Epic Games Asks EC To Investigate Apple

The maker of Fortnite filed an antitrust action against Apple in the EU; A UK court rules on Epic Games action, giving it a split decision.

Epic Games sought to contest Apple and Google’s decisions to remove the maker of popular multi-player game, Fortnite, from their application stores last summer after the game maker started offering users the option to pay for in app purchases outside the tech giants payment systems. Epic Games has filed suit in the United States (U.S.) and the United Kingdom against both companies and recently decided to file a claim with the European Commission (EC), essentially asking that its ongoing investigation of Apple’s application store practices be widened to include Epic Games’ claims. Thus far, Epic Games has only filed suit against Apple in Australia. And yet, at the same time Epic Games was seeking to widen the playing field in making its antitrust and anti-competition case before a number of different governments, the UK ruled against part of Epic Games’ suit in that jurisdiction.

First, in a press release, Epic Games announced that it had filed a complaint with the EC, specifically the Directorate-General for Competition, claiming “that through a series of carefully designed anti-competitive restrictions, Apple has not just harmed but completely eliminated competition in app distribution and payment processes.” Epic Games added “Apple uses its control of the iOS ecosystem to benefit itself while blocking competitors and its conduct is an abuse of a dominant position and in breach of EU competition law.”

Epic Games’ complaint may well get consolidated into an existing EC investigation of Apple. In June 2020, the EC announced two antitrust investigations of Apple regarding allegations of unfair and anticompetitive practices with its App Store and Apple Pay. In a press release, the EC announced it “has opened a formal antitrust investigation to assess whether Apple’s conduct in connection with Apple Pay violates EU competition rules…[that] concerns Apple’s terms, conditions and other measures for integrating Apple Pay in merchant apps and websites on iPhones and iPads, Apple’s limitation of access to the Near Field Communication (NFC) functionality (“tap and go”) on iPhones for payments in stores, and alleged refusals of access to Apple Pay.” The EC noted that “[f]ollowing a preliminary investigation, the Commission has concerns that Apple’s terms, conditions, and other measures related to the integration of Apple Pay for the purchase of goods and services on merchant apps and websites on iOS/iPadOS devices may distort competition and reduce choice and innovation.” The EC contended “Apple Pay is the only mobile payment solution that may access the NFC “tap and go” technology embedded on iOS mobile devices for payments in stores.” The EC revealed “[t]he investigation will also focus on alleged restrictions of access to Apple Pay for specific products of rivals on iOS and iPadOS smart mobile devices” and “will investigate the possible impact of Apple’s practices on competition in providing mobile payments solutions.”

In a press release issued the same day, the EC explained it had also “opened formal antitrust investigations to assess whether Apple’s rules for app developers on the distribution of apps via the App Store violate EU competition rules.” The EC said “[t]he investigations concern in particular the mandatory use of Apple’s own proprietary in-app purchase system and restrictions on the ability of developers to inform iPhone and iPad users of alternative cheaper purchasing possibilities outside of apps.” The EC added “[t]he investigations concern the application of these rules to all apps, which compete with Apple’s own apps and services in the European Economic Area (EEA)…[and] [t]he investigations follow-up on separate complaints by Spotify and by an e-book/audiobook distributor on the impact of the App Store rules on competition in music streaming and e-books/audiobooks.”

The EC provided further detail on the scope of its inquiry and “will investigate in particular two restrictions imposed by Apple in its agreements with companies that wish to distribute apps to users of Apple devices:

(i)   The mandatory use of Apple’s own proprietary in-app purchase system “IAP” for the distribution of paid digital content. Apple charges app developers a 30% commission on all subscription fees through IAP.

(ii)  Restrictions on the ability of developers to inform users of alternative purchasing possibilities outside of apps. While Apple allows users to consume content such as music, e-books and audiobooks purchased elsewhere (e.g. on the website of the app developer) also in the app, its rules prevent developers from informing users about such purchasing possibilities, which are usually cheaper.

The EC explained the genesis of part of this inquiry being allegations leveled by Swedish music streaming platform, Spotify. The EC stated “[o]n 11 March 2019, music streaming provider and competitor of Apple Music, Spotify, filed a complaint about the two rules in Apple’s license agreements with developers and the associated App Store Review Guidelines, and their impact on competition for music streaming services.” The EC explained the other part as “[o]n 5 March 2020, an e-book and audiobook distributor, also filed a complaint against Apple, which competes with the complainant through its Apple Books app.” The EC asserted “[t]his complaint raises similar concerns to those under investigation in the Spotify case but with regard to the distribution of e-books and audiobooks.”

As noted in its press release on filing a claim with the EC, Epic Games had previously filed claims against both Apple and Google (and subsidiaries) in the United Kingdom’s Competition Appeal Tribunal (CAT or Tribunal). However, Epic Games received a split decision from the Tribunal, which found the UK not to be the forum for the company to bring an antitrust action against Apple. However, in the same decision, the CAT found that the UK might be the right forum for Epic Games’ suit against Google’s two Irish subsidiaries but not against Google and Alphabet for the same reasons the Tribunal articulated in preventing Epic Games’ suit to proceed against Apple and a subsidiary. Moreover, the Tribunal has only found jurisdiction for a limited number of claims against Google’s Irish subsidiaries.

With respect to Epic Games’ claims against Apple, the Tribunal stated

• The factual and economic evidence, including expert economic evidence, that would have to be given on such issues in the Apple action under UK competition law therefore substantially overlaps with the evidence that will be given in the US proceedings. The additional cost if this action proceeded in the Tribunal in addition to the US proceedings is accordingly, in my view, very significant even allowing for the cost of presenting expert evidence of English law to the US court.
• I have no doubt that the US Federal court is well able to receive evidence on foreign law. And since the law here is in the same language, and the US is not only a common law country but has a well-developed jurisprudence in antitrust/competition cases, I do not see why a US Federal judge would have difficulties in understanding and applying UK competition law to [Alphabet Inc’s] conduct as regards the UK.
• In short, in balancing these various factors I consider that the US is an appropriate forum for this dispute. And I am far from persuaded that England (or the UK, since the CAT is a UK tribunal) is clearly or distinctly the more appropriate forum. I reach this conclusion without the need to consider the implications of the exclusive jurisdiction clause in the Apple  Developer  Program  License  Agreement (DPLA.)

Regarding Epic Games’ claims against Google, the Tribunal found

that England (or the UK) would be clearly or distinctly the appropriate forum for trial of the claims concerning the Restrictive Terms in the Google Play Store Developer Distribution Agreement (DDA) and the removal of Fortnite from the Google Play Store as regards the UK. I have considered whether on that basis England should be regarded as the appropriate forum for all the claims in the action. In my view, that would not here be the right conclusion. The claims as regards the Mobile  Application  Distribution  Agreements (MADA) and the Technical Restrictions are wholly distinct and while there may well be some evidence that applies to all the claims, those two claims raise different and substantial issues and will involve significant additional evidence. Taking that into account, I see no good ground for finding that this is clearly or distinctly the appropriate forum for trial of those claims just because they are based on alleged breach of the same statutory prohibitions and are included in the same claim form.

The Tribunal held:

(a) In the Apple action, the application for permission to serve the proceedings on [Apple Inc.] out of the jurisdiction is refused.

(b) In the Google action, the application for permission to serve the proceedings on [Alphabet Inc] and [Google Inc.] out of the jurisdiction is granted for the claims for breach of the Chapter I and Chapter II prohibitions under the Competition Act 1998 (CA 1998) as regards the alleged “Restrictive Terms” in the DDA and the removal of Fortnite from the Google Play Store, and the injunctions claimed at paras (c), (d) and (h) of the prayer to the Claim Form. Permission is refused as regards the other claims made.

In essence, the Tribunal is sending Epic Games back to the U.S. court in which it has already filed suit against Apple while leaving open the possibility of a narrower lawsuit against Alphabet and Google to move forward. Last fall, a federal court denied Epic Games’ request for a preliminary injunction requiring Apple to put Fortnite back into the App Store. The judge assigned the case had signaled this request would likely fail as its request for a temporary restraining order was also rejected. A trial is set for May 2021. The United States District Court for the Northern District of California summarized Epic’s motion:

In this motion for preliminary injunction, Epic Games asks the Court to force Apple to reinstate Fortnite to the Apple App Store, despite its acknowledged breach of its licensing agreements and operating guidelines, and to stop Apple from terminating its affiliates’ access to developer tools for other applications, including Unreal Engine, while Epic Games litigates its claims.

The court stated:

Epic Games bears the burden in asking for such extraordinary relief. Given the novelty and the magnitude of the issues, as well as the debate in both the academic community and society at large, the Court is unwilling to tilt the playing field in favor of one party or the other with an early ruling of likelihood of success on the merits. Epic Games has strong arguments regarding Apple’s exclusive distribution through the iOS App Store, and the in-app purchase (“IAP”) system through which Apple takes 30% of certain IAP payments. However, given the limited record, Epic Games has not sufficiently addressed Apple’s counter arguments. The equities, addressed in the temporary restraining order, remain the same.

The court held:

Apple and all persons in active concert or participation with Apple, are preliminarily enjoined from taking adverse action against the Epic Affiliates with respect to restricting, suspending or terminating the Epic Affiliates from the Apple’s Developer Program, on the basis that Epic Games enabled IAP direct processing in Fortnite through means other than the Apple IAP system, or on the basis of the steps Epic Games took to do so. This preliminary injunction shall remain in effect during the pendency of this litigation unless the Epic Affiliates breach: (1) any of their governing agreements with Apple, or (2) the operative App Store guidelines. This preliminary injunction supersedes the prior temporary restraining order. 

In its August 2020 complaint, Epic Games argued that Apple’s practices violate federal and California antitrust and anti-competition laws. Epic Games argued:

This case concerns Apple’s use of a series of anti-competitive restraints and monopolistic practices in markets for (i) the distribution of software applications (“apps”) to users of mobile computing devices like smartphones and tablets, and (ii) the processing of consumers’ payments for digital content used within iOS mobile apps(“in-app content”). Apple imposes unreasonable and unlawful restraints to completely monopolize both markets and prevent software developers from reaching the over one billion users of its mobile devices (e.g., iPhone and iPad) unless they go through a single store controlled by Apple, the App Store, where Apple exacts an oppressive 30% tax on the sale of every app. Apple also requires software developers who wish to sell digital in-app content to those consumers to use a single payment processing option offered by Apple, In-App Purchase, which likewise carries a 30% tax.

In contrast, software developers can make their products available to users of an Apple personal computer (e.g., Mac or MacBook) in an open market, through a variety of stores or even through direct downloads from a developer’s website, with a variety of payment options and competitive processing fees that average 3%, a full ten times lower than the exorbitant 30% fees Apple applies to its mobile device in-app purchases.

In its late August denial of Epic Games’ request for a temporary restraining order, the court decided the plaintiff does not necessarily have an antitrust case strong enough to succeed on the merits, has not demonstrated irreparable harm because the “current predicament appears to be of its own making,” would unjustifiably be enriched if Fortnite is reinstated to the App Store without having to pay 30% of in app purchases to Apple, and is not operating in a public interest strong enough to overcome the expectation private parties will honor their contracts or resolve disputes through normal means.

Epic Games has also filed suit against Apple in Australia. In its November 2020 concise statement of its complaint, Epic Games alleged:

• Among other things, Apple’s conduct has forced Epic and other app developers to pay Apple monopoly prices (the 30% commission) in connection with all in-app purchases of their in-app content on iOS devices. This has led to harms including increased prices for in-app content by iOS device users in Australia and lost profits for Epic. When Epic introduced Epic Direct Payment, Fortnite users on iOS for the first time had a competitive alternative to Apple’s IAP payment system, which in turn enabled Epic to pass along its cost savings by offering its users a 20% reduction in in-app prices.
• Apple’s conduct has also denied app developers (such as Epic) and iOS device users their choice of in-app content payment providers and denied app developers and iOS device users the choice of app stores for distribution of apps on iOS devices.
• Further, Apple’s conduct referred to in paragraph 7 above has harmed Epic through, inter alia, loss of goodwill in respect of both Fortnite, other Epic games on iOS devices, and Epic more broadly. This loss and damage to Epic’s ongoing business and to its reputation and trust with customers is permanent and irreparable.
• But for Apple’s conduct, like on Apple personal computers, app developers such as Epic would (or would be likely to) distribute its software through other channels. These other channels would cause competition on the basis of (among other things) price, service, and innovation, including by Apple. Epic would also offer users of its software a range of payment processing options. Absent Apple’s conduct, these competing in-app payment processors would cause Apple to compete on the basis of price, service, and innovation. The state of competition should be no different for Apple’s iOS devices.

Regarding its suit against Google in the U.S., Epic Games’ action was folded into a number of other suits also alleging Google and its subsidiaries violated antitrust statutes as explained in this status report:

On February 5, 2021, the United States Judicial Panel on Multidistrict Litigation (JPML) issued a Transfer Order (ECF No. 1) creating the centralized action In re Google Play Store Antitrust Litigation, No. 3:21-md-02981-JD (“Play Store MDL”). The Play Store MDL is comprised of (A) one individual action; (B) one consolidated developer class action; (C) one consolidated consumer class action (all three of (A)-(C) have already been pending before this Court); and (D) six new tag along consumer class action cases transferred to this Court from other District Courts.

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