On January 16, 2024, the U.S. Supreme Court refused to consider appeals from both Apple and Epic Games (See Reuters: US Supreme Court snubs Apple-Epic Games legal battle).
The appeals pertained to the antitrust case initiated by Epic against Apple in 2020, resolving a several year battle over Apple’s 30% charge for every purchase made through the App Store and making digital platforms more competitive, arguably with the better outcome for Apple.
What Was This About?
Unfortunately, the Supreme Court did not explain why it rejected the appeals. Hence, we would like to backtrack. In 2020, Epic filed an antitrust lawsuit against Apple, alleging that Apple engaged in unlawful monopolistic practices because Apple required users to download applications exclusively through the App Store and make in-app purchases exclusively through Apple's in-app system. At the core of this is the financial issuethat Apple typically applies a commission of 30% on in-app purchases – thereby likely cutting Epic’s margins by 30%. However, Epic’s main legal claimwas that Apple should have allowed developers to direct users to systems other than Apple’s in-app system, which would increase competition, lower prices, and lead to a net gain for users.
While the antitrust claim failed, crucial findings by the lower courts (in 2021 and 2023) have been confirmed, namely that Apple had violated California's unfair competition law by preventing developers from directing users to purchase digital goods through a system other than Apple's in-app system. Consequently, Apple is now obligated to permit developers to provide links and buttons that direct users to other ways to pay for content within the apps, but is not prohibited from charging a fee for a transaction.
Neverending Story: Increasing Competition By Restricting Business?!
The underlying topic of Epic’s claim is antitrust law’s purpose to prohibit anti-competitive conduct that deprives consumers of the benefits of competition. Historically, antitrust claims have targeted industries like railroads, telecom companies, and oil corporations, aiming to curb monopolistic control that harms competition and consumers through e.g. stifling the entry of new competitors and setting unfair prices.
This is not an uncommon narrative that major platforms are regularly confronted with, but which has yet to prevail under current law. It should also be noted that Epic brought a similar claim against Google, where the jury in United States District Court for the Northern District of California decided in Epic’s favor, finding that Google’s practices were monopolistic and anti-competitive. However, the remedies are yet to be decided. The underlying concern is the reason why the European Union has passed a new law called the Digital Markets Act (“DMA”), which will come into effect on March 7, 2024. Based on the DMA, Apple will have to permit third-party app stores and billing systems in the European Union.
While a successful antitrust claim could potentially take down Apple’s 30% fee, Epic’s concerns were not heard, and the courts only penalized Apple’s exclusionary behavior with respect to its prevention of downloads and purchases outside of the App Store.
That, however, is that from antitrust law. While antitrust laws' primary focus is on promoting competition and preventing practices that could lead to monopolies or anti-competitive behavior, unfair competition law is a broader term that encompasses a variety of practices that are considered unfair or deceptive.
While it would seem that the U.S. Supreme Court’s rejection is a lifeline for major digital platforms, indicating that they are not subject to antitrust laws in the classical sense in this instance, the limitations and requirements with respect to their download and sale practices show that courts are dissatisfied with how the platforms are conducting themselves and treating competitors – but through antitrust’s step sister: unfair competition law.
What are the Direct Implications of the Rejection?
As a result of the U.S. Supreme Court’s rejection of Epic’s and Google’s appeals, the ruling by the U.S. Court of Appeals for the Ninth Circuit stands. This means that Apple must enable developers to add external links, buttons, or similar features within their apps to direct users to payment systems other than Apple’s in-app system.
Apple has chosen to comply with the injunction, i.e., permit users to circumvent its in-app system related to in-app purchases. However, Apple is still requiring developers to pay a commission of 27% of any purchases made through a system other than Apple’s in-app system that users have been directed to by the developers, which, arguably, defeats Epic’s intent to get rid of the 30% commission. In practical terms, due to the additional effort and lack of benefit in directing users to other payment systems, we do not expect this decision to change much for any party at this point in time.
What Happens Next?
Epic’s CEO Tim Sweeney expressed in X that "Epic will contest Apple's bad-faith compliance plan in District Court” (See X: TIm Sweeney). Sweeney claimed that the 27% commission “kills price competition”, and that Apple purposefully detached the process from the standard payment flow on iOS. The latter means that users have to log in to a separate browser session and search and select the digital goods again that they wish to purchase. If Epic does, in fact, file a new lawsuit against Apple based on Apple’s way of complying with the injunction, it may take up to years before a final judgment is received.
For a developer, that means that you now can offer in-app purchases through systems other than Apple’s in-app system. However, when you are making the decision on whether or not to provide such an option, you need to be aware of the 27% commission that is to be paid to Apple, as well as the other limitations mentioned above.