Context: On January 16, 2024, Epic Games’ 2021 anti-anti-steering injunction under California law (but of nationwide scope and to the benefit of all app makers in the U.S.) entered into force after the Supreme Court of the United States declined to hear the matter (games fray article). Within hours, Apple filed an obviously prepared notice of compliance with the court, announcing a rule change that effectively renders out-of-app links to alternative payment methods counterproductive (games fray article), though the combination of the anti-anti-steering rule with the permission to promote alternative purchasing options to registered users by email, which is the second part of Epic’s injunction but also subject to a prior developer class-action settlement, could cost Apple billions (games fray article). Epic’s founder and CEO Tim Sweeney announced on X (formerly known as Twitter) that Epic would “contest Apple’s bad-faith compliance plan in District Court.”
What’s new: Epic’s lawyers have now formally given notice to the United States District Court for the Northern District of California of their intent to bring a contempt-of-court motion against Apple. The filing indicates they are already in contact with Apple to work out a briefing schedule (the timing of Epic’s motion, Apple’s response and Epic’s reply as well as a hearing), hoping to reach a procedural agreement as they did on Apple’s request for damages of more than $70 million (legal expenses for defending against Epic’s case). Otherwise the court will see both parties’ proposed schedules and decide.
Direct impact: Epic’s document, while not going into detail, is an official notice of non-compliance. Judge Yvonne Gonzalez Rogers is now officially aware of the fact that there will be a fight over Apple’s rules. She may not have been surprised after seeing Apple’s notice of compliance. The language of the injunction will have to be interpreted in the light most favorable to Apple. Sanctions will be imposed under an evidentiary standard consistent with that applied in criminal cases. It is definitely possible that at least some of Apple’s restrictive, obstructive and onerous rules will be deemed non-compliant, but given the legal standard, it is far less likely that the overall outcome will enable app developers to use links and buttons in their apps in a way that provides consumer benefits.
Wider ramifications: Apple’s compliance with similar rulings as the California injunction has previously been disputed. Relatively speaking, a Japanese settlement concerning reader apps (in which users consume content purchased elsewhere) may have made the most impact so far. The Dutch competition authority (Autoriteit Consument & Markt (ACM), “Authority for Consumers and Markets”) is embroiled in litigation with Apple over a ruling related to dating apps in the Netherlands further to a complaint by Match Group (Kluwer article). An amendment to South Korea’s Telecommunications Business Act proved ineffectual (Nikkei article). And there is now a lot of debate over Apple’s new EU rules with a view to the impending entry into force of the bloc’s Digital Markets Act (DMA). Apple does not allow apps (only alternative app stores) to be installed from the web (games fray article). It imposes new fees that can only be held unlawful on the basis of a FRAND (fair, reasonable and non-discriminatory terms) determination made or reviewed by a court of law (games fray article) and make alternative app stores viable only for limited purposes such as adult content (games fray article). After companies like Epic and Spotify, Microsoft has now also publicly criticized Apple’s new EU rules (games fray article).
First, here’s Epic’s filing that formally announces a contempt-of-court motion:
The notice says Epic “intends to file a motion setting forth the bases for Apple’s non-compliance and requesting appropriate relief from [the district court].”
While the word “contempt” does not appear in the notice, that is where this dispute is headed, and the “appropriate relief” Epic is seeking will be contempt-of-court fines to be imposed on Apple. Theoretically, parties can also bring a motion for clarification, but Epic is presumably going to take the position that there is no lack of clarity.
Whatever the district court decides is appealable, and the losing party (or both if neither is fully satisfied) will predictably appeal.
If a company is held in contempt for the first time, the sanctions are usually not draconian unless there is something outrageous about its conduct. But non-compliance becomes riskier with time.
In connection with the U.S. injunction and the EU DMA, the pattern is the same: Apple developed, together with its lawyers, a framework that they believe can be argued to comply with the letter of the relevant prohibitions, though not with the spirit, especially if all of Apple’s restrictions and fees are taken together.
Apple changes some rules, but strives to avoid or at least minimize (such as by effectively limiting it to niche markets) any actual change in the marketplace: “plus ça change, plus c’est la même chose” (“the more things change, the more they stay the same”)
Over the EU DMA, there will be enforcement action by the European Commission and/or private parties. A major conflict between Epic and Apple is already foreseeable . Under Apple’s rules, a company that wishes to provide an alternative app store must seek Apple’s permission and may be rejected. It is highly likely that Apple will decline to let Epic run an EU iOS app store that would bring back Fortnite Mobile to iOS in the EU. Apple will point to the outcome of the U.S. litigation, according to which Epic breached the developer agreement with its “hotfix” in the summer of 2020 that activated (until Apple kicked out the app after a few hours) an alternative payment system. Like in a recent U.S. court filing, Apple will point to an FTC case involving Epic. While games fray does not view those arguments as sufficient justification for barring Epic, which operates a major games store on PCs and which didn’t do any harm to consumers even with the Fortnite hotfix, from running an iOS app store in the EU, it would be out of character for Apple to allow it without a fight. Epic might argue that even if it couldn’t defeat Apple in U.S. court, the rule in question was in violation of EU antitrust law, so from an EU perspective there was no breach.
It’s difficult to compare the outlook in those two jurisdictions. While the legal standard for contempt of court is exacting, U.S. federal courts have a lot of power. But it’s hard to imagine that the district court would get into a FRAND determination (i.e., rate-setting) in the context of a contempt motion. The effort would be comparable to a whole new case as opposed to the enforcement of an injunction that resulted from an already adjudicated case. In the EU, the new law will also have to be interpreted in a light reasonably favorable to Apple, and the DMA has major shortcomings that resulted from compromise-seeking and a major lobbying effort made by Apple and Google to ensure the DMA wouldn’t have teeth in the most critical areas. The EU would have to amend the DMA to enable effective competition in iOS app distribution.
While games fray considers Apple’s terms and conditions unfair, unreasonable, discriminatory and anticompetitive, it appears most likely that the situation in the U.S. and the EU won’t change fundamentally for years to come, unless game makers leverage Epic’s injunction and email marketing to bypass Apple’s app tax.
If Google opened up in meaningful ways that would make Android a more attractive platform for consumers (because of more and better apps as well as lower prices), that would be extremely helpful, but it would also take time as switching rates between the two major smartphone operating systems are low.
Apple has apparently decided to settle certain competition cases where it can’t even count on Google as a political ally. In the EU, Apple is trying to settle an investigation over Apple Pay, and Apple’s announcement last week to allow, on a worldwide basis, web browsers to use their own engines and cloud streaming apps to offer a catalog of games, is primarily meant to address the concerns of the UK Competition & Markets Authority in a market investigation that has just restarted after an appellate decision. The EU DMA also required Apple to allow alternative browser engines, but unlike the UK market investigation did not involve the part about cloud gaming and would not have had worldwide implications.
Apple has set its priorities. While the iPhone maker decided to offer concessions concerning Apple Pay, browser engines and cloud streaming, it is apparently going to duke it out over Epic’s injunction and the EU DMA.