When Judge Yvonne Gonzalez Rogers delivered her decision in the much publicized Epic Games Inc. v. Apple Inc. In the lawsuit, neither side appeared to be a clear winner, with Apple shares slipping and shares of the mobile video game company surging in the wake of the judge’s mixed ruling.
In terms of federal antitrust litigation under the Sherman Act, however, Apple scored a resounding victory. In addition to strengthening Apple’s defense in similar cases, the court ruling supports or increases barriers for plaintiffs in monopolization cases. Epic Games has filed a notice of appeal.
Some key points to remember
Apple scored a resounding victory
In Epic’s antitrust case, Apple scored a near-complete victory, winning nine out of ten counts. The court’s conclusion that Apple is not a monopolist with regard to the App Store, and therefore incapable of an act of monopolization in the context of the App Store, is a formidable weapon in the Apple’s arsenal as it defends itself against a plethora of monopolization lawsuits inside and outside the United States, monopolization enforcement investigations by federal or state agencies, and legislative offers aimed at restrict Apple’s business practices on the basis of monopolization.
No monopoly in a single market
Courts remain skeptical of monopolization cases alleging markets limited to the product (s) of a single manufacturer. As Rogers explained, “[b]on the road side, Epic Games asserted that Apple is a monopoly on (i) the own system to distribute applications on Apple own devices in the App Store and (ii) Apple own system collect payments and commissions from purchases made on Apple own devices in the App Store. In other words, the complainant alleged a one-man antitrust deal, that is, Apple’s “monopoly” control over its own systems over the Apple Store. However, the court ruled that a product market limited to the App Store was untenable.
Apple is not yet a monopolist
The court ruling leaves the door open for future section 2 claims. Noting that the trial record suggests that Apple is “near the precipice of substantial market power, or monopoly power , with its considerable market share, ”Rogers said,“ Apple is only saved by the fact that its share is not higher, that competitors in related sub-markets are making inroads into the sub-market. mobile games market, and possibly because the Applicant did not focus on this topic.
Monopoly claims are an uphill battle for complainants, especially in bilateral markets
The court rejected Epic’s argument that the App Store provides distribution services, and instead found that the App Store provides bilateral transaction services, with app developers on one side and consumers on the other. As a result, after the United States Supreme Court’s decision in Ohio v. Am. Express Co., Epic’s onus was doubled, forcing it to prove that App Store activity harmed both app developers and consumers on both sides of the transaction.
Marketplace owners are allowed to unilaterally define their own marketplace terms. Section 1 applies to contracts and conspiracies that restrict trade; that is, a necessary predicate fact is an action of at least two parties acting in concert. The court concluded that Apple unilaterally issued its conditions for accessing the App Store and that “a company can set conditions to deal unilaterally and refuse to deal with anyone who does not meet those conditions.” Therefore, Rogers denied the section 1 request for lack of concerted action required.
Strategies for recasting distribution relationships into unilateral actions
The Tribunal’s Section 1 analysis may suggest to many companies a strategy of restructuring distribution relationships by issuing unilateral conditions rather than entering into agreements with distributors or suppliers to isolate the relationship from a claim. under section 1.
Of course, such a strategy should be weighed against the specificity and attribution of obligations offered by the conclusion of detailed written agreements. Further, conduct that “goes beyond announcing a policy and refusing to deal with non-compliant partners to force an agreement” would still fall under section 1.
App Store changes on the horizon
The court found the App Store’s lack of competition troubling. Criticizing Apple’s “slow innovation” [which] stemmed in part from its low investment in the App Store, ”Rogers said that“ the point is that a third-party app store could pressure Apple to innovate by providing features that Apple has overlooked ” .
Indeed, in recent weeks, Apple has announced small changes to its App Store rules in an attempt to appease criticism of its alleged restrictive practices. The unfair competition law (UCL) court ruling in this case could accelerate Apple’s strategy of trying to change the rules itself rather than waiting for more restrictive relief to be imposed on it.
What the future holds
Epic has opened cracks in Apple’s walled garden
Although Epic lost on nearly all of its claims, Epic scored a powerful backhanded victory over a very profitable aspect of Apple’s App Store rules that could pave the way for further loopholes in the litigation armor. ‘Apple. In addition, many of the court’s findings may support legislative efforts to curb certain practices of Apple and Google app stores.
U.S. lawmakers said the court ruling did not fully address their concerns about restrictive App Store practices and called for federal legislation on the App Store.
Decision may strengthen Google’s defense in similar dispute
Epic and other Android app makers suing Google over its Google Play store practices could face an even tougher battle now that the court has cleared Apple’s continued charges. The rules of the Google Play Store, similar to those imposed in the Apple case, may however be at risk. Google is also being sued by a coalition of 37 United States and district attorneys general who allege that Google illegally maintains a monopoly for its Google Play store on Android phones.
Extended Liability Under California Law With National Implications
Even though Apple’s contested conduct did not meet all of the requirements of traditional antitrust claims under Sherman Law, the court issued a nationwide permanent injunction to remedy a California UCL violation. Although the imposition of a nationwide injunction based on state law is rare, large tech companies and other companies doing business in the state should be aware of the potential liability under the state law. ‘Californian UCL.
This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.
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Joel mitnick is a partner of Cadwalader’s Antitrust and Global Litigation groups based in its New York office. A former FTC litigator, he focuses on antitrust matters on behalf of a wide range of clients in the financial markets, life sciences, media, service industry and industry, representing them in federal and state antitrust investigations, antitrust class actions and merger authorization proceedings. .
Ngoc Pham Hulbig is an attorney in Cadwalader’s office in Charlotte, NC, whose practice focuses on pre-merger notification requirements in the United States and globally. She also advises clients on all antitrust matters, including mergers and acquisitions, joint ventures, and investigations conducted by the DOJ and the FTC.