United States: Supreme Court Opens Door For App Developers To Circumvent Apple Payment System

High court lets Ninth Circuit opinion stand, but the conflict isn't over.

What just happened?

Last week the Supreme Court denied Apple Inc.'s petition to reconsider lower court rulings against it in a case brought by Epic Games Inc. alleging Apple was in violation of California's unfair competition law. The court also denied Epic's petition in which it sought review of the lower court's ruling against its federal Sherman Act antitrust claims.

What's the case about?

At issue are Epic's claims that Apple's App Store rules — those preventing app developers from enabling users to circumvent Apple's payment system and paying developers directly — was an unfair and anticompetitive business practice. Apple kicked Epic off the store when the gaming giant installed a way for consumers to bypass Apple's system.

More specifically, Epic challenged Apple's rules:

• Restricting app distribution on iOS devices to Apple's App Store.
• Requiring in-app purchases on iOS to use Apple's in-app payment processor.
• Limiting the ability of app developers to communicate the availability of alternative payment options to iOS device users.

Why does it matter?

An immediate impact of the Supreme Court's refusal to take the case is that app developers may link to non-Apple payment options, a blow to the company which rakes in billions of dollars in revenue from the 15% to 30% commissions it receives on in-app transactions.

What did the lower courts rule?

On April 24, 2023, the Ninth Circuit affirmed in part and reversed in part a district court judgment — reached after a bench trial in California's Northern District — against Epic Games on its Sherman Act claims for restraint of trade, tying, and monopoly maintenance against Apple, and in favor of Epic on its claim under California's Unfair Competition Law. The court also found against Epic on Apple's breach of contract claims.

The Sherman Act claims failed because Epic was unable to define the relevant market or present a less restrictive alternative for Apple to accomplish its pro-competitive justifications for its restrictions.

Did the Ninth Circuit get it right?

MoginRubin's Tim LaComb was critical of the Ninth Circuit opinion, writing that, "Unfortunately, the Ninth Circuit's order contains clumsy analysis not founded in antitrust principals or precedent." In his May 2, 2023 post — Ninth Circuit Affirms Epic's Loss Against Apple via Flawed Analysis of Antitrust Law —LaComb wrote that the order "threatens to create case law that makes it unnecessarily arduous for plaintiffs to allege a relevant market comprised of a single-brand aftermarket and for antitrust law to reach the increasingly important platform aftermarkets like apps." He also placed some blame for the loss on Epic itself, saying it should have done more to demonstrate Apple had less restrictive alternatives to its rules.

Is the fight over between Apple and Epic?

In their coverage of the case, Associated Press reporters Mark Sherman and Michael Liedtke wrote that Apple will now allow developers to provide payment links to external sites for commissions ranging from 12% to 27%. Apple also plans, according to the reporters, to impose a "potentially cumbersome approval process" for external payment links. They quoted social media posts from Epic CEO Tim Sweeney who called Apple's plan "bad-faith compliance" with the court rulings and that the revised commissions continued to be anticompetitive. Sweeney will challenge Apple further in federal court, the reporters wrote.

Epic vs Google

Epic fared better with its Sherman Act claims against Google when a San Francisco jury found in December 2023 that Google monopolized the "Android app distribution" market and "Android in-app billing services" market. Google's Developer Distribution Agreements ("DDAs") with app developers and its Mobile Application Distribution Agreements and Revenue Sharing Agreements with mobile device manufacturers, were unreasonable restraints of trade in violation of U.S. antitrust laws, the jury determined after deliberating for just over three hours. The jury also found Google's side-deals with app developers to keep them from challenging the Google Play Store monopoly were unreasonable restraints of trade and that Google unlawfully tied the use of Google Play Store to Google Play's billing.

Google had argued that its store could not be considered a monopoly because of the strength Apple's competing iOS and the Apple App Store. After the verdict, a company official said, "The trial made clear that we compete fiercely with Apple and its App Store, as well as app stores on Android devices and gaming consoles. We will continue to defend the Android business model. ..." Epic released a statement that the evidence "demonstrates the urgent need for legislation and regulations that address Apple and Google strangleholds over smartphones." It called "promising" proposed legislation in the UK and EU.

Read Jonathan Rubin's post about that case and why he says both sides got it wrong. He previously wrote: "The question for antitrust is: At what point do ... 'marketplace platforms' deserve to be treated as markets under the control of the platform operator? What the Epic Games litigation suggests is that even private marketplaces organized within the confines of a private company should be subject to antitrust oversight."