Epic’s legal victory against Apple was not a real victory

Back then, NES games were distributed via proprietary console cartridges that only Nintendo could manufacture. To bring Pac-Man to the NES, someone had to put the game on an NES-compatible cartridge. Nintendo eventually agreed to manufacture these cartridges for a 20% manufacturing fee over and above their 10% platform-licensing commission. According to Bloomberg correspondent Takashi Mochizuki, this is the origin story behind the 30% digital distribution fee that game developers pay gaming platforms to date.

Arguably, this was the reason why when Steve Jobs launched the world’s first mobile app store, he set the developer commission at 30%. And yet, despite the fact that App Store commissions have been indistinguishable from game developers paying gaming platforms for decades, it has become a source of so much anger among developers that lawsuits have been filed against major mobile platforms in the surrounding courts. has been done. World. Last week, the decision in the first of these lawsuits, Epic Games v. Apple Inc., was announced and barred Apple from requiring it to process in-app purchases only through the App Store.

Within hours of news of the US decision reaching India, I found myself in a quick Twitter space full of Indian CEOs, developers and journalists celebrating that victory as if it were their own. Most of the attendees were fighting their battles against the stalwarts of the platform in what he referred to as his efforts to “pour the oxygen out of the Indian tech ecosystem”. To them, it seemed that the matter was settled and in fact decided in its favor. Developers who, as a result, may eventually rid themselves of what’s known as an “app store tax” on in-app payments. They seemed convinced that what applied to Apple’s App Store in the US would extend to the Google Play Store in India, and that Indian courts would, sooner or later, allow alternative in-app payment (IAP) mechanisms as well.

But when I actually sat down and read the 185-page judgment in its entirety, it became clear to me that the initial enthusiasm about the order was misplaced. It wasn’t the slam-dunk victory everyone thought. quite the contrary.

Instead of declaring the App Store and its restrictions on third-party payment solutions as competitors, the court upheld the centralized solution offered by the App Store, stating that “the use of separate payment solutions for each app may reduce the quality of experience for some consumers by depriving users of the centralized option of managing a single account through IAP.” Not only did the court consider the App Store model to be monopolistic, but it said it exhibited the competitive features of security, intra-brand. The competitiveness and safety of intellectual property investments, the benefits of which outweigh the plaintiffs’ concerns. The court also specifically pointed out that the provision of apps on Apple’s iOS platform uses Apple’s intellectual property, for which Apple was legally entitled to compensation. Furthermore, the court felt that the plaintiff had failed to show that the alternatives were “virtually as effective”. As the current distribution model that can be implemented “without significant increase”.

At the end of the day, the only ground on which a US court held against Apple was made under California’s unfair competition law (UCL), a state law whose broad language made it difficult for the court to recognize even “initial” violations. made possible. The “policy or spirit” of antitrust laws is in a way that was not possible under the Sherman Act (the primary US federal antitrust statute). Relying on these provisions of equity, the court held that any restriction on the inclusion of “buttons, external links, or other calls to action that direct customers to purchase mechanisms other than in-app purchases” Threatens “an initial breach of antitrust law”. , which, though not illegal, were inappropriate. And since Epic Games was a quasi-consumer (a description the court made, even though it was not expressed as such at UCL), it deserved an injunction.

Reading between the lines, this is not the victory it seemed at first glance. By declaring that Apple was entitled to compensation from developers who developed apps for the iOS platform, the court has allowed it to continue charging for in-app purchases. As the judge struck down the 30% commission as not being too high, Apple could continue to charge the same amount going forward. What’s stopped Apple from doing this is taking measures to ensure that all in-app transactions are routed exclusively through its App Store so that commissions can be deducted at source.

That said, platform companies are now more aware of developers’ concerns than ever before and have indicated a willingness to offer conditionally lower fees. I hope this leads to better results all around.

Rahul Mathan is a partner at Trilegal. His Twitter handle is @matthan. Some of the organizations mentioned in this article are customers of the company.