Apple v. Epic ruling: Full text of the juicy stuff

With its walled garden, its secret hotfix, its “tart tycoon” and its self-serving screed, it’s a pretty good read.

From the Order Granting in Part and Denying in Part Motion for Preliminary Injunction:

Preliminary injunctive relief is an extraordinary measure rarely granted. Plaintiff Epic Games, Inc.’s lawsuit against defendant Apple Inc. challenges the fundamental operation of digital platforms affecting millions of users. To resolve it, the Court must apply the Sherman Act, California’s Cartwright Act, and California’s Unfair Competition Law—statutes enacted more than a century ago—to a technology context where lawyers and economists can merely hypothesize about the future of the digital frontier. While courts are charged with adjudicating cases of significant impact, they do so cautiously, and on full records, with the status quo intact.

In this motion for preliminary injunction, Epic Games asks the Court to force Apple to reinstate Fortnite to the Apple App Store, despite its acknowledged breach of its licensing agreements and operating guidelines, and to stop Apple from terminating its affiliates’ access to developer tools for other applications, including Unreal Engine, while Epic Games litigates its claims. Having carefully considered the parties’ arguments, and for the reasons set forth more fully below, the Court maintains its findings from the temporary restraining order and hereby GRANTS IN PART and DENIES IN PART Epic Games’ motion for a preliminary injunction.

Epic Games bears the burden in asking for such extraordinary relief. Given the novelty and the magnitude of the issues, as well as the debate in both the academic community and society at large, the Court  is unwilling to tilt the playing field in favor of one party or the other with a
early ruling of likelihood of success on the merits. Epic Games has strong arguments regarding Apple’s exclusive distribution through the iOS App Store, and the in-app purchase (“IAP”) system through which Apple takes 30% of certain IAP payments. However, given the limited record, Epic Games has not sufficiently addressed Apple’s counter arguments. The equities, addressed in the temporary restraining order, remain the same…

I. B. Relevant Background

On June 30, 2020, the developer program licensing agreements for the Epic Games account, the Epic International account, KA-RA S.a.r.l. account, and the Epic Games enterprise account were renewed by the payment of separate consideration. That same day, Epic Games founder and Chief Executive Officer (“CEO”) Tim Sweeney sent an email to Apple executives, including Apple CEO Tim Cook, requesting the ability to offer iOS consumers: (1) competing payment processing options, “other than Apple payments, without Apple’s fees, in Fortnite and other Epic Games software distributed through the iOS App Store”; and (2) a competing Epic Games Store app “available through the iOS App Store and through direct installation that has equal access to underlying operating system features for software installation and update as the iOS App Store itself has, including the ability to install and update software as seamlessly as the iOS App Store experience.” Mr. Sweeney highlights that these two offerings would allow consumers to pay less for digital products, and allow developers to earn more money. Mr. Sweeney also wrote that he “hope[d] that Apple w[ould] also make these options equally available to all iOS developers in order to make software sales and distribution on the iOS platform as open and competitive as it is on personal computers.” (Id.) In this email, Mr. Sweeney does not provide any offer to pay Apple any portion of the 30 percent it charges on either app distribution or for IAP.

On July 10, 2020, Apple Vice President and Associate General Counsel Douglas G. Vetter responded to Mr. Sweeney’s email with a formal letter. In short, Apple’s response to Epic Games’ requests was no. Both requests were unequivocally refused. As relevant here and with respect to the Epic Games Store request, Mr. Vetter wrote:

Apple has never allowed this. Not when we launched the App Store in 2008. Not now. We understand this might be in Epic’s financial interests, but Apple strongly believes these rules are vital to the health of the Apple platform and carry enormous benefits for both consumers and developers. The guiding principle of the App Store is to provide a safe, secure and reliable experience for users and a great opportunity for all developers to be successful but, to be clear, when it comes to striking the balance, Apple errs on the side of the consumer.

Mr. Vetter also reiterated that Epic Games’ request to establish a separate payment processor would interfere with Apple’s own IAP system, the business model of which has been used in the App Store since its inception.

On July 17, 2020 Mr. Sweeney responded to what he described as a “self-righteous and self-serving screed,” writing that he hoped “Apple someday chooses to return to its roots building open platforms in which consumers have freedom to install software from sources of their choosing, and developers can reach consumers and do business directly without intermediation.”  He stated that Epic Games “is in a state of substantial disagreement with Apple’s policy and practices,” and promised that it would “continue to pursue this, as [it] ha[s] done in the past to address other injustices in [the] industry.”

In fulfilling Mr. Sweeney’s promise to “pursue this” perceived “injustice,” Epic Games covertly introduced a “hotfix” into the Fortnite version 13.40 update on August 3, 2020. Epic Games did not disclose the full extent of this hotfix to Apple, namely that this hotfix would enable a significant and substantive feature to Fortnite permitting a direct pay option to Epic Games that would be activated when signaled by Epic Games’ servers. Until this signal was sent out, this direct pay option would remain dormant. When activated, however, this direct pay option would allow iOS Fortnite players to choose a direct pay option that would circumvent Apple’s IAP system. Relying on the representations, that intentionally omitted the full extent and disclosure of this hotfix, Apple approved of the Fortnite version 13.40 to the App Store.

The hotfix remained inactive until the early morning of August 13, 2020, when Epic Games made the calculated decision to breach its allegedly illegal agreements with Apple by activating the undisclosed code in Fortnite, allowing Epic Games to collect IAPs directly.

Fortnite remained on the App Store until later that morning, when Apple removed Fortnite from the App Store, where it remains unavailable. Later that same day, Epic Games filed this action and began a pre-planned, and blistering, marketing campaign against Apple. This marketing campaign included: a large-scale twitter campaign, a releasing of a parody video of the iconic Apple 1984 commercial, a Fortnite tournament in support of its lawsuit with in-game prizes, and a releasing of a limited time skin in Fortnite called the Tart Tycoon (Modeled presumably on Mr. Cook’s likeness), among other actions.

The following day, Apple responded sternly. It informed Epic Games that, based on its breaches of the App Store guidelines, and the developer program license agreement, it would be revoking all developer tools, which would preclude updates for its programs and software. Apple gave two weeks to comply with the App Store guidelines and the agreements. Apple also identified general consequences for any failure to comply, but specifically cited Unreal Engine as potentially being subject to harm should Epic Games fail to comply within the two-week period.

Thereafter on August 17, 2020, Epic Games filed the request for a temporary restraining order, requesting the reinstatement of Fortnite with its activated hotfix onto the App Store, and to enjoin Apple from revoking the developer tools belonging to the Epic Affiliates. The Court declined to reinstate Fortnite onto the App Store, but temporarily restrained Apple from taking any action with respect to the Epic Affiliates’ developer tools and accounts.

[Important footnote: Epic Games disputes that its use of the hotfix was deceptive where it is common practice in the gaming and software industry. The deceptive conduct does not derive from Epic Games’ use of the hotfix specifically, but from using a hotfix to clandestinely add features in violation of the guidelines and its agreements with Apple, and then failing to disclose such code. Moreover, Epic Games did this despite receiving an unambiguous refusal from Apple only a few weeks prior to the introduction of its hotfix. The record further reflects that while hotfixes are commonly used in the industry, their uses are generally to fix or patch critical bugs or defects—not to enact substantive and significant new features. Epic Games’ adamant refusal to understand this basic distinction is not only baffling, but undermines its credibility with this Court.]

On August 27, 2020, as planned by Epic Games, an updated version containing season four of Fortnite was released on all platforms except for the iOS platform, which Epic Games could no longer update due to its breaches of the Apple agreements and guidelines. By design, Fortnite users can only play amongst other users currently operating the same version. Because of this release, iOS Fortnite players no longer had the ability to play cross-platform with other players (unless these players chose not to update their version, forgoing playing the new season).

On August 28, 2020, on the expiration of the two-week deadline, Apple terminated Epic Games’ developer program account, referenced as Team ID ’84, stating “Apple is exercising its right in Apple’s sole discretion to terminate your status as a registered Apple Developer pursuant to the Apple Developer Agreement and is terminating the Developer Agreement and the Program License Agreement pursuant to their terms. . . . [W]e will deny your reapplication to the Apple Developer Program for at least a year.”

Following this, the parties engaged in briefing on the motion for preliminary injunction on a slightly expedited basis. The Court heard oral argument on the motion on September 28, 2020…

IV . CONCLUSION

Accordingly, for the foregoing reasons, the Court GRANTS IN PART and DENIES IN PART the motion for preliminary injunction.

THEREFORE, APPLE AND ALL PERSONS IN ACTIVE CONCERT OR PARTICIPATION WITH APPLE, ARE PRELIMINARILY ENJOINED from taking adverse action against the Epic Affiliates with respect to restricting, suspending or terminating the Epic Affiliates from the Apple’s Developer Program, on the basis that Epic Games enabled IAP direct processing in Fortnite through means other than the Apple IAP system, or on the basis of the steps Epic Games took to do so. This preliminary injunction shall remain in effect during the pendency of this litigation unless the Epic Affiliates breach: (1) any of their governing agreements with Apple, or (2) the operative App Store guidelines. This preliminary injunction SUPERSEDES the prior temporary restraining order.

For the reasons set forth above, this preliminary injunction is EFFECTIVE IMMEDIATELY and will remain in force until the disposition of this case. Neither party has requested a security
bond and the Court finds that none is necessary as contemplated under Fed. R. Civ. P. 65(c). See Connecticut Gen. Life Ins. Co. v. New Images of Beverly Hills, 321 F.3d 878, 882 (9th Cir. 2003) (“The district court is afforded wide discretion in setting the amount of the bond, . . . and the bond amount may be zero if there is no evidence the party will suffer damages from the injunction.”).

IT IS SO ORDERED.
Dated: October 9, 2020

YVONNE GONZALEZ ROGERS UNITED STATES DISTRICT JUDGE

My take: In other words, the judge split the difference in a way that leaves in place the walls on Apple’s garden.

9 Comments

  1. Fred Stein said:
    Basically, Epic got nothing. Apple got validation of its IAP business model.

    For Sweeney the credibility wall got higher. It is now harder to convince followers and developers that he can win the fight over IAP.

    2
    October 10, 2020
    • Robert Paul Leitao said:
      Fred:

      Epic tried to create an epic case but used deception and in my view the tactics of a hacker to force an ill-conceived fight. The primary issue of this case isn’t Apple’s practices and policies. In my view it’s Epic’s deliberate violation of its developer contract to create public pressure for Apple to change its practices. In my view this was like using an old flashlight with corroded batteries to try and outshine the sun. Plain as day, the approach didn’t work and the approach won’t work. There are far more ethical ways to prompt Apple to review its policies. Epic can’t have the upper hand by using underhanded tactics.

      2
      October 10, 2020
  2. Gregg Thurman said:
    A measured response that penalizes no one except Epic.

    I think it also sets the tone for future legal decisions.

    As CEO of Epic I think Sweeney is toast, he gambled big time and lost.

    4
    October 10, 2020
  3. Kirk DeBernardi said:
    Like slicing a 50 lb sack of beans, Sweeney’s caper bravado is laid bare in court for just what it is.

    Isn’t the “Walled Garden” a paid-for feature, not a bug to all Apple users?

    Yet greed arrives to chip at this garden wall.

    When the App Store was first introduced, the whole damn thing was a welcome feature, now it’s being portrayed as some kind of over-opulent bug.

    Apple stands to lose a bit in this melee merely because of this construed shift in attitude.

    2
    October 10, 2020
  4. Robert Paul Leitao said:
    Epic’s legal position was simply “Unreal.” The company forced a legal gunfight but arrived at the showdown with the equivalent of a plastic picnic spoon. It appears Epic used deception as central component of a contrived effort to create a case in the court of public opinion.

    Millions more people buy Apple products for the safety and security of the company’s walled garden than will ever play Fortnite. According to a recent Piper Sandler survey, Fortnite is fading in popularity among teens and new game consoles are about to be released.

    Bottom line: This is not a good case and it’s not a good time to put at risk revenue generation from a formerly top video game to make a suspect claim.

    6
    October 10, 2020
    • Gregg Thurman said:
      Fortnite is fading in popularity

      Sweeney is riding a one trick pony into its sunset.

      1
      October 10, 2020
      • David Drinkwater said:
        I think he’s more like surfing like Fonzarelli.

        1
        October 10, 2020
        • Robert Paul Leitao said:
          David:

          Do you mean Epic “jumped the shark”? Probably. But just like that infamous Happy Days episode, Epic didn’t get the sensational public attention it wanted.

          0
          October 10, 2020
          • David Drinkwater said:
            Yes and yes. I agree.

            0
            October 12, 2020

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