Antitrust Law Daily Apple enjoined from adverse action against Fortnite developer affiliates during Epic litigation
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Tuesday, October 13, 2020

Apple enjoined from adverse action against Fortnite developer affiliates during Epic litigation

By Nicole D. Prysby, J.D.

Apple was enjoined from suspending Epic Games’ affiliates from Apple’s App Store while Epic’s monopolization and tying claims against Apple progress, but Apple’s delisting of Epic’s popular video game Fortnite stands.

Apple was enjoined from suspending affiliates of Epic Games from the Apple App Store during the pendency of a case contesting App Store polices, held the federal district court in Oakland. Epic sued Apple, alleging monopolization and tying claims, after Apple removed Epic’s Fortnite game from the App Store because Epic allegedly breached its agreements with Apple by activating hidden code in Fortnite, which allowed Epic Games to collect in-app purchases directly, in violation of the parties’ contract. In addition to removing Fortnite from the App Store, Apple revoked developer tools for Epic Affiliates. Epic sought a preliminary injunction to reinstate Fortnite to the App Store and to stop Apple from terminating its affiliates’ access to developer tools for other applications. The court granted the preliminary injunction with respect to the affiliates, citing the irreparable harm to the affiliates and the desire to preserve the status quo. But the court declined Epic’s request for an injunction to address the Fortnite delisting, pointing out that damage to Epic’s reputation and the Fortnite gaming community cannot constitute irreparable harm where such harm flows from Epic’s own actions and its strategic decision to breach its agreements with Apple (Epic Games, Inc. v. Apple Inc., October 9, 2020, Rogers, Y.).

Background. Epic claimed that Apple uses anti-competitive restraints and monopolistic practices in markets for the distribution of software applications (apps), and for in-app purchases (IAP) within iOS mobile apps. The complaint alleged that the restraint of trade prohibited software developers from reaching the one billion users of Apple mobile devices unless they go through a single store controlled by Apple, where Apple charges a 30 percent tax on the sale of every app. In addition, software developers that wish to sell digital in-app content must use a single payment processing option offered by Apple which carries a similar 30 percent tax.

In August 2020, the court granted Epic's request for a temporary restraining order (TRO) prohibiting Apple from taking adverse action against Epic with respect to restricting, suspending, or terminating any affiliate of Epic from Apple’s Developer Program on the basis that Epic enabled in-app payment processing in its Fortnite game, outside of the contractually-agreed upon method. The court, however, denied the TRO in relation to the delisting of Fortnite and other games authorized under Epic’s contract with Apple. Epic motioned for a preliminary injunction, asking the court to force Apple to reinstate Fortnite to the App Store, despite its acknowledged breach of its licensing agreements and operating guidelines, and to stop Apple from terminating its affiliates’ access to developer tools for other applications while Epic litigates its claims.

Preliminary injunction granted in part. The court granted the preliminary injunction with respect to Epic Affiliates, but denied it with respect to the Fortnite delisting. Epic failed to demonstrate a likelihood of success on the merits of its monopoly maintenance and tying claims. Epic argued that the relevant market is the market for distribution of apps on the iOS software platform, but Apple made an equally plausible argument that the market is distribution across all video game platforms, according to the court. Thus, the market definition rested on factual questions regarding the nature of the iOS market. Epic failed to demonstrate a likelihood of success on its tying claim, because it had not yet shown that the IAP system is a separate and distinct service from iOS app distribution sufficient to constitute a "tie" under antitrust law. Here, the IAP system appeared to be integrated with the App Store and, historically, to have never been a separate product, the court observed.

Damage to Epic’s reputation and the Fortnite gaming community cannot constitute irreparable harm where such harm flows from Epic’s own actions and its strategic decision to breach its agreements with Apple. However, Epic did demonstrate irreparable harm with respect to its affiliates. Apple’s long-standing practice of removing affiliated accounts based on broad language regarding termination in the relevant agreements and guidelines would generally be permissible. However, as applied to the specific facts, this matter presented an exception to the ordinary practices. Apple’s reaching into separate agreements with separate entities appeared to be retaliatory, especially where these agreements had not been otherwise breached.

As to Epic and Apple, the balance of equities weighed in favor of Apple where Epic breached both its agreements and the guidelines, and an injunction would potentially incentivize similar breaches among developers. But with respect to Epic affiliates, the balance of equities weighed in favor of the Epic Affiliates. Providing continued access for the Epic Affiliates to developer tools and the App Store preserved the status quo.

The public interest factor analysis was not changed since the prior analysis for the TRO: there was significant public interest in requiring parties to adhere to their contractual agreements or in resolving business disputes through the normal course. Thus, the public interest factor weighed in favor of Apple as to Fortnite. But given the potential significant damage to both developers and gamers absent the issuance of a preliminary injunction, the public interest weighed overwhelmingly in favor of the Epic Affiliates.

This case is No. 4:20-cv-05640-YGR.

Attorneys: Christine A. Varney (Cravath, Swaine and Moore LLP) for Epic Games, Inc. Cynthia Richman (Gibson Dunn and Crutcher LLP) for Apple Inc.

Companies: Epic Games, Inc.; Apple Inc.

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