Apple Vs Epic Games: Who Won The Legal Battle?

Bhaswati Guha Majumder

Sep 11, 2021, 03:07 PM | Updated 03:07 PM IST

  • Judge Rogers said, "apple enjoys a considerable market share of over 55 per cent and extraordinary high-profit margins," but added that “these factors alone do not show antitrust conduct. Success is not illegal".
  • The American tech giant Apple cannot prevent app developers from referring customers to third-party payment choices, said a judge in Oakland, California during its ongoing trial against Fortnite-maker Epic Games.

    Judge Yvonne Gonzalez Rogers issued a permanent injunction in the Epic verses Apple lawsuit on 10 September, imposing new constraints on App Store rules and putting an end to months of acrimonious legal wrangling.

    On 11 May, the seventh day of the trial, the judge questioned Epic's economist, David Evans, if removing Apple's anti-steering regulations — the ones that prevent developers from even informing you that there's a perfectly acceptable external website where you can purchase your subscription instead of inside the app — would be adequate.

    Later, in the same month, judge Rogers intimated on the final day of the trial that she was still moving toward that precise kind of compromise, one that might not please either side and might include Apple's anti-steering guidelines.

    On 10 September, the judge announced the verdict. The court ruling states that Apple is “permanently restrained and enjoined from prohibiting developers from including in their apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to In-App Purchasing and communicating with customers through points of contact obtained voluntarily from customers through account registration within the app”.

    For example, a movie-streaming business will be allowed to direct clients to subscribe via its own website rather than through Apple's in-app purchase system.

    But the ruling is not the win Epic wanted and there are two reasons. First of all, the video game company Epic's infusion of its own direct payment method into Fortnite on iOS — a move calculated to precipitate the lawsuit— was explicitly declared unfair by the judge.

    Epic was in violation of its contract with Apple.

    Secondly, even if Epic wanted to add, say, a PayPal button to Fortnite, it can't: Apple terminated Epic's developer account after the business breached its contract and judge Rogers confirmed that Apple is perfectly within its rights to permanently remove Epic from the App Store.

    She said: “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.”

    Both sides' definitions of the marketplace at issue in the case were rejected by the judge. She said: “The relevant market here is digital mobile gaming transactions, not gaming generally and not Apple’s own internal operating systems related to the App Store.”

    The North Carolina-based video game company had alleged that the App Store was monopolistic because of the up to 30 per cent cut Apple takes from purchases. But on 10 September, under that market definition, the judge said that Epic failed to show that Apple had an illegal monopoly and added that "the court cannot ultimately conclude that Apple is a monopolist".

    Judge Rogers said, "apple enjoys a considerable market share of over 55 per cent and extraordinary high-profit margins," but added that “these factors alone do not show antitrust conduct. Success is not illegal".

    After the court proceedings, a spokesperson from Apple said: “Today the Court has affirmed what we've known all along: the App Store is not in violation of antitrust law. Apple faces rigorous competition in every segment in which we do business, and we believe customers and developers choose us because our products and services are the best in the world."

    Meanwhile, Epic Games' CEO Tim Sweeney said on Twitter: “Today’s ruling isn't a win for developers or for consumers. Epic is fighting for fair competition among in-app payment methods and app stores for a billion consumers.”

    Hours later, he shared another tweet where he vowed to “fight on”. It reads: “Today: Lost a court case, climbed a mountain, read hundreds of pages of legal papers, wrote some code. Just as determined as ever to fight on until there is genuine developer and consumer freedom in software, and fair competition in each mobile platform software component.”

    As reported, Epic has suffered a direct loss of $3.6 million, which it now owes to Apple. That is because Epic made around $12.2 million in income against Apple's regulations with the direct payment system it introduced into Fortnite and judge Rogers concluded that Apple deserved a 30 per cent cut of that money. The verdict is likely to be appealed, maybe by both sides.

    Even though Epic remains disappointed after the ruling, antitrust activists applauded the ruling, claiming that Apple abuses its market dominance to intimidate developers, reported BBC.

    After the verdict Apple’s stock has dropped 3 per cent, erasing billions of dollars from its market capitalization. However, according to AppleInsider, Apple General Counsel Kate Adams shared Apple's positive reaction to the ruling and called it a "resounding win".

    Even though the judge mostly agreed with Apple, stating that it is not a monopoly, calling the decision a victory for the company will be misleading.

    Early reports revealed that that gaming apps account for 70 per cent of Apple's App Store revenue, which is a staggering statistic. Now when the judgement was passed, could be a major blow to Apple's business model.

    According to The Verge, A true win would not have resulted in Apple potentially losing billions of dollars in revenue or surrendering any control—" or, for that matter, seeing Apple’s true nature as a cutthroat business entity exposed to the world”.

    But it's unknown how many consumers would opt to buy things outside of the App Store, or how much it would hurt Apple's profit.

    The new restrictions include echoes of some anti-steering rules that Apple has already been subjected to outside of the United States. Following a regulatory probe in Japan, Apple agreed to enable outside signup links for “reader” apps like Netflix and Spotify.

    A South Korean law recently opened the door to alternative payment systems. However, the regulation's actual impacts are still unknown.

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