Wednesday, November 10, 2021

FOSS Patents was right while others were wrong on scope of Epic Games v. Apple injunction as court order denying stay clarifies: NO IAP ALTERNATIVES ALLOWED, period

See I told ya so. Under the Epic v. Apple injunction as it stands, Apple still does not have to tolerate alternatives to its own In-App Purchasing (IAP) system. What some others told you--which was the opposite--did not age well. I don't even blame The Verge's Nilay Patel and others as much for having been wrong initially as I criticize them now for not having recognized their error after I pointed it out. The original problem was that they just didn't care to read the relevant parts of the underlying judgment, which is amateurish but can happen, and that they failed to see the implausibility of their interpretation, as Epic's "hotfix" that gave rise to last year's court filings would have been allowed under that reading of the injunction. We all make mistakes, but there's what I find irresponsible: by refusing to backtrack and apologize, they were being bull-headed at best and cynical at worst--cynical in the sense of reiterating a clear legal error that could lead others to make costly mistakes (developing program code that Apple was sure to reject), only to avoid that a wider audience would become aware of some people's failure to digest a court order.

Here's the most important passage from Judge Yvonne Gonzalez Rogers's order denying Apple's motion to stay the Epic Games v. Apple Unfair Competition Law (UCL) injunction:

"With respect to the alleged need for clarification because, anecdotally, some developers may not understand the scope of the injunction, the parties themselves have not indicated any confusion. The [Apple] Developer Agreement prohibits third party in-app purchasing systems other than Apple's IAP. The Court did not enjoin that provision but rather enjoined the prohibition to communicate external alternatives and to allow links to those external sites. Apple still maintains the convenience of IAP and, if it can compete on pricing, developers may opt to capitalize on that convenience, including any reassure that Apple provides to consumers that it may provide a safer or better choice. The fact remains: it should be their choice. Consumer information, transparency, and consumer choice is in the interest of the public." (emphases added)

You can forget the button bull you heard from others.

Here are links to what this blog previously said about the question of whether the word "button" in the stricken passage from Apple's app review guidelines opened the door to IAP alternatives:

Also, I predicted that Judge YGR was going to uphold her injunction. She obviously wasn't going to say "oh sorry, I made a mistake when I thought I'd award Epic a consolation prize based on California UCL." On October 29, I tweeted the following:

Of course, the jury is still out on the second part--or, more precisely, the Ninth Circuit motions panel has not even begun its deliberations yet as Apple firstly need to file its motion (which I expect to happen shortly). But the first one of the two bullet points has already been vindicated by the district judge.

Let me tell my fellow developers (I've just begun working on a new app--a productivity app this time around and will say more next year) one more thing:

There is no such thing a free lunch under the Epic v. Apple injunction.

I followed the motion hearing (about eight hours ago) via Zoom. Arguing on Apple's behalf and sparring with Gary Bornstein from Cravath (both did great work), Gibson Dunn's Mark Perry explained that whatever passage Apple is obligated to delete from its Developer Agreement would be replaced with new rules. He specifically said those rules would be designed to protect all sorts of consumer, developer, and obviously also Apple's interests as a platform operator. Those rules would take time to develop and to implement, and I understood Mr. Perry as Apple clearly intending (in this scenario) to put technical measures in place as well. I surmise this will have very much to do with ways in which Apple ensures it gets paid. That's Apple's focus in the whole app review context--the rest is not only pretext, but in no small part it actually is.

Let me translate that to plain English in terms of what it would mean should the injunction ever actually get enforced:

  • The "realistic best-case scenario" for developers is that Apple will collect its usual commission (possibly with a minor deduction, such as 2%) on revenues generated by means of such external links. There is nothing in the court order barring Apple from doing so. Much to the contrary, the judgment recognized Apple's right to seek compensation for its IP.

    I've recently explained that in light of Oracle v. Google and almost two decades of work related to patents, I can't see how Apple would get anything close to a 30% royalty through IP enforcement per se (i.e., infringement litigation), but it can simply use its gatekeeper power. The question then comes down to the distinction between "to use [its gatekeeper power to collect IP royalties]" and "to abuse." The to-be-or-not-to-be question in unilateral-conduct cases. But it would take a whole new case in which someone like Epic would have to argue that Apple demands too much.

  • The worst-case scenario for developers, however, would place developers like Epic in an even worse position on the bottom line than if the injunction had never come down. Two months ago I already discussed the possibility of Apple disalllowing cross-walled and cross-purchases. In that case, the Epic v. Apple injunction would allow outbound links (including links in the form of a button, but still just external links) to information on alternatives. But any purchases of digital goods (such as Fortnite V-Bucks) made outside an iOS app would no longer be available for consumption in the iOS app. This means that, for instance, Epic would be free to point users to a web game (and Fortnite is obviously not going to be viable as an OpenGL/WebGL game on an iPhone), an Android app, a Windows game, or a console game. Users could make purchases there, possibly at lower prices--but they couldn't use the stuff in the native iOS app that told them about those alternatives.

    While the original Epic Games v. Apple judgment mentioned that Apple allows cross-wallet and cross-purchases, there is no court order that tells Apple it must continue to do so. Much to the contrary, the court took note of the fact that some other platform makers don't allow this. And Judge YGR has been consistent in declining (whether one agrees or not is another question) to subject Apple to stricter rules than would apply to Sony, for instance.

    The order denying Apple's motion for a stay doesn't change that (nor could it). It again talks about alternatives and about customers' right to know about the existence of those alternatives. It does not address where the purchased digital goods would actually be consumed.

    Apple may have other (particularly political) reasons not to play a hardball "What the court giveth, Apple taketh, and Apple taketh even more" type of game by disallowing cross-wallet and cross-purchase now (outside the context that is subject to a Japanese settlement on e-readers). But from a purely legal perspective, Apple would have that option, and I wouldn't blame Apple for at least giving it serious thought. It would not make Apple a contemnor of the court order in my opinion. I wouldn't like it from a developer's perspective, but I would support that course of action as an antitrust commentator because it would be legit.

While on the subject of Apple's tactical options and choices, let me come full circle back to "the alleged need for clarification" (a quote from the first sentence of the passage quoted above).

Apple had two fundamentally different options for how to interpret the injunction in its motion for a stay (and the reply brief in support of that motion). Apple could have taken the position that the narrow scope of the injunction had been clear all along. That would have meant to optimize for a hypothetical contempt proceeding--instead, Apple chose to place a strategic bet on obviating the need for such contempt proceedings in the first place. In order to avoid facing any contempt motion, Apple needs to get the injunction stayed and then prevail on appeal. With that strategic priority in mind, Apple determined that what would serve it best was to make the strongest possible case for irreparable harm (to Apple from enforcement). A narrow injunction doesn't hurt as much as one that someone may blow out of proportion.

And this takes me back to my mid-September tweet: by purposely blowing the potential scope of the injunction wording out of proportion (though Apple itself noted that the judgment specifically focused on "information" and pointed out that Epic espoused an interpretation in public that would even have legalized its August 2020 "hotfix"), Apple effectively forced the district judge to clarify the narrow scope. She could have done so at the hearing, but didn't. She could have theoretically avoided it in the order, as she could have denied Apple's motion anyway by just saying she was right. But that order is basically her opposition brief to Apple's forthcoming motion for a stay that will be filed with the Ninth Circuit. She wants the appeals court to uphold her injunction, and the last thing she would have wanted is for the appeals court to say that her injunction was worded in a way that could not be reconciled with the underlying judgment in any way--and to then not only grant a stay but also to (later) overrule the UCL part of her decision.

Apple's strategy played out. The trial court has now made it clear that the injunction has a narrow scope. Even if Apple did not win a stay (though I think it will and--when I don't wear my developer's hat--is reasonably entitled to get the stay), Apple would still have the tactical options outlined above: collect an IP royalty (enforced with its immeasurable gatekeeper power) and/or disallow cross-wallet and cross-purchase.

I still want Apple to have less power over my fellow developers and me, but it gets us nowhere to misinterpret what the courts say. All that "button bull" was a tempest in a teapot. I don't comment on the App Store case too often here, as there's so much going on with respect to the intersection of patent law and antitrust enforcement (such as that crazy Deutsche Telekom v. IPCom case I blogged about yesterday), but when I do chime in, I make a good-faith effort to get the facts and the law right. I don't shy away from disagreeing with Apple, even harshly at times, but the objective is constructive criticism based on rational and thorough analysis.

Share with other professionals via LinkedIn: