Context: After the first couple of days of the Epic Games v. Apple contempt hearing in the Northern District of California, it appeared that Judge Yvonne Gonzalez Rogers was absolutely convinced of Apple being out of compliance with the anti-anti-steering injunction she had ordered in September 2021 under California Unfair Competition Law (May 9, 2024 games fray article). A contempt finding by the district court would be appealable to the Ninth Circuit.
What’s new: It is still likely that the district judge will consider at least parts of Apple’s compliance plan insufficient, but there is considerable uncertainty concerning the single most critical item, which is the 27% commission Apple charges on (most) out-of-app purchases within a seven-day attribution window. After Apple announced its compliance strategy in mid January, Epic waited months to bring its contempt motion, but didn’t initially seek discovery. The first seriously critical question Judge Gonzalez Rogers asked Epic during the hearing related to that. She left it to Epic to choose whether she should decide with or without further evidence, and Epic opted for discovery, over which the parties are now wrangling as usual.
Direct impact: The fact that Epic opted for obtaining more evidence on Apple’s decision-making progress regarding the commission rate doesn’t necessarily mean that Epic didn’t believe in its case based on undisputed facts and the hearing testimony. There is a lot at stake as the anti-anti-steering injunction is the only consolation prize Apple won in that litigation. A much bigger factor is that Judge Gonzalez Rogers’ comments, without directly pushing Epic in one direction or another, suggested that the part of the decision relating to the commission rate may indeed hinge on what will become known about Apple’s internal decision-making process.
Wider ramifications: There is a certain pattern here that one can also observe in the European Union. The European Commission’s (EC) competition enforcers are investigating Apple’s 27% commission on external purchases in two different context (Digital Markets Act and Spotify antitrust ruling) (April 8, 2024 games fray article). While they were quick to launch those inquiries, they may already have run into very similar problems as the U.S. court and Epic: even if common sense suggests that the commission rate makes it hard for app makers to save money, the applicable rules (DMA, Spotify ruling or Epic v. Apple U.S. injunction) explicitly or implicitly acknowledge Apple’s entitlement to a commission. Making a determination that a certain commission rate is too high would be one thing, but identifying a correct rate (or range of rates) would be a far greater challenge. That also applies to Apple’s per-install per-year fee in the EU, with respect to which the EC is merely conducting an inquiry and has not even reached the stage of a formal non-compliance investigation.
For the avoidance of doubt, games fray believes healthy market regulation is needed with respect to the enormous power that platform operators like Apple wield. These days, Apple’s gatekeeper power has been discussed by many commentators in connection with its new AI deals. Even though Apple is presently far behind some others in AI, its gatekeeper power ensures it will ultimately win as it controls access to two billion devices in active use:
At the same time, games fray and the other Fray Media sites (ai fray and ip fray) consistently advocate reasonableness in enforcement.
If laws, regulatory decisions or court orders have limits (or sometimes simply flaws), there’s a right way and a wrong way to address them. The right way is to reasonably enforce while looking for ways to amend laws (without which the DMA is never going to be truly useful) or make better decisions next time. The wrong way is to substitute one’s agenda for what the applicable laws or certain decisions actually say.
The Epic-Apple contempt hearing was fascinating, with absolutely world-class lawyers on both sides. Epic’s attorneys from Cravath, Swaine & Moore, with Yonatan Even playing a particularly visible role now, cleverly attacked Apple’s compliance plan. Apple’s lead counsel, Mark Perry of Weil, Gotshal & Manges, calmly and systematically drove home the points that he probably felt were at least going to be useful in the appeals court (he is one of the best appellate lawyers in the United States).
What helped Epic during the first part of the district court proceedings is that Judge Gonzalez Rogers has her recollection of what she thought was going to happen when she ordered that injunction back in 2021. But the appeals court is not going to base a decision on her thinking. What matters is what the decision says, and what evidence of non-compliance is on the table.
There was one statement by Judge Gonzalez Rogers that showed the outcome, with respect to the commission rate, is no longer a foregone conclusion. She said that evidence could be relevant here with a view to Apple’s “intent.” What she meant is that the question of whether Apple complied with the injunction may hinge on whether Epic can actually show that Apple strategically defined a commission rate so there would be no or limited market acceptance of the new external purchase option.
It’s already known that only a few dozen app makers contacted Apple about the external purchase link entitlement. But that does not mean that there might not be hundreds more, or even thousands, doing so next year. And if the amount Apple charges is justified, then the injunction just doesn’t have teeth, which is not the same as non-compliance.
There’s now some wrangling over what evidence Apple should provide and what’s a reasonable timeline. There will be another status conference on Monday.
If Apple’s executives didn’t make a mistake by writing something in one or more emails that suggests the commission rate was chosen in order to discourage app makers from actually offering external purchase links, Epic may face an evidentiary problem similar to the one that doomed the most important parts of its case on the merits. Epic’s antitrust claims (under federal law as well as state law) failed for a lack of evidence, particularly of customer lock-in.
The Epic v. Apple contempt proceedings are not as big as the multi-week trial in the same case was, but the court has already spent quite some time on this and will spend some more now. The judge also said it would take her a while to write a decision after all of the evidence has been presented.
Judge Gonzalez Rogers is angry with what Apple did, but she also wants to make her decisions appeals-proof. That was a factor before. And she won: the Ninth Circuit affirmed all parts of her decision, and the Supreme Court declined to hear the case.
Whatever Epic wins in district court now could still be overturned on appeal, possibly even easily, because of new judges taking a look at it without being influenced by a recollection of what the original ruling was meant to accomplish. But if even the district judge, despite the “bias” of knowing what she had in mind in 2021, concluded that there is a failure of proof and she can’t do anything about Apple’s commission rate, it will be an uphill battle for Epic on appeal.