The Washington Post Sunday
Verdict is more of an Epic fail than the ‘huge win’ Apple claims
Apple claimed a “huge win” Friday after a federal judge ruled that game developer Epic Games had failed to show that its App Store holds a monopoly in the mobile gaming market. But a closer read of the verdict suggests it was less an Apple win than an Epic fail.
“Success is not illegal,” Judge Yvonne Gonzalez Rogers wrote, ruling against most of the “Fortnite” developer’s antitrust claims. Her decision allows Apple to keep its own App Store as the exclusive market for apps on iOS devices, and to keep taking a 30 percent cut of users’ purchases on many of those apps — a fee that Epic and other developers argue is too steep. No doubt that comes as a big relief to Apple, for which the App Store is a major source of revenue growth and profit.
But there are signs peppered throughout the lengthy, detailed verdict that the App Store’s foundations may be on shaky ground amid a broader push to cut Big Tech down to size. In addition, Gonzalez Rogers opened a significant crack in Apple’s model by issuing a permanent injunction that would force Apple to allow developers to offer iOS users alternative ways to pay for their apps, services and digital goods — ways that would bypass Apple and its fees.
The best news for Apple is that the judge rejected Epic’s claim that the iOS App Store represents a market unto itself, with Apple commanding a 100 percent monopoly. Instead, the judge found that the market in which Epic Games’ apps competes is “digital mobile gaming transactions,” a sector that includes Google’s Android platform. She was also unconvinced by Epic’s arguments that Apple “locks in” users with policies and services, such as iMessage, that make it overly burdensome to switch to Android. She noted that Apple’s high customer satisfaction ratings suggest most users stay because they like it, not because they’re trapped.
Yet on those and several other important counts, it looks more like Epic lost its case than like Apple won it.
While “the court cannot ultimately conclude that Apple is a monopolist” under existing laws, Gonzalez Rogers wrote, “the court does not find that it is impossible; only that Epic Games failed in its burden to demonstrate Apple is an illegal monopolist.” Apple might count that as a victory, but it’s the opposite of “resounding”: The judge made clear that her decision was based solely on the evidence Epic brought, and left the door wide open to future antitrust claims against Apple.
In several instances, she chided Epic for failing to bring the necessary evidence to support claims that she seemed otherwise inclined to entertain. One of those was the crucial “lock-in” claim, where she lamented that “despite hours on the stand, plaintiff never explored this topic” with Apple executive Phil Schiller, and found the analysis of Epic’s expert witness to be incomplete.
“By ignoring the issue of customer satisfaction, Epic Games has failed to convince,” Gonzalez Rogers wrote. “The Court warned the parties in advance that actual data was an important consideration.”
More troublingly for Apple, the judge found that the company lacks justification for its 30 percent App Store fee, which “has apparently allowed it to reap supracompetitive profits” — meaning more profit than would be expected in a competitive market. Specifically, she concluded that Apple’s operating margins on the App Store are likely in excess of 70 percent, even as it invests relatively little of its own resources in developing innovative features to continue improving the marketplace. Those “extremely high” margins “strongly show market power,” Gonzalez Rogers wrote.
That’s important, because market power is a key component in antitrust cases of all kinds. Finding that Apple has market power in the App Store is not the same as declaring it an illegal monopolist, but it opens the company to antitrust scrutiny that firms without market power are spared. That paves a path for future antitrust lawsuits against the company, which will learn from the shortcomings of Epic’s case.
And while “success is not illegal” was a good line, Apple’s critics might find their own rallying cry on Page 37 of the decision, where Gonzalez Rogers opined that “nothing other than legal action seems to motivate Apple to reconsider pricing and reduce rates.”
Then there’s the one aspect of the case that Apple clearly lost. Apple having to allow apps to point users to other payment methods might seem like a relatively small concession. But if Epic and the judge are correct that Apple used its “anti-steering” rules to prop up a 30 percent fee that would otherwise be untenable, then the fee itself would come under heavy pressure, assuming the injunction takes effect. Apple might ultimately find that it has to lower its fee to prevent developers from circumventing it entirely.
The case’s ultimate outcome remains uncertain; Epic has already said it will appeal, and Apple could do the same. For now, it’s safe to say that Apple’s antitrust headaches are far from over.