Sunday, October 10, 2021

Apple's adamant refusal to reinstate Epic's Fortnite developer account is regrettable--but unfortunately rational, at least in the short term

This is a follow-up to my previous post on the Epic Games v. Apple Unfair Competition Law (not antitrust) injunction. In the meantime, iMore quoted me on an announcement of an in-app purchasing (IAP) alternative by a company named Paddle that believes its drop-in replacement for Apple's IAP API will be allowed soon as a result of the Epic injunction.

Now that Apple has filed a motion to stay the injunction (PDF), I'd like to share a few observations and perspectives.

That whole motion-to-stay process could be avoided if both parties acted more constructively. To the extent that any correspondence between them has come to light, neither of the parties is being constructive, and they could not complain should Judge Yvonne Gonzalez Rogers--who has already put so much effort into her handling of this huge and complex case--scold them at next month's motion hearing.

It is utterly disappointing to see Apple break a promise. It adds to this picture of Apple stopping at nothing to defend its App Store monopoly. Last year, at the preliminary-injunction stage, Apple wrote that it "wants Epic on iOS" provided that it complies with the rules. The Apple apologists out there, of whom there are quite a few, may argue that some of Epic's public statements since the grant of the injunction justify Apple's current stance. They may say that Apple has a reasonable apprehension of Epic being hell-bent to break the rules again, just like in August 2020. But Epic CEO Tim Sweeney's statements are neither what I believe to be the true motivation for Apple to keep the door closed nor are they sufficient justification for walking back on last year's promise.

There is a motivation that makes it a perfectly rational choice for Apple, at least if Apple takes a short-term perspective. It's that Apple wants to get the injunction stayed, which is a legitimate objective. And in order for the district court or (more likely) the appeals court to grant a stay, Apple must argue that the balance of the hardships tips (clearly) in its favor. That's why Apple is telling the court (and will tell the appeals court) that Epic loses nothing from a stay, as it's not on iOS. It's out of the game because Apple, based on the judgment that even entitles it to breach-of-contract damages from Epic, rightfully terminated Epic's account.

It's obviously also a factor that Apple seeks to discourage similar behavior by other app developers. As far as I am concerned, I just have a different style. I had my disagreement with Apple last year about its COVID app guideline, and I submitted multiple versions of it, but I was always totally transparent about what was in there (and what was not). I told them, and they decided. I disagreed with some of their decisions (and still do), and even brought formal complaints. But I don't think it's a good idea to defraud the app review process. Apple's dogged refusal to reinstate Epic's account may dissuade some others from playing that kind of game.

Even Judge YGR could easily grant Apple's motion to stay the injunction just because Epic--the sole opponent to that motion--stands nothing to gain from the injunction. She wouldn't even have to doubt that her judgment would be upheld on appeal. If there is no Fortnite on the App Store at all, it doesn't matter whether it could link to some website that promotes other purchasing options.

I'm sure this wasn't an easy decision for Apple. The short-term benefits are clear. In the mid term, however, it is hard to predict how the appeals court will view this situation: the fact that Epic is shut out of the App Store does demonstrate Apple's enormous market power. Now, Epic faces an uphill battle on appeal anyway. It won't be able to make up for some of what went wrong, and which among other things led the trial court to conclude that web apps were a pretty viable alternative to native iOS apps (a conclusion that I'm sure a court-appointed technical expert with a minimum level of understanding of market realities would have disagreed with). And the appeals court might not view Epic's aggressive approach more favorably than the court below. But the overall situation does allow Epic to portray itself as a victim.

The bigger risk for Apple is that this may strengthen the resolve of Capitol Hill (and European Union) lawmakers to bring about change.

I credited Epic for conceding defeat after the judgment. I wish Epic also gave up on the idea of trying to stretch the envelope of the consolation prize that is the UCL injunction. Epic itself can't do it anyway. If Epic successfully opposed Apple's motion for a stay, other companies (such as Paddle's prospective customers) would do that job. It won't do any good. It would be more gracious and reasonable to accept that the injunction is next to useless. I agree with the following passage from Apple's motion to stay:

"The Court has stricken one sentence of Guideline 3.1.1, but did not disable Apple from otherwise running its business or protecting consumers."

Apple will have to tolerate links and buttons of certain kinds, but that doesn't mean app developers will effectively be able to circumvent Apple's IAP rule. Unless its Japanese "reader" settlement required it, Apple would still be free to disallow that iOS apps make certain functionality or content (such as game passes) available even though the related purchases occurred outside of Apple's IAP system. And, as Apple notes, it can still demand its cut, even if a transaction occurs on a website. If Apple had to collect its cut by means of intellectual property enforcement, I don't think it would get a lot, if anything. But Apple wouldn't have to sue for patent and/or copyright infringement: it could simply use its gatekeeper power (just like Qualcomm normally doesn't have to enforce its patents because smartphone makers buy its chips, which they won't get unless they previously take an IP license).

Apple's motion to stay also correctly identifies other issues with the injunction. It's true that the court based its judgment on a particular market definition (game transactions), but the injunction doesn't appear to be specific to that market. This is again one of those limitations that affect private antitrust actions brought by companies as opposed to governmental entities. Also, Apple is right that some of what the injunction seeks to accomplish is actually taken care of by settlements (in a different case pending before the same judge, and the Japanese "reader" deal).

It doesn't have to be this way. Instead of fighting over the enforcement of that next-to-useless injunction, the parties should work out a mutually beneficial--or at least mutually unharmful--solution. I completely understand that Apple wants to avoid in the first place that it would have to fight with Epic and potentially various other app developers over the scope of the injunction. My unsolicited advice is that the parties stipulate to a stay (saving the court(s) the trouble of having to decide), and that Apple reinstate Epic's developer account, provided that reasonable assurances are provided to Apple that Epic won't engage in another "sneak assault." The parties could agree on a substantial contractual penalty, on top of which Apple could seek damages.

The exhibits to Apple's motion may give an incomplete picture of the dialog between the parties. Maybe--and hopefully--they are being a lot more constructive than meets the eye.

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