September 16, 2021
Last year, Epic Games sued Apple, arguing — among other things —that its restrictions on app store payments for digital goods were anticompetitive. Last week, a California judge ruled partly in Epic’s favor.
The outcome in the Epic v. Apple trial is good for developers and users. It falls well short of bringing about the broader changes that are necessary to make sure that app stores are not competitive and free expression bottlenecks. At the same time, though, Epic — even though it won an injunction that (assuming it goes into effect) will force Apple to make a significant, pro-competitive change to its App Store practices — is not happy with the decision, and has already appealed.
It’s understandable why Epic would not be happy: It did not get the broad, structural relief it wanted — just a targeted injunction blocking the App Store’s “anti-steering” rules, which prevented developers from communicating with users within their own app, or even via email if that address was collected in the app, about ways they can save money on in-app purchases. (In antitrust just giving people information can be called “steering.” It seems odd to refer to consumers choosing to save money as being “steered,” as if they have no agency in the matter. Nonetheless.) Epic lost on all the federal antitrust claims, prevailing only on a claim under California unfair competition law. Adding insult to injury, it was forced to pay millions of dollars for a breach of contract claim brought by Apple, and its Apple developer account was not reinstated. The Epic-created Fortnite remains off the app store.
Nevertheless, the change to the anti-steering rules is very good, and the decision will be helpful for those who want more app store reform and more open devices, even though broader relief would have been warranted.
Apple has said that its anti-steering rules were the same as Best Buy not wanting Sony to put up signs in its stores saying, “Hey, buy this at Walmart instead.” But the argument has not been about what text is listed in the app store itself, where that might be a fair comparison. It was about what apps can communicate even after they’ve been downloaded — so the analogy only works if Best Buy wanted to prevent commercials from Walmart from ever appearing on TVs purchased from Best Buy.
Apple takes a 30% cut of most digital transactions on the iPhone, and the anti-steering rules protect that lucrative business. The total removal of these rules will have many positive developments for many kinds of apps, giving users more choice and lower prices, and goes further than the concessions Apple has already agreed to in response to an investigation by the Japan Fair Trade Commission. There, Apple had agreed to allow apps in a category it calls “reader” apps — which allow people to access subscription media, for the most part, like Netflix and Spotify — to add a single link to their apps to allow people to create an account and purchase a subscription. The injunction in this case is not so limited. Any category of app can include, at least, a link to alternate payment methods, and not just one link in one place. One example of what this means for users could be an app like Bandcamp. Bandcamp is a popular service that allows musicians to sell music directly to fans, and is known for its artist-friendly practices. Bandcamp currently cannot offer any payment options for digital music in its app, even though it does for physical media, due to Apple’s rules. Nor is using Apple’s in-app payment system a realistic option, since most of what Bandcamp collects is passed along to artists. It doesn’t have 30% to spare. Without the anti-steering rules, Bandcamp will be able to provide a purchase link for each song or album, and tell their customers how much they will pay. Even if Apple’s rules still require that Bandcamp offer Apple’s in-app purchase as an option, Bandcamp could simply tack 30% on to the in-app purchase price. Currently, some developers do offer in-app purchases on Apple devices — they just add 30% to the fee to cover Apple’s cut. But many developers don’t want to go down that road, as customers might rightly get upset to learn that they are paying more on one platform than another. But it’s not so bad if you can give people two choices right next to each other. Presumably most people would choose the cheaper option. This could even cause Apple to lower its commission to stay competitive — which would be further good news for app developers and users. (Additionally, there’s a good argument that the injunction will also require Apple to allow alternate payment methods in apps, not just links. But this question will be resolved, if the injunction goes into effect, by the judge.)
By no means does this go far enough. Epic, of course, might still prevail in its legal claims at the appellate level — but no matter how complete its victory in this case, it may have limited impact on future problems stemming from app stores or involving other defendants. In fact, Epic’s court case against Google is still active, where Epic is also suing over similar practices. The limited impact on the broader app store market is why PK has advocated for broader regulations through legislation, not just singular court cases targeting Apple and Google. Litigation is typically about specific harms caused by one party to another, and damages and relief are usually aimed at making up for those harms. In this case, the judge did recognize how Apple’s practices stand in the way of, for example, Epic’s plans for the “metaverse.” But she was not convinced that there was enough evidence to show that this was illegal.
Legislation can even prevent anticompetitive actions by future dominant app stores. For example, what if Facebook’s plans for virtual reality come to pass? It has been making significant software and hardware investments, and is currently the leading player in this new field. Should the future of virtual reality and augmented reality apps, games, and services depend on the policies of just one company? (And if the market develops in a more competitive direction, great! No need to apply the law. Even so, the very existence of laws outlining the responsibilities of dominant tech platforms could, by itself, encourage more competitive entry, since new entrants will know that they will not be locked out.)
As to this decision, while it is very hard to summarize a nearly 200 page court opinion, I believe it has a number of useful findings for those who advocate for reform of how app stores operate.
For example, the court accepted many of Apple’s stated goals with regard to its app store practices, such as security, and that its practices have some benefit. That was enough to make them not illegal, in the court’s judgment. As the court explained, there might be other ways that do not restrict competition to accomplish the same ends. The court quoted a recent Supreme Court case that says, “antitrust law does not require businesses to use anything like the least restrictive means of achieving legitimate business purposes. To the contrary, courts should not second-guess degrees of reasonable necessity so that the lawfulness of conduct turns upon judgments of degrees of efficiency.” See page 147 of the opinion, which is quoting NCAA v. Altson. But that’s where lawmakers can step in, since regulators and law enforcement officials can and do “second-guess degrees of reasonable necessity” to push markets and business practices in more pro-competitive or pro-public interest directions. Elsewhere, the court notes “significant challenges in assessing the anticompetitive effects of the app distribution restrictions.” (Page 144). Again, regulators, rather than courts, are generally better equipped to analyze a market as a whole and to identify structural competitive challenges.
And some of Apple’s practices were indeed found to be pretextual, like the 30% fee itself. The opinion states, “Importantly, and undisputed, Apple chose the 30% commission without regard to or analysis of the costs to run the App Store.” (Page 35). In general, the opinion reads like the work of a judge who was not terribly impressed by Apple’s conduct, or its justifications for it, but who also didn’t feel that Epic carried its burden of proof to the point of proving illegality. Apple’s lawyers should be very happy, but I don’t view either the specific outcome of this case or the fuel it will give to regulatory efforts around the world as being an endorsement of its app store practices.
Beyond the specifics of app stores, this case also highlights the limitations of antitrust law as it exists today. The court found that Apple had a 58% market share of what it saw as the relevant market — mobile gaming transactions. And, it found that Epic had offered evidence of anticompetitive effects of Apple’s conduct. (See pages 143-45.) Perhaps Epic could have offered more and better evidence. But some of its claims failed because the court went with a different market definition than Epic or Apple had argued for, and Epic naturally did not provide much evidence with respect to this market definition that neither party knew about. Plaintiffs, of course, must always meet their burden of evidence, but the process is stacked against them. Just as the factual record developed in this case may help regulators around the world craft an appropriate response to the competitive challenges posed by app stores, it could add another piece of evidence in favor of broader antitrust reform.
The consumer issues with app stores are not just about prices and app payment restrictions. Users should still be able to install the software of their choice on devices, even if it’s not listed in Apple’s app store. Not only would this be good for competition, but it would allow users to install apps that do not meet Apple’s content guidelines, or where governments have forced some apps off of app stores. Developers should have more flexibility in the business models they can pursue, and new hardware features should be made available (securely) to developers of all kinds, not restricted to first-party apps and products. So the fight continues. At the same time, even small openings in the closed world of app stores and app distribution are likely to be good for users in the short term.
About John Bergmayer
John Bergmayer is Legal Director at Public Knowledge, specializing in telecommunications, media, internet, and intellectual property issues. He advocates for the public interest before courts and policymakers, and works to make sure that all stakeholders — including ordinary citizens, artists, and technological innovators — have a say in shaping emerging digital policies.