Judge Rules Apple Can’t Block Apps from Offering Alternative Payment Methods in Landmark Epic Games Case

After over a year of legal wrangling, the landmark App Store case launched against Apple by Epic Games last August has come to a conclusion, with the court conceding a relatively minor point to Epic while dismissing the other claims.

Most notably, Judge Yvonne Gonzalez-Rogers has ruled that Apple is not a monopolist under either federal or state antitrust laws, although she did concede that Apple engaged in “anti-competitive conduct under California’s competition laws.”

Specifically, Judge Rogers took issue with Apple’s “anti-steering” rules — those that prevent app developers from even mentioning the ability of alternative payment methods within their apps.

The Judge had focused on this question several times during the trial, so it probably shouldn’t come as a big surprise that the most significant result of her final ruling was a permanent injunction that will prohibit Apple from blocking links to other payment methods.

Nonetheless, the trial did show that Apple is engaging in anticompetitive conduct under California’s competition laws. The Court concludes that Apple’s anti-steering provisions hide critical information from consumers and illegally stifle consumer choice.

Judge Yvonne Gonzalez-Rogers, Rule 52 Order after Trial on the Merits, Epic Games vs Apple.

Apple also likely saw the writing on the wall here, as the company boldly announced last week that it would begin permitting “reader” apps — those that “allow a user to access previously purchased content or content subscriptions, such as magazines, newspapers, books, audio, music, and video” — to begin including links to allow users to sign up for subscriptions outside the App Store.

However, Judge Rogers’ injunction goes a step beyond the relatively tiny concession that Apple made, since it applies to all apps on the App Store — not just those like Netflix and Spotify — and it effectively prevents Apple from limiting the kind of links or buttons that can be used.

Apple Inc. and its officers, agents, servants, employees, and any person in active concert or participation with them (“Apple”), are hereby permanently restrained and enjoined from prohibiting developers from (i) 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 (ii) communicating with customers through points of contact obtained voluntarily from customers through account registration within the app.

Permanent Injunction, United States District Court, Northern District Of California, in Epic Games vs Apple Case.

While the injunction doesn’t come into effect until December 9 — 90 days from the date it was issued — once it does come into effect, Epic may be able to return Fortnite to the App Store mostly on its own terms.

The text of the injunction suggests that apps will be limited to linking to external payment pages, however, rather than providing their own payment processing directly within the app, which is what Epic did with Fortnite. It remains to be seen whether that will satisfy Epic Games.

To be clear, while any ground gained can be considered a small victory, Epic ultimately only prevailed on one count — something that’s arguably the most egregious App Store rule in the first place.

On every other count, Judge Rogers ruled solidly in favour of Apple, saying that it was not a monopoly in the market of “digital mobile gaming transactions,” and that “considerable market share” and extraordinarily high profit margins” do not automatically translate to antitrust conduct.

“Success is not illegal,” Judge Rogers adds.

Having defined the relevant market as digital mobile gaming transactions, the Court next evaluated Apple’s conduct in that market. Given the trial record, the Court cannot ultimately conclude that Apple is a monopolist under either federal or state antitrust laws. While the Court finds that Apple enjoys considerable market share of over 55% and extraordinarily high profit margins, these factors alone do not show antitrust conduct. Success is not illegal.

Judge Yvonne Gonzalez-Rogers, Rule 52 Order after Trial on the Merits, Epic Games vs Apple.

That said, Judge Rogers made it clear that it’s not impossible to make the case that Apple is a monopolist, but merely that Epic Games “failed in its burden” to make this case. For example, Epic presented no evidence of “other critical factors, such as barriers to entry and conduct decreasing output or decreasing innovation in the relevant market.”

Epic Doesn’t Get Away Scot-Free

Epic pulled a pretty brazen stunt last summer to try to make its case against Apple, sneaking its own in-app purchasing system into Fortnite in direct violation of the App Store rules.

While Epic’s entire case has been that these rules shouldn’t exist, the reality is that they did at the time, and Epic was under a contractual obligation to follow them. As a result, Apple officially terminated Epic’s developer account, and when Epic tried to get an injunction to force Apple to reinstate it, Judge Rogers flatly denied Epic’s request, stating that the company had to live with the mess it had chosen to create.

It was, as Judge Rogers said, “a calculated move to breach” and Epic “cannot have irreparable harm when [it] creates a harm [itself].”

In the midst of this, Apple also fired back with a countersuit against Epic for breach of contract, and in today’s ruling, Judge Rogers ruled in favour of Apple, stating that Epic has to pay Apple 30% of the money it made through its own in-app purchasing system.

To be fair, Epic admitted in its filings that it had breached its Developer Product Licensing Agreement (DPLA) with Apple, and even conceded that Apple would be entitled to compensation — “to the extent that the Court finds that the DPLA is enforceable.”

Of course, Epic’s entire case was that the DPLA was not enforceable in the first place, making it a meaningless concession. Essentially, the company was admitting to violating a contract that it never considered to be legal in the first place.

Epic Games contends that all of Apple’s counterclaims are barred notwithstanding its admitted breach of the DPLA because the DPLA provisions it breached are unenforceable (i) under the doctrine of illegality; (ii) because they are void as against public policy; and (iii) because they are unconscionable.

Judge Yvonne Gonzalez-Rogers, Rule 52 Order after Trial on the Merits, Epic Games vs Apple.

However, since Judge Rogers ruled that Apple was not considered a monopolist under federal or state antitrust laws, and more specifically that “no provision of the DPLA at issue in this action is unlawful under the Sherman Act or the Cartwright Act,” the contracts are not “illegal and unenforceable.”

In fact, it seems that Epic was too arrogant for its own good here. Judge Rogers conceded that Apple’s 30% rate of commission may not be justifiable, but adds that Epic did not argue that it should be paying less — it tried to argue that it shouldn’t have to pay anything 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, Epic Games vs Apple.

In effect, Judge Rogers ruled that Apple was entitled to some commission, and since the rate of the commission was not being contested, declined to rule on whether 30% was considered fair or not.

Instead, she ordered Epic to pay Apple the commissions it should have earned from in-app payments by Fortnite players that were made outside of Apple’s systems.

The relief to which Apple is entitled is that to which Epic Games stipulated in the event that the Court found it liable for breach of contract, namely: (1) damages in an amount equal to (i) 30% of the $12,167,719 in revenue Epic Games collected from users in the Fortnite app on iOS through Epic Direct Payment between August and October 2020, plus (ii) 30% of any such revenue Epic Games collected from November 1, 2020 through the date of judgment.

Judge Yvonne Gonzalez-Rogers, Rule 52 Order after Trial on the Merits, Epic Games vs Apple.

While 30% of $12,167,719 works out to a mere $3,650,316 — pocket change for both Apple and Epic — there’s obviously a principle at stake here. Ironically, the end result is that Epic loses more money than if it had simply left well enough alone.

Since Epic was trying to make its point by selling in-game currency in Fortnite at a 20% discount, and it’s now forced to pay 30% of the revenue it took in from those already-discounted purchases, it ended up losing $1.40 more on every $10 transaction than it would have if it had simply given Apple its 30% cut in the first place.

Judge Rogers also ruled that Epic is required to make a declaration that “Apple’s termination of the DPLA and the related agreements between Epic Games and Apple was valid, lawful, and enforceable,” and that 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.”

Considering Judge Rogers’ rather pointed comments to Epic Games last fall, when the company was seeking a preliminary injunction to force Apple to restore Fortnite to the App Store, it’s no surprise that Epic got slapped fairly hard on the breach of contract front. Courts typically take a dim view of plaintiffs who play games like this, and we can’t help wonder if Epic would have been better off if it had simply opted for a more quiet lawsuit.