Last month, following a three week bench trial, Judge Yvonne Gonzalez Rogers of the Northern District of California issued a decision in the high-profile antitrust fight between Apple and Epic Games. The court largely sided with Apple, finding it was not a monopolist, but also enjoined Apple’s “anti-steering” rules, which forbade developers from telling Apple users they can make purchases outside Apple’s app platform.
Epic’s lawsuit, filed in August 2020, challenged as anticompetitive Apple’s requirement that app developers use Apple’s in-app purchasing system to sell in-app content—a system from which Apple collects a 30% commission on each transaction. Epic also challenged Apple’s anti-steering rules that prohibited app developers from directing customers to other platforms where they can purchase in-app content without paying Apple’s commission. This is why, for example, an iPhone user can only sign up for Netflix via the Netflix app and not via their iPhone’s web browser. Epic, which developed the popular video game Fortnite, alleged that Apple’s conduct violated the Sherman Act, California’s Cartwright Act, and California’s Unfair Competition Law.
At trial, the primary dispute was the proper product market definition. Epic sought to define a narrow product market, arguing that Apple had monopolized the aftermarket for app distribution on Apple’s iOS devices. Epic argued that the product market was limited to apps on Apple devices because once customers purchase an Apple device, few will incur the cost of purchasing a new device to access apps elsewhere. Apple argued for a broader market definition and presented evidence that the relevant product market encompassed all digital video game sales.
In its role as factfinder, the court struck a middle path. Rejecting both proposed market definitions, Judge Gonzalez Rogers ruled that the relevant product market consisted of all “digital mobile gaming transactions,” including transactions outside Apple’s app store. The court rejected Epic’s reliance on the Supreme Court’s Eastman Kodak decision, 504 U.S. 451 (1992), holding that a single-brand aftermarket like the one Epic proposed arises only when consumers are unaware of later restrictions when they make their initial purchase.
After defining the market to consist of all “digital mobile gaming transactions,” the court found that Apple controlled more than half of the market, but did not possess monopoly power, “perhaps because plaintiff did not focus on this topic.” The court therefore found that Apple did not violate Section 2 of the Sherman Act. While the court found that Apple’s distribution restrictions caused anticompetitive effects under Section 1 of the Sherman Act, it held those effects were offset by procompetitive justifications and were not illegal.
The case was not a complete victory for Apple, however. Despite ruling in Apple’s favor on the key antitrust claims, the court found that Apple’s anti-steering provisions violated California’s Unfair Competition Law because they “hide critical information from consumers and illegally stifle consumer choice.” The court permanently enjoined those provisions, thus opening the door for developers to direct users to make purchases outside Apple’s ecosystem.
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