Context: Today is Digital Markets act (DMA) Compliance Day (previous games fray article). It’s the day that the digital platform gatekeepers designated by the European Commission to publish their compliance record. A few weeks earlier, Epic Games announced that an Apple developer account was provided to its Swedish subsidiary (Epic Games Sweden AB) (February 16, 2024 X post by Epic’s founder and CEO Tim Sweeney). Epic wanted to use that legal entity to develop an alternative app store for iOS and bring back Fortnite Mobile to iOS in the EU. In 2020, Apple terminated Epic’s Fortnite developer account after an unauthorized and hidden feature (a new payment option) was activated. Apple also wanted to terminate the Unreal Engine account, but reinstated that one after a court order.
What’s new: A novel type of DMA non-compliance accusation has just been made by Epic Games (March 6, 2024 Epic Games press release). Epic says it’s “a serious violation of the DMA” that Apple has terminated the developer account Epic wanted to use to make its own iOS app store. Epic published correspondence between the companies as well as U.S. lead counsel in the litigation that started in 2020.
Direct impact: There will likely be a jurisdictional dispute here over whether it’s a DMA matter as Epic argues or a question of U.S. law as Apple often argues in disputes with app makers. In games fray‘s opinion, the reasons stated by Apple may not be sufficient to justify the termination of Epic’s account with a view to the DMA. It’s possible that Apple decided to take certain risks because it views Epic as a likely troublemaker among app store operators who would try to build arguments for DMA litigation and complaints with the European Commission.
Wider ramifications: The mid-February announcement of the Swedish developer account could have been the start of a thawing period between the two companies, despite the fact that they’re still fighting over $73 million (or more) that Apple is seeking in legal fees and, especially, the enforcement of an injunction Epic obtained under California Unfair Competition Law (UCL) (January 31, 2024 games fray article). Instead, there is now further escalation, which is also indicated by one of the letters Epic published today, with Apple referencing a recent filing in an Australian litigation that began years ago.
Epic correctly notes that the DMA allows alternative app stores, which is why Apple is now enabling them as well, albeit with restrictions. But the DMA does not go into detail on what requirements an operator of an alternative app store has to meet, just like it doesn’t establish criteria for companies that may make iOS browsers with alternative browser engines. Therefore, Apple can define criteria, but its rules and the ways in which it applies them can give rise to disputes under the DMA or enforcement action by the European Commission.
Apple published a long list of eligibility criteria (Apple developer webpage for alternative app stores). But Epic’s case is a unique one, given the troubled history between the two companies.
The letters and emails exchanged between Epic and Apple that Epic has just published were almost certainly written by lawyers. The original grant of the developer account appeared to be a sign of a potential improvement of their relationship, but that may have been the result of an oversight as opposed to a conscious decision by Apple’s executives and lawyers to give Epic a chance to prove to be a reliable app store operator in the EU. Right after the developer account was announced (February 16, 2024), Epic’s Swedish subsidiary applied for a DMA consultation slot, and five days later apparently saw that the request had been turned down. Those consultations are offered by Apple to organizations interested in exercising certain rights under the DMA with a view to alternative app stores. The fact that they weren’t going to talk to Epic about this was already a first negative sign.
Two days later (February 23, 2024), Apple’s App Store chief and former long-time marketing chief Phil Schiller emailed Epic founder and CEO Tim Sweeney. That email sought to justify that Apple doesn’t allow just anyone to make an alternative app store and voiced concerns about Epic’s intentions behind and surrounding its intended EU app store for iOS. Mr. Schiller referred to Epic having “deliberately violated Apple’s rules.”
That email by Mr. Schiller also quotes some of Mr. Sweeney’s comments on Apple’s DMA compliance plan (“hot garbage”, “horror show”, “devious new instance of Malicious Compliance”, “Junk Fees”, “Apple taxes”), ultimately requesting Epic to provide written assurances that they would nevertheless comply with Apple’s rules and to explain “why [Apple] should trust Epic this time.” Mr. Sweeney replied:
Hi Phil,
Thanks for reaching out. Epic and its subsidiaries are acting in good faith and will comply with all terms of current and future agreements with Apple, and we’ll be glad to provide Apple with any specific further assurances on the topic that you’d like.
Best Regards,
-Tim
Apple could now have taken Mr. Sweeney up on the offer to be more specific in his assurances. At least based on Epic’s press release and the documents provided, it appears that Apple did not tell Epic how the promise to comply with all agreements could become more elaborate. Instead, on Saturday, March 2, 2024, Mark Perry of Weil, Gotshal & Manges (Apple’s lead counsel against Epic in the U.S. at least since the Ninth Circuit appeal) wrote to Epic’s now-lead counsel Gary Bornstein of Cravath, Swaine & Moore. Toward the end of that letter (which spans a little more than one page), Apple’s lawyer said:
“Please be advised that Apple has, effective immediately, terminated the Developer Program membership of Epic Games Sweden AB. As you know, in addition to the concerns we have outlined above, the U.s. judgment expressly provided that ‘Apple has the contractual right to terminate its DPLA with any or all of Epic Games’ wholly owned subsidiaries, affiliates, and/or other entities under Epic Games’ control at any time and at Apple’s sole discretion.”
That refers to the fact that Epic lost the antitrust part of the U.S. case. It won a consolation prize injunction under California Unfair Competition Law, but Epic would have had to prevail on its core antitrust claims in order for its breach of the developer agreement to be allowed in the sense of the relevant provisions having been held (as they were not) unlawful and unenforceable.
Apple’s argument for saying that “Apple cannot allow Epic Games Sweden AB to be part of its ecosystem” is essentially that Epic violated a developer agreement before, and that violation followed negative public comments on Apple’s terms.
The letter alleges that the Swedish account for making an alternative app store “is part of a global effort to undermine or evade Apple’s rules” and “in fact a vehicle to manipulate proceedings in other jurisdictions,” by which Apple apparently means what Epic told an Australian court about its Swedish subsidiary’s new developer account.
It would have been helpful to see what allegations Epic made in the Australian litigation with respect to its Swedish subsidiary’s developer account. But it’s unlikely that Epic told an Australian court it would now breach Apple’s rules in the EU.
Apple must have primarily feared that Epic would use an EU app store to create situations that would give rise to actions by Apple that could result in further EU litigation and, potentially, enforcement action by the EU Commission.
Does that mean Epic would necessarily have breached Apple’s rules in the EU? Not necessarily in Epic’s opinion, but it is fair to say that the potential for disagreement (followed by more litigation) was there. It would then have had to be established by the courts of law whether Epic was right (in which case Epic’s actions would have been allowed) or wrong (in which case Apple would indeed be able to hold Epic liable for a breach).
Legally, Epic’s problem is that it lost the antitrust part of the U.S. litigation and, as a result, also the contract part (an Apple counterclaim). If Epic now goes to the EU Commission and the EC asks Apple about this, Apple will say that it has obtained a judgment according to which it’s allowed to terminate any Epic developer agreement anytime for any reason or no reason, a judgment that was affirmed by the United States Court of Appeals for the Ninth Circuit and over which Epic brought a petition for writ of certiorari (request for Supreme Court review) that was denied.
That would complicate any dispute in the EU, though it could be that, for instance, a Swedish court would give very little weight to the U.S. litigation and look at this mostly through a DMA lens. In games fray‘s estimate, the EC with its limited DMA enforcement resources is more likely to be dissuaded by the history of the U.S. litigation from taking action than the courts in the EU would be from simply holding that Apple had an obligation under the DMA to let Epic create an app store. I would also assume that courts in the EU would be more likely than not to hold it against Apple that they did not respond to Mr. Sweeney with a specific request for further assurances.
Also, courts in the EU would not be likely to find that Epic’s public criticism of Apple’s terms justifies depriving Epic of its rights under the DMA.
Probably Apple was advised by its lawyers not to send a requested list of assurances to Epic because that would likely have given rise to further discussion, while Apple wanted to take more of a position that Epic was just, as Mr. Perry’s later said, “verifiably untrustworthy” and that Mr. Sweeney’s reply that they would comply “boiled down to an unsupported ‘trust us.’”
Intuitively, that approach appears more American than European. Also, the fact that Apple’s external U.S. counsel wrote a letter explaining the reasons for termination to Epic’s external U.S. counsel suggests Apple wants to stress that this is very much a U.S. affair. The EC may not have resources to deal with this as other DMA matters affect more companies, but may also not like the fact that Apple didn’t give Epic the chance to make specific asasurances Epic could have requested.
Theoretically Epic could seek a temporary restraining order (TRO) in the U.S. now, but given the final outcome of the previous litigation, it’s hard to imagine that a U.S. court would consider the EU DMA a game changer that it would force Apple to let Epic do an EU app store. So there will now likely be some litigation in the EU.
It’s also a given that Epic will attend the March 18 Apple DMA Compliance Workshop in Brussels (February 24, 2024 games fray article) and bring up the issue there.
With Microsoft and Meta having stated publicly that Apple’s EU app rules don’t work for them, and with Epic now having seen its EU developer account terminated, it looks like alternative app stores in the EU will in the foreseeable future just come down to “adult content” and other niches. That is not the outcome the EU institutions had in mind.