Why Epic’s lawsuit against Apple just won’t quit

In 2020, Epic Games sued Apple for antitrust violations. It’s been years since the trial wrapped and judgment was rendered, but for the past few weeks, Apple and Epic Games have been back in front of Judge Yvonne Gonzalez Rogers once more. Gonzalez Rogers mostly ruled in favor of Apple last time. Things might not go so well for the company this time.

As a reminder, this whole case got started when Epic challenged Apple’s up to 30 percent fees to developers for in-app purchases through a splashy campaign where it basically ignored Apple’s App Store guidelines and put in its own mobile payment processing system in its popular game Fortnite. That got the Fortnite app kicked off of the App Store, setting up the perfect scenario for Epic to sue Apple over its rules. Apple filed a countersuit, accusing Epic of breaching its contract.

Ultimately, Gonzalez Rogers found that Epic did breach its contract with Apple with its stunt and ordered it to pay Apple 30 percent of the revenue collected through its outside payment system — about $3.5 million.

Though Apple won on most counts, Gonzalez Rogers also ordered the company to allow developers to use other purchase mechanisms besides Apple’s for in-app purchases. After the Supreme Court declined to take up both Epic and Apple’s appeals earlier this year, Apple was forced to implement this change.

But Apple did that Apple’s way. The company did create a way for developers to link to outside payment methods for in-app purchases, thus avoiding the up-to-30 percent cut Apple takes when payments are made through its own system. But the external link system also came with an up-to-27 percent commission for Apple, leading Epic CEO Tim Sweeney to call the plan “bad-faith” compliance. Epic challenged Apple’s compliance plan, landing both back in court over the past few weeks to participate in a series of evidentiary hearings.

During these hearings, attorneys from both Apple and Epic have questioned witnesses — including Apple employees and outside experts — about the rationale behind Apple’s decisions in the compliance plan and why they felt it would adhere to the court order.

While it’s too early to say how the judge will rule here, Gonzalez Rogers did have a few pointed questions for Apple throughout the hearing. For example, at one point earlier this month, while discussing the button styles Apple requires for links to outside payments systems, Gonzalez Rogers said she couldn’t “imagine a logical reason why Apple would demand that of competitor apps… Other than to stifle competition, I see no other answer.”

On May 16th, she seemed impatient at times with Carson Oliver, Apple’s senior director for business management for the App Store. Yonatan Even, a litigation partner at Cravath representing Epic, asked the executive if he understood that the concern the court expressed in its injunction “was that anti-steering rules prevented communicating lower prices outside of the app, which in turn prevented leakage.” Oliver said he “generally” understood that to be the case.

But when Even asked if Oliver understood that a goal of the court’s injunction “was to increase the threat of leakage so that IAP [Apple’s in-app purchase system] would feel the competitive pressure and transactions outside the app,” Oliver said he “understood it differently.” That prompted an exasperated-sounding response from the judge, who asked Oliver directly, “Did you understand the fundamental point was to increase competition?” Oliver said he did, and after a brief interjection by Even, Gonzalez Rogers said, “doesn’t seem likely you do, but go ahead,” before the questioning resumed.

Throughout that day’s proceedings, Oliver described the analysis his team commissioned from an outside consultancy group, and Epic’s lawyer pressed on the reasons they did or did not assess certain aspects of the IAP and compliance with the court order. Later on, the judge said to Oliver, “I don’t recall seeing any slides so far that identifies the value to a single developer.” She said the model Apple came up with basically “has one group of developers subsidizing everyone else because you don’t charge many developers anything other than the application fee, or the developer fee.” Oliver said the consultant’s analysis represented value to individual developers, but the judge did not seem moved by his answer.

During the following day’s session, Gonzalez Rogers continued to press Oliver for the information his team had collected about the effectiveness of its proposal in response to the court order. At different points, she’d ask if Oliver had documents or contemporaneous notes to back up his statements and seemed frustrated when Oliver had not kept notes about conversations.

Later, another Epic lawyer began to question Apple Fellow Phil Schiller, whose responsibilities include the App Store. The judge seemed to take issue with an element of Apple’s compliance plan that lets the company collect a commission from apps that install an “External Purchase Link” within the first seven days after a user taps the link. Apple says this balances its “entitlement to a commission” with “the more attenuated” connection of an in-app purchase with the App Store the further out from “Apple’s facilitation of the purchase.”

“You want everything within the scope of seven days, so you created yet another subcategory, correct?” Gonzalez Rogers asked Schiller. “Not exactly,” he responded. “A developer can continue to do all the things they do today to drive transactions to their website for which Apple gets no commission. In this scenario, where they begin in the app, Apple does want to get a commission during that seven-day window.”

The hearing continued last week, with Schiller still on the stand. Cravath partner Gary Bornstein, representing Epic, questioned him about how many apps had requested to be able to use a purchase link in their apps. Apple had told the court that 38 apps had done so so far and that there are 135,000 apps on the App Store that currently have in-app purchases available.

As small as that number of applicants is, Bornstein noted that some of the apps that applied for the purchase links don’t even offer in-app purchases at all yet, and a few developers don’t even offer apps on the App Store. Therefore, Bornstein posited, the better number to consider in terms of the universe of apps that would be able to apply for the alternate payment system Apple created should include “apps that don’t have in-app purchase and even apps that aren’t yet on the store.” Schiller agreed that was “possibly” the right denominator to use.

In a January filing notifying the court that it intended to challenge Apple’s policy, Epic recalled that the court’s injunction said it could “apply for sanctions or other relief that may be appropriate” if it thought Apple violated the original order. Once the evidentiary hearing wraps up, it will be up to Judge Gonzalez Rogers to decide what sanctions — if any — are appropriate. The evidentiary hearing is set to continue on Friday at 9AM PT.