Apple’s iOS “walled garden” doesn’t break antitrust laws, appeals court affirms [Updated]

But court leaves injunction against “anti-steering” payment language in place.

Kyle Orland – Apr 24, 2023 3:58 pm | 157

A Fortnite loading screen displayed on an iPhone in 2018, when Apple and Epic weren't at each other's throats. Credit: Andrew Harrer | Bloomberg | Getty Images

The 9th Circuit Court of Appeals has affirmed last year’s district court ruling that Apple did not violate antitrust laws by forcing iOS developers to use its App Store and in-app payment systems. The decision is yet another major blow to Epic Games, which first challenged those Apple policies in a 2020 lawsuit.

“There is a lively and important debate about the role played in our economy and democracy by online transaction platforms with market power,” the court wrote. “Our job as a federal court of appeals, however, is not to resolve that debate — nor could we even attempt to do so. Instead, in this decision, we faithfully applied existing precedent to the facts.”

In a highly technical 91-page ruling issued Monday, the appeals court affirmed Apple’s argument that the case centered around the market for mobile game transactions, rather than Epic’s proposed definition of “aftermarkets of iOS app distribution and iOS in-app payment solutions.” That market definition was a key point of contention in the original case since it establishes that Apple faces competition from other mobile ecosystems like Android.

While the appeals court acknowledged that the lower court “erred as a matter of law on several issues,” it said those issues ended up being “harmless” legally. Epic, meanwhile, “failed to produce any evidence showing—as our precedent requires—that consumers are generally unaware of Apple’s app-distribution and IAP restrictions when they purchase iOS devices,” the appeals court said.

Epic also failed to establish “the existence of any substantially less restrictive alternative means for Apple to accomplish the procompetitive justifications supporting iOS’s walled garden ecosystem,” the appeals court said. Those procompetitive justifications include “achieving Apple’s security and privacy goals,” which the court said are a way for the company to “[tap] into consumer demand and differentiating its products from those of its competitors.”

In a small bright spot for Epic, the appeals court also affirmed the lower court decision regarding anti-steering language in Apple’s Developer Program Licensing Agreement (DPLA). That language, which prohibits developers from communicating out-of-app payment methods through in-app links, violates California’s Unfair Competition Law, the court affirmed. An injunction prohibiting Apple from enforcing that anti-steering language will remain in place for now, pending the possibility of an Apple appeal to the Supreme Court.

Amid arguments in the case in 2021, Apple changed its policy to allow reading apps and audio and video streaming apps to post an in-app link to their website for alternative payment options.

In the appeals court’s only reversal in the case, it ruled that Apple is entitled to attorney’s fees in the case, thanks to a DPLA provision. That matter will be sent back down to a lower court for further consideration.

“Today’s decision reaffirms Apple’s resounding victory in this case, with nine of 10 claims having been decided in Apple’s favor,” Apple spokesperson Marni Goldberg said in a statement provided to the press. “For the second time in two years, a federal court has ruled that Apple abides by antitrust laws at the state and federal levels. The App Store continues to promote competition, drive innovation, and expand opportunity, and we’re proud of its profound contributions to both users and developers around the world. We respectfully disagree with the court’s ruling on the one remaining claim under state law and are considering further review.”

[Update, 5:16 pm ET: In a tweeted statement following the ruling, Epic CEO Tim Sweeney said that “though the court upheld the ruling that Apple’s restraints have ‘a substantial anticompetitive effect that harms consumers,’ they found we didn’t prove our Sherman Act case. Fortunately, the court’s positive decision rejecting Apple’s anti-steering provisions frees iOS developers to send consumers to the web to do business with them directly there. We’re working on next steps.”]