Wednesday, November 11, 2020

Court throws out tort-based part of Apple's counterclaims against Epic Games

Epic Games just reduced the potential risk it incurs from its antitrust dispute with Apple over its App Store business terms: Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California granted an Epic motion for judgment on the pleadings on some of Apple's counterclaims. As a result, Apple's counterclaims (unless an appeals court revives the ones the judge just threw out) are limited to breach of contract, which Epic already acknowledged in October it would be liable for should it lose its antitrust case against Apple. Punitive damages, which Apple was seeking, are not available on this basis, so they won't have to be discussed at next year's trial.

The court viewed the tort-based ones of Apple's counterclaims skeptically from the beginning. Nevertheless, Apple defended them, presumably in an effort to preserve them for an appeal.

What Judge Gonzalez Rogers told Apple today was that the iPhone maker had not shown any independently wrongful act on Epic's part beyond a breach of contract. Apple had stressed that "independently wrongful" doesn't mean it's an independent act, but that it would be wrongful even if it happened without a contractual framework being present. And in this regard, Apple pointed out that Epic's generation of in-app purchasing revenue on iOS continues even though the related contract was terminated in the summer. But that didn't persuade the judge. At the end of the Zoom hearing (Tuesday afternoon by Pacific Time) she announced her decision to grant the motion.

This decision is unrelated to the heart of the dispute, which is that Epic disputes the legality and enforceability of Apple's App Store terms under the antitrust laws. Judge Gonzalez Rogers said in August that the case could go either way, and the order on Epic's motion for judgment on the pleadings doesn't increase the likelihood of any particular outcome on the core issues in the case.


A couple of hours after the hearing, Apple provided the following public statement:

"We respectfully disagree with the Court’s decision and believe Epic's conduct should be actionable under California tort law. It is clear, however, that Epic breached its contract with Apple. For twelve years, the App Store has helped developers turn their brightest ideas into apps that change the world. Our priorities have always been to provide customers with a safe and trusted place to download software and to apply the rules equally to all developers. In ways the Court described as deceptive and clandestine, Epic enabled a feature in its app which was not reviewed or approved by Apple, and they did so with the express intent of violating the App Store guidelines that apply equally to every developer who sells digital goods and services. Their reckless behavior made pawns of customers, and we look forward to making it right for them in court next May.

"Apple also thanks the Court for providing next generation attorneys the opportunity to argue a motion. We fully support this important policy that gives newer lawyers and those from underrepresented groups meaningful experience in court."

The young attorneys who delivered oral argument were Cravath's John I. Karin and Gibson Dunn's Anna Casey. Given the court's preconceived notion on this subject, I don't think oral argument made a difference. What was very clever on Mr. Karin's part was that at some point he preferred not to add anything to the court's preliminary opinion, which was already favorable to his client's position. So instead of trying to get the most out of this opportunity to practice, he opted for the safest and smartest path.

Apple's statement suggests to me between the lines that they will appeal yesterday's judgment on the pleadings after next year's trial.


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