Court ruling makes Apple vulnerable to more lawsuits

Court ruling makes Apple vulnerable to more lawsuits
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A federal court ruling last week in a case involving allegations of anticompetitive conduct against Apple opened the door for more lawsuits against the tech giant, while also adding to momentum on Capitol Hill to revamp antitrust laws.

Apple survived the lawsuit against its App Store rules brought by major developer Epic Games, with Judge Yvonne Gonzalez Rogers ruling the Fortnite game maker did not prove Apple is a monopolist. But in her decision, Gonzalez Rogers did not absolve Apple of having engaged in anticompetitive conduct, and her ruling may provide guidance for future cases against the company, according to legal experts.

“She was especially cautious because she wanted her ruling to have less rather than more impact, and sounds like she’s indicating, ‘Well, maybe somebody else will prove it. I don’t want to stand in their way of trying, but Epic didn’t prove it here,’ ” said Eleanor Fox, a professor at the New York University School of Law.

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The case centered on Apple’s App Store rules, primarily the up to 30 percent commission fees the company collects and its ban on allowing alternative payment options. Epic alleged Apple engaged in anticompetitive behavior by kicking Fortnite out of the App Store after the game maker put a direct payment system in place.

David Kesselman, an antitrust expert and founding partner of Kesselman Brantly Stockinger LLP, said Gonzalez Rogers “was sort of leaving, in a way, a potential road map to challenge Apple’s conduct.”

In her ruling, Gonzalez Rogers wrote, “The Court does not find that it is impossible; only that Epic Games failed in its burden to demonstrate Apple is an illegal monopolist.”

Epic is appealing the decision.

Gonzalez Rogers also issued an injunction on Apple, saying it cannot prohibit developers from including external links directing customers to options to make purchases outside of the in-app payment system.

She ruled that Apple’s anti-steering provisions are anticompetitive under California’s competition laws. The company is headquartered in Cupertino, Calif.

An Apple representative said the company is looking into all of its options but has not yet made a determination as to its next steps. 

Apple general counsel Kate Adams has publicly touted the ruling as a “resounding victory,” but Kesselman argued it’s a “bit of a pyrrhic victory.”

“If the injunction is upheld on appeal and app developers can no longer be told by Apple that they can’t inform customers they can go elsewhere, that’s kind of a big deal,” Kesselman said. “[It’s] not all of what Epic wanted, but it is a direct challenge to one of Apple’s fundamental rules for operating its [App Store].”

“That’s really interesting because it suggests that there are limitations to antitrust law that she’s filling in the gaps using a broader state law, and we’ll see if that opens the door to more state law, unfair competition claims now because the statute is being read broader than traditional antitrust law,” he added. 

William Kovacic, a professor at the George Washington University Law School who served as Federal Trade Commission (FTC) chairman from 2008 to 2009, said Apple’s public dismissal of the injunction begs the question, “What is the significance of that order?”

“It would seem to take away an element of freedom that you previously enjoyed, and are you absolutely indifferent to it?” he said. “If it didn’t matter, why did you have the requirement in the first place?”

More broadly, if more antitrust cases were to be brought against Apple, they could likely run up against the same hurdles in proving their case as Epic, according to experts. 

“The law is very conservative. It makes plaintiffs prove more than they should have to prove to prove power and abuse, and that certainly helps the tech giants,” Fox said.

“It’s not the case of a weak plaintiff who didn’t have good representation, it’s the case of the best in the country, best in the world, and they couldn’t prove it to this judge,” she said of Epic’s case. “So one can very well infer from this, and from FTC vs. Facebook as well as other decisions that are Supreme Court decisions, that the U.S. antitrust laws cannot cope with Big Tech, that we really need legislation.”

The FTC is locked in a court battle against Facebook over allegations of anticompetitive acquisitions, which Facebook has disputed. The FTC filed an amended complaint in August after its initial lawsuit was dismissed by a federal judge.

In both cases, the decisions by judges were used to boost critics’ claims that antitrust laws are outdated and push for revamping statutes in a way they see better fit to deal with the market power of tech giants.

The antimonopoly group American Economic Liberties Project, for example, issued a statement last week saying Gonzalez Rogers’s injunction against Apple should be coupled with a bipartisan, bicameral legislative proposal to add further app market regulations “that will ensure access to markets for American entrepreneurs and innovators.”

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The ruling also prompted bipartisan lawmakers behind the proposal, known as the Open App Markets Act, to reiterate their calls for the new requirements, including ending app store rules such as Apple’s for developers to use the company’s own payment system.

The House Judiciary Committee earlier this year advanced a package of bills that would overhaul antitrust laws and give the FTC greater authority to rein in the power of tech giants. But the legislation faces a rocky road ahead with opposition on both sides of the aisle. Among Democrats, opposition largely stems from the California delegation.

Apple declined to comment on how the decision may impact specific federal investigations, but a representative for the company highlighted that the court’s ruling stressed the dynamic and changing nature of the marketplace and the security and privacy features of the Apple system.

Kovacic said the FTC or Department of Justice, which are both bringing cases against other Silicon Valley giants — Facebook and Google — would likely not be dissuaded from bringing a case against Apple based on the ruling from Gonzalez Rogers.

“I do not think that would deter them,” he said. “[They would] certainly find it informative as indication as to how courts might think about the problem, but they would not be deterred from this would put them off in bringing their own case.”