Context: Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California indicated in a recent order (April 24, 2024 games fray article) her preliminary view that Apple is not yet in compliance with an injunction she awarded Epic Games in 2012 under California Unfair Competition Law (while throwing out the far more important antitrust claims in the case) and which entered into force only in January 2024. In order to establish the facts prior to a contempt ruling, she scheduled a three-day (unless finished sooner) hearing for May 8, 10 and 17. She announced beforehand that interested members of the general public would get audio access to the testimony.
What’s new: Yesterday was the first day of the hearing. From 8:30 AM to 2:15 PM Pacific time, with only two short breaks, Judge Gonzalez Rogers listed to extensive testimony, mostly by a high-ranking Apple App Store executive (VP Worldwide App Store Matt Fischer) and by an Apple finance manager (Alex Roman), whose testimony will continue on Friday (May 10). Every single question or statement by the judge indicated that she considers Apple’s proposed compliance plan greatly insufficient. But that is just a snapshot at this point, and the ultimate decision will be made on appeal.
Direct impact: Apple is prepared to clarify at least one item (and may or may not be willing to consider further concessions so as to narrow the issues), but the district court is most likely still going to enter a decision against Apple (though it may take some time) and Apple is strategically preserving arguments for the apparently inevitable appeal, where the focus will shift from what the judge had in mind in 2021 to what she actually wrote in her long decision. While games fray favors open app markets and follows the hearing closely, what is said there must not be overrated. With the judge and Epic’s lawyers relentlessly challenging Apple’s compliance, it may appear (despite the confidence Apple’s lead counsel exudes) as if Apple was on trial for a major wrongdoing, but the legal hurdle for a contempt-of-court holding to be entered and to be affirmed by the appeals court is rather high.
Wider ramifications: Apple’s compliance with anti-anti-steering orders and a related statute in the EU’s Digital Markets Act is also at issue in Europe. Despite the fundamentally different legal framework and the limited significance of a district court decision that would be appealed anyway, a California contempt ruling could encourage the European Commission to take similar positions in connection with its recent Spotify antitrust ruling (though the public version of that one does not contain anything that would prevent Apple from charging a commission on referrals) and the DMA’s prohibition of anti-steering. And in the U.S. there could be indirect effects of any developments in the Epic v. Apple enforcement dispute on Epic’s parallel litigation against Google, which is presently at the remedy determination stage (May 3, 2024 games fray article).
At multiple points during the more than five hours of testimony, Judge Gonzalez Rogers weighed in. At times it looked like one of Epic’s lawyers, Cravath’s Lauren Moskowitz, had her words taken out of her mouth and amplified by the judge. There was not a single thing that the judge said throughout the first (and longest) day of that hearing that would have given Apple any hope that a contempt holding could be evaded.
In light of Judge Gonzalez Rogers’s interventions during the first hearing day (such as accusing Apple of wanting to stifle competition) and the preliminary assessment expressed in her recent order, it looks like she has already decided unless Apple makes major concessions. Is that going to happen? Apple witness Mr. Fischer said that they would be prepared to rephrase its app review guidelines so as to make it clear that the additional flexibility afforded to developers under the California injunction applies to multi-platform apps (such as multi-platform games) as well. And games fray believes it would probably make sense for Apple to go a little bit further so as to narrow the issues, but the indications Judge Gonzalez Rogers gave yesterday do not suggest that the concessions Apple would realistically be prepared to make would go far enough to resolve the issue. In other words, the most likely sequence (at least at this stage) is the following one:
- one or more concessions by Apple (at minimum, a clarification of its rules regarding multi-platform apps, and maybe also with a view to some of the wordings that developers are required to use when informing users of external purchasing options and Apple’s disclaimer of responsibility for them) followed by
- a contempt holding followed by
- an appeal.
Most of the reporting out there will focus on the first two steps, but games fray is more interested in the ultimate outcome (i.e., after the appellate proceedings). The legal standard is such that Apple simply can interpret the court order in a way that suits its interests, provided that its interpretation is not completely unreasonable. Epic’s position may be adopted by the district judge because she held certain beliefs when she made the decision in 2021. The appeals court will look at all of this through a different lens, and the one-sided way in which the judge presided over yesterday’s hearing (one could have been misled to think that Apple was on trial for having committed some major fraud, if not murder) is not how the appeals court will approach the subject.
Judge Gonzalez Rogers explained toward the very end of the first hearing day that she may be very busy soon with a multi-month trial and expects long days in the office. She knows she will have to write a thorough decision on this contempt question, but she also felt she wrote too much in 2021 (by which she may have meant that there are things in that ruling which now actually favor Apple’s compliance argument) and would not do so again.
In 2020-2021, it became clear that this judge is not one who would simply enter decisions without caring about whether the appeals court might throw them out. She made an effort to enter an appeals-proof decision, though neither the antitrust part (market definition, which the appeals court would have overruled if an Epic expert witness had done a better job) nor the California UCL part that gave rise to the injunction (which was more of a consolation prize) were as solid as the outcome (full affirmance and no Supreme Court review) may suggest. The nationwide effect of an injunction under state competition law remains controversial among experts, to give just one example.
If this wasn’t interesting, games fray wouldn’t be following and reporting. But one must not take the course of events during the first hearing day at face value. This is a marathon, not a sprint. That said, games fray would encourage Apple to consider further developer-friendly adjustments to its rules (not just the ones at issue in the contempt hearing). Interestingly, Apple explained yesterday that what came out during Tim Cook’s testimony in 2021 (that he did not receive any reports on developer satisfication) is a thing of the past: since 2022, they have been doing annual surveys. But it’s too early to have any data on how developers view Apple’s current compliance plan.
After the hearing, she will have to think long and hard about what parts of Apple’s compliance measures she can really deem to constitute contempt of court. Her views may become more nuanced than yesterday’s one-sided messaging and accusatory tone. And to her credit, she definitely knows about apps from the end-user perspective (such as what it’s like to make payments with Paypal or Stripe), while her 2021 decision displayed misconceptions (such as referring to Apple’s App Store “operating systems”).
There are some arguments advanced by Apple that games fray believes the court(s) can’t ignore. A particularly interesting piece of information that came out yesterday is that according to Apple’s analysis, the 27% commission on referrals is not the measure, but in practice Apple expects an effective commission of 18%, as some purchases will take place outside the seven-day attribution window. While that window is reopened every time a user clicks on a link inside the app, Apple expects (and definitely not unreasonably so) that once end users see how they can make purchases outside the app, some will go to those external websites directly. They could already do so now, but once they get sent there from within an app, the likelihood of them returning to those external purchase options (and then doing so via their browser as opposed to clicking on an in-app link) is far greater than before.
The effective rate is an example of