Judge Yvonne Gonzalez Rogers issued her verdict in the Epic v Apple case, and they will be drinking cappuccino and crying in Cupertino. Earlier this year, the Northern California District Court heard the case. The argument surrounding Epic is that Apple’s insistence that developers use Apple’s in-app payment system on iOS is anti-competitive and takes advantage of a monopoly.
This is a complete explanation of these arguments and a detailed explanation of Apple’s defense.
Judge Rogers agreed with Apple in almost all respects, but Epic has achieved a major victory—for now. The court ruled that Apple did violate California’s unfair competition laws and ordered Apple to change its iOS application policy within 90 days.
Apple won the affirmation that its business model does not have a broad monopoly, and also filed a minor counterclaim against Fortnite’s royalties. Since Epic has violated its contract with Apple, it must now pay Apple approximately $3 million as a reduction in Fortnite’s iOS revenue between August 2020 and October 2020, and from November 1 to the end of the judgment. 30% of any other income on the day. I suspect Tim Sweeney will suffer from insomnia.
However, it was the permanent injunction issued by the court for violation of California’s anti-unfair competition law that allowed Sweeney to do a cartwheel. The ban came into effect on September 10, 2021 and will take effect 90 days later. The content is as follows:
“Apple. […] Developers are hereby permanently restricted and forbidden to (i) include actions that lead customers to purchase mechanisms in their apps and their metadata buttons, external links, or other call-to-actions, and (ii) and voluntarily register through in-app accounts. The point of contact obtained from the customer. “
This means that, as happened in a South Korean court last week, the court ruled that Apple cannot prevent apps from directing customers to their own “purchase mechanism.” The ruling does clarify that these will be in addition to Apple’s own in-app purchase system, but it is very clear that Apple must allow apps to send users to third-party payment services and have 90 days to complete.
The complete ruling clarified exactly what the judge has and has not announced. First, the court did not find that Apple has a monopoly: According to California’s legal definition of monopoly, “the court cannot ultimately determine that Apple is a monopolist under federal or state antitrust laws.”
“Although the court found that Apple enjoys a considerable market share of more than 55% and extremely high profit margins, these factors alone cannot show antitrust behavior. Success is not illegal,” the ruling read.
“Success is not illegal” is very likely to become the new slogan of Silicon Valley. Apple itself quoted this sentence in a short statement issued after the ruling:
“Today the court confirmed what we have always known: App Store did not violate the antitrust law. As the court recognized,’success is not illegal.’ […] We remain committed to ensuring that the App Store is a safe and trustworthy market to support a thriving developer community. “
However, the result of the judgment is this, because “Apple’s reversal of the clause hides key information from consumers and illegally stifles consumers’ choices,” the court said. “Together with Apple’s initial antitrust violations, these anti-guidance clauses are anti-competitive, and it is necessary to take remedial measures nationwide to eliminate these clauses.”
In other words, the court ruled that it was unfair for Apple to prevent app makers from advertising their own prices and purchasing methods. In another part of the ruling, the court also objected to Apple’s arbitrariness to charge 30% of the commission, stating that it was set “almost accidentally” and “without considering operating costs, user benefits, or developer value.”
“The evidence here shows that, unlike American Express’s increased merchant fees, Apple’s maintenance of its commission rate stems from market forces, rather than competing in a constantly changing market,” the ruling read.
Epic CEO Tim Sweeney reiterated some of Epic’s slogans on Twitter, and this battle will continue.
Today’s ruling is not a victory for developers or consumers. Epic is fighting for fair competition between the in-app payment method of 1 billion consumers and the app store. https://t.co/cGTBxThnsPSeptember 10, 2021
Sweeney continues to add “Fortnite will return to the iOS app store at a time and place where Epic can provide in-app payments and Apple in-app payments on a level playing field, and pass the savings on to consumers. Thanks to all those who have invested a lot of time and energy for fairness on the digital platform Competition, especially thanks to the court for handling a very complicated case in a swift time. We will continue to fight.”
Sweeney said Fortnite will return after Apple has done what the judge said, basically, although his qualified “when and where” may be because it may be within 90 days, or it may take longer.
Apple is almost guaranteed to appeal this ruling, but please don’t get me wrong: this is a huge victory for Epic, and in some ways a surprising victory. As Apple clearly stated in its statement in response to the ruling, for reasons of safety and consumer trust, it will continue to fight for its right to insist on using its own in-app purchase of iOS. This will be up and running, although Apple still has to understand how it will implement the court’s requirements.
(Another area where things can get complicated is Apple’s interpretation of the ban. Epic says that unless it can provide its own in-app payment system, it will not bring Fortnite back to iOS, but Apple can interpret the ban as meaning It only needs to allow the app to contain links to websites where payments can be made. The court will decide which interpretation is correct, if it comes down to it.)
Easily, the ruling managed to add a sense of humor to its interpretation of the law. This is a particularly good line: “Although Epic Games claims that if it does not sell in-app content, it has no viable way to monetize Fortnite, records show that it monetizes Fortnite in nine other ways.”
And then this, about the Fortnite Banana Man who briefly became the center of attention during the trial:
What is the biggest benefit of the Epic/Apple ruling? Footnotes on Piley’s comedy. pic.twitter.com/8E9n78HwM7September 10, 2021