Metropolitan News-Enterprise


Tuesday, April 25, 2023


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Apple Prevails in Ninth Circuit in Antitrust Case Against It

District Court Affirmed in Finding No Violation of Sherman Act, but Finding Epic Games Liable to Apple

For Breach of Contact; Judgment for Epic Under UCL Also Upheld; Denial of Attorney Fees Reversed


By a MetNews Staff Writer


The Ninth U.S. Circuit Court of Appeals yesterday affirmed a District Court decision rejecting the claim of a video game and software developer that Apple is in violation of antitrust laws in requiring that third-parties’ apps for iPhones be distributed only through Apple, Inc.’s online store.

Epic Games, maker of the video game “Fortnite,” brought the lawsuit, contending that iPhone users should be able to download Epic’s apps from it directly, or with Apple taking less of a cut from sales in its app stores—generally 30 per cent. Apple also charges a flat $99 fee to sign up with it.

When Apple opened up its iPhone operating system (“iOS”) to developers, it created a “walled garden” with Apple reviewing apps to make sure they work and setting the rules.

Cross-Action Brought

After Epic sued Apple, Apple sued Epic, accusing it of a breach of contract by circumventing its safeguards—which resulted in Epic being banished from the app store.  District Court Judge Yvonne Gonzalez Rogers of the Northern District of California, following a 16-day trial in 2021, found in favor of Apple on Epic’s claim under the Sherman Act and on Apple’s cross claim.

She found in favor of Epic, however, under California’s Unfair Competition Law (“UCL”), holding that Apple may not bar developers from informing users of Apple devices of ways to pay for third-party apps outside of Apple’s store. Injunctive Relief was awarded.

The Ninth Circuit yesterday affirmed Rogers’s judgment, except as to her denial of attorney fees in favor of Apple. A provision of the Developer Program Licensing Agreement which Epic entered into provides for such fees, the majority said.

Circuit Judge Milan Smith wrote the majority opinion. District Court Judge Michael J. McShane of the District of Oregon, sitting by designation, joined in Smith’s opinion and Senior Ninth Circuit Judge Sidney Thomas authored a partial dissent.

Smith’s Opinion

Smith said:

“We affirm the district court’s denial of antitrust liability and its corresponding rejection of Epic’s illegality defense to Apple’s breach of contract counter-claim. Though the district court erred as a matter of law on several issues, 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.”

He noted:

“Apple now has about a 15% market share in the global smartphone market with over 1 billion iPhone users, and there are over 30 million iOS app developers. Considering only video game apps, the number of iOS games has grown from 131 in the early days of the iPhone to over 300,000 by the time this case was brought to trial. These gaming apps generate an estimated $100 billion in annual revenue.”

Court’s Function

The judge commented:

“There is a lively and important debate about the role played in our economy and democracy by online transaction platforms with market power. Our job as a federal Court of Appeals, however, is not to resolve that debate—nor could we even attempt to do so.”

Thomas, a former chief judge, disagreed on the attorney-fee issue and disagreed that Rogers’s errors in defining the relevant market were harmless.

“I would remand for the district court to re-analyze the case using the proper threshold determination of the relevant market,” he said.

The case is Epic Games, Inc. v. Apple, Inc., 21-16506.

Epic is suing Google and its Play store on similar grounds. That action is scheduled to be tried November.


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