Judge: Apple is No Monopolist, But App Store Anti-Steering Provisions Fall as Anticompetitive

Last Friday, Judge Yvonne Gonzalez Rogers issued a decision in the online gaming dispute between Epic Games Inc. and Apple Inc. that began last August. Based on the trial record, Apple was not liable for violations of the federal antitrust laws and only violated California’s Unfair Competition Law (UCL) with its anti-steering provisions. On the other hand, the court found that Epic overstepped and breached its contract with Apple, and in turn, held it accountable for tens of millions in damages.

Judge Gonzalez Rogers’ 185-page opinion explained that Epic filed the lawsuit “to challenge Apple’s control over access to a considerable portion of this submarket for mobile gaming transactions.” The court disagreed with both parties’ proposed relevant markets, “not gaming generally and not Apple’s own internal operating systems related to the App Store.” Instead the court delineated “digital mobile gaming transactions” as the proper market based on Epic’s interest therein, the market’s $100 billion size, and the fact that Apple derives most its revenue from gaming category purchases rather than others in its App Store.

The court then turned to Apple’s conduct in that market, concluding that Epic failed to carry its burden in proving Apple a monopolist. This was so, the opinion said, notwithstanding Apple’s possession of considerable market share, more than 55%, and its tremendous profit margins. Absent from the record was evidence of other crucial factors like barriers to entry and conduct stifling output or innovation, Judge Gonzalez Rogers explained.

However, the evidence demonstrated that Apple’s anti-steering restrictions, rules barring developers from communicating with customers among other prohibitions, were anticompetitive and illegally undercut consumer choice. When coupled with Apple’s “incipient antitrust violations,” the court enjoined their further use.

“Apple created a new and innovative platform which was also a black box,” the opinion said, explaining how the company controlled information to purposefully frustrate users from obtaining digital goods on other platforms. As such, Judge Gonzalez Rogers fashioned a nationwide injunction eliminating those provisions not just for gaming app developers, but all app developers who utilize Apple’s App Store. The remedy will increase competition, transparency, and consumer choice and information while keeping Apple’s iOS ecosystem intact, the opinion said. 

Finally, the court considered whether Epic was liable to Apple for breaching the Developer Product Licensing Agreement (DPLA) it first signed in 2010. Judge Gonzalez Rogers reasoned that because Apple’s counterclaims were premised on DPLA provisions regardless of the anti-steering provisions, and because Epic admitted to breaching the agreement, it was liable. As stipulated to, Epic agreed to pay Apple the revenue it collected from Fortnite app users on iOS through Epic Direct Payment between August 2020 and the date of judgment, with interest.

The opinion also noted that each party must pay its own costs, and neither may file any post-trial motion based on previously-made arguments. Epic is represented by Faegre Drinker Biddle & Reath LLP and Cravath, Swaine & Moore, while Apple is represented by Gibson, Dunn & Crutcher LLP.

On Sunday, Epic filed a notice of appeal.