War on Apple | Epic Argues Lower Court Erred in Nearly All Findings Concluding That Apple Is Not a Monopoly

“Success is not illegal,” Judge Rogers added.
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As expected, Epic Games has kicked off what could be the first of many appeals in its ongoing war against Apple and the App Store, claiming that the lower court erred in almost all of its findings that led it to conclude that Apple was not a monopoly.

In its opening brief to the Ninth Circuit Court of Appeals (via The Verge), Epic is asking the court to overturn the previous ruling by Judge Yvonne Gonzalez-Rogers that had largely ruled in favour of Apple.

Most importantly, Judge Rogers had explicitly stated that Apple was not a monopoly in the market of “digital mobile gaming transactions” — the scope that was specifically under examination in Epic’s case against Apple.

Judge Rogers conceded that Apple “enjoys considerable market share of over 55% and extremely high profit margins,” she said that a company isn’t a monopoly just because it’s extremely good at what it does. “Success is not illegal,” Judge Rogers added.

Naturally, Epic disagrees with that conclusion, and now it’s going to the appellate court to try to make the case that Judge Rogers was simply plain wrong in her application of the law.

In an opening argument in which nearly every section begins with “The District Court Erred,” Epic claims that the district court’s factual findings made it clear that Apple is violating antitrust laws, and that Judge Rogers essentially ignored these facts in coming to the conclusion that Apple was not a monopoly.

The district court’s factual findings make clear that Apple’s conduct is precisely what the antitrust laws prohibit.Epic Games’ Opening Brief to the Ninth Circuit Court of Appeals

To be fair, Judge Rogers acknowledged that Apple was certainly toeing the line. In fact, she made it clear that a case could even be made that Apple is a monopolist, however as the plaintiff, it fell to Epic Games to make this case, and according to Judge Rogers, it “failed in its burden.”

The evidence does suggest that Apple is near the precipice of substantial market power, or monopoly power, with its considerable market share. Apple is only saved by the fact that its share is not higher, that competitors from related submarkets are making inroads into the mobile gaming submarket, and, perhaps, because plaintiff did not focus on this topic.Judge Yvonne Gonzalez-Rogers, Rule 52 Order after Trial on the Merits

Similarly, in her original ruling, Judge Rogers suggested that Apple’s 30% rate of commission was high enough that it could be “potentially anticompetitive,” but notes that the amount of the commission wasn’t under discussion — Epic was trying to make the case that Apple shouldn’t be allowed to charge any commission at all.

While the Court has found that evidence suggests Apple’s 30% rate of commission appears inflated, and is potentially anticompetitive, Epic Games did not challenge the rate. Rather, Epic Games challenged the imposition of any commission whatsoever.Judge Yvonne Gonzalez-Rogers, Rule 52 Order after Trial on the Merits

Essentially, Judge Rogers said that there was a certain line that Apple had to cross with the App Store to be considered a monopoly, but ruled that even if Apple might be very close to the other side of that line, it hadn’t actually crossed it.

This leaves a fair bit of ambiguity for Epic Games to play with, as it isn’t a black and white situation, but rather one made of up shades of grey. To put it simply, if there’s a zero-to-100 scale of what constitutes monopolistic behaviour, Apple’s App Store may very well be sitting in the high nineties. In that case, it wouldn’t take much for the appellate court to decide that it’s actually on the other side of the line.

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Epic’s Case

The details of Epic’s opening arguments are better left to lawyers, but in short the company seems to be restating its original case, insisting that it factually proved specific elements of it which Judge Rogers didn’t properly take into consideration.

For example, Epic claims that Apple’s developer agreements are an “unreasonable restraint of trade” under the Sherman Act — the key piece of legislation used as a yardstick for anticompetitive and antitrust behaviour.

It is undisputed that Apple entered into contracts with developers requiring them to distribute iOS apps exclusively through Apple’s App Store and to handle in-app payments for digital content exclusively through Apple’s IAP.Epic Games’ Opening Brief to the Ninth Circuit Court of Appeals

According to Epic’s brief, the district court acknowledged that these restrictive agreements led to “foreclosed competition,” along with higher prices and “supracompetitive operating margins,” while sifting innovation and reducing the quality of apps on the App Store.

Epic blatantly insists that Judge Rogers made a “legal error,” when she deemed Apple’s conduct lawful despite these issues. According to Epic’s argument, Judge Rogers “held that Apple’s contract with developers is not a ‘contract’ because Apple uses its market power to compel developers to sign.”

Of course, that’s Epic’s lawyers spinning what Judge Rogers actually said, that Apple’s developer agreements are “a unilateral contract” rather than “a coerced contract.” In other words, nobody is forcing a developer to sign an agreement with Apple, but once they do, they’re bound by the terms of the contract.

However, the fact that Apple exists in a “highly concentrated market” makes this argument slightly more tenuous on both sides, and Epic’s argument from the beginning has been that Apple controls such a large section of the market that game developers basically have no choice but to agree to Apple’s terms if they want to succeed.

In a comment to The Verge, Apple emphasized that the App Store offers positive competitive value by creating a level playing field for developers, pointing to the broad scope of economic activity taking place on the App Store.

In its ruling last year, the district court confirmed that Apple is not a monopolist in any relevant market and that its agreements with app developers are legal under antitrust laws. We are confident that the rulings challenged by Epic will be affirmed on appeal.Apple spokesperson Marni Goldberg

It remains to be seen what will come from Epic’s appeal in this case, but it’s not the only battle being fought in this particular war. While Apple prevailed on almost every count, it was found guilty of “anti-competitive conduct under California’s competition laws.” From that finding, Judge Rogers issued a permanent injunction that would prohibit Apple from blocking links to other payment methods.

Apple naturally appealed that one decision and has also managed to get a stay on the injunction, pending the outcome of its own appeal, which likely won’t be heard until later this year. Either way, it’s clear that both Apple and Epic aren’t willing to accept anything less than a complete victory, which means that the legal battles will likely continue well into the future before anything actually gets resolved.

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