Northern District Of California Engages In Tech Companies’ Fortnite Battle
10/27/2020On October 9, 2020, Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California granted in part and denied in part Epic Games’ motion for preliminary injunction against Apple, Inc. Epic Games, Inc. v. Apple Inc. , No. 4:20-cv-05640-YGR (N. D. Cal. 2020). Plaintiff Epic Games (“Epic”) sought to reinstate its popular video game, Fortnite, to the Apple App Store and to regain its access to Apple’s developer tools. The Court declined to reinstate Fortnite to Apple’s App Store, but ordered Apple to allow Epic’s corporate affiliates access to its developer tools.
Apple distributes Epic’s games on its iOS platform, where Apple maintains exclusive control over the hardware, the operating system, distribution, and servicing through its in-app purchase (“IAP”) system. Conditions for games to be featured on the platform are laid out in contracts terminable at-will by Apple. Over the summer, Apple refused Epic’s request for Fortnite players to be able to use alternative in-game payment options—specifically, options circumventing the IAP system’s set percentage cut of revenue from players accessing Fortnite through Apple’s platform. Notwithstanding Apple’s response, Epic released an update to Fortnite with a payment tool that allowed players to bypass the IAP system. Apple then removed Fortnite from its App Store, prompting Epic to file for this injunction.
Epic’s preliminary injunction motion focused on two claims: Apple’s alleged illegal monopoly under Sherman Act § 2 and alleged illegal tying under Sherman Act § 1. Regarding the Section 2 claim, the parties disputed the relevant market. Epic limited the relevant market to the App Store, or more specifically Apple’s app distribution channels on its iOS platform. Apple argued for a broader market of all platforms where the game Fortnite is distributed and monetized. The Court, citing an undeveloped record, found that Epic at this time had demonstrated “serious questions,” but did not meet its burden of showing anticompetitive harm for a monopoly maintenance claim under Sherman Act § 2.
Epic’s second claim alleged that Apple, in violation of Sherman Act § 1, tied its first product over which it has a monopoly—the iOS app distribution “product” —to its separate IAP system “product.” The Court held that Epic did not demonstrate that Fortnite’s unavailability on the iOS platform caused Epic irreparable harm in part because Epic could regain access by removing the IAP-workaround tool that led to Fortnite’s removal. Conversely, the Court held that Epic’s corporate affiliates—with whom Apple had separate contracts—would suffer irreparable harm from Apple cutting off their access to developer tools in retaliation for Epic’s actions. The Court disagreed with Apple’s justifications that it had an established practice of revoking affiliated developer accounts and tools (finding the affiliates had their own, unbreached agreements with Apple), that the harm was self-inflicted (finding Apple overreached into separate business relationships), and that the affiliates could insert unauthorized secret code into Apple’s platform applications (finding this farfetched and easily preventable by tailoring the injunction’s scope). Further, the Court also found that the equities weighed in favor of the affiliates. The Court found Apple’s “aggressive targeting” of Epic’s affiliates “unnecessary and imperiled a thriving third-party developer ecosystem. Providing continued access . . . to developer tools and the App store preserves the status quo.” Id. at 36.
This case highlighted important questions in the litigation of novel technology issues in antitrust claims. The preliminary injunction decision acknowledged key open issues regarding the novel technology marketplace, consumer behavior, and lack of precedential law.