Context: The Supreme Court of the United States (SCOTUS) met on Friday behind closed doors to discuss various petitions including those brought by Epic Games and Apple seeking a review of the ruling in their App Store antitrust and unfair competition dispute (previous article on this dispute).
What’s new: Both petitions have been denied. That fact was announced this morning. This means the original judgment by Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California from September 2021, which was affirmed by the United States Court of Appeals for the Ninth Circuit in April (appellate opinion (PDF)), is final.
Direct impact: Neither has Epic been able to revive its antitrust claims under federal and state law nor has Apple been able to prevent or delay the entry into force of an injunction Judge Gonzalez Rogers handed Epic under California Unfair Competition Law. This means Epic can’t force Apple to put Fortnite back on the App Store or to generally open up app distribution on iOS in the United States, but Apple will now have to allow app makers to promote, to consumers in the United States, alternative purchasing methods such as websites where they can buy virtual game currencies or in-app items.
Wider ramifications: Epic wasn’t nearly as successful against Apple as it was against Google as far as last month’s jury verdict is concerned (previous article on that dispute). The injunction was a small victory compared to the further-reaching remedies the game maker originally sought. Various app makers, including but not limited to other game makers, are now very likely to promote alternative purchasing options, especially via the web. This further complicates the app store regulation battlefield. Epic’s political fight will definitely continue, and there are and may be cases in other jurisdictions. The most important question, however, is whether the United States Department of Justice, which is reportedly readying a major antitrust case against Apple, and/or other private parties are now going to sue Apple over the App Store monopoly, potentially with stronger expert testimony (which is not even the only way in which they could benefit form the lessons learned from Epic Games v. Apple).
If it was just a numbers game, the question of whom this benefits more would be easily answered in Apple’s favor: the district court threw out nine out of ten counts (and even on the tenth, Epic didn’t prevail to the maximum extent).
If we don’t talk about numbers but just look at the types of claims, the answer would still be that the glass is way more than half full for Apple: antitrust law, especially federal antitrust law, is a much more powerful tool than Unfair Competition Law, which is like the soft version of antitrust law (easier to win, but wins are usually much less valuable).
Clearly, for Mark Perry of Weil Gotshal & Manges (Apple’s lead counsel on appeal) this is a huge victory, at level with what Epic’s lead counsel Gary Bornstein of Cravath Swaine & Moore achieved in the Google jury trial last month.
And Epic Games’ founder and CEO, Tim Sweeney, has described this outcome as a loss for app makers:
But it’s not that simple in this multidimensional chess game between the two companies. Epic is in this for the long haul, including political lobbying for change.
In short-term commercial terms, it’s a terrible outcome for Epic as Apple is under no obligation to put Fortnite Mobile back on the App Store. The whole dispute (also the one with Google) started with Epic activating a “hotfix” that provided an alternative in-app purchasing system, which Apple (and, respectively, Google) shut down in a matter of hours.
Whether Apple is now going to have mercy and offer Epic some kind of settlement (provided that Epic promises to obey the rules going forward) is hard to tell. Politically it might be a smart move for Apple to be conciliatory and constructive. But with the state law injunction, Apple might view Epic as a party that is particularly likely to push the envelope of that one and see how far app makers can go. Apple would then have to deal with contempt-of-court motions (which may be inevitable anyway, but with Epic itself on the App Store, there could be a bigger fight over the scope of the injunction than otherwise).
This state law injunction will cost Apple money. For some apps it’s not going to be a viable solution; and some app makers may have reasons not to implement this. It’s going to be in effect nationwide despite being based only on California state law (a situation that legal scholars have different opinions on). Professor Herbert Hovenkamp, author of the leading U.S. antitrust book that is referenced in a high percentage of all antitrust judgments and pleadings, commented on it on X (formerly known as Twitter):
The scope and potential impact of the state law injunction was overstated by some after it came down in late 2021. Judge Gonzalez Rogers clarified (a clarification she didn’t even think would ever be necessary) that the injunction would not allow alternative payment methods within an app. Given that Apple will only be held in contempt if it takes very unreasonable positions on the interpretation of the injunction, technical games such as bringing up a browser window within an app (and then processing payments there) are highly unlikely to result in contempt findings. But the injunction does allow linking to web pages, and that is bad enough for Apple’s purposes.
App makers can then offer lower prices if consumers use alternative payment methods on the web. They could also promote, inside iOS apps, lower-cost alternatives such as telling people that in-app purchases cost less on a Samsung phone if apps are downloaded from the Galaxy Store (provided that this is correct in a given case). All of that will then be enforceable U.S.-wide.
The battle is over, the war is not. The worst thing that could happen to Apple in the next step now would be for the United States Department of Justice (DOJ) to bring an antitrust lawsuit over the App Store (and possibly other matters). There have recently been rumors of the DOJ preparing such a case, and DOJ lawyers attended every day of the Epic Games v. Apple trial in 2021.
As a government plaintiff, the DOJ would have certain advantages, though Apple’s resources advantage would play a role unless some private parties support the DOJ’s efforts. The DOJ now knows what worked out well and what didn’t for Epic in the 2021 trial. In particular, the district judge found some of the expert testimony unreliable. The DOJ could simply bring a stronger case over the same (and other) issues.
Apple may also have to deal with lawsuits by other companies. The entire games industry is unhappy with the situation: Apple has never made a game (at least none that one ever heard of), yet generates greater profits from games than any actual game maker. That’s the power of a monopolist to tax an industry.
In the European Union, Apple will be required by law to offer alternative app stores. There will likely be various fights, including legal disputes, over how exactly that is going to work. What Apple presumably fears is that if a more open app market works out just fine in the EU, without privacy and security being compromised in the way Apple always claimed it would be, then that may also result in legislative measures elsewhere. In fact, there are jurisdictions such as Japan where we could see significant legislative developments this year.
Epic’s August 2020 lawsuit was taken to trial in record time. With the benefit of (literally) 2020 hindsight, one may wonder whether it would have been better to be more patient and have stronger expert testimony in place. But there are still many ways in which Epic’s vision of app freedom can come to fruition, including in the United States that normally prides itself on being the Land of the Free.