We wrote an article back in August 2020 about the high stakes antitrust litigation launched by Epic Games against Apple (and Google) in California. The case concerns Apple’s removal of the battle royale game Fortnite from the App Store after Epic introduced its own direct in-app payment functionality into the version of Fortnite available on iOS, in contravention of the terms of Apple’s Developer Agreement.
There were a number of initial skirmishes about temporary restraining orders and preliminary injunctions. Ultimately, Apple is not required to reinstate Fortnite to the App Store while it still contains its own in-app payment functionality, but Apple was not allowed to terminate another developer account used by Epic for its game development engine, Unreal Engine.
Proceedings in the US appeared to have reached a stalemate pending the full trial scheduled for May 2021. However, Epic filed an additional claim against Apple in Australia in November, and then just before Christmas, Epic issued claims against Apple and Google in the UK before the Competition Appeal Tribunal (CAT) in the UK.
The CAT’s summary of the claim against Apple, published on 14 January 2021, suggests that the claim is brought on the same basis as Epic’s California complaint. It alleges that Apple is dominant in the iOS app distribution market and the iOS in-app payment processing market, and that Apple has abused its dominant position in those markets and/or engaged in anti-competitive agreements or concerted practices, by:
- reserving to itself the sole channel for the distribution of apps to and/or the payment processing mechanism for purchases of in-app content for and by consumers who use iPhones and iPads;
- using its position of dominance to charge unfair prices for the distribution of apps via the App Store and/or use of the Apple in-app payment processor; and
- its response to the introduction by Epic of price competition for purchases of in-app content in Fortnite.
Epic seeks broad relief including:
- declarations that aspects of Apple’s conduct / agreements have been / are unlawful;
- an order requiring Apple to restore the Fortnite app to the App Store in the UK;
- an order preventing Apple from blocking the download of the Epic Games Store to Apple devices in the UK; and
- an order requiring Apple to remove the restriction on the use of a lternative in-app payment processing solutions for apps distributed through the App Store in the UK.
A similar summary has also been published with respect to Epic’s claim against Google.
Unlike Epic’s California claims, the UK claims face an initial hurdle in the form of the requirement for Epic to obtain permission to serve out of the jurisdiction, with the key defendants (such as Apple Inc. Alphabet Inc. and Google LLC) being incorporated in the United States, not the UK. A hearing took place before the President of the CAT, Sir Peter Roth, on 21 January 2021.
Epic had to grapple with an issue often faced by litigants in this industry, of how to demonstrate that the English court is the appropriate forum to hear the claim, in circumstances where the digital product or platform is operated by companies based abroad (even if some end users are based in the UK). During the hearing the Judge noted that he could see that restrictions on competition could arise from the conduct described to him. However, his concern for this hearing was not establishing whether Apple or Google had acted anti-competitively, but where any potentially anti-competitive acts were done, and where any harm had been suffered. The Judge did not give judgment on the day, stating that he would hand down a ruling in due course.
Interestingly, despite being filed shortly before the end of the Brexit transition period, and despite the relief sought focussing on the UK, Epic’s complaints were brought under both Article 101 and 102 TFEU, as well as the equivalent provisions of the Competition Act 1998. During the hearing, the Judge questioned the relevance of EU law given that Epic is not seeking damages for past infringement, but declarations and injunctive relief going forwards. From the Judge’s exchanges with Epic’s counsel, it appears that the claim will now proceed on the basis of UK law alone, which will make this one of the first claims considered by the CAT post Brexit without reference to EU law (although of course retained EU law may still be relevant to the issues in this case).
As discussed in our previous article, the potential value and impact of Epic’s claim is huge. If it is able to prove that Apple’s conduct has been anti-competitive, with the result that it can use its own in-app payment system rather than Apple’s, Epic will obtain a much greater percentage of all users’ considerable spending on in-app purchases in Fortnite. Equally, if Epic is able to introduce an Epic Games Store to rival the App Store for the download of apps and games on Apple devices, the potential extra revenue it stands to earn is amplified considerably. (As Epic is not seeking damages for past infringement by Apple, it must be confident that access to these new revenue streams will be worth the millions of dollars the litigation it is pursuing in the US, UK and Australia will cost). Of course, if Epic is successful in its claim, this could open the floodgates to a number of other rival app/games stores and payment processing providers gaining access to the lucrative iOS ecosystem.
The potential loss for Apple is, for the same reasons, extremely significant, and Apple appears to have already taken action to better position itself for the fight with Epic. As of 1 January 2021, it has implemented a new program for its developers called the ‘App Store Small Business Program’. This program allows new developers and those earning less than $1m per year to pay reduced App Store fees of 15% compared to the standard 30%. Apple states that the program should benefit the vast majority of its App Store developers and data from Sensor Tower reported by the New York Times show that it will affect 98% of developers. However, these 98% of developers generate less than 5% of App Store revenue and unsurprisingly do not include Epic or many of Apple’s other big critics who have collectively formed the ‘Coalition for App Fairness’.
While this new program does appear to be a direct answer to part of Epic’s argument that Apple abuses its dominant position, Apple has indicated that the program is entirely unrelated to Epic’s claims. In either case, the program may represent an early indication of the impact that the issues raised in this litigation could have more broadly throughout the industry.