Apple Strikes Back (Epic v. Apple II)

THE BIG PICTURE

In a continuation from our previous post, Apple has struck back at Epic by not just blocking Fortnite from the Apple store, but also threatening to cut Epic off from the Apple Developer Program on August 28, which could disrupt games and applications that use Epic’s Unreal Engine. On August 17, Epic filed a request for a temporary restraining order (“TRO”).

TRO’S IN GENERAL

To obtain a TRO, a plaintiff must show four elements:

(1) that they are likely to suffer irreparable harm absent the TRO;

(2) that they are likely to succeed on the merits;

(3) that the balance of equities is in their favor; and

(4) that a TRO is in the public interest.

EPIC’S TRO

The basic thrust of Epic’s argument is that Apple is a monopolist and is improperly retaliating against Epic. In describing Apple’s actions, Epic states:

Apple’s retaliation was swift and decisive. The morning Epic made these [alternative payment processing] options available, Apple removed Fortnite from the App Store, ensuring that millions of players would imminently lose the ability to use Fortnite to connect with their family and friends. Soon after, Epic filed its suit against Apple challenging its monopoly on app stores and in-app purchases. Less than twelve hours later, Apple notified Epic it was terminating Epic from the Apple Developer Program, blocking all Epic products from distribution through Apple’s App Store.

Epic is seeking a three-part temporary restraining order, restraining Apple from:

(1) removing Fortnite from the Apple store due to Epic providing an in-app payment processing means other than Apple’s (or on any other pretextual basis);

(2) removing, disabling, or modifying Fortnite code from any iOS user’s device; and

(3) taking any adverse action against Epic, removing Epic’s access to Apple’s Developer Program, on the basis that Epic enabled in-app payment processing in Fortnite through means other than Apple’s.

IRREPARABLE HARM

Epic argues that it will suffer irreparable harm because by removing Fortnite from the Apple App Store, players are unable to update the game and will eventually be unable to play against other players. In Epic’s words “existing iOS users are doomed to obsolescence within weeks.” Epic also states that it has already received a number of customer complaints due Fortnite’s removal, and that Epic’s reputation is being harmed from Apple’s actions.

With regards to the Apple Developer Program, Epic argues that without access, Epic is unable to update the Unreal Engine which many game developers rely on. This again will irreparably harm Epic.

LIKELIHOOD OF SUCCESS

On the likelihood of success, Epic argues that it is highly likely to succeed on the merits of its claim. Epic states that it will prove that forcing app developers to use Apple’s payment processing is: (a) tying per se; (b) an unreasonable restraint of trade under Section 1 of the Sherman Act under the rule of reason; (c) unlawful maintenance of a monopoly under Section 2; and (d) a denial of access to an essential facility under Section 2. Epic goes over each of these in detail, but we’ll only discuss the first which appears to be Epic’s main argument.

Tying

As discussed in the last post, to show a violation of Section 1 of the Sherman Act, a plaintiff can show that a restraint of trade is per se unlawful. If a practice is per se unlawful, there is no need to further analyze the effects of the practice which happen under the rule of reason test. To show that Apple’s actions are per se unlawful, Epic would need to show: (1) that Apple tied together the sale of two distinct products or services; (2) that Apple possesses enough economic power in the tying product market to coerce its customers into purchasing the tied product; and (3) that the tying arrangement affects a not insubstantial volume of commerce in the tied product market. This type of restraint of trade is known as “tying per se.”

Epic argues that the application delivery market is distinct from the payment processing market. One way to show that two products are separate is to prove that customers choose a different product when given the choice as opposed to always purchasing the two tied products together. Epic points to the fact that for different types of applications, such as Uber and Grubhub, customers are provided and use a number of different payment options aside from Apple payment processing. Epic also points to the fact that not all types of applications are required to only use Apple payment processing as an example of the separateness of the two products.

Epic then addresses Apple’s economic power in the market. Apple’s power to coerce customers to purchase the tied products seems clear if the market is defined as the Apple app distribution marketplace and Apple payment processing. Apple allows for no alternatives and is wildly successful in the market.

Finally, Epic addresses whether the tying arrangement affects a not insubstantial volume of commerce in the market. Again, assuming the market is Apple app distribution and Apple payment processing, Apple’s arrangement affects the entire market.

On the tying issue, it seems that Apple’s main arguments could be to the separateness of the two products and whether the market should be defined more broadly. Epic notes that in a European Commission ruling against Google for violating competition laws, the EC stated “app stores for other licensable smart mobile OSs” and “for non-licensable smart mobile OSs such as Apple’s AppStore . . . do not belong to the same product market as Android app stores.” Whether U.S. courts follow the same logic will be critical to this case.

BALANCE OF HARDSHIPS

Epic doesn’t spend much time on this element, but it seems pretty clear that Epic’s lockout from the App Store and Apple Developer Program are harder on Epic than the harm to Apple by allowing Epic to remain. Epic points out that at worst Apple would lose some commissions by allowing Fortnite to remain which could be remedied with damages.

THE PUBLIC INTEREST

Epic argues that the public interest is served by preserving status quo access. This public interest includes allowing millions of players to continue gaming. Epic also argues that without the injunction, “an entire ecosystem based on the Unreal Engine will collapse.”

CONCLUSION

Epic must have anticipated Apple’s move of potentially suspending Epic from the Apple Developer Program. However, it still feels like an escalation and a sign that neither side is ready to back down. If Apple carries out its threat, it could put third party developers using the Unreal Engine in a difficult position. The next version of iOS is set for release this fall, and Epic would be unable to update Unreal Engine compatible. The hearing for this motion is set for August 24, with Apple’s opposition due August 19. We’ll be monitoring and provide updates as they come.