Why Epic Games lost to Apple in court: three root causes

Last week, the court issued its long-awaited decision in Epic vs. Apple, and Epic Games lost. I’ve written about this a few times before, but for those who aren’t in the know: Epic Games had challenged Apple’s restrictive policies that require developers to sell iPhone apps through the Apple App Store, to use Apple Pay to pay for entries. app purchases and pay Apple 30% of all Apple derivative income.

The lawsuit was filed in August and put on an accelerated schedule. The trial was held in May and was a “bench trial,” meaning the parties presented their evidence to the judge rather than a jury. The judge’s decision was 185 pages (single-spaced!) And included a thorough analysis of all the arguments in the case.

This week, I’m going to detail the decision and identify some root causes why Epic Games lost the lawsuit against Apple.

The big picture

There is no mining: Epic Games has lost big. In fact, the court ruled against Epic on almost every issue. The court concluded that there was nothing illegal about Apple’s rule requiring Epic (and others) to use the App Store as the exclusive distributor of iOS apps, nothing illegal in the Apple’s rule requiring developers to pay Apple 30% of all revenue derived from Apple, and nothing illegal about Apple’s rule requiring developers to use Apple Pay for all in-app purchases.

Epic’s only victory in this case is relatively minor. In addition to the issues described above, the court examined the legality of Apple’s “anti-leadership” rules, which prevent developers from “turning” customers away from the app for purchases. For example, Epic cannot include a link to its website that would allow users to purchase V-Bucks (or other in-game currency) outside of the app. The court found these rules to be illegal under California law (but not under federal law).

However, the anti-leadership issue was essentially a footnote to the other issues in the case. The real action in the case was about App Store exclusivity, Apple’s 30% commission and the mechanisms used to enforce those rules, and Epic can’t even claim a partial victory on these issues.

Why Epic Games lost

In many ways, the loss of Epic Games is a legal disaster – at least as far as Epic is concerned. My goal here is to provide high-level root cause analysis to understand what went wrong for Epic Games, based strictly on the court ruling itself, the trial record, and Epic’s public statements. .

The point is, Epic didn’t lose the case out of nowhere. Antitrust law is almost fractal in its complexity. The determination of who should prevail over any overall question is determined by a series of smaller intermediate questions decided along the way.

For example, before the court could determine whether Apple’s behavior was anti-competitive, it had to first identify the relevant market through which to measure competition. It’s easy to say that Apple’s behavior is hurting competition for iPhone apps, since Apple has full control in this market. However, it is quite another thing to say that Apple’s behavior is hurting the competition for games. generally, given that Apple is a relatively small component of the overall gaming industry.

Three Root Causes Epic Games Lost In Lawsuit Over Apple's Failed Loss

The question of which market is “relevant” for the purposes of a legal analysis itself requires the court to consider several intermediate facts, such as the interchangeability of goods in a potential market, price elasticity, trade, identifying the relevant consumer base. , And so on. But many of these facts even imply further away factual questions. And this is only for one step of the antitrust analysis (relevant market). There is a similar complexity for each of the other stages of antitrust analysis. Needless to say, once you dig into the details, it’s easy to see how the court ended up with a 185-page decision.

So, Epic Games’ loss on Big Issues stems directly from dozen losses on smaller problems along the way, at all levels of the analysis. Of course, this leads to an immediate follow-up question: How? ‘Or’ What Has Epic Games failed so epically on so many small issues? The court’s decision provides useful guidance for this purpose.

First cause: the bad experts

As explained above, the factual issues underlying an antitrust analysis are complex and factual. It’s no surprise, then, that Apple and Epic Games have relied heavily on experts to support their arguments regarding market definition, market presence, and anti-competitive effects (among others). Problem is, Epic’s experts were terrible – and the court didn’t hesitate to explain why:

  • “Unexplained academic and industrial experience simply does not provide a sufficient basis for drawing reliable conclusions. … [T]Dr Athey’s expert testimony is totally devoid of any evidence … “
  • Epic’s expert testimony on lockdown effects was based on flawed analysis limited to iOS only Fortnite players, excluded players who use cross-platform play and did not take into account the substitution between iOS and Android.
  • Dr. Rossi’s testimony at trial revealed that he was more interested in an outcome that would help his client’s case than in providing an objective reason to assist the Court in its decision making. of Dr. Rossi’s credibility, the Court strives to adopt its findings.
  • “The Court finds that Dr. Evans’ SSNIP analysis is hopelessly flawed by several standards, including his own. … Dr. Evans’ analysis is unreliable and gives no insight into substitution in an alleged iOS application distribution market.
  • “Dr. Evans’ decision to limit his analysis to iOS only Fortnite players is questionable as it ignores other market evidence that iOS players have engaged in substitution…. [T]The Court found that Dr Evans probably underestimated overall substitution.

It’s hard to overstate the importance of these results. Epic Games has relied on its experts to prove the key facts in its case against Apple. The fact that the court found these experts to be unreliable meant that it would have been next to impossible for Epic to prevail on these issues. And since Epic Games’ legal theories were based on the underlying facts, their factual failure directly contributed to why Epic lost the case.

Root cause # 2: epic games got greedy

Epic argued that there are two relevant antitrust markets, one for the distribution of iOS apps and the other for in-app iOS payment solutions. For the most part, Epic assumed the court would adopt its proposed market definitions and therefore did not spend enough time or effort persuading the court that Apple’s conduct was illegal under another definition of Marlet.

The court ended up rejecting the market proposed by Epic, leaving Epic an “underdeveloped case” compared to the market actually considered by the court. In fact, the court said explicitly, “At the end of the day, Epic Games has crossed the line. As a result, the trial record was not as complete with respect to antitrust conduct in the relevant market as it might have been. There were numerous other references throughout the decision to an “underdeveloped case.”

While this root cause certainly reflects a failure on Epic’s part, it’s easy to see how Epic made this mistake. On the one hand, the court rejected the market definition proposed by Apple and Epic and opted for a market definition on its own initiative. To make matters worse, the parties were never informed of the market definition chosen by the court and therefore did not have the opportunity to present evidence specific to this market. It’s also worth mentioning that trial time was limited – every minute Epic spent considering alternate market definition was one minute less for Epic to back up its case. prefer market definition. Looking back, it’s easy to see that Epic should have spent more time on alternate theories, but it certainly wasn’t as obvious during the trial.

Third cause: losing high moral ground

As I explained in my previous coverage of this case, “the most valuable tool lawyers have when presenting a case to a judge or jury is their credibility.” In that same post, I explained how Epic lost its credibility early on in this case by making spurious and misleading arguments in court as part of its preliminary injunction request. However, as the case was only in its early stages, Epic had plenty of time to put things right.

The substance of the court order shows, unequivocally, that Epic has not recovered any lost credibility. This emerges more clearly from the court’s discussion of “Project Liberty”. Project Liberty was a campaign whereby Epic bypassed Apple’s in-app payment requirements by using a technical backdoor built into its apps. The court described Project Liberty as “a highly choreographed attack on Apple and Google” and called its digital backdoor a “willful violation of [Epic’s] contractual obligations and directives. The court ruling includes a detailed over 7 page description of the campaign that makes it clear that the court did not approve of Epic’s tactics. Elsewhere, the court challenged Epic’s entire business model, saying: “There is little societal value in allowing [Epic] capitalize on more customer data to leverage customer habits.

Ultimately, judges are responsible for applying the law regardless of what they think about the parties or the underlying issues. But one cannot ignore the fact that judges are people and that their perception of the evidence presented in a case is always informed by the narrative lens through which they see it. It is for this reason that one of the most important and frequently offered tips for writing a legal brief is to start with the facts and persuade the judge that your side is on your side. should win before you get to the law and explain why your camp Is win under the law.

The fact that Epic Games lost control of the narrative before it even got off the ground was bad. The fact that Epic hadn’t recalibrated or attempted to change the narrative direction could easily have sealed his fate.

Now we see why Epic Games lost. Now what?

To anyone’s surprise, Epic has already filed a notice of appeal and will seek to overturn the judge’s decision. Will it be successful? We may have to discuss this next time.

About Chris McCarter

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