Loot Box Litigation Update

Apple has armed itself to the teeth in its fight against Epic Games, employing an armada of Gibson Dunn lawyers, led by the famous Ted Boutrous, whose legendary, silvery mane you may have seen on TV. Apple has opposed Epic’s TRO motion on three grounds. The first argument, in particular, is pretty solid, and in my opinion, could be a winner.

APPLE’S ARGUMENTS

IRREPARABLE HARM

First, Apple argues that this is all a self-created emergency. Apple observes that TROs exist to deal with irreparable harm, “not easily reparable self-inflicted wounds.” Apple contends that Epic created this emergency as part of a “carefully orchestrated, multi-faceted campaign, complete with a parody video, merchandise, hashtag, belligerent tweets and now a pre-packaged TRO.” Apple then argues that if Epic really wanted to prevent irreparable harm, it would simply cure its breaches and re-submit a compliant version of Fortnite so that the parties can go back to business as usual.

In its explanation of the appropriate legal standard, Apple distinguishes between prohibitory injunctions, which preserve the status quo, and mandatory injunctions, which mandate a party to alter the status quo. (Status quo means the “last uncontested status” between the parties.) As we recently discussed while reviewing the Atari v. RageOn case, this distinction matters a great deal because for prohibitory injunctions, a plaintiff only need show likelihood of success. The standard for mandatory injunctions, however, is “doubly demanding” and the facts and law must “clearly favor” the moving party.

Apple contends that Epic isn’t asking for a return to the status quo. Instead, Epic “wants Fortnite back in the App Store, but it wants that privilege under a set of new terms and conditions that were never a product of the parties’ negotiations and that have never been provided to other developers.” Apple goes on to say that it “has offered that Epic submit a version of Fortnite that conforms to [Apple’s] Guidelines” but that Epic has declined.

This is Apple’s strongest argument and I think it could be a winner. Judges love to deny TROs when there’s no real emergency, i.e., when it’s a manufactured emergency. This lets judges avoid actually ruling on the merits, which is especially attractive in a case like this where the claims are very complicated. What Apple is basically telling the court is that Epic has the power — right now — to return to the status quo, while still pursuing its antitrust claim against Apple on a non-emergency basis. In response to Epic’s argument that hundreds of developers could be affected by Epic losing access to Apple’s SDKs and APIs needed to keep developing the Unreal Engine, Apple counters that granting Epic’s TRO could lead to disruption of economic activity for the 1.7 million apps and their developers using the iOS platform, when those developers all decide they too can breach their contracts with Apple, like Epic has.

LIKELIHOOD OF SUCCESS ON THE MERITS

Second, Apple argues that Epic hasn’t shown a likelihood of success on the merits. Apple relies on a very recent Ninth Circuit opinion involving the FTC’s antitrust action against Qualcomm in which the Ninth Circuit overturned a Northern District of California District Court judgment in the FTC’s favor and order enjoining Qualcomm’s core business practices. The Ninth Circuit stated that novel business practices—especially in technology markets—should not be “conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use.” Apple argues Epic has not undertaken any “elaborate inquiry” in its motion and, for example, doesn’t enlist any economist to support its position. Apple also argues that logically, Epic’s position would mean that Microsoft, Sony and Nintendo would also be illegal monopolists because of their respective console platform prohibitions and practices.

Query, however, whether there are really “novel business practices” here. On one hand, the Supreme Court did caution lower courts about finding antitrust violations where no similar precedents or parallels exist—particularly in new tech cases where the courts may not understand the market very well. On the other hand, the as Apple admits in its brief, the App Store has been around doing the same thing for over a decade and this isn’t the first antitrust case of this kind. There is very little novelty or mystery about the practices themselves. It’s also not clear that the console manufacturer analogy works quite as well as Apple suggests. Most people probably view their smartphone as an “essential” device in their daily lives, but wouldn’t similarly conclude that their gaming consoles are essential. There’s a pretty big practical difference in console game platforms and an iPhone. Apple does adeptly criticize the “essential facility” doctrine, but Epic’s argument remains at least facially compelling.

While Apple makes some strong arguments about likelihood of success on the merits, there is definitely some room for Epic to continue attacking here.

THE PUBLIC INTEREST AND BALANCE OF HARDSHIPS

Third, Apple makes some good arguments about the harm to its ecosystem if the court were to grant the TRO. Apple contends that “an injunction would set off a flood of additional requests for ‘emergency’ relief and threaten the entire App Store ecosystem as developers see they can breach their agreements, jeopardize the security of the App Store, and circumvent payments to Apple, all without consequence.” This fits in nicely with Apple’s first argument, warning that a mandatory injunction may invite similar requests to the court. And as I mentioned above, courts really don’t like inviting more judicial activity. Instead, they prefer to find ways to reduce the burdens on the judicial system, especially if markets can figure things out themselves. (This is not a criticism either.)

CONCLUSION

On one hand, Epic has made a powerful argument about what will happen to the hundreds of developers who rely on the Unreal Engine for iOS, not to mention the iOS Fortnite players who soon won’t be able to play with players on other platforms if there’s no resolution here.

On the other hand, Apple persuasively argues that, even if Apple is monopolist, this TRO isn’t a true emergency, as evidenced by Epic’s highly orchestrated attack on Apple.

Regardless of whether you find Epic’s substantive claims sympathetic or pre-textual, I am skeptical that Judge Rogers will see this as an emergency and she very well may deny the TRO (or a good chunk of it).