By Sam Ozer-Staton

“There’s an app for that” is one of the most iconic slogans of the internet age. Sesame Street even turned it into a song. The phrase, which Apple coined in a 2009 ad campaign and trademarked a year later, was used to promote the launch of its revolutionary App Store. 

But these days, not everyone finds the ubiquity of the App Store cute or charming. Competitors and regulators have alleged that the platform, which Apple CEO Tim Cook has called “an economic miracle,” constitutes an illegal exercise of monopoly power. 

Last year, following an extensive investigation, the House Judiciary Committee released a sweeping report alleging anti-competitive practices in Big Tech. The report concluded that “Apple exerts monopoly power in the mobile app store market, controlling access to more than 100 million iPhones and iPads in the U.S.” The report went on to allege that Apple uses its App Store to “create and enforce barriers to competition and discriminate against and exclude rivals” and “to exploit app developers through misappropriation of competitively sensitive information.” 

Here’s the criticism, in a nutshell: Apple makes the hardware (the iPhone itself, which today represents about 53% of the mobile phone market share in the United States). It controls the mobile operating system that runs apps and operates the only store where users can download new ones. It also takes a 30% commission for apps purchased in the App Store. Taken together, according to critics, Apple’s behavior harms competitors, reduces quality and innovation among app developers, and limits choices for consumers. 

Now, the battle over whether Apple has a monopoly over the mobile app market has reached the courtroom. On Friday, a federal judge issued a highly-anticipated opinion that has broad implications for the future of antitrust law in mobile apps and gaming. 

The case, Epic Games Inc. v. Apple Inc, was brought by Epic Games, the developer of the immensely popular “Fortnite” video game. (And when I say immensely popular, I mean 350 million players as of May 2020.) In August 2020, Epic Games attempted to bypass Apple’s required 30% fee by updating its app to allow players the ability to pay Epic directly. Apple responded to Epic’s breach of contract by removing “Fortnite” from the App Store. Epic then filed suit against Apple. 

Here’s how Judge Yvonne Gonzalez Rogers of the Northern District of California described Epic’s lawsuit:

Broadly speaking, Epic Games claimed that Apple is an antitrust monopolist over (i) Apple’s own system of distributing apps on Apple’s own devices in the App Store and (ii) Apple’s own system of collecting payments and commissions of purchases made on Apple’s own devices in the App Store. Said differently, plaintiff alleged an antitrust market of one, that is, Apple’s “monopolistic” control over its own systems relative to the App Store. 

Judge Rogers ultimately issued a ruling that legal experts are calling a partial victory for both sides. Rogers took issue with both parties’ definition of the “relevant market,” a concept that Preet discussed at length last month on Stay Tuned with FTC Commissioner Rebecca Kelly Slaughter. As Judge Rogers explained:

“Central to antitrust cases is the appropriate determination of the ‘relevant market.’ Epic Games structured its lawsuit to argue that Apple does not compete with anyone; it is a monopoly of one. Apple, by contrast, argues that the effective area of competition is the market for all digital video games in which it and Epic Games compete heavily. In the digital video game market, Apple argues that it does not enjoy monopoly power, and therefore does not violate federal and state law. 

The Court disagrees with both parties’ definition of the relevant market. Ultimately, after evaluating the trial evidence, the Court finds that the relevant market here is digital mobile gaming transactions, not gaming generally and not Apple’s own internal operating systems related to the App Store.”

Having defined the relevant market differently than Epic Games, the Judge concluded that the plaintiffs had not met their burden of demonstrating that Apple is an illegal monopolist. Rogers wrote that while Apple enjoys considerable market share in digital mobile gaming transactions, “[t]he final trial record did not include evidence of other critical factors, such as barriers to entry and conduct decreasing output or decreasing innovation in the relevant market.”

Despite not ruling that Apple is a monopolist, the Judge did find that Apple engages in anti-competitive behavior when it comes to its “anti-steering provisions” — the rules that prevent third-party app developers from telling customers that they can buy the same products online for less money. The Court wrote that those restrictions “hide critical information from consumers and illegally stifle consumer choice.” 

So where does that leave both sides? Epic must pay Apple damages amounting to roughly $3.6 million for breach of contract. Apple avoids the kind of sweeping ruling that critics of Big Tech had been hoping for, but it must allow developers to “steer” users toward other ways to pay, including external links in apps, buttons, or other “calls to action” that direct users to payment options that exist outside of Apple’s system. 

Puncturing Apple’s iron grip on in-app payments represents a victory for third-party developers, and the decision is expected to spark a wave of alternative payment options within apps. Still, neither side is happy with the ruling. Epic has announced that it will appeal the decision, and its CEO said on Twitter: “Today’s ruling isn’t a win for developers or for consumers. Epic is fighting for fair competition among in-app payment methods and app stores for a billion consumers.” Meanwhile, an Apple representative said the company is actively weighing whether to appeal.

What do you make of Friday’s decision? Do you think that the App Store constitutes an illegal monopoly?

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