Takeaways From the Trial Court’s Decision in Epic v. Apple: The Trial Court Declined to Recognize Any Single-Brand Aftermarkets Arising From Apple’s Control of the App Store, and Ruled in Apple’s Favor on the Merits of Epic’s Federal and State Antitrust Claims, but Enjoined Apple From Enforcing its App Store Anti-Steering Provisions as a Remedy for Apple’s Violations of California’s Unfair Competition Law

Sullivan & Cromwell LLP - September 13, 2021

Following a bench trial, on September 10, 2021, the Honorable Yvonne Gonzalez Rogers of the U.S. District Court for the Northern District of California issued an order resolving antitrust and unfair competition claims brought by Epic Games, Inc. (“Epic”) against Apple Inc. (“Apple”). Epic challenged Apple’s App Store restrictions that (1) prohibit distribution of iOS applications (“apps”) for Apple’s iPhone and iPad devices outside Apple’s App Store; (2) require app purchases and in-app transactions for digital content to exclusively use Apple’s In-App Purchase (“IAP”) payment system, on which Apple collects a 30% commission for all transactions; and (3) contain anti-steering provisions that restrict app developers from informing users about other payment mechanisms. The court found that Apple’s restrictions have anticompetitive effects and reduce innovation in mobile game distribution, but nonetheless denied all of Epic’s antitrust claims based on federal and California state antitrust law. Nevertheless, the court held that Apple’s anti-steering provisions violate California’s Unfair Competition Law (“UCL”). To remedy that violation, the court issued a nationwide, permanent injunction preventing Apple from enforcing the anti-steering provisions, which extends to all app categories (not just gaming apps). In effect, the injunction gives app developers the ability to avoid Apple’s 30% IAP commission by prohibiting Apple from enforcing rules that restrict the inclusion of links to external websites for purchasing in-app content, or that prevent developers from communicating with their users through points of contact obtained by means of account registration in iOS apps.

The injunction appears to have several significant limitations, however. First, the order may allow Apple to require developers to include IAP as one payment option. Second, Apple will likely take the position that the order permits it to mandate IAP as the sole mechanism for in-app transactions, and that the injunction permits developers only to promote alternative payment mechanisms outside the app, although the order is unclear on this issue. Third, given the injunction’s lack of precision around what Apple is permitted to do, there are many important details still to be worked out regarding the extent to which Apple must make it feasible for developers to promote alternative payment mechanisms. Thus, although the order has significant ramifications both for Apple and for app developers, the injunction does not fully address developers’ complaints about Apple’s restrictive App Store practices.
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