be much more.

      Apple on the other hand must allow apps to link to purchase options outside the App Store for in app purchases. In theory this means that the Kindle app could just open a page in Safari to finish a book purchase.

      Epic effectively won a huge victory for every game company not named Epic, and for Amazon and others that sell content for their free apps.

      reply to this | link to this | view in chronology ]

    • icon
      PaulT (profile), 10 Sep 2021 @ 1:02pm

      Re: Bottom Dollar

      "Apple took a pretty significant hit to its stock price today."

      Around 5%, which takes it pretty much back to where it was at the end of August and will probably go up again when they do their event in a few days. I doubt this is particularly meaningful.

      reply to this | link to this | view in chronology ]

  • icon
    NaBUru38 (profile), 10 Sep 2021 @ 11:34am

    Dear Mike, I would like some clarification.

    You wrote: "It seems that District Court Judge Yvonne Gonzalez Rogers agreed with us, rejecting the antitrust claims entirely".

    The judge wrote: "The trial did show that Apple is engaging in anticompetitive conduct under California's competition laws [...] 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".

    I don't understand the difference between "antitrust" and "anticompetitive". In fact, "Antitrust" and "Anti-trust law" redirect to "Competition law" on Wikipedia.

    reply to this | link to this | view in chronology ]

    • icon
      Mike Masnick (profile), 10 Sep 2021 @ 12:04pm

      Re:

      I don't understand the difference between "antitrust" and "anticompetitive". In fact, "Antitrust" and "Anti-trust law" redirect to "Competition law" on Wikipedia.

      California has an unfair competition law, which doesn't rely on antitrust violations to underpin it. It's a fine line... but that's the distinction.

      reply to this | link to this | view in chronology ]

  • identicon
    Zach, 10 Sep 2021 @ 12:13pm

    Spoken like a true lawyer

    Epic gets the one thing it wanted above all, to be able to circumvent Apple's in-app purchase requirements, but Apple wins. Very good standard legal analysis. They may have asked for more, but now Epic can sell its matrix 4 skins without giving apple a cut.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 10 Sep 2021 @ 12:26pm

      Re: Spoken like a true lawyer

      Except... they can't, because Apple doesn't have to allow them back on the store.

      reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 11 Sep 2021 @ 2:19am

      Re: Spoken like a true lawyer

      In fact it's a complete loss for Epic, as in court Epic literally stated that being allowed to offer out-app links to other payment options isn't good enough for them (you could already do that just not mention it in said app) as it introduces too much friction, and they even argued in court with a straight face that they make most of their money from kids making impulse purchases through Fortnite directly so any friction of forcing people to go to their site would lower their sales.

      reply to this | link to this | view in chronology ]

      • icon
        That One Guy (profile), 11 Sep 2021 @ 11:39pm

        Re: Re: Spoken like a true lawyer

        'If people have to put any effort whatsoever into giving us money it'll tank our profits' is probably not the point they thought they were making(and what it says about the kind of people they're currently making money off of) but it sounds like it's the one they did make.

        reply to this | link to this | view in chronology ]

    • identicon
      Zach, 13 Sep 2021 @ 8:22am

      Re: Spoken like a true lawyer

      Having read more elsewhere I realize that even if Epic got what it wanted by offering link out of an app the Judge said Apple could still charge its 30%. So I was completely wrong. I apologize.

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 10 Sep 2021 @ 12:15pm

    Epic is also being fined and has to repay the cash they avoided at the start of the lawsuit from routing around the iap rules with fortnite

    reply to this | link to this | view in chronology ]

  • icon
    That One Guy (profile), 10 Sep 2021 @ 12:51pm

    Kinda showed your hand there EPIC

    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.

    Yeah I don't see that argument flying any time soon and it seems the judge didn't either as 'you're not allowed to charge people for use of your platform' isn't likely to receive a warm welcome in almost any court but a rabidly anti-business one.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 10 Sep 2021 @ 1:34pm

      Re: Kinda showed your hand there EPIC

      Especially hypocritical given Epic runs a game store itself, and charges a commission for sales on it.

      reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 11 Sep 2021 @ 8:51am

      Re: Kinda showed your hand there EPIC

      "Yeah I don't see that argument flying any time soon and it seems the judge didn't either as 'you're not allowed to charge people for use of your platform' isn't likely to receive a warm welcome in almost any court but a rabidly anti-business one."

      So, NO court in the United States then?

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 10 Sep 2021 @ 2:25pm

    That's a shockingly sensible ruling.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 14 Sep 2021 @ 2:50pm

    Success is not illegal

    god i hate phrases like that. it's arguing against something nobody ever claimed. the issue was never success, the issue is the abuse of power that comes once a company is successful enough to get away with it

    reply to this | link to this | view in chronology ]

    • icon
      nasch (profile), 15 Sep 2021 @ 2:44pm

      Re: Success is not illegal

      But if all the plaintiff is claiming is that Apple has a 55% market share and high profit margins (which from the ruling it sounds like it was), that does amount to complaining that success should be punished by the law.

      reply to this | link to this | view in chronology ]


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