First, Happy New Year to all of you!
Even if this blog is not among the reading material that lightens up your mood, your interest in my writings is still much appreciated.
With the first post of 2022, I'd like to follow up on one of last year's most important court rulings: Epic Games v. Apple. As I mentioned a couple of days ago, Epic's opening brief on appeal is due later this month, and I strongly doubt that Epic can turn things around without a single-brand market definition. I'll go into more detail on that part in the coming days, subject to whatever else will happen, such as a potential new round of Ericsson v. Apple patent infringement litigation.
2021 was the year in which Apple turned out to be the (new) Evil Empire. Its abuse of market power was no secret in tech industry circles even five years ago, but for a long time Apple managed to play the media--until too much bad stuff came out, all the way up to Apple's prioritization of lock-in over customer benefits, not least as a result of Epic v. Apple (though Epic underperformed in other respects). It's not like consumers realize this to a degree that would impact Apple's sales--also because the alternative would be Android, and it's not like Google is that much better (though it is the lesser evil).
The app tax is old news, but the number of people who are aware of it now is presumably 100 or 1,000 times greater than it was before Epic's "Project Liberty" and the removal of Fortnite from the App Store. Two new issues arose last year, however, and it's hard to tell which one is worse:
the unbelievable power and money grab (with earthquake-like repercussions even on the Android side of the market) resulting from ad tracking (where Apple's self-preferencing is so very obvious), and
the way Apple's AirTags lend themselves to abuse by stalkers and thieves because Apple focused only on network effects instead of prioritizing the prevention of abuse.
There's a chance that Apple will do something about the latter, but unless there's regulatory intervention or new legislation, nothing will change about the former.
Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California identified serious issues with Apple not giving a damn about developers. But she concluded that Epic's lawyers and (in her opinion) partly pretty weak "experts" had presented more anecdotal evidence than reliable aggregates on which she could base a game-changer type of ruling. Her judgment even mentions explicitly that it's not impossible someone could prove monopoly abuse in the App Store context--just that Epic didn't meet the standard that she believes U.S. antitrust law requires.
Besides finding the facts presented by Epic lacking and wanting, she clearly disliked the fact that Epic breached its developer agreement with Apple only to make noise about the app tax issue. One can't really blame her for that, given that some of Epic's internal communications that surfaced during the litigation were terrible for its credibility, such as creating the Coalition for App Fairness with the objective to raise issues regardless of whether they were "organic or manufactured." I wonder how Epic could not have known that such material would come to light in the event of U.S. litigation. They'd been around for long enough to know what pretrial discovery is about. Even on appeal they're going to continue to have a huge credibility issue.
There is one concern that the judge voiced during the trial as well as in her ruling and which probably deserves a lot more attention: impulse purchasing.
When the judge examined Apple CEO Tim Cook, she discussed with him Apple's choice to monetize the App Store primarily through its tax on in-app purchases. When Mr. Cook acknowledged there would have been other options, the judge interrupted with the following comment:
" It’s quite lucrative, and it seems to be lucrative and focused on purchase that are being made on impulse basis. That [impulse purchasing] is a different question whether right or not, not really right for antitrust law. But it does appear to be disproportionate."
Judge YGR is not a fan of impulse purchasing, and much less so when those purchases are made by a rather young audience, which undoubtedly applies to Epic's Fortnite. Here are a couple of references to impulse purchasing in the Rule 52 order:
"While Epic Games may profit from having 'real-time reporting' about an individual spending behavior, ample evidence shows that Epic Games already reaps immense profits from impulse purchasing. Little societal value exists in allowing plaintiff to capitalize on more customer data to exploit customer habits."
In other words: Apple doesn't allow developers to manage IAP in a way that would provide them with more timely and more granular statistics, impulse purchasing is a bad thing anyway, so who cares...
Footnote 240 criticizes both Apple and Epic for profiting off impulse purchases:
"From what little evidence there is in the record, these consumers frankly appear to be engaging in impulse purchasing and both parties’ profits from this sector are significant. This specific conduct is outside the scope of this antitrust action, but the Court nonetheless notes it as an area worthy of attention."
The word "conduct" is clearly meant to criticize what both Apple and Epic are doing, but what did the judge mean by "an area worthy of attention?"
She didn't specify, and all that she clarified it doesn't mean is that it's not outcome-determinative in the Epic v. Apple case (because both are equally bad in that regard).
She says it's "outside the scope of this antitrust action" and theoretically that could mean that another antitrust action, such as a consumer class action, could raise the issue. However, my understanding is that she generally doesn't consider it an antitrust matter, but more of a question concerning other fields of law, particularly consumer protection laws.
I'm not aware of any existing law, however, under which consumers could go after Apple and Epic--it's not like impulse purchasing is illegal. That is not to say that creative lawyers might not be able to come up with some theory, especially when impulse purchases are made by a young audience. But I guess she meant that lawmakers might want to do something about it.
Lawmakers can protect consumers by prohibiting certain types of offerings altogether, or by enabling consumers to get a refund very easily and possibly even after a relatively long time.
I can't say that Judge YGR hasn't identified an issue that's real and serious. Also, I've personally played various games over the years in which I thought consumers weren't treated fairly. There's a famous match-three game in which one can purchase boosters before a round starts, and it was possible that the purchase of a particular booster would actually make it impossible to master a level because the booster would self-execute and have various effects that result in the player's defeat. Probably no one ever even tried to get a refund. Then there's a famous farming game where one can optionally pursue dozens of "achievements", and I personally saw that one of them ("Bingo") was repeatedly not recognized even though the criteria were clearly met (one could complete up to three bingo lines, but sometimes it would just count one of them), and another type of achievement was reset at some point, resulting in the loss of the achievement in the list of achievements even though the trophy (some decorative items) remained on the map. Also, some regulatory pressures have forced game makers to be more honest about the likelihood of finding certain items in so-called loot boxes, though I believe there are still some games out there with wheels of fortune and similar elements that are manipulated.
So there is definitely room for improvement from a consumer perspective when it comes to IAP in games. But there are also many consumers who benefit from the "freemium" approach because they get to play lots of high-quality games for free before they decide where to spend any money. In the old days, people sometimes bought games because of appealing box designs, but threw them away after an hour or so of playing.
If impulse purchases were banned, and with Apple having made it pretty much impossible to make serious money on iOS with in-game advertising, the business model might shift to subscriptions--which Apple would probably even prefer.
That said, it definitely is interesting when a federal judge dealing with a case like Epic v. Apple seeks to draw regulatory and/or legislative attention to an issue. Unfortunately for the app developer community, her reservations concerning impulse purchasing--whether one agrees with them or not--did not make Epic a sympathetic plaintiff in her view.
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