The Appellate Fight Begins: Epic Games Takes First Swing at Apple in Antitrust Appeal

Thursday’s 91-page opening brief claims that Apple Inc. has restricted iOS app distribution and payment solutions, making itself the exclusive distributor for all applications to iPhones in violation of the federal antitrust laws. Epic Games Inc. asserts that the appellate court should reverse the trial court’s decision and find Apple liable on both its monopolization and tying claims, and alternatively, remand with instructions for the district court to analyze the issues further.

The appeal contests a decision rendered in September by an Oakland, California federal judge largely ruling against Epic. It concluded that Epic could have, but did not, prove that Apple was an illegal monopolist in the market for digital mobile gaming transactions. 

However, Judge Yvonne Gonzalez Rogers sided with Epic in determining that Apple’s anti-steering provisions, restrictions on developers preventing them from communicating with consumers about the payment structure related to in-app purchases, hid critical information and illegally curbed consumer choice. In connection with this finding, the court directed Apple to eliminate the anti-steering provisions. 

The parties cross-appealed. Consequently, Apple asked the court to stay the injunction pending appeal, but the trial court refused.

The Ninth Circuit however, perhaps tipping its hand as to a potential future ruling, agreed to stay the injunction. The panel said that Apple’s appeal “raises serious questions on the merits of the district court’s determination that Epic Games, Inc. failed to show Apple’s conduct violated any antitrust laws but did show that the same conduct violated California’s Unfair Competition Law.”

Now, Epic Games asserts that the trial court made several legal errors in applying federal antitrust law to its case. First, the plaintiff-appellant contends that it proved that Apple “restrains trade in violation of Section 1 of the Sherman Act by contractually requiring developers to exclusively use Apple’s App Store to distribute apps and Apple’s [in-app purchases] for payments for digital content within apps.”

The court’s contrary ruling bucks both statutory text and binding precedent, Epic says, arguing that if not reversed, the decision “would upend established principles of antitrust law and, as the district court itself recognized, undermine sound antitrust policy.”

Epic also asks for review of the trial court’s rule of reason analysis arguing that based on the evidence it presented, it is entitled to an entry of judgment on liability, or at minimum, remand with instructions to conduct proper rule of reason balancing. “Inexplicably, the district court ignored its factual findings and failed to conduct the required balancing of competitive harms with any valid competitive benefits,” the filing says.

Epic further challenges the decision below insofar as the court found Apple not to be a monopolist in the markets for iOS app distribution and payment solutions for the sale of digital content within iOS apps. The filing explains that the court wrongly concluded that Apple’s market power did not reach the status of monopoly power in the mobile gaming market, despite Epic’s presentation of both direct and indirect evidence, including that showing supracompetitive prices and operating margins.

Finally, the plaintiff-appellant urges that the trial court “erred in rejecting Epic’s tying claim on the ground that app distribution and in-app payment solutions are not separate products.” The lower court’s decision was wrong, Epic says, because it unequivocally satisfied the two elements of a tying claim.

In addition to the two corporate litigants, California has asked to weigh in on the case. Its amicus brief is due at the end of March.

Epic is represented by Faegre Drinker Biddle & Reath LLP and Cravath, Swaine & Moore, while Apple is represented by Gibson, Dunn & Crutcher LLP.