Epic v Apple trial ends with judge mulling her powers over App Store

Epic Games' antitrust challenge against Apple closed Monday with the federal judge handling the trial considering the limit of her powers if she concludes that the App Store is being run as an illegal monopoly.

Instead of traditional closing statements, U.S. District Judge Yvonne Gonzalez Rogers conducted a colloquy in which she asked both sides key questions. She drilled down on the boundaries of the market the two companies are fighting over and the least intrusive solutions to address Apple's monopoly, if she finds there is one.

The outcome of the trial will be heard far outside the Oakland courtroom it took place in as Apple fends off growing scrutiny from those who claim the world's most valuable company abuses its authority over the distribution of apps to more than a billion iPhone owners.

Epic is seeking an order forcing Apple to permit alternative marketplaces for apps and use of payment processors in which developers are not subject to commissions as high as 30%. Epic Games v. Apple Inc., 20-cv-05640 (N.D. Cal., filed Aug. 13, 2020).

Gonzalez Rogers has appeared receptive throughout the three-week trial to the claim that Apple should be required to facilitate access to the App Store because of the popularity of its mobile operating system.

But on Monday, she suggested she might not have the authority to require Apple to change a foundational part of its operations. "Trial courts and appellate courts do not run businesses," she said.

The judge questioned whether there's legal precedent to fashion a remedy like the one Epic is requesting.

"Have [courts] in fact said, 'You, billion-dollar company, trillion-dollar company, you must fundamentally change the business model under which you are operating'?" she asked. "Are they doing that? Have they ever done that?"

Epic attorney Gary Bornstein of Cravath, Swaine & Moore LLP replied that the Federal Trade Commission's lawsuit against Qualcomm resulted in such an order, but Gonzalez Rogers quickly pointed out that decision was reversed. She told him to give an example "that's survived appellate review where the court has engaged in such a way to either prohibit something or fundamentally change the business model of a monopolistic company."

After Bornstein cited the antitrust court battle against Microsoft, Apple attorney Richard Doren of Gibson, Dunn & Crutcher LLP emphasized that case was brought by the government and not a private party.

In the FTC's case against Qualcomm, a federal appeals court found that the company has no duty to license patents to rivals and its dominant market position is the result of superior products and practices.

Apple has wielded the order in defense of its practices. Apple has maintained that courts recognize a business' right to refuse to deal on terms and conditions that competitors might prefer.

Doren said that Epic is essentially seeking a "compulsory license" to Apple's intellectual property. "Apple retains the right to use its intellectual property to compete in the business model it's chosen," he said.

While there is no general duty to assist competitors, Bornstein countered that the use of intellectual property does not permit anticompetitive conduct.

Gonzalez Rogers hinted that she might be inclined to force Apple to alter rules prohibiting developers from directing customers to cheaper payment options off of the App Store where they are not subject to Apple's 30% commission. In this scenario, Epic would be permitted to inform customers playing Fortnite on iPhones that they can buy digital content offered inside of the app on its website at a cheaper price.

Apple has maintained that the practice was upheld by the Supreme Court in an antitrust case against American Express.

One area where Gonzalez Rogers signaled that she will compromise with both sides is the definition of the boundaries of the market. Epic appeared to take the indication better than Apple.

"How would it affect you if I decided that the relevant market was mobile gaming?" she asked.

"Well, that would make me very sad," responded Apple attorney Daniel Swanson of Gibson, Dunn & Crutcher LLP.

Apple has tried to show that the market is all gaming apps in which it's only one player competing with app stores offered by Google, Sony, Microsoft and Nintendo. Epic says the market is the distribution of apps on Apple's mobile operating system.

"While it's not the market we've advocated for, that makes a lot more sense than the broader market Apple has advocated for here given the difference in platforms," Bornstein said.

Gonzalez Rogers said she aims to rule on the case by mid-August. She previously joked that will issue a ruling on Aug. 13, the date last year when Epic filed its lawsuit against Apple after it was ousted from the App Store.

Any ruling will likely be appealed.