Apple Wins Round 1 Against Epic Games, Or Did It?

Apple Epic Games

Epic Games, maker of Fortnite, brought an antitrust case against Apple for charging a 30% commission on paid Apps downloaded through App Store, restricting consumers’ ability from being able to download Apps outside the App Store, and requiring App developers to use Apple’s payment processing system. In closing arguments, Judge Yvonne Gonzalez Rogers asked counsel for Epic whether a billion dollar company has ever been forced to change its business model because of an antitrust case.

In Judge Rogers’ decision, she found that Apple does not need to change its business model with respect to its commission, App Store distribution policy and its payment system. Thus, on these grounds Apple claimed victory. However, Judge Rogers ruled that Apple’s restriction on App Developers’ ability to “steer” its users away from the App Store so that Apple’s commission would not apply to in-app purchases, did violate California Unfair Competition Law (the “UCL”).

The UCL is a state law that is distinct from the federal antitrust law under the Sherman Act. Apple prevailed on all of the federal claims because the Judge found that it did not hold monopoly power in the “mobile gaming transactions” market (a market the court found on its own, rejecting both Apple’s and Epic’s definitions of the market), and Apple’s business justifications for its App distribution and payment policies were valid and not shown by Epic to be unjustified.

My prior column on this case asked “Who Do You Trust”, and at least on this round, the Judge mostly found Apple. It cited to security and privacy as valid justifications that consumers enjoy (for instance by preventing fraud and providing a safe and trusted consumer experience), and Apple’s investment in intellectual property was a valid justification for requiring Developers to pay some fee for Apple’s services (although the court noted that the amount of the fee, 30%, was not justified).

Although the Court did not label Apple a “monopolist” in the mobile gaming transactions, due to alternative platforms (including Android) to play such games, it found that Apple had “market power” in mobile gaming such that its policies resulted in anticompetitive effects such as higher prices and high operating profit margins. App Developers were harmed due to their inability to compete on price and innovation, and potentially entice other developers to list their games on an App Store alternative.

But because of Apple’s business justifications, the Court found that its policies were justified, and Epic’s proposed alternatives carried security and privacy risks that Apple’s setup did not. The Court found that the need for human review of Apps was critical to prevent social engineering attacks, fraud, and display of objectionable content.

However, when it came to the UCL, the Court found that it was not subject to the same rigid requirements as federal law. The Judge ruled that Apple’s policy of preventing App Developers from sending “push notifications” or emails to users alerting them of Apple’s 30% commission or download alternatives were not justified.

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