For a blog with "patents" in the name it would actually have made a lot of sense to start the discussion of the Epic Games v. Apple ruling with the intellectual property aspects of the case. But I had to combat disinformation of app developers regarding the practical effects of the injunction (should it ever be enforced).
The court ruling is unfair to Epic with respect to what it actually wanted and argued. (Some would argue that it's unfair in other ways, too, but I wish to keep a narrow focus in this post.)
In the decision, Judge Yvonne Gonzalez Rogers accuses Epic of "overreach" and suggests that Epic wanted Apple to receive nothing from app developers, though even her own decision notes that "Epic Games does not venture to argue that Apple is not entitled to be paid for its intellectual property." The passage I just quoted is an understatement. Epic's counsel unequivocally said during closing argument that Apple is entitled to reasonable and non-discriminatory compensation for any intellectual property, but an antitrust case is always about putting an end to illegal practices (without necessarily replacing them with an alternative compensation scheme right away). It was not about a free ride. It was about not letting Apple (ab)use its App Store monopoly, and subsequently one could still talk about IP (but not in that same case).
I have no idea what Epic's appeal will focus on, but I wouldn't be surprised if the appeals court agreed with Epic that a sequential approach is precisely the way antitrust law works: you stop the illegal practice first, and then the defendant can come up with a new practice, which may invite further challenges (but those won't happen, or at least won't have merit, if the new practice is reasonable and non-discriminatory). The appeals court may tell the district judge that the purpose of a unilateral conduct case is not to replace an illegal practice with a legal one.
One question that some people are asking themselves already is whether Apple will seek its App Store commission on payments made outside an iOS app but because of an app linking out to, for example, a website. As I explained in my previous two posts, there's no way that Apple would have to tolerate alternative payment systems. The court made it clear that it's just about generating awareness for offerings on other platforms while Apple remains free to require the exclusive use of its own IAP system, and Apple will benefit from the legal standard, which allows Apple to interpret the injunction (in light of the underlying order) in the way most favorable to its own interests, as long as it's not unreasonable.
In practical terms, it would be possible but a real hassle for Apple to have to collect app commissions from developers that are generated through other payment systems. Apple couldn't possibly audit each and every developer's books. Maybe it could impose some severe penalties for fraud and then just perform audits in suspicious cases plus a few random audits. But we don't really have to think too much about that. Again, the injunction--if and when it actually gets enforced--is not going to be a major problem for Apple. They can reasonably interpret the court ruling as not having to condone any "end run" around its IAP rule, such as a mere web shop where users purchase digital items they consume on iOS.
With some console makers not allowing cross-wallet/cross-purchase (or seeking an additional compensation for cross-play), Apple could take the same position now. That would have political implications, but the Epic v. Apple ruling doesn't prohibit it.
As some people are discussing now, the court says that Apple could collect a commission even on sales through other app stores--though it would then be an IP license fee in the form of a percentage of sales, which is why the term "commission" doesn't fit. I think the court should have defined the term more narrowly. (On a previous occasion I also criticized Apple for broadening its meaning.)
What the court got absolutely right is that the 30% cut is not a market rate for the intellectual property in question. The court even takes note of "Apple’s low apparent investment in App Store-specific intellectual property." The commission is practically imposed and enforced because of Apple's app distribution monopoly. The term "gatekeeper" (which is very popular in EU tech policy and law) doesn't appear in that ruling, but that's what it's all about.
That leads us to an interesting question: what is the commission rate going to be in a future scenario (it's really a question of when--not if--this happens) where new legislation and/or a successful appeal by Epic would do away with the gatekeeper toll and would instead leave Apple with only one tool at its disposal--IP enforcement--to collect money from developers?
What if (actually, when) developers can publish iOS apps without depending on Apple's app review because they can go through alternative app stores (and "sideloading")?
The Epic v. Apple ruling explains the following:
"Apple distributes its basic developer tools for free but charges an annual fee for membership in its developer program to distribute apps and which allows access to, for instance, more advanced APIs (many of which are protected by patents, copyrights, and trademarks) and beta software."
"Apple’s intellectual property as it relates to the iOS ecosystem generally are significant. The record is undisputed that Apple holds approximately 1,237 U.S. patents with 559 patent applications pending. With respect to the App Store itself, Apple holds an additional 165 U.S. patents with 91 more U.S. patent applications pending. Other than these patents, Apple does not identify specifically how the rest of its intellectual property portfolio impacts the technology at issue in this case nor does it specifically justify its 30% commission based on the value of the intellectual property. It only assumes it justifies the rate."
Given this year's Supreme Court decision in Oracle v. Google, I can't see how developers' use of Apple's APIs would not constitute fair use. Google even got away with incorporating APIs into a new product that competed with (and ultimately displaced in the mobile market) the original platform (Java). Developers, however, don't use Apple's APIs to build a new operating system: instead, they build applications, with a strong presumption in each case that it constitutes transformative use.
Patent counts mean little. Epic wasn't going to turn this antitrust dispute over Apple's App Store monopoly into a declaratory judgment case over Apple's iOS and App Store patents.
If Apple had to resort to patent litigation against app developers in order to collect a commission, it would have to overcome developers' non-infringement and invalidity defenses. Developers would likely also raise equitable defenses, but let's not get into that here.
Those patent numbers may seem staggering, but they could melt down very quickly as most of those patents might simply never be infringed by a developer and others might get invalidated once challenged. If any valid patents are actually infringed, the next question is whether developers could work around them. Let's assume, just hypothetically, that there would be one or more valid patents left that are infringed and cannot be worked around. Then we get to the remedies stage.
Seriously, Apple wouldn't get anywhere near 30% (or even 15%) of developers' revenues in the form of damages or ongoing royalties.
The only way Apple could theoretically still get its 30% cut would be if it obtained an injunction. In the U.S., Apple would have to meet the eBay v. MercExchange standard. Developers would argue that Apple actually benefits from the availability of apps and makes money on its devices. That would up the eBay ante for Apple. In some other jurisdictions, particularly Germany, Apple could obtain injunctions more easily, but it probably has fewer patents there.
Even if Apple obtained an injunction, it might then face an antitrust challenge to its rates--with the same arguments Apple makes against standard-essential patent (SEP) holders. Sure, Apple would argue that it never made a FRAND licensing promise with respect to its iOS IP. But in Europe, SEP case law is antitrust-, not contract-based, and Apple made the same arguments there (and it also brought antitrust claims in the U.S. over SEPs, such as against Samsung, though in vain, and against Qualcomm, though the San Diego Apple v. Qualcomm case settled during opening arguments).
To sum it up, Apple needs the gatekeeper's leverage to collect its 30% (or 15% under the Small Business Program) commission from app developers. On an IP basis, at least in the U.S. (where it would likely be denied patent injunctions against developers), Apple would get nothing or a much smaller amount. In light of the risk-opportunity ratio, Apple might not even have an incentive to bring any IP infringement litigation against developers.
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