Sort-of Epic win as judge kills Apple ban on apps linking to outside payment systems

Games maker weakens iGiant's control over iOS, loses its antitrust claims

Analysis Epic Games on Friday won a Pyrrhic victory against Apple in its antitrust lawsuit, with US District Judge Yvonne Gonzalez Rogers ruling that Apple must allow developers to tell customers about third-party payments systems.

But Epic will not immediately benefit from that decision because the judge also determined that Apple has not monopolized gaming transactions and that the iGiant has the right to terminate Epic's developer account for violating Apple's Developer Program License Agreement.

The ruling [PDF] does not require Apple to reinstate Epic Games' developer account nor allow its apps back in its App Store.

Epic sued Apple in August 2020 after the iPhone maker removed Epic's Fortnite game from the iOS App Store for directing players to Epic's website to purchase in-game virtual currency and in-game items, thereby skirting Apple's 30 per cent commission. It made its virtual goods available for 20 per cent less than their price within the Fortnite app, a discount made profitable because of its avoidance of Apple's tax.

Epic hoped to break down Apple's walled garden but only managed to poke a hole. Nonetheless, the game maker is still pursuing legal action against Apple in Australia, the EU, and the UK. It has also sued Google over similar store rules.

Apple’s conduct in enforcing anti-steering restrictions is anticompetitive

"[T]he Court does not find that Apple is an antitrust monopolist in the submarket for mobile gaming transactions," Judge Rogers's ruling states. "However, it does find that Apple’s conduct in enforcing anti-steering restrictions is anticompetitive."

Epic prevailed in only one of the ten counts in its lawsuit, Count Ten, which charged that Apple violated California's Unfair Competition Law by requiring all apps to use its own in-app purchasing system. And it was awarded only part of the declaratory relief it sought – the judge applied her remedy nationwide but not globally.

The injunction awarded by Judge Rogers denies Apple the right to prohibit app developers from directing customers (app users) toward third-party purchasing systems via their apps, metadata, buttons, links, or other calls to action.

It also denies Apple the right to prohibit app developers from "communicating with customers through points of contact obtained voluntarily from customers through account registration within the app."

It doesn't require Apple to provide APIs for third-party purchasing systems, so Apple's in-app purchasing APIs will still have a usability advantage. And Apple may be able to pursue app makers for its commission, as per its store agreement, even if the developers use external payment systems.

Apple's not in the clear

But according to Mitch Stoltz, senior staff attorney at the Electronic Frontier Foundation, the ruling does mean that developers can integrate external payment systems into their apps to the extent that's technically feasible.

"The court ordered Apple to permit alternative payment buttons or links within apps, and to permit developers to inform their users about other payment mechanisms by any other means," he said in an email to The Register.

Epic Games overreached. As a consequence, the trial record was not as fulsome with respect to antitrust conduct in the relevant market as it could have been

Epic, however, because it breached Apple's DPLA contract by implementing its own Epic Direct Payment system to collect $12,167,719 from iOS Fortnite users between August and October 2020, must pay Apple the 30 per cent commission per the contractual terms. That amounts to $3,650,315.70. It must also pay Apple's 30 per cent commission on any such iOS revenue it collected from November 1, 2020 up to now. And each party will have to pay its own court costs.

Judge Rogers in her ruling indicated that Epic's antitrust claims could have been better supported.

"As a major player in the wider video gaming industry, Epic Games brought this lawsuit to challenge Apple’s control over access to a considerable portion of this submarket for mobile gaming transactions," she wrote. "Ultimately, Epic Games overreached. As a consequence, the trial record was not as fulsome with respect to antitrust conduct in the relevant market as it could have been."

In another example, Judge Rogers suggested Epic erred by objecting to any commission rather than challenging the rate. In other words, Epic shouldn't have tried to reduce Apple's cut to zero.

"While the court has found that evidence suggests Apple’s 30 per cent 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," her ruling states.

Epic boss: Not a win

"Today’s ruling isn't a win for developers or for consumers," said Epic CEO Tim Sweeney via Twitter.

"Epic is fighting for fair competition among in-app payment methods and app stores for a billion consumers. Fortnite will return to the iOS App Store when and where Epic can offer in-app payment in fair competition with Apple in-app payment, passing along the savings to consumers."

The ruling also leaves unanswered whether the injunction affects the enforceability of other Apple rules that govern payments or allowable business models. For example, one of Apple's Section 3.1.1 In-App Purchase rules says, "Apps offering 'loot boxes' or other mechanisms that provide randomized virtual items for purchase must disclose the odds of receiving each type of item to customers prior to purchase."

If a developer chooses to implement a 'loot box' in a game that's tied to an external payment system and doesn't disclose the odds, can Apple still refuse to allow that app in the iOS App Store?

"The language of the injunction appears to track the language of Apple's developer rules, which refer to 'calls to action that direct customers to purchasing mechanisms other than in-app purchase,'" said Stoltz.

"That suggests that the court is requiring Apple to allow 'mechanisms other than in-app purchase,' but not to redefine 'in-app purchase' to include non-Apple mechanisms. But it's not entirely clear, and there might be fights ahead on this issue. The same goes for adjacent rules."

Apple did not respond to a request for comment about the ruling but did issue a statement to favored media outlets.

"Today the Court has affirmed what we've known all along: the App Store is not in violation of antitrust law. As the Court recognized, 'success is not illegal,'" it opined.

"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. We remain committed to ensuring that the App Store is a safe and trusted marketplace that supports a thriving developer community and more than 2.1 million US jobs, and where the rules apply equally to everyone."

In fact, the court did not rule out the possibility that Apple might be violating antitrust law. "The Court does not find that it is impossible; only that Epic Games failed in its burden to demonstrate Apple is an illegal monopolist," the rulings stated.

Elsewhere in the world, Apple's App Store rules have run into legal obstacles. Last week, Apple made a concession to globally "allow developers of 'reader' apps to include an in-app link to their website for users to set up or manage an account" in order to end an investigation by the Japan Fair Trade Commission.

And earlier this month, the South Korean parliament passed a bill that, like today's ruling, requires Apple to allow developers to third-party payment systems.

And in the US, the Justice Department is said to be considering antitrust action against Apple.

"This decision shows one reason it's so hard to apply antitrust law to Big Tech: it's not at all clear where the boundaries between different 'products' are in a legal sense," said the Electronic Frontier Foundation via Twitter.

"The court's opinion spells out many serious problems with today's mobile app ecosystem, such as false tensions between user choice and user privacy. Congress can help with real antitrust reform and new legal tools, and shouldn't let Apple's privacywashing derail that work." ®

PS: Amusingly, the judge trashed Apple SVP of software Craig Federighi's argument that opening up iOS to all apps, as it does for macOS, would open the floodgates for malware. "While Mr. Federighi’s Mac malware opinions may appear plausible, they appear to have emerged for the first time at trial which suggests he is stretching the truth for the sake of the argument," the judge noted.

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