Epic Games v Apple: an $85bn judgment?


We’ve posted about this dispute several times before (on the initial filing, the UK version, and the EC antitrust complaint). Now, with the California judgment finally out, what’s the verdict?

Bloomberg reported that the judgment caused Apple to lose $85bn of its market value. However, that only amounted to a 3.3% drop in share price, and overall, Apple was the clear winner, prevailing on 9 out of 10 issues in dispute. Epic did succeed on one count: the Judge agreed that Apple’s “anti-steering” rules banning developers from telling users about alternatives to Apple’s in-app purchase system were anti-competitive under California state law. Epic has also appealed the verdict.

A lot of ink has already been spilled summarising the judgment and findings, so I just wanted to pull out a few interesting aspects:

  1. The Judge held that the relevant market was the “digital mobile gaming transactions”, not gaming generally as Apple had pushed for, and not Apple’s “own internal operating systems related to the App Store” as Epic had claimed. As a result, although Apple has a market share of over 55% and extraordinarily high profit margins, the Judge did not find Apple to be a monopolist. This could be relevant for the various investigations against Apple in Europe, which will require a finding that Apple holds a “dominant position” in a relevant market to establish liability.
  2. The wording that the Judge held anti-competitive, and intends to injunct Apple from using, is a term from its agreements with developers: “Apps and their metadata may not include buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than in-app purchase.” It’s a little unclear what this will mean in practice: what will the buttons developers can now use look like? How far can they go in directing users to alternative means of (presumably cheaper) payment outside the app over using Apple’s in-app payment option? (See more on this here).
  3. However, as the Judge rejects Epic’s other grounds of complaint, it is clear that this judgment will not require Apple to let developers offer users other forms of in-app payment, or prevent Apple from taking its commission on in-app purchases. If anything, the Judge notes that even without a commission on in-app payments, Apple could still charge developers another form of commission for use of its intellectual property (it would just be more complicated to do so).
  4. The rejection of Epic’s complaint about Apple’s restrictions on app distribution also means that Apple will not be forced to distribute third-party app stores (such as the Epic Games Store) on the App Store. Although the Judge accepted that Epic had evidenced anti-competitive effects, she was satisfied that Apple had pro-competitive justifications based on security, interbrand competition, and with respect to intellectual property rights.

The judgment runs to 185 pages and contains a lot more of interest than the few points highlighted here. It offers a unique insight into the App Store business model and contains a wealth of interesting facts. For example, evidence in the case showed that a mere 1% of iOS gamers generate 64% of game billings in the App Store (and game billings are worth 70% of all App Store revenues), spending on average $2,694 annually.

It’s definitely worth a read while we wait to see what Epic’s appeal has in store (awful pun intended).