Apple wins a court battle with Epic Games—sort of

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“IN COMPLEX ANTITRUST cases there is rarely a complete win or a complete loss.” That was the prediction of a lead lawyer in the blockbuster antitrust lawsuit pitting Epic Games, the maker of “Fortnite”, a popular video game, against Apple, the world’s most valuable technology company. A few days later, on September 10th, a federal judge in California, Yvonne González Rogers, proved her right. Her much-awaited ruling is a mixed bag for both parties.

A skim of the 185-page decision suggests that Apple can claim to be the bigger winner. Broadly speaking, Epic had accused the tech giant of abusing its de facto monopoly over the iPhone and the App Store by, among other things, forcing the games-maker to use Apple’s in-app payment system and to pay excessive commissions of up to 30%. Not so, the judge argued. In her view, the relevant market is not the iPhone or the App Store, but “digital mobile gaming transactions”, where Apple competes with Google’s Android operating system. Although Apple controls more than half of this market, that does not amount to wrongdoing. “Success is not illegal,” Ms González Rogers wrote, adding that no evidence was presented to suggest that Apple erected barriers to entry or engaged in conduct decreasing output or innovation.

Tim Sweeney, Epic’s boss, did not hide his disappointment. “Today’s ruling isn’t a win for developers or for consumers,” he tweeted defiantly. He vowed to fight on “for fair competition among in-app payment methods and app stores for a billion consumers”. Apple, for its part, did not hold back its satisfaction. In a statement, Kate Adams, Apple’s general counsel, called it “a resounding victory”. “We’re extremely pleased with this decision.”

On closer inspection, though the bag begins to look decidedly more mixed. For one thing, the judge said that the court did not decide that it is impossible to show that Apple is an illegal monopolist—only that Epic had failed to do so. She also found that, contrary to Apple’s protestations, the App Store’s operating margins, which one of Epic’s expert witnesses put at 75%, are “extraordinarily high”.

Most importantly, Ms González Rogers ruled that although Apple did not violate federal antitrust law, it had engaged in anticompetitive conduct under California’s competition law. It did so by banning developers from including information in their apps that tells users how they can subscribe or buy digital wares outside the App Store. Such “anti-steering” provisions, the judge ruled, “hide critical information from consumers and illegally stifle consumer choice”.

The decision will take effect in 90 days, though both sides are expected to appeal. The case may end up in America’s Supreme Court. Whatever its final outcome, it will pile more pressure onto Apple to loosen its tight control of the App Store. This could dampen its juicy margins and weaken Apple’s services business, which analysts expect to be one of the firm’s main sources of growth and profits. “This is a negative for Apple, it will put pressure on its effective take rate,” observes Pierre Ferragu of New Street Research, a research firm. Apple’s share price fell by more than 3% after the verdict was handed down, shaving $85bn off its market capitalisation, three times unlisted Epic’s private valuation.

Perhaps in anticipation of the verdict, Apple has recently made some concessions. On August 26th, in a settlement with app developers, it agreed to allow them to email users about payment methods outside of the App Store. On September 2nd, in another settlement, this time with Japan’s Fair Trade Commission, it consented to letting apps that provide access to digital content, such as books and music, direct users to other ways to pay. Apple will also have to comply with a new South Korean law banning app stores, including its own and Google’s, from requiring users to pay using the stores’ payment systems. The European Union and even America’s polarised Senate have similar laws in the works. Apple may, just about, be able to claim a victory in the courtroom battle against Epic. But the drawn-out regulatory world war is far from over.



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