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.

Author: Jesper Rantatulkkila and Daniel Koburger

From July 10 to August 4, 32 patent applications filed by Nintendo were made public in Japan, 31 of which concern the game mechanics in “Legend of Zelda: Tears of the Kingdom” (see naoya2k’s post in the Hatena Blog for a full list of the patent applications).

The hottest patents that are being discussed relate to the player character’s abilities, specific mechanics, and loading sequences. Our fascination lies with Nintendo’s attempt to use patents to protect the mechanics of a game.

Nintendo’s Patent Game

Notably active in patent filings, Nintendo ranked fifth in the number of patents held in Japan in 2022. A well-known example of Nintendo's previously registered patents include patent No. 8,313,379 related to Wiimote’s motion-tracking capabilities (see Patent Arcade: U.S. Patent No. 8,313,379: Video game system with wireless modular handheld controller). The new patents are considerably interesting because of the scale and the subject matters: mechanics! In particular, a mechanic that prevents the character from grabbing objects it is positioned on top of, a mechanic that results in the character moving in alignment with dynamic objects beneath it, and a mechanic that focuses on the character transitioning from one location to another seamlessly.

However, with the newest splurge Nintendo seems to be on a spree right now, likely due to the success of Tears of the Kingdom.

Protecting Mechanics a Never Ending Quest?!

The fascination surrounding this spree of applications is figuring out how developers can best protect their IP and brand. While there are several avenues, such as Trademark, Trade Secret, contractual obligations, confidentiality, copyright, and more, protecting a game’s mechanics and use of genre tropes is a uniquely difficult task that devs so keenly are interested in. In this blog the dispute between PUBG and Fortnite already put a spotlight on how copyright approaches this issue.

In short: U.S. law and U.S. courts have steered toward not awarding game mechanics copyright protection because they are so called unprotectable ideas and/or functional elements rather than protectable original expressions. However, the law is currently somewhat unclear as to when mechanics constitute functional elements outside of copyright protection and are protectable only by patents.

Hence, Patents as another tool, garner attention and likely more value in the future?

Is a Patent the Solution?

Generally, it is particularly difficult to patent game mechanics, primarily because software is often considered an abstract idea, and likely to be viewed as ineligible subject matter under Section 101 of the U.S. Patent Act. However, this obstacle may be overcome if the software improves computer functionality or performs the computing tasks in an unconventional way (Is Software Patentable in the United States?). Moreover, for any invention to qualify for patent protection, it must be unique and non-obvious. This means that the game mechanics being patented should not be already known or in use by others, and the differences between the game mechanics and prior game mechanics must not be obvious to someone with ordinary skill in the field of game design. Due to these criteria, utility patents for game mechanics are relatively rare.

Nonetheless, there have been noteworthy attempts by other companies to patent mechanics and features which often are not protectable otherwise. A notable example includes Bandai Namco's patent No. 5,718,632, covering loading screen minigames (Electronic Frontier Foundation: The Loading Screen Game Patent Finally Expires). The mechanic was patentable due to its novelty and nonobviousness, but it was not copyrightable due its functional nature. Another famous example includes Warner Brothers’ patent No. 15/081,732 for the Nemesis system used in both Middle-Earth: Shadow of Mordor, and its 2017 sequel, Shadow of War. This system generates personalized NPC opponents for the player to interact with (IGN: WB Games' Nemesis System Patent Was Approved This Week After Multiple Attempts). While the system was patentable due to its process description, it was not copyrightable as it lacked unique protectable expression.

Other Patent Issues: Costs and Process

Patents are also costly and difficult to obtain. The expense of filing a patent application varies based on its complexity, ranging between $7,000 and $15,000. In addition, you can generally expect the need to respond to up to five office actions, each of which may cost $2,000 or more. After filing the application, it usually takes 1 or two years before the initial office action is issued. Further, there is no guarantee that the patent application will be approved. For instance, Warner Brothers had to submit several patent applications before they received a patent on the Nemesis system. Its prior applications were rejected because of too close similarities to other patents and due to issues with the specificity of the language used in the prior applications. Thus, doing proper due diligence and carefully writing down realistic patent claims can be vital in order to save costs and to get a patent application approved (IGN: WB Games' Nemesis System Patent Was Approved This Week After Multiple Attempts).

So, no Patent for me?

Due to the costs and difficulties involved with acquiring a patent, generally patents are not a developer’s go to tool for protecting a game’s inherent value. This is particularly true for small and mid-size game developers with limited resources. For a small and mid-size game developer, other forms of intellectual property play a larger role, namely, copyrights, trademarks, and trade secrets. Having said that, if your game contains a mechanic that you regard as new, you might want to consider conducting patent due diligence to ensure that you are not infringing on someone else’s patent, and to file a utility patent if you think that the patent will bring your business additional value. As to the filing, see e.g. Zachary Strebeck’s article on video game patents, which contains an overview of the requirements for acquiring a game patent, and the costs related to the filing.

Author: Jesper Rantatulkkila and Daniel Koburger