Apple–Epic Games Dispute: Mediation and Arbitration in Digital Economy

Author: Vandana Vyas, College of Law for Women, AMS. (Osmania University)

INTRODUCTION

Apple is a multi-trillion-dollar technology company, which turned into a smartphone company in 2007 with the launch of an iPhone. Epic is a multi-billion-dollar video game company, best known for its immensely popular game ‘Fortnite’. In recent years, the number of apps in Apple’s app store are declining, due to its policy of using Apple’s in-app payment processor on any purchase of the apps that are available, and Apple collects 30% of the commission on initial app purchase and subsequent in-app purchases.

This case of Epic Games v. Apple provides for the above stated discussion where Epic Games has filed the case on Apple for doing monopolistic practices. This paper evaluates the case or lawsuit brought up by the Epic Games against Apple, and to analyse whether Apple has the capability to control or restrict the developer’s ability to distribute the applications.

The purpose of this study is to explore how the Apple- Epic conflict shows the important role of mediation and arbitration in digital economies for effective resolution of disputes. This case, no doubt, can become a landmark case with enormous relevance because of its after effects. As it is and will for sure impact the complete world of app development and distribution industry.

Key Words: Monopoly, Mediation, Arbitration, In-app payment processor.

BACKGROUND OF THE CASE

Epic Games agreed to the DPLA of Apple in the year 2020. (Developer Program Licensing Agreement (DPLA) is a contract to get access to enter into Apple's vast customer base. In short, DPLA is used by Apple to license its IP to developers charging a fee of $99 along with the 30% commission on the developer’s revenue). After 2010, Epic released its 3 games on iOS. But, in the year 2015, Epic started concerning Apple's highly controlled app ecosystem. Due to which Epic’s CEO, Tim Sweeney, wrote an email to Apple’s senior leadership, expressing his concerns and asking for a meeting. Nothing came of this email, and Epic Games continued on iOS and eventually in the year 2018, Epic released Fortnite on iOS due to its high number of users.

Epic, in 2020, wanted to modify its terms and desired to offer alternatives for in-app purchases of its users, which Apple denied. Due to this, Epic geared up and launched an initiative called “Project Liberty” to control Apple's walled-garden ecosystem, as well as Google’s influence over Android devices.

On the IAP-Circumvention side, Epic showed an update for Fortnite to Apple for review with an undisclosed point that, once updated, the users will get access to alternative in-app purchases. After the review, Apple approved the update. Shortly thereafter Epic activated its IAP for users. The same day Apple got the information and hence, removed Fortnite from the app store. Apple gave a notice period to Epic to fix the code, otherwise it would terminate its account.

FACTS OF THE CASE

After Apple removed Fortnite from the App Store, Epic filed a lawsuit and sought for Temporary Restraint Order (TRO) to stop Apple from terminating its account. The court granted the TRO only for preventing Apple from terminating Epic’s other developer accounts. After the expiry of TRO, the court granted a preliminary injunction for the same.

Epic sought permanent injunctive relief under Sherman Act and UCL. This relief would provide the developers to bypass Apple’s 30% commission. Apple, in return, counter-claimed for breach of contract.

LEGAL PROVISIONS AND FRAMEWORK:

The primary statutory provisions related to this case were:

Section 1 of Sherman Anti-Trust Act (1980): Prohibits contracts, combinations, or conspiracies that restrain trade.
Section 2 of Sherman Anti-Trust Act (1980): Prohibits monopolization or attempts to monopolize any part of trade or commerce.
Section 4 of Clayton’s Act: Any person injured in business or property due to an antitrust violation may sue for damages, including attorney’s fees.
California Unfair Competition Law: Addresses unfair, unlawful and fraudulent business practices.

ISSUES INVOLVED

The following key legal issues were raised:

Whether Apple’s mandatory 30% commission on in-app purchases is anti-competitive and unfair to developers?
Whether Apple holds a monopoly in:
iOS app distribution, and
iOS in-app payment system.
Does Apple’s App Store structure violate antitrust laws?
Did Epic’s “Project Liberty” amount to a planned breach of contract?

ARGUMENTS OF THE PARTIES

Epic Games	Apple
Apple runs a monopoly over app distribution and in-app purchases on iOS.	The rules of Apple are to provide security, privacy, and fraud protection and not to monopolize the market.
Apple exacts an oppressive 30% tax on sale of every app which promotes anti-competitiveness.	The 30% commission is charged to maintain the standard, provide Apple’s technology tools, software for app development and platinum-level customer service.
Apple coerces all the app developers who wish to use its Apple Store- to use only its means of payment processing platform for all the in-app purchases.	iOS in-app purchases are simply practical and consumer friendly. Apple manages all aspects of the transaction on behalf of the developer- from offering tools for development to the promotion and marketing of apps in-order to provide a safe environment for consumers.
Epic counter-argued that its deliberate breach was a lawful act of protest aimed at challenging Apple’s anti-competitive restrictions, which violates competition laws.	Apple argued that Epic initially and knowingly violated the App Store agreement, and therefore Apple’s enforcement actions were lawful.

JUDGEMENT

U.S. District Court, 2021, judgement.

Judge Rogers issued her first ruling on September 10, 2021, in a split decision by law Professor Mark Lemley. Rogers found in favour of Apple on nine of ten counts brought up in the case. Judge Rogers did rule against Apple in the last count and issued an injunction that said Apple will no longer be allowed to prohibit developers from providing links that direct users towards other in-app-purchases.

Further, Judge Rogers concluded that Apple wasn’t unfairly monopolizing the app market with iOS or its in-app purchases, and she ordered Epic Games to pay damages to Apple for violating the developer’s agreement.

It was further stated that Epic had failed to prove the Apple’s violation of federal or state antitrust laws, but Apple did violate California Unfair Competition Law through the anti-competitive behaviour of disallowing any mention of other payment systems.

ANALYSIS OF THE OUTCOME

The decision represents a significant assertion of regulatory authority in the digital economy.

This ruling influenced subsequent policy debates in the U.S as well as abroad. At the same time, the court’s directive requiring Apple to provide for alternative in-app purchasing options introduced a limited but notable shift in App Store applications. The case, hence, served as a reference point in shaping emerging regulatory frameworks aimed at market fairness. The judgement created a split-victory, giving both parties grounds to appeal- leading to the next phase.

APPEALS

Both Epic and Apple went for appeal to the US Court of appeals for Ninth circuit where the outcome was the same as trial court. Then Apple went to the US Supreme Court to throw out the anti-steering order. Epic also filed a petition, asking the court to rule that Apple was monopolistic. The Supreme Court denied both the petitions and hence the Ninth Circuit decision stayed.

So, in order to comply with the injunction, Apple removed the old restrictions related to in-app purchases but added new ones, including imposition of 27% commission on developers for purchases made outside the Apple Store.

The above restriction was in violation of the original order; Epic told the appeals court.

Hence the complete case shifted to policy battles and regulatory pressure. Therefore, commercial rivalry continues.

CONCLUSION

The case highlights how conflicts in the digital economy require a tech-sensitive ADR mechanism. While litigation clarified key competition, but, the rivalry continues which could have been solved through mediation and arbitration. These mechanisms can balance innovation and reduce prolonged legal uncertainty and offer collaborative solutions to the evolving digital ecosystem.

This case thus stands as a cornerstone for future policy formulation, guiding the nations to opt for ADR mechanisms in a more adaptive and efficient manner.