After a See I Told Ya So type of post on the (now clarified by the district judge) narrow scope of the Epic Games v. Apple injunction and a follow-up (Which part of 'external' does a @reckless journalist fail to understand?), I thought I was done with that topic until the United States Court of Appeals for the Ninth Circuit orders the fairly likely stay of the injunction. For two reasons, however, I decided to chime in once more at this stage:
As a result of too much coverage and commentary that is based on unrealistic assumptions (and in some cases even misconceptions), there still is confusion out there, with people talking about what would happen in a few weeks' time when the injunction would take effect (which it probably won't anyway).
Forbes contributor John Koetsier has raised an interesting issue of proactive steering by Apple, which I believe could give rise to an interesting case in which app makers would seek an anti-steering injunction (anti, not anti-anti) against Apple: Apple Quietly Buying Ads Via Google For High-Value Subscription Apps To Capture App Publisher Revenue
Click here if you wish to skip the part on Epic v. Apple and jump directly to the part on that separate (but also steering-related) issue.
It's a funny coincidence that 2021 is the year of the anti-antisuit injunctions (they've been around for a few years, especially since the 2019 Nokia v. Continental ruling in Munich, but are now very much en vogue) as well as the year of the Epic v. Apple anti-anti-steering injunction: an injunction against an anti-steering provision in Apple's App Store guidelines.
Dreamers will be dreamers, but there are overwhelmingly strong reasons for the appeals court to stay Epic's injunction.
The Epic v. Apple injunction isn't stayed until the Ninth Circuit has spoken. But it's possible to predict with a reasonably high likelihood what's going to happen. We just have to look at the whole issue from the perspective of an appeals court:
Apple has already started to comply with one part of the injunction under a class-action settlement.
The enjoined rule has been in place for about a decade. Why would its abolition be so urgent now that one couldn't just give the appeals court the necessary time to form an opinion on the issue?
The appeals court sees that Epic lost on nine counts and prevailed on only the least important one. Of course, a party could also lose on 100 counts and prevail on the 101st, but the analysis at the stay stage is quick and superficial, so it does play a role whether the appeals court gets the initial impression that Epic had a strong case or feels that Epic's case generally appears a bit weak.
This is a huge factor: there is no precedent in the U.S. where an anti-anti-steering injunction ultimately got upheld. Much to the contrary, the U.S. Supreme Court held in Amex that anti-steering rules are procompetitive. Shortly thereafter, a healthcare-related anti-steering case got settled, with a result that lawyers described as "opening the door to steering by insurance companies."
Apple has a very strong argument for a stay here because the Ninth Circuit will think hard and long before allowing the enforcement of an injunction of a kind for which there is no appellate precedent and which at first sight cannot be reconciled with the Supreme Court's Amex decision.
Of course, Judge Yvonne Gonzalez Rogers tried to distinguish her anti-anti-steering injunction under California's Unfair Competition Law from Amex, but I believe the appeals court will not be persuaded--at least not immediately, and that's what matters at the stay stage--of her reasoning. She basically said that Amex was about steering in a strict sense, with retailers encouraging customers to use a different credit card, while Apple's rule in question is about whether customers will know about the existence of certain alternatives at all. At the stay stage, it's sufficient for Apple to sow the seeds of doubt. If the appeals court feels that there is a possibility of the injunction not being upheld, that (combined with harm to Apple, which I'll address in a moment) will be enough for the injunction to be stayed pending the appellate proceedings.
The appeals court probably won't buy that attempted distinction. There is nothing in Apple's rules that prevents cross-platform app makers from promoting their apps for other platforms (where they don't owe Apple any commission) through other channels. It's another story that Apple complicates those efforts (that's the second part of this post--Apple's own proactive steering). From the appeals court's vantage point, it probably won't be immediately clear why it's so very critical that app makers communicate the existence of alternatives to their customers in their iOS app. Apple's analogy is that it's like someone promoting in an Apple bricks-and-mortar (or, more accurately, glass-front) store the availability of certain products at a lower price in another shop across the street.
Apple just needs the combination of significant doubt about the injunction's ability to survive the appeal and significant harm to its business. The mere fact that Apple would need a different set of rules for the U.S. market (while based on California law, the injunction applies nationwide, but not worldwide) and other world markets is already an issue. Apple does have the right to replace the enjoined rule with a new one, and that may involve an engineering effort (such as for a reporting system in case Apple collects a royalty on sales generated by links within an iOS app). Epic will dispute all of that, but the appeals court is going to take Apple's averments seriously.
The fact that Judge YGR didn't stay her injunction means nothing. By staying it she'd have shown that a decision that it took her months to make wasn't solid. Now the ball is in the appeals court, and I'd be somewhat surprised if the injunction didn't get stayed.
Anti-anti-steering is the wrong way to tackle the App Store monopoly.
I generally don't believe that tackling Apple's anti-steering rule is a good strategy. There are more fundamental issues, but they involve the fact that Apple doesn't allow alternative app stores (not even "sideloading").
Anti-anti-steering cases have so far failed in other contexts. Why would it suddenly work here?
As long as Apple is not considered a monopolist (and under the Epic v. Apple ruling it is not), it can just change some other rules and promulgate new rules that would render any anti-anti-steering injunction inconsequential.
It would make a lot more sense to challenge Apple's proactive steering than its anti-steering guideline.
John Koetsier's article, which I mentioned further above, reveals some conduct by Apple that to the best of my knowledge has not previously been written about. In order to ensure that subscriptions to certain services (such as Tinder) are made on iOS, which then entitles Apple to its commission (though it cuts it in half after the first twelve months of a given subscription), Apple places Google ads that promote such subscriptions and steer users (through links) directly to the App Store.
Apparently Apple did so without the specific consent (i.e., any kind of cooperative-advertising agreement besides the standard Apple Developer Agreement) of the affected companies, and this is all about steering as opposed to demand generation. By advertising iOS-based subscriptions in connection with specific keywords (presumably always just the brands of the affected services), Apple doesn't drive additional customers to third-party services: instead, it redirects to the App Store some of the traffic that would otherwise reach those companies' websites. If someone already searches for Tinder, but then clicks on an ad placed by Apple that is exclusively meant to ensure that any subscription would be subject to Apple's app tax, there's no benefit--but significant harm--to the actual service provider.
As the article explains, this also drives up advertising costs for those services in connection with the relevant keywords (i.e., their brands).
It might be hard (though not necessarily impossible) to challenge that practice under federal antitrust law. But the broader concept of unfairness under state competition law might have scope for preventing Apple from doing this. On the one hand, it prohibits steering on iOS, which (again) it may just be in its right to do (even if one believes, like I do, that Apple should be forced to allow alternative app stores). On the other hand, Apple itself engages in steering (on Google) and distorts the market by making it harder for app developers to promote alternative ways of buying subscriptions.
After the recent Japanese "e-reader" settlement, which is about competition in content distribution, this issue is even more relevant than before.
What Apple is doing according to the Forbes article is like if governments spent money on advertising designed to drive airline passengers into non-duty-free stores. It's just absurd when a tax authority spends advertising dollars just to prevent customers from discovering and accessing legally tax-free channels.
That kind of advertising does nothing to generate incremental sales of Apple devices. It is purely about Apple torpedoing efforts by service providers like Match Group (which offers Tinder) to promote ways in which end users can obtain Apple-tax-free subscriptions.
Google's role in this raises questions, too. Google obviously benefits from this directly, and Google itself might at some point want to do the same. But let's stay focused on Apple. An injunction that would prohibit Apple from placing such ads (without explicit prior consent by the service providers in question, which presumably all of them would withhold) would be an anti-steering injunction against Apple. It would be novel, but to me it would make a whole lot more sense than an anti-anti-steering injunction like the one in Epic v. Apple.
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