Appeals Court Backs Apple Over Epic, Which Isn't As Bad As You Might Think

An appeals court ruling today potentially clears the way for Epic Games and others to direct customers in their iOS apps to payment systems other than Apple's system.

Specifically, the US Ninth Circuit Court of Appeals on Monday upheld a lower court ruling that mostly sided with Apple in its effort to fend off Epic's 2020 legal gambit to overturn iOS App Store restrictions.

Epic sued Apple in August 2020 after the iPhone maker removed Epic's Fortnite game from the iOS App Store for pointing players to Epic's website to purchase in-game virtual currency and in-game items, thus avoiding Apple's 30 per cent commission.

Epic's decision to do so followed from a calculated campaign to break Apple's so-called "walled garden" business model.

The lower court found Apple's anti-steering rule unlawful. That rule states, "Apps and their metadata may not include buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than in-app purchase, except [for Reader Apps that provide access to subscription content]."

The lower court prevented Apple from enforcing that rule and the appeals court has now agreed [PDF]. Going forward, if there are no further appeals, developers should be able to link to payment options outside of their iOS apps.

It's speculated Apple may demand a cut from sales made via these outside payment systems, as it did in the Netherlands with dating apps, or impose some other costs to make up for a drop in App Store commission. Apple did not respond to a request for comment.

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The lower court sided with Apple on the other issue raised by Epic. It rejected Epic's claim that Apple's App Store Review Guidelines violate America's rules against monopoly abuse, known as the Sherman Antitrust Act. Had Epic won, Apple could have lost much of its ability to control the apps in its online store.

"Apple prevailed at the 9th Circuit Court," said Epic CEO Tim Sweeney via Twitter. "Though the court upheld the ruling that Apple's restraints have 'a substantial anticompetitive effect that harms consumers', they found we didn't prove our Sherman Act case.

"Fortunately, the court's positive decision rejecting Apple's anti-steering provisions frees iOS developers to send consumers to the web to do business with them directly there. We're working on next steps."

Those steps may include implementing buttons to direct app users to external payment systems, but there's also the possibility of an appeal. Epic has the option to seek an en banc hearing – by the full Ninth Circuit rather than just a three judge appellate panel.

The reason to do so is that the appeals panel found "the district court erred as a matter of law in defining the relevant antitrust market and in holding that a non-negotiated contract of adhesion, such as the [Apple Developer Program License Agreement], falls outside the scope of Sherman Act."

The two of the three judges held those errors were harmless, while the third, Judge Sidney R. Thomas, argued for sending the case back to the district court to reevaluate the relevant market.

Control

The definition of the "relevant market" is critical for determining whether there's been an antitrust violation. Epic argued the relevant market was iOS games, for which Apple has obvious monopoly power. Apple argued the relevant market was all video game platforms, meaning the company could not be exercising illegal market control because it doesn't control all video game platforms.

US District Judge Yvonne Gonzalez Rogers concluded the relevant market for this case was digital mobile gaming transactions, which Apple does not unlawfully monopolize despite its 55 percent market share of transactions and high profit margins.

Epic might make further gains if it can convince the full Ninth Circuit (or the Supreme Court) that the district court's error matters to its claim. The game maker, according to the appeals panel, fell short because it failed to show "that consumers are generally unaware of Apple’s app-distribution and IAP restrictions when they purchase iOS devices."

Breakthrough coming?

Meanwhile, much of what Epic hoped to accomplish may arrive later this year with iOS 17, which is expected to include accommodations for alternative app installation mechanisms – installing apps onto iOS devices from a third-party store or possibly through sideloading.

Apple must do so under Europe's Digital Markets Act (DMA), which takes effect next year. However, the tech giant's idea of compliance may be limited in scope (eg, Europe only) or may impose fees on third-party stores or new requirements that undermine the DMA.

The iPhone maker is expected to share details about iOS 17 at its Worldwide Developer Conference, which starts on June 5, 2023. ®