A recent ruling by the United States Court of Appeals for the Ninth Circuit confirmed that Apple had unjustly prohibited app developers from integrating alternative in-app payment mechanisms, thus enforcing a mandatory usage of Apple’s payment system, which includes a commission of 30%.
The aforementioned decision was the result of the lawsuit between Apple and Epic Games, the renowned developers behind the globally popular video game Fortnite, “one of the first major video games to feature “cross-play,” “cross-progression,” and “cross-wallet””.
Epic alleged that Apple acted unlawfully by implementing its anti-steering policy – provided for by the Developer Program Licensing Agreement (“DPLA”), which developers are required to sign in order to distribute apps to iOS users – which, (i) restricts app distribution on iOS devices to Apple’s App Store, (ii) requires in-app purchases on iOS devices to use Apple’s in-app payment (IAP) processor, and (iii) limits the ability of app developers to communicate the availability of alternative payment options to iOS device users.
The Ninth Circuit upheld the precedent ruling of the Northern District of California, which asserted that such policy did not violate antitrust law (the Sherman Act) but, in point (iii) above, did violate Unfair Competition Law, finding that “Epic is sufficiently injured to seek injunctive relief because Epic is a competing games distributor and would earn additional revenue but for Apple’s restrictions”.
On appeal, even if “the district court erred as a matter of law on several issues”, the Court affirmed the district court’s denial of antitrust liability, stating that “those errors were harmless. Independent of the district court’s errors, Epic failed to establish—as a factual matter—its proposed market definition and the existence of any substantially less restrictive alternative means for Apple to accomplish the procompetitive justifications supporting iOS’s walled-garden ecosystem.”
Still, the Ninth Circuit affirmed the previous ruling under the Unfair Competition Law’s perspective, stating that “the anti-steering provisions “decrease [consumer] information,” enabling supra-competitive profits and resulting in decreased innovation, [and] prevent developers from using two of the three “most effective marketing activities”, push notifications and email outreach”.
Moreover, in the Court’s view, consumers would have inevitably gravitated towards Epic Games if they were made aware of its significantly lower commission rate of 12%, as compared to Apple’s 30%: “If consumers can learn about lower app prices, which are made possible by developers’ lower costs, and have the ability to substitute to the platform with those lower prices, they will do so—increasing the revenue that the Epic Games Store generates”.
Before concluding, it is worth saying that, even if Epic was not able to undermine all of the anti-steering policy’s principles, it could establish a legal precedent that benefits all developers (including the creators of cryptocurrency and non-fungible token apps) as they would no longer be subject to Apple’s 30% “tax.”. In fact, the scope of the injunction, prohibiting Apple from enforcing the anti-steering provision, applies in favor of “any developer”.
The ruling, therefore, constitutes a small step towards interoperability (one of the cornerstones of the “Metaverse”), which the European Union has already started to crave, having established new rules against monopolistic behavior, mandating “gatekeepers” like Apple to allow third-party application stores on its devices.
Cover image: www.epicgames.com
