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Ninth Circuit squashes Epic Games antitrust suit over Apple App Store rules

Epic only prevailed on a claim that one of Apple's conditions for developers to sell on the App Store violates California's unfair competition law.

SAN FRANCISCO (CN) — Siding with a federal judge, a Ninth Circuit panel on Monday rejected Epic Games’ antitrust claims that Apple is running a monopoly through the App Store by charging game developers for access to what it called a “walled garden.”

Apple attorneys had argued the Fortnite maker's lawsuit was a scheme to increase its profits while taking advantage of a sophisticated ecosystem Apple invented and built, to disseminate its popular video game.

The two companies clashed over security and privacy on their respective platforms, and the legal question at the heart of the antitrust case has been the definition of the market.

U.S. District Judge Yvonne Gonzalez Rogers ruled mostly in Apple’s favor in 2021, but said Apple can no longer stop app developers from telling users how to sidestep its App Store and pay developers directly for subscriptions and other services. That decision came three months after the bench trial, and Rogers rejected Epic’s definition of the market as one exclusively for iPhone games.

After both parties appealed to the Ninth Circuit, lawyers faced the panel — comprised of U.S. Circuit Judges Sidney Thomas, a Clinton appointee and George W. Bush appointee Milan Smith, as well as U.S. District Judge Michael McShane, a Barack Obama appointee sitting by designation from the District of Oregon — this past November. 

Epic Games argued Apple inaccurately calculated whether its system has enough procompetitive benefits for both developers and consumers to outweigh any anticompetitive benefits, “that weighs very heavily in sustaining what Apple is doing here.”

Federal and state attorneys said they thought Rogers erred by not accounting for how Apple may or may not be a monopoly power, including by being able to keep its prices consistent no matter what competitors do. 

Apple attorney Mark Perry said Epic Games failed to bring actual proof and said the benefits of Apple's model to consumers and developers — what the tech giant claims is the most secure platform in the business — outweigh restrictions on developers that Epic said stifled competition. 

In their ruling issued Monday, the majority affirmed Rogers except for her denial of attorney fees for Apple on its breach of contract claim against Epic.

Writing for the majority, Smith said Rogers made harmless errors in defining the relevant antitrust market and that Epic failed to establish its proposed market definition and less restrictive alternatives for Apple to accomplish procompetitive justifications supporting the iOS "walled-garden."

On Apple’s cross-appeal, Smith affirmed Rogers' finding that Epic had been injured and in fashioning equitable relief. They affirmed the conclusion that Apple’s anti-steering provision violates rules for unfairness and Rogers' injunction prohibiting Apple from enforcing the provision against any developer. 

Smith disagreed with Apple's argument that Rogers should not have applied the injunction across all developers, saying of its two arguments “neither is supported by California law."

“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," Smith wrote. 

Judge Thomas agreed Rogers properly granted Epic injunctive relief. But in a dissent, he wrote the judge's errors defining the market were not harmless because they related to threshold analytical steps and affected Epic’s substantial rights. He thought the case should be remanded for reanalysis, using the proper threshold determination of the relevant market.

“The district court analyzed anticompetitive effects in terms of increases in the cost of mobile gaming transactions — the court’s relevant market,” Thomas wrote. “But the court could have found greater increases in costs if its analysis concerned Epic’s markets, and this would change a properly conducted balancing analysis. In essence, any balancing done out of the context of a relevant market necessarily involves putting a thumb on the balancing scale.”

Attorneys for Epic Games did not respond to a request for comment before press time. But Tim Sweeney, CEO of Epic Games, took to Twitter to tout a silver lining. "Though the court upheld the ruling that Apple's restraints have 'a substantial anticompetitive effect that harms consumers', they found we didn't prove our Sherman Act case. Fortunately, the court's positive decision rejecting Apple's anti-steering provisions frees iOS developers to send consumers to the web to do business with them directly there. We're working on next steps," he tweeted.

“Today’s decision reaffirms Apple’s resounding victory in this case, with nine of ten claims having been decided in Apple’s favor,” Apple spokesperson Marni Goldberg said. “For the second time in two years, a federal court has ruled that Apple abides by antitrust laws at the state and federal levels.”

Goldberg said that Apple is considering review of the court’s ruling on the remaining claim under state law.

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Categories / Appeals, Technology

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