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On Friday, September 10, 2021, California Judge Yvonne Gonzalez Rogers handed down her decision in Epic Games’ landmark lawsuit against Apple inc. While Judge Rogers ruling was initially hailed as a victory for Epic, it appears neither company is satisfied with the outcome as both have already filed separate appeals.
The battle between Epic Games, developer of the popular online game Fortnite, and Apple began last august over Apple’s App Store Policies. Apple’s App Store is the sole marketplace available for iPhone users seeking to purchase any of the thousands of apps available today, but for developers this arrangement is an unfavorable one.
Since it first launched the App Store in 2008, Apple has collected a 30 percent cut of all purchases made on the platform. That includes the initial sale of the app, as well as any in app purchases users might make. Although there have long been grumblings in the tech industry that this arrangement unfairly benefits Apple, the App Store’s market is so large that developers have had no choice but to comply with Apple’s policies.
This changed last august when Epic decided to challenge Apple over its control of the digital marketplace. Fortnite, which is available on a number of digital platforms, including the App Store at the time, offers users digital in-game items which they can purchase using the game’s digital currency “v-bucks”. In order to buy the game’s items, players use in-app purchases with real money to purchase v-bucks. As-per Apple’s rules, these in-app purchases processed payments using the App Store, and Apple collected a 30% cut of these purchases.
However, last August Epic offered Fortnite users on the iPhone platform the option to bypass Apple’s payment system, and instead pay Epic directly for v-bucks at a discounted rate.
It became clear that this had been a calculated move by Epic from the start, and almost immediately after the removal of Fortnite from the App Store Epic had filed a lawsuit against Apple in the US District Court for the Northern District of California. In response Apple removed Fortnite from the App Store and suspended Epic’s access to apple development tools. Apple alleged that Epic had violated the terms of use of the App Store by concealing its intention to implement a third party payment method to Fortnite.
In its suit Epic accused Apple of antitrust behavior, and alleged that Apple’s payment system for in-app purchases violated the Sherman Antitrust Act and the California Cartwright Act. Rather than seeking damages, Epic sought “injunctive relief to allow fair competition in these two key markets that directly affect hundreds of millions of consumers and tens of thousands, if not more, of third-party app developers.”
Judge Rogers’ ruling dealt a blow to Apple’s dominance over the digital marketplace, but stopped short of declaring the company a monopoly. Judge Rodgers did not grant Epic’s request for an injunction to classify Apple as a monopoly, however she did order Apple to allow developers to implement their own payment system for in-app purchases.
In her opinion Judge Rogers’ stated that “Apple enjoys considerable market share of over 55% and extraordinary high profit margins. These factors alone do not show antitrust conduct. Success is not illegal.” However, Judge Rogers also determined that Apple cannot restrict developers to using the App Store for in-app purchases and third party developers are free to add their own payment system for in-app purchases. Judge Rodgers’ expressed that her ruling on if Apple controls a monopoly was far from clear cut, stating that “The evidence does suggest that Apple is near the precipice of substantial market power, or monopoly power, with its considerable market share… Apple is only saved by the fact that its share is not higher, that competitors from related submarkets are making inroads into the mobile gaming submarket, and, perhaps, because [Epic] did not focus on this topic.”
While this ruling was a potentially groundbreaking decision for regulation of digital markets, it did not go as far as Epic hoped. In a statement released after Judge Rodgers’ decision Epic Games’ chief Tim Sweeney said the ruling was “not a win for developers or consumers” and vowed to “fight on”. Epic filed an appeal of the decision almost immediately after the ruling was announced. On September 23rd Sweeney announced on Twitter that Apple had blacklisted Epic’s apple development account and would not be allowing Fortnite to return to the app store until Epic’s case against Apple finishes its path through the court of appeals.
In response to Sweeney’s allegations, Apple confirmed they were factual, stating “Epic committed an intentional breach of contract, and breach of trust, by concealing code from Apple and making related misrepresentations and omissions[.]”
In addition to the appeal filed by Epic, Apple filed its own appeal on Monday October 11. Specifically Apple is appealing the decision that it must allow developers to implement their own third party payment system into apps. Apple also filed a request for a stay of Judge Rogers’ ruling. If granted the stay would likely delay any changes to in app payments on the App Store until after the appeals process is finished.
The ultimate ruling of the suit will undoubtedly have major implications for the regulations of digital markets and tech companies will certainly be watching how it plays out closely.
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