Epic v. Apple VII - the Amici

Feb 10, 2022

Big Picture

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

Part I: Lawsuit filed

In this post, we’ll review: (i) the Ninth Circuit’s partial stay of the district court’s permanent injunction, (ii) the landslide of amicus briefs supporting Epic Games’ position from 35 state AGs, the EFF, Microsoft, and distinguished law professors, and (iii) Microsoft’s newly announced app store principles and how they might fit into a larger plan to unseat Apple as the world’s largest mobile game distributor.

The Parties

Plaintiff: Epic Games, Inc.
Plaintiff’s Firm: Cravath, Swaine & Moore
Defendant: Apple Inc.
Defendant’s Firm: Gibson Dunn & Crutcher

The Ninth Circuit’s Order

On December 8, 2021 the Ninth Circuit granted Apple’s motion to stay, in part, the district court’s September 10, 2021, permanent injunction pending appeal. The Ninth Circuit explained:

Apple has demonstrated, at minimum, that its appeal raises serious questions on the merits of the district court’s determination that Epic Games, Inc. failed to show Apple’s conduct violated any antitrust laws but did show that the same conduct violated California’s Unfair Competition Law. See City of San Jose v. Off. of the Com’r of Baseball, 776 F.3d 686, 691–92 (9th Cir. 2015) (“[U]nder California law ‘[i]f the same conduct is alleged to be both an antitrust violation and an “unfair” business act or practice for the same reason—because it unreasonably restrains competition and harms consumers—the determination that the conduct is not an unreasonable restraint of trade necessarily implies that the conduct is not “unfair” toward consumers.’” (quoting Chavez v. Whirlpool Corp., 113 Cal. Rptr. 2d 175, 184 (Cal. Ct. App. 2001))). Apple has also made a sufficient showing of irreparable harm, see Disney Enters., Inc. v. VidAngel, Inc., 869 F.3d 848, 865–66 (9th Cir. 2017), and that the remaining factors weigh in favor of staying part (i) of the injunction and maintaining the status quo pending appeal, see Nken v. Holder, 556 U.S. 418, 434–35 (2009).

As a result, the Ninth Circuit stayed the portion of the permanent injunction that enjoined Apple from prohibiting developers to include in their apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to Apple’s in-app purchase system.” However, the Ninth Circuit left intact the second part of the injunction that enjoins Apple from prohibiting developers from “communicating with customers through points of contact obtained voluntarily from customers through account registration within the app.”

The Amici

On January 27, 2022, numerous organizations filed amicus briefs in support of Epic’s position, including a coalition of 35 state attorneys general, Microsoft, the Electronic Frontier Foundation, and two separate groups of law professors. The Department of Justice also filed a brief, but didn’t directly support either Apple or Epic. The Verge helpfully uploaded all of these briefs to Document Cloud:

The coalition of 35 states led by Utah

The state AGs largely focus on Section 1 of the Sherman Act (which mirrors their position in their complaint against Google).

The most interesting brief, though, is the amicus brief that includes Prof. Herbert Hovernkamp, who the New York Times has dubbed “the Dean of American Antitrust Law” and who literally wrote the book on antitrust law. According to the publisher, his book has been has been “cited more than 50 times by the Supreme Court, more than 50 times by the FTC, and more than 1,050 times by the federal courts.”

In their amicus brief, the law professors argue that the court committed three fundamental errors:

It accepted business rationales that do not promote competition or economic efficiency and are, as a matter of law, not cognizable antitrust justifications;
It failed in its legal conclusions to credit a less restrictive alternative to Apple’s restraints that it recognized in its factual findings; and
In dismissing the case based on its conclusion that the plaintiff failed to show such an alternative, it never engaged in the required analysis of net competitive effects.

On the first point, the professors contend that Apple’s explanations for why it needed app store payment restrictions — chiefly, to ensure privacy and security for iOS apps — aren’t valid antitrust justifications for harming competition. The professors use cars as an analogy:

Imagine if automobile manufacturers claimed that they should be permitted to restrict competition to ensure that they could provide higher-quality cars—perhaps cars with bigger engines, better sound systems, or more reliable and safer brakes. Such contentions—similar to those offered by Apple—would be dismissed. And this would not be a close call. For more than four decades, one of the most uncontroversial principles in antitrust law is that restrictions on competition cannot be justified by arguments that they will improve product quality or even safety.

On the second point, the professors point out that the district court’s own factual findings showed that Apple could easily use a less restrictive alternative. For example, under Apple’s “notarization” model, Apple could continue to review all the apps on the App Store for safety, privacy and security, without limiting distribution. The professors observe that the court’s acknowledgement of this less restrictive alternative that achieved Apple’s objectives “allows us to have our antitrust cake and eat it too, as the defendant can attain its goals while doing so in a way that much less significantly harms competition.”

On the third point, the professors point out that the district court failed to engage in the required balancing when a court finds both harm to competition and benefits that enhance competition that cannot be obtained by less restrictive alternatives.

Microsoft

Microsoft, of course, whose employees testified at trial, also submitted an amicus brief. And, just yesterday, Microsoft took a further shot at Apple’s business model by publishing its own app store principles. In addition to promising quality, safety, security and privacy — all of Apple’s core values — Microsoft directly challenges Apple’s disputed practices by promising (among other things):

We will not require developers in our app store to use our payment system to process in-app payments.

We will not require developers in our app store to provide more favorable terms in our app store than in other app stores.
We will not disadvantage developers if they choose to use a payment processing system other than ours or if they offer different terms and conditions in other app stores.
We will not prevent developers from communicating directly with their customers through their apps for legitimate business purposes, such as pricing terms and product or service offerings.

Microsoft published these principles, of course, to help reassure the FTC that its acquisition of Activision-Blizzard won’t harm competition and should proceed. But Microsoft is also clearly trying to position itself as a better alternative to Apple as an app distributor that provides all the same benefits, but also plays fairly with developers.

Back in 1996, Microsoft’s Bill Gates published an essay called “Content is King” to emphasize how a website’s content is essential to attracting visitors. Now, it seems that Microsoft has also fully embraced the corollary adage that “distribution is queen.” In trying to turn its Game Pass subscription into the “Netflix of gaming” Microsoft will need to distribute on all platforms and dethrone Apple and Google in their dominance of mobile app distribution. Their support of Epic Games’ appeal and their new app store principles fully support that disruptive ambition.

A guest post by

Dan Nabel