Epic Games, Inc. v. Apple, Inc.: A new day for injunctive relief under California’s UCL?
One of the most-watched antitrust cases of the past several years has been Epic Games, Inc. v. Apple, Inc. (Epic v. Apple),[1] a clash between a multi-billion-dollar video game developer (Epic) and the world’s largest technology company by revenue (Apple). After a three-week trial held in the District Court for the Northern District of California in Oakland, in September 2021 Judge Yvonne Gonzalez Rogers ruled in favor of Apple as to nine of Epic’s ten causes of action but ruled that Apple’s anti-steering policies violated California’s Business and Professions Code §§17200 et seq. which is also known as California’s Unfair Competition Law (or “UCL”). As a result, Judge Rogers issued a permanent injunction preventing Apple from enforcing its anti-steering provision that had prohibited third-party developers from steering users to other digital storefronts to complete purchases.[2] Apple appealed the adverse ruling under the UCL and on April 24, 2023, the Ninth Circuit issued its opinion affirming the district court’s ruling and in particular affirming that the scope of the injunction could cover all of Apple's Digital Program Licensing Agreement (“DPLA”) accounts was appropriate. This article explores the implications of Epic v. Apple with respect to the scope of restitution and injunctive relief under the Unfair Competition Law (“UCL”), and what the decision may mean for future litigants seeking to obtain injunctions that may benefit non-parties.
The facts of Epic v. Apple
The facts of Epic v. Apple have been extensively covered elsewhere, but to briefly summarize: In 2010, Epic Games, a multi-billion-dollar video game company, executed Apple’s DPLA, which provided it access to Apple’s vast consumer base and developer tools that facilitate the development of iOS apps. To do so, Epic agreed to pay a flat $99 fee and an ongoing 30% commission on its iOS revenue. In 2015, Epic Games began objecting to Apple’s “walled garden” ecosystem, through which Apple precludes developers and users from transacting freely without its mediation. Specifically, Epic Games took issue with three provisions contained in the DPLA that bound developers to (1) distribute iOS apps only through Apple’s App Store, (2) use Apple’s in-app payment processor (“IAP”) to process in-app payments, and (3) not communicate out-of-app payment methods through certain mechanisms such as in-app links. In 2020, Epic Games renewed the DPLA with Apple but sought a “side letter” or other special deal from Apple that would provide Epic with preferable terms. In particular, Epic Games requested the ability to offer iOS users alternatives for distribution though its Epic Game Stores app and competing payment processing options through Epic Direct Pay, stating that these two offerings would allow consumers to pay less for digital products and allow developers to earn more money. Apple unequivocally denied this request.
Following Apple’s rejection, Epic Games submitted to Apple for its review a software update, or a “hotfix,” to its flagship video game product, Fortnite. Unbeknownst to Apple, the hotfix contained a code that, once activated, would permit Fortnite users to make in-game purchases through Epic Games’ direct pay option, thereby circumventing Apple’s IAP system. Unaware of this undisclosed code, Apple approved the software update. Shortly thereafter, Epic Games activated the code in Fortnite, allowing itself to collect IAPs directly. Apple became aware of the situation the same day and removed Fortnite from the App Store.
Three days later, Epic Games filed the request for a temporary restraining order (“TRO”), requesting the reinstatement of Fortnite with its activated hotfix on the App Store, and enjoining Apple from terminating Epic Games’ iOS developer accounts. The district court declined to reinstate Fortnite on the App Store, but temporarily restrained Apple from taking any adverse action with respect to Epic Games’ developer account. When Apple terminated Epic Games’ developer account after the TRO expired, the district court issued a preliminary injunction preventing Apple from terminating the developer accounts of Epic Games’ subsidiaries and granted Epic Games’ request to conduct a bench trial on an expedited basis.
Following a 10-day bench trial, the district court rejected Epic Games’ Sherman Act §§ 1 and 2 claims alleging that Apple acted unlawfully by restricting app distribution on iOS devices to Apple’s App Store and requiring in-app purchases on iOS devices to use Apple’s IAP system. However, the district court concluded that Apple’s practice of limiting the ability of app developers to communicate the availability of alternative payment options to iOS device users (commonly referred to as its “anti-steering rules”) was unfair under the UCL and permanently enjoined Apple from enforcing it against Epic or any other developer. Both Epic and Apple appealed.
Epic’s UCL claims and the nationwide injunction
As described above, Epic sued Apple under both the federal antitrust laws and California’s UCL. The UCL has both an “unfair” prong (which applies to incipient antitrust violations or acts that violate the spirit of those laws or otherwise threaten competition) and an “unlawful” prong (any business act that violates another law also violates this prong of the UCL), and Epic levied claims against Apple under both theories. Applying the UCL to Apple’s anti-steering rules, the district court concluded that Apple’s anti-steering rules violated the “unfair” prong of the UCL. This is significant for two main reasons: 1) because the district court concluded explicitly that complained-of conduct that fails under the Sherman Act can and should still be considered under the UCL,[3] and 2) because the district court held that the anti-steering rules violate the “policy [and] spirit” of the antitrust laws because anti-steering has the effect of preventing substitution among platforms for transactions.[4]
As to the first point, this decision and its affirmance by the Ninth Circuit are important for practitioners to consider when pleading antitrust violations and conducting discovery regarding the same. Traditionally, incipient violations of the antitrust laws have been difficult to litigate, particularly for private enforcers without the benefit of the Section 5 of the FTC Act or its state-law equivalents.[5] But Epic v. Apple makes clear that courts may still provide redress for conduct that may otherwise fall outside of the traditional ex post lens of the antitrust laws.
Similarly, the second point appears to signal that there may be redress available under the UCL for conduct that may fall short of violating the antitrust laws but nonetheless causes harm similar to that which the antitrust laws are designed to prevent. Here, for example, the district court found that the impact of preventing substitution was enough to satisfy the “unfair” prong of the UCL even though the district explicitly found that Epic did not carry its burden as to whether the same conduct violated the antitrust laws.[6]
Additionally, and importantly, the district court concluded that the nature of Epic’s claims made it appropriate to issue a permanent injunction prohibiting Apple from enforcing its anti-steering provisions against any of the developers on its App Store rather than limiting that the relief to Epic. The district court applied federal common law principles as dictated by the Ninth Circuit in Sonner v. Premier Nutrition Corp., 971 F.3d 834, 837 (9th Cir. 2020) and concluded that there was no adequate remedy to address the anticompetitive harm associated with Apple’s anti-steering rules.[7] The district court found that the anti-steering rules had the effect of hiding information from consumers limiting consumer choice, and that harm was not easily addressed by monetary damages.[8] The Ninth Circuit agreed, and concluded that an injunction limited only to Epic and its subsidiaries would not address the harm suffered by Epic’s competing store.[9] The Ninth Circuit reasoned that because Epic was unable to direct other developers to its own store because of Apple’s anti-steering rules that an injunction affecting less than all of Epic’s potential customers was insufficient to address that harm.[10]
This ruling by the Ninth Circuit presents a possible road map for claimants in California to seek redress for conduct that may not satisfy all of the requirements for relief under the antitrust laws, and to obtain injunctive relief that can actually change how businesses operate for all participants in the market rather than just those with the resources and inclination to litigate. This application of California’s UCL is, we submit, the necessary and appropriate way to ensure that laws protecting competition are actually able to do so in today’s digital markets.
The Ninth Circuit’s stay of its order relating to anti-steering provisions
On July 17, 2023, the Ninth Circuit paused its order finding that Apple’s anti-steering provisions violate the UCL to await the outcome of Apple’s petition to the U.S. Supreme Court.[11] After giving Apple 90 days to file a petition for writ of certiorari, the Ninth Circuit added that if Apple’s petition is denied, the mandate will issue immediately.[12] Contesting the stay, Epic Games argued in its emergency application to the Supreme Court filed on July 25 that it could be months before the Supreme Court bid is resolved.
On August 9, the Supreme Court denied Epic Games’ request that the Supreme Court reinstate the Ninth Circuit’s injunction on Apple's App Store's anti-steering provisions while Apple petitions the Supreme Court for review of the order.[13] The parties and the public will now wait for the Supreme Court’s decision on Apple’s petition for certiorari, during which time Apple’s anti-steering rules remain in place.
Conclusion
While the district court’s ruling on Epic’s antitrust claims has been the subject of much scrutiny, its UCL ruling and affirmance by the Ninth Circuit represent an important step in understanding how to apply California’s UCL to anticompetitive harms in digital markets.
*Kyle G. Bates is Counsel and Tae H. Kim is an Associate in San Franciso.
Footnotes
[1] 67 F.4th 946 (9th Cir. 2023) [hereinafter 9th Cir. Epic v. Apple].
[2] See Epic Games, Inc. v. Apple Inc., 559 F. Supp. 3d 898, 1058 (N.D. Cal. 2021), aff'd in part, rev'd in part and remanded, 67 F.4th 946 (9th Cir. 2023) [hereinafter Epic v. Apple N.D. Cal.]
[3] Epic v. Apple N.D. Cal. at 162, n.632.
[4] Id. at 164.
[5] Many states have enacted their own consumer protection laws that are modeled on Section 5, which are referred to as “little FTC Acts.” See Justin J. Hakala, Follow-On State Actions Based on the FTC’s Enforcement of Section 5, available at https://www.ftc.gov/sites/default/files/documents/public_comments/section-5-workshop-537633-00002/537633-00002.pdf (last visited Aug. 25, 2023).
[6] Id. at 179 (“Thus, and in summary, the Court does not find that Apple is an antitrust monopolist in the submarket for mobile gaming transactions. However, it does find that Apple’s conduct in enforcing anti-steering restrictions is anticompetitive.”).
[7] Id. at 166.
[8] Id.
[9] 9th Cir. Epic v. Apple at 87.
[10] Id.
[11] 9th Cir. Epic v. Apple, Order (Jul. 17, 2023), available at https://cdn.ca9.uscourts.gov/datastore/opinions/2023/07/17/21-16506.pdf (last visited Aug. 25, 2023).
[12] Id.
[13] Andrew Chung, Reuters, US Supreme Court refuses Epic bid to let App Store order take effect in Apple case (Aug. 9, 2023), available at https://www.reuters.com/legal/us-supreme-court-refuses-epic-bid-let-app-store-order-take-effect-apple-case-2023-08-09/ (last visited Aug. 25, 2023).
