Epic vs Apple: Why 35 US states are backing the Fortnite-maker in its appeal

“Apple’s conduct has harmed and is harming mobile app developers and millions of citizens. […] Meanwhile Apple continues to monopolize app distribution and in-app payment solutions for iPhones, stifle competition, and amass supracompetitive profits within the almost trillion-dollar-a-year smartphone industry. Apple must account for its conduct.” – Amicus Brief filed by the US States

Epic in August 2020 took Apple to court arguing that the company has a monopoly in the iOS app market, which allows it to charge developers a high commission rate and prevent developers from using alternative, non-Apple payment systems. However, in September last year, US district judge Yvonne Gonzalez Rogers ruled in favour of Apple on 9 out of the 10 counts and said that only the company’s anti-steering laws were in violation of California’s Unfair Competition Law, for which an injunction requiring the company to let developers add alternative payment systems for in-app purchases was issued. Both Apple and Epic appealed the ruling.

1. Agreement signed between developer and Apple is covered under the Sherman Act: Section 1 of the Sherman Act required Epic to prove (1) the existence of an agreement, and (2) that the agreement was an unreasonable restraint of trade. The judge ruled that Epic failed to prove the existence of an agreement because the Developer Product Licensing Agreement (DPLA) between Epic and Apple was a “unilateral contract” as Apple had dictated the terms to developers as a “take it or leave it” condition. The US states, however, argued that rules of statutory interpretation must apply in this case and excluding unilateral contracts is inconsistent with Supreme Court precedent as well as “bad public policy as it needlessly complicates and impedes Section 1 enforcement of antitrust,” Additionally, the states argue that DLPA is, in fact, a bilateral agreement of adhesion because there is an exchange of promises by both Apple and developers.

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“The fact that Apple had greater bargaining power in negotiating—“unilaterally” imposing the terms—does not make the contract unilateral,” the states said.

2. Judge misapplied rule of reason test: By not weighing the anticompetitive and purported pro-competitive effects of Apple’s conduct, the court misapplied the rule of reason test, the states argued. Without this, the injuries to citizens go unheard and Apple gets to continue its substantial anticompetitive conduct based on relatively feeble procompetitive justifications, the States said. The court applied the three-part burden-shifting too rigidly without weighing all the relevant facts, the states said. The three-part test involves:

1. the plaintiff first proving the challenged restraint “has a substantial anticompetitive effect”
2. the defendant must then show “a procompetitive rationale for the restraint”
3. finally, the plaintiff carries the burden of proving there are “less anti-competitive” ways for the defendant to achieve the “procompetitive efficiencies.”

While the first two parts were carried out successfully, when the court reached the third step, it determined that Epic had not shown adequate less restrictive alternatives Apple could use and ruled that the challenged restraints did not violate antitrust laws.