Epic v. Apple V: Preliminary Injunction Order

BIG PICTURE

This is our fifth installment in the Epic Games v. Apple dispute.

• Part I: Lawsuit filed

• Part II: TRO filed

• Part III: Opposition

• Part IV: Court splits the TRO baby

In this post, we’ll review the court’s October 9, 2020 order on Epic’s motion for a preliminary injunction. The court extended the TRO ruling until the final disposition of the case, which means Fortnite stays off the Apple App Store, but Epic gets to keep developing Unreal Engine on iOS.

THE ORDER

The court’s introduction begins with a statement about how hard it is to resolve a case like this. The court depicts the unenvious task of applying antitrust “statutes enacted more than a century ago” to “a technology context where lawyers and economists can merely hypothesize about the future digital frontier.” The court provides numerous other statements about how courts need to be cautious about making antitrust decisions with respect to new technologies, before diving into the multi-factor balancing test for whether to grant a preliminary injunction.

As with the TRO, the court declines to delve into the distinction between mandatory and prohibitory relief. Instead, the court just recites the standard four factors that a plaintiff must show to obtain a preliminary injunction: “(1) they are likely to succeed on the merits; (2) they are likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tips in their favor; and (4) an injunction is in the public interest. Winter v. Natural Res. Def. Council. Inc., 555 U.S. 7, 20 (2008).” The court also articulates the Ninth Circuit’s “sliding scale” approach to these factors, under which courts “permit a strong showing on one factor to offset a weaker showing on the other, so long as all four factors are established.”

LIKELIHOOD OF SUCCESS ON THE MERITS

Epic alleged ten claims in its complaint, but focused on just two for its preliminary injunction motion: monopoly maintenance under section 2 of the Sherman Act, and a tying claim under section 1 of the Sherman Act.

To show unlawful monopolization under section 2 of the Sherman Act, Epic must show: “(a) the possession of monopoly power in the relevant market; (b) the willful acquisition or maintenance of that power; and (c) causal antitrust injury.” Unsurprisingly, the parties continue to completely disagree about what the “relevant market” is. Epic contends that the relevant product market is the market for distribution of apps on the iOS platform; whereas Apple takes the position that the relevant market includes competing platforms where Epic also exploits Fortnite (i.e., including Xbox, Playstation, Switch, PC, and tablets). Refusing to adopt either party’s definition, the court punts yet again, concluding that “the market definition rests on factual questions regarding the nature of the iOS market as a whole” including:

• how many iOS users own multiple devices;

• how many iOS users would switch to another device in response to a price increase; and

• how many producers can afford to forego iOS customers altogether.

The court chides both parties for failing to address these factual questions and for their respective assumptions about customers; i.e., that “Epic Games assumes all iOS customers are the same, and Apple assumes that only Epic Games customers are relevant.”

The court finds similar factual shortcomings in its analysis of Epic’s “tying” claim. Epic contends that Apple ties the iOS app distribution “product” to a separate “product” of the in-app purchase system. The court, however, concludes that Epic hasn’t shown (at least not yet) that the in-app purchase system is a separate and distinct service from iOS app distribution under antitrust law. In several places, the court says that more evidence is needed to reach a full conclusion and points, among other things, to “lack of evidence of ‘purchaser demand’” for in-app purchasing processing service separate from the integrated service of app distribution.

The court concludes that Epic raised “serious questions,” but failed to prove likelihood of success on the merits. Based on the court’s analysis of the remaining factors, this conclusion lets the court shift points on the “sliding scale” so that it can reach different outcomes on the two actions at issue: (1) making Apple put Fortnite back on the App Store (which the court doesn’t want to do); and (2) making Apple give Epic access to the tools necessary to continue development of Unreal Engine for iOS (which the court does want to do).

IRREPARABLE HARM

As in the TRO analysis, the court finds no irreparable harm with respect to Fortnite, but a strong showing with respect to the development tools for Unreal Engine. As to the former, the court says that Epic “cannot simply exclaim ‘monopoly’' to rewrite agreements giving itself unilateral benefit.” As to the latter, however, the court remains concerned about the harm to the hundreds of developers who use the Unreal Engine and have made significant investments in that technology.

BALANCE OF EQUITIES AND PUBLIC INTEREST

Again, as in the TRO, the court finds that both of these factors go one way with respect to forcing Apple to maintain Fortnite on the App Store, but the other way with respect to the Unreal Engine development. The court continues to worry about “Apple’s aggressive targeting of separate contracts” which “imperiled a thriving third-party developer ecosystem.”

FURTHER THOUGHTS

The court recognizes that this is incredibly difficult stuff. Both Epic and Apple have hired some of the best lawyers in the country; and both parties have hired world-class expert witnesses to tell the court diametrically opposed things about the economics involved and the relevant market. The court delicately balances how to preserve not only the status quo between the parties — but also the status quo for the hundreds of developers who use and rely on the Unreal Engine.

The jury trial in this case — now scheduled for next summer — will require adroitness in jury selection. Apple will want to pick a jury that sees real value in the security and stability that Apple provides when you buy and iPhone and use the App Store. Epic, by contrast, will want a jury who prioritizes the value of low cost and consumer choice.

A few weeks ago, I might have been a good juror for Epic, as someone who has always hated being forced to use a specific product or service if a better or cheaper alternative exists — even if the alternative is harder to use. More recently, though, I had to spend many weekend hours reformatting my hard drives, reinstalling windows, and tinkering with hardware drivers until I finally solved the mystery of why my PC kept getting BSOD errors. During those tiresome hours of troubleshooting, it occurred to me that something like that would never happen to my iPhone because of the fantastic security and stability it has. With that mindset, I might have made a great juror for Apple.

In any event, we’ll see if the case makes it to a jury trial next summer. Based on Epic’s other, extracurricular activities, such as forming a non-profit coalition against Apple’s policies, my money is on this case going the distance.