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Apple Wins Legal Battle Against Epic Games

Apple Inc. has won an appeal court ruling which upholds the App Store’s policies in an antitrust challenge brought by Epic Games Inc.

The ruling was passed on Monday by the US Ninth Circuit Court of Appeals which affirmed a lower-court judge’s 2021 decision largely rejecting claims by Epic. Epic Games Inc is known to be the maker of Fortnite. Epic claimed that Apple’s online marketplace policies violated federal law because they ban third-party app marketplaces on its operating system. The appeals panel upheld the judge’s ruling in Epic’s favor on California state law claims.

Apple Inc. has been making changes to the way its App Store operates to address developers concerns since Epig sued the company in 2020. The dispute originally began after Apple expelled the Fortnite game from the App Store because Epic created a workaround to paying a 30% fee on customers’ in-app purchases.

“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. Instead, in this decision, we faithfully applied existing precedent to the facts.” – the three-judge panel said.

Apple hailed the outcome as a “resounding victory,” as nine out of 10 claims were actually decided in its favor.

“The App Store continues to promote competition, drive innovation, and expand opportunity, and we’re proud of its profound contributions to both users and developers around the world. We respectfully disagree with the court’s ruling on the one remaining claim under state law and are considering further review. 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.”  – Epic Chief Executive Officer Tim Sweeney

In September 2021, US District Judge Yvonne Gonzalez Rogers concluded that Apple’s policies were to prevent consumers from getting cheaper prices, but rejected Epic’s claims that the App Store is run like a monopoly in violation of federal antitrust law. This was then followed by a three-week trial in Oakland, California. Rogers had ordered the technology giant to allow developers of mobile applications steer consumers to outside payment methods, granting an injunction sought by Epic. The judge, however, did not see any need for third-party app stores or to push Apple to revamp policies over app developer fees.

The appeals court said the lower court had “erred” in defining the appropriate antitrust market but concluded that was “harmless” and Epic failed to “show its proposed market definition and the existence of any substantially less restrictive alternative means for Apple to accomplish the procompetitive justifications supporting iOS’s walled garden ecosystem.”

One appeals court judge dissented from that part of the ruling, saying the case should go back to Rogers to re-analyze it using the relevant market.

“Unless the correct relevant market is identified, one cannot properly assess anticompetitive effects, procompetitive justifications, and the satisfaction of procompetitive justifications through less anticompetitive means.”  – US Circuit Judge Sidney Thomas.

The appeals court gave a strong nod to Apple’s argument that it needs to closely police the applications that run on its ubiquitous phones to protect users against fraudsters, hackers, malware and spyware.

“Apple makes clear that by improving security and privacy features, it is tapping into consumer demand and differentiating its products from those of its competitors — goals that are plainly procompetitive rationales.” –  the panel.

The panel said it agreed with the finding by Rogers that Epic was “injured” under California’s competition laws due to Apple’s previous policy that stopped app developers from steering users to outside payment methods. It directed Rogers to revisit her ruling that Epic didn’t owe Apple fees it paid attorneys.

Before Rogers even made his ruling, Apple was already making changes to how the App Store operates to mitigate developer concerns.

One was to allow developers to “steer” consumers — in some scenarios — to make payments for subscription apps outside of Apple’s own payment system. This means that so-called ”Reader apps,” which encompass apps and services for digital newspapers and magazines, books, audio streaming and video watching, can point users to the web with a button to complete their sign-up.

That basically addressed a core issue within Epic’s lawsuit against Apple, however the current Apple policy doesn’t apply to gaming apps. Epic’s software, including its hit game Fortnite, still remains off of the App Store and Apple devices, but Sweeney has hinted at a return to the platform in 2023.

US and European authorities have taken steps to rein in Apple’s stronghold over the mobile market. In response to the Digital Markets Act — a new series of laws in the European Union — Apple is planning to allow outside apps as early as next year as part of an update to the upcoming iOS 17 software update, Bloomberg News has reported.

All throughout the changing legal landscape, Apple also plans to let users more easily change default settings, allow alternative web browsing engines, and open up more of its in-house features, such as Camera or Find My apps, to third-party developers.

Epic has made similar allegations about anticompetitive conduct in a lawsuit against Google over its Google Play store. The Alphabet Inc. unit has denied wrongdoing.

The case is Epic Games Inc. v. Apple Inc., 21-16695, US Court of Appeals for the Ninth Circuit (San Francisco).

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