Analysis Epic Games’ legal campaign to break Apple’s near absolute control over its iOS ecosystem received reinforcement this week from 35 US states, Microsoft, the Electronic Frontier Foundation, Public Citizen, and more than 50 academics, among others.
In 2020, Epic Games flouted Apple’s iOS App Store rules by directing players of its Fortnite game to buy in-game currency and items directly from its website at a lower price rather than through Cupertino.
Apple, deprived of its required 30 per cent cut of in-app sales, responded by removing Fortnite from its iOS App Store.
Epic Games answered with antitrust lawsuits in the US, Europe, UK, and Australia, a legal campaign clearly contemplated as a way to loosen Apple’s control over its iOS platform.
On September 10, 2021, US District Judge Yvonne Gonzalez Rogers issued a ruling that pleased neither side. She found Apple’s requirement that app developers not promote alternative payment mechanisms within their apps anti-competitive but did not find that Apple had illegally monopolized the market for mobile gaming transactions.
Minimal fallout
Her decision represented the third crack in Apple’s walled garden in the space of two weeks. In early September, 2021, Apple agreed to accommodate Japan’s Fair Trade Commission by allowing reader apps to include in-app links to external account setup.
That was a few days after Apple agreed to settle an antitrust complaint brought by a group of app developers, Cameron et al v. Apple Inc. [PDF], with relatively inconsequential concessions that included allowing developers to communicate outside of apps, via email, about alternative purchase options.
Epic Games won only one of its ten claims – the court found that the anti-steering provisions within Apple’s Developer Program License Agreement (DPLA) violate California’s Unfair Competition Law.
But the game maker hasn’t yet benefited from the decision. Last month, just before the deadline when Apple was supposed to comply with the Epic Games ruling, the iPhone maker challenged the decision in the US Ninth Circuit Court of Appeals, and that court granted Apple’s request to stay Judge Gonzalez Rogers’s order until its appeal can be heard.
Trust us, we know about antitrust – Microsoft
Earlier this month, Epic Games submitted its own brief with the appeals court. Then on Thursday, the amicus briefs in support of Epic arrived. This particular set of “friend of the court” filings come from various groups – public sector, private sector, academia, and civil society – that all want to see Epic Games prevail. Taken as a whole, they argue that Judge Gonzalez Rogers’s decision is flawed.
Microsoft, for example, believes the lower court failed to recognize the ways in which Apple’s conduct violates the law and it wants the appeals court to consider the consequences of Apple’s dominance more carefully.
“If Apple is allowed to step between any company with online services and users of iPhones, few areas of the vast mobile economy will be safe from Apple’s interference and eventual dominance,” the company’s brief [PDF] says. “Consumers and innovation will suffer – indeed, they already have. The district court’s reasoning failed to give sufficient weight to these immense competitive risks and, if broadly affirmed, could insulate Apple from meritorious antitrust scrutiny and embolden further harmful conduct.”
If Apple is allowed to step between any company with online services and users of iPhones, few areas of the vast mobile economy will be safe from Apple’s interference and eventual dominance
Microsoft’s brief chooses to compare Apple’s conduct to that of AT&T before it was broken up in 1982 after an eight-year legal battle with the US Justice Department. But it also refers to its own experience with antitrust intervention two decades ago, arguing that the court should evaluate Epic’s tying claim – requiring developers to use Apple’s in-app payments as a condition of distribution – in the same way that DC Circuit did in United States v. Microsoft Corp, “another case that involved ‘the technological integration of added functionality into software that serves as a platform for third-party applications.'”
Many pages of the various amicus briefs are devoted to whether Apple’s conduct violates Section 1 or Section 2 of the Sherman Act, the first US antitrust law.
“The Sherman Act prohibits (a) contracts, combinations, or conspiracies in restraint of interstate commerce or foreign trade, and (b) monopolization, attempts to monopolize, or combinations or conspiracies to monopolize interstate commerce or foreign trade,” according to the US Justice Department.
Section 1 violations require a restraint of trade but not necessarily monopoly power, whereas Section 2 violations require monopolization. The district court found Apple guilty only of unfair competition under California law.
In order for Epic Games to prevail in its antitrust claim under the Section 1 of the Sherman Act, Apple’s contract – its DPLA – must be found to unreasonably restrain competition in the relevant market.
Be reasonable
The court found that Apple’s rules had some anti-competitive effects but also some justifications, making them not entirely unreasonable. The court also determined that Apple’s unilateral DPLA contract – a contract of adhesion where one party has all the power to dictate terms – does not qualify as the sort of mutually agreed contract contemplated by Section 1 of the Sherman Act.
The 35 US states filing an amicus brief [PDF], led by Utah, argue that the district court erred by ruling out Section 1 liability. The DPLA is not a unilateral contract, the states argue, because developers make promises in return, so Apple’s conduct should be evaluated with respect to Section 1.
What’s more, they argue, exempting the DPLA from being a contract under Section 1 would make antitrust enforcement impossible.
“Firms with sufficient market power can unilaterally impose contractual terms,” the state brief argues. “The district court’s holding creates a paralyzing paradox: once a firm acquires market power and unilaterally imposes a contract, then it is no longer subject to Section 1. Affirming this paradox would gut the Sherman Act and prevent the Amici States from enforcing antitrust violations by large firms that harm their citizens.”
Firms with sufficient market power can unilaterally impose contractual terms
A filing by 14 law professors [PDF] similarly takes aim at the notion Apple’s coerced contract is not a contract worthy of antitrust scrutiny. They also argue that the district court’s decision to view the market as all mobile apps rather than just iOS apps is wrong.
“If [these findings] were true, Apple could not earn an extraordinarily high profit margin on iOS app transactions or charge commission rates that are excessive and unjustified,” they say in their brief. “Competition would obliterate its pricing power.”
The EFF brief [PDF] also takes issue with the district court’s decision to accept a market definition that includes all mobile apps rather than iOS apps. And it challenges the presumptive benefits of Apple’s oversight by noting “the company’s opaque, arbitrary, and byzantine enforcement of its app store policies.”
As an example, the EFF brief cites a privacy-enhancing iOS feature introduced in 2020, App Tracking Transparency, that allows users to opt out of having their identities and activities tracked across third-party apps.
“But several of the largest app developers, including Facebook and Snap, continue to harvest device-identifying data from Apple devices that could be used for cross-app tracking,” the EFF brief explains. “Apple is reportedly aware of this practice, and condones it, though it tells developers they must ‘anonymize’ the data.”
The other amicus filings advance similar arguments, all in the hope that Epic Games’ claims and Apple’s behavior will be reevaluated. Apple meanwhile wants the Ninth Circuit to reverse the unfair competition decision and remove any obligation to support communication about external payments.
Despite winning nine out of the ten claims Epic Games made in district court, Apple faces an increasingly uncertain road. Its appeal to the Ninth Circuit has met with significant resistance and an adverse outcome will almost certainly make the mega-corporation’s situation worse. It will be interesting to see whether the iGiant can attract enough supportive friend-of-the-court briefs to counter the arguments advanced by Epic’s allies.
And even that may not lift the App Store siege. The UK Competition and Markets Authority is investigating Apple over its App Store business practices. The Netherlands Authority for Consumers and Markets (ACM) has told Apple to allow developers of dating apps on the App Store in the Netherlands to inform users about additional payment processing options, a decision Apple has appealed. The ACM subsequently fined Apple 5m euros for non-compliance. The EU also has an antitrust investigation of Apple’s App Store underway that could imperil the tech titan’s 30 per cent commission.
Apple’s success, and its resistance to concessions, may have made it too big not to nail. ®
