Epic Games, Inc. v. Apple, Inc.

73 F.4th 785

Opinion

FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JUL 17 2023 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

EPIC GAMES, INC., No. 21-16506

Plaintiff-counter- D.C. No. 4:20-cv-05640-YGR defendant-Appellant, Northern District of California, Oakland v. ORDER APPLE, INC.,

Defendant-counter-claimant- Appellee.

EPIC GAMES, INC., No. 21-16695

Plaintiff-counter- D.C. No. 4:20-cv-05640-YGR defendant-Appellee,

v.

APPLE, INC.,

Defendant-counter-claimant- Appellant.

Before: S.R. THOMAS and M. SMITH, Circuit Judges, and McSHANE,* District Judge. Concurrence by Judge M. SMITH.

* The Honorable Michael J. McShane, United States District Judge for the District of Oregon, sitting by designation. Apple’s Motion to Stay the Mandate (Dkt No. 247) is GRANTED. Pursuant

to Rule 41(d) of the Federal Rules of Appellate Procedure, the mandate is stayed for

90 days to permit the filing of a petition for writ of certiorari in the Supreme Court.

Apple must notify the Court in writing that the petition has been filed, in which case

the stay will continue until the Supreme Court resolves the petition. See Fed. R.

App. P. 41(d)(2)(B)(ii). Should the Supreme Court grant certiorari, the mandate will

be stayed pending disposition of the case. Should the Supreme Court deny certiorari,

the mandate will issue immediately. The parties shall advise this Court immediately

upon the Supreme Court’s decision.

2 FILED JUL 17 2023

Epic Games v. Apple, Nos. 21-16506 & 16695 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS M. SMITH, Circuit Judge, concurring in the granting of the motion for a stay of the mandate pending the filing of a petition for certiorari:

Given our general practice of granting a motion for a stay if the arguments

presented therein are not frivolous, I have voted to grant Apple’s motion. See United

States v. Pete, 525 F.3d 844, 850 (9th Cir. 2008) (it is “often the case” that our court

stays the mandate while a party seeks certiorari). I write separately to express my

view that, while the arguments in Apple’s motion may not be technically frivolous,

they ignore key aspects of the panel’s reasoning and key factual findings by the

district court. When our reasoning and the district court’s findings are considered,

Apple’s arguments cannot withstand even the slightest scrutiny. Apple’s standing

and scope-of-the-injunction arguments simply masquerade its disagreement with the

district court’s findings and objection to state-law liability as contentions of legal

error.

I. STANDING

Because Apple’s anti-steering provision negatively affects the revenue Epic

earns through the Epic Games Store, Epic had standing to seek injunctive relief

against that provision pursuant to California’s Unfair Competition Law (UCL), Cal.

Bus. & Prof. Code § 17200 et seq.

To establish standing, a plaintiff must have “suffered an injury in fact that is

concrete, particularized, and actual or imminent.” TransUnion LLC v. Ramirez, 141

1 S. Ct. 2190, 2203 (2021). “[M]onetary harms” are one of the “[m]ost obvious” types

of harm that satisfy the injury-in-fact requirement. Id. at 2204.

Epic has “three primary lines of business, each of which figures into various

aspects of [this case].” Epic Games, Inc. v. Apple, Inc. (Epic II), 67 F.4th 946, 967

(9th Cir. 2023). First, Epic is a “video game developer—best known for the

immensely popular Fortnite.” Id. Second, Epic is the “the parent company of a

gaming-software developer” (Epic International), which still has several apps on

Apple’s App Store. Id. Third, Epic is “a video game publisher and distributor,”

offering “the Epic Games Store as a game-transaction platform” on multiple devices.

Id. at 968. In this last role, Epic is “a direct competitor” of Apple’s App Store “when

it comes to games that feature cross-platform functionality like Fortnite.” Id.

As the panel opinion explained, the second and third lines of business—not

the first—give rise to an injury in fact. See id. at 1000. As the parent company of

Epic International, Epic is harmed because its subsidiary still has apps on the App

Store that are subject to the anti-steering provision. As a games distributor, Epic is

harmed because app developers cannot direct, with the promise of lower prices, their

users to the Epic Games Store, which takes a significantly lower commission on app

purchases than the App Store. As we explained: “[Epic] offers a 12% commission

compared to Apple’s 30% commission. If consumers can learn about lower app

prices, which are made possible by developers’ lower costs, and have the ability to

2 substitute to the platform with those lower prices, they will [almost always] do so—

increasing the revenue that the Epic Games Store generates.” Id.

Such monetary loss is hornbook injury-in-fact, and Apple’s arguments to the

contrary misconstrue both our decision and the record. Apple asserts that Epic lacks

standing because “Epic’s developer program account has been terminated,” meaning

Epic “has no apps on the App Store.” But we did not conclude, as Apple’s argument

suggests, that Epic was injured in its role as a video game developer (i.e., as the

creator of the since-removed Fortnite). We recognized at the very start of our

standing analysis that Apple had “terminated Epic’s iOS developer account,” and

instead determined that Epic suffered an injury-in-fact in its role as a parent company

and competing games distributor. Id. at 1000.

Regarding these two bases on which we actually determined standing, Apple

offers only the conclusory statement that “no trial evidence or findings by the district

court” support them. However, that assertion is simply false. Regarding Epic’s role

as the parent of Epic International, the record contains screenshots showing that Epic

International still has six apps on the App Store, even though the parent company’s

developer account has been terminated.

The record is also filled with support for the common-sense proposition that

Epic is harmed as a competing games distributor because consumers would shift

some of their spending from the App Store to the Epic Games Store if developers

3 could communicate the availability of lower prices on the latter. To begin, Apple’s

own internal documents conclude that two of the “most effective marketing

activities” are “push notifications” and “email outreach,” which are the two practices

prohibited by Apple’s anti-steering provision. Epic Games, Inc. v. Apple Inc. (Epic

I), 559 F. Supp. 3d 898, 1054 (N.D. Cal. 2021); see also Epic II, 67 F.4th at 1001.

Moreover, before the district court, Apple defeated Epic’s proposed market

definition for its Sherman Act claims based on the very kind of factual findings that

it now claims are non-existent. The district court found that video games

increasingly can be “ported across multiple devices” because of the growing

prevalence of cross-platform functionality. Epic I, 559 F. Supp. 3d at 985; see also

Epic II, 67 F.4th at 967 (describing “cross-play,” “cross-progression,” and “cross-

wallet”). “[N]ot all games” feature cross-platform functionality, and some platforms

have taken steps to limit it. Epic I, 559 F. Supp. 3d. at 985. But when it comes to

the games that do offer such cross-platform functionality, app-transaction platforms

(like the App Store and Epic Games Store) “are truly competing against one

another.” Id. The district court, therefore, rejected the contention that the App Store

is a market unto itself and summarized its analysis as follows: “[N]either consumers

nor developers are ‘locked-in’ to the App Store for digital mobile game

transactions—they can and do pursue game transactions on a variety of other mobile

platforms and increasingly other game platforms.” Id. at 1026. Indeed, the district

4 court found that Fortnite data provided a particularly vivid illustration: Between 32

and 52% of Fortnite users play the game on multiple devices, and, after Fortnite was

removed from the App Store, 87% of Fortnite spending that had occurred on iOS

devices was shifted to other platforms. Id. at 961 & n.277.1

Apple wants to have it both ways: On the merits, it argued that there was

sufficient evidence to support a finding that consumers can, and do, substitute across

various app-transaction platforms. But on standing, it now argues that there would

be absolutely no substitution if app developers could inform users of lower prices

available on the Epic Games Store.

II. SCOPE OF THE INJUNCTION

The district court did not abuse its discretion in enjoining Apple’s anti-

steering provision as to all iOS developers because doing so was necessary to fully

remedy the harm that Epic suffers in its role as a competing games distributor. 2

1 On appeal, the panel majority did not address the district court’s substitution factual finding, as we determined that Epic failed to make a required threshold showing for its proposed single-brand market: that the restrictions it alleged to cause consumer lock-in were “not generally known” to consumers when they purchased iOS devices in the foremarket. Epic II, 67 F.4th at 976–77, 980–81. 2 Apple argues in its motion for a stay that the injunction will subject iOS users to “scams, fraud, and objectionable content.” But the district court expressly found that the anti-steering provision could be enjoined “without any impact on the integrity of the [iOS] ecosystem.” Epic I, 559 F. Supp. 3d at 1055. Both the district court and our court upheld Apple’s ability to control what content can be downloaded on iOS devices. The injunction against the anti-steering provision 5 “[I]njunctive relief should be no more burdensome to the defendant than

necessary to provide complete relief to the plaintiff[].” Califano v. Yamasaki, 442

U.S. 682, 702 (1979); see also Epic, 67 F.4th at 1002 (setting forth the same rule).

An injunction remedying a plaintiff’s harm may “affect[] nonparties[] [if] it does so

only incidentally.” United States v. Texas, 2023 WL 4139000, at *12 (U.S. June 23,

2023) (Gorsuch, J., concurring); see also Bresgal v. Brock, 843 F.2d 1163, 1170–71

(9th Cir. 1988) (“[A]n injunction is not necessarily made overbroad by extending

benefit or protection to persons other than the prevailing parties in the lawsuit—even

if it is not a class action—if such breadth is necessary to give prevailing parties the

relief to which they are entitled.”).

Apple contends that the district court’s injunction impermissibly allowed

Epic’s suit to proceed as a “de facto” class action in which Epic obtained nationwide

injunctive “relief on behalf of others.” To paint this picture, it argues that “the panel

never explained” how harm to Epic’s “subsidiaries justified an injunction applicable

not only to . . . its subsidiaries, but also to all other U.S. developers.” Like its

standing argument, this argument overlooks aspects of the panel opinion’s analysis

that are inconvenient to its position and is incorrect. As the opinion explained, it

was Epic’s role as a competing games distributor—not its role as a parent

simply allows developers to let users know that certain content (which Apple has itself chosen to allow access to) can be purchased at a lower price elsewhere. 6 company—that justified application of the injunction beyond just Epic’s

subsidiaries. As a games distributor, Epic is harmed by Apple’s anti-steering

provision’s prevention of “other apps’ users from becoming would-be Epic Games

Store consumers.” Epic II, 67 F.4th at 1003. Had the district court limited the

injunction only to Epic’s subsidiaries’ apps on the App Store, the injunction would

have “fail[ed] to address the full harm caused by the anti-steering provision.” Id.

The injunction is thus consistent with the minimally-burdensome principle because

the injunction’s “scope is tied to Epic’s injuries.” Id.

Apple’s argument also overlooks that, in an antitrust suit brought by a

competitor, injunctive relief will almost by definition have incidental benefits to

non-parties—since antitrust law protects competition, not individual market

participants. To be sure, it is the “the exception,” not the rule, for injunctive relief

to incidentally affect non-parties—and such cases will likely be few and far between

in most areas of law. Cachil Dehe Band of Wintun Indians of Colusa Indian Cmty.

v. California, 618 F.3d 1066, 1084 (9th Cir. 2010). But injunctions with incidental

benefits for non-parties are the inevitable result when a competitor-plaintiff makes

the difficult showing that it is entitled to injunctive relief pursuant to state or federal

competition law. As a threshold matter, a competitor-plaintiff must prove that the

defendant’s conduct caused it a tangible injury as a competitor. But to ultimately

prevail and obtain relief, it must prove that the defendant’s conduct harmed

7 competition (i.e., consumers). This two-types-of-harm requirement necessarily

means that relief will have two types of benefits—remedying the competitor’s harm

in the main, while benefitting consumers incidentally.

Begin with the statute at issue here: California’s UCL. To establish statutory

standing, a competitor-plaintiff must have “suffered injury in fact and . . . lost money

or property,” such that its bottom line as a competitor was negatively affected. Cal.

Bus. & Prof. Code § 17204. But to win on the merits, a competitor-plaintiff must

show that the defendant’s conduct “threatens an incipient violation of an antitrust

law, . . . violates [antitrust law’s] policy or spirit . . . , or otherwise significantly

threatens or harms competition.” Cel-Tech Commc’ns, Inc. v. L.A. Cellular Tel. Co.,

20 Cal. 4th 163, 186–87 (1999). Because antitrust’s goal is the “the protection of

competition, not competitors,” Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104,

110 (1986), a competitor-plaintiff will win on the merits only if it proves that the

defendant’s conduct harms consumers. Therefore, by the time a court is fashioning

injunctive relief in a UCL competitor suit, the court has already determined both that

(1) the defendant’s conduct caused the plaintiff-competitor to lose “money or

property,” and (2) that the same conduct harmed consumers. Relief remedying (1)

will necessarily have incidental benefits for the consumers found to have been

harmed at (2). If that were not the case, then the plaintiff-competitor would not have

prevailed on the merits.

8 Federal law imposes a similar two-types-of-harm requirement. To establish

Article III standing, a plaintiff-competitor must have “suffered an injury in fact,”

such as “monetary harm[].” TransUnion, 141 S. Ct. at 2203. But the plaintiff-

competitor must also establish antitrust injury—that their “injury [is] of the type the

antitrust laws were designed to prevent.” Cargill, 479 U.S. at 111, 117 (lost profits

caused by competitor’s lower prices after merger are not antitrust injury). Similarly,

on the merits, the competitor-plaintiff must prove the defendant’s conduct harms

consumers by, for example, decreasing output or raising prices. See Epic II, 67 F.4th

at 983. If a competitor-plaintiff is able to serve two masters and establish Article III

standing on the one hand and antitrust injury and liability on the other, then the

competitor-plaintiff would have necessarily shown that the defendant’s conduct

harms both the plaintiff as a competitor and consumers. So again, it is hardly

surprising that the injunctive relief granted in such a case will carry incidental

benefits for consumers.

Consider, as an example, the Kodak-parts litigation that was the subject of the

Supreme Court’s decision in Eastman Kodak Co. v. Image Technical Services, Inc.,

504 U.S. 451 (1992). Independent service organizations (ISOs) alleged that Kodak

violated federal antitrust law by “adopt[ing] policies to limit the availability of parts

to [the] ISOs to make it more difficult for ISOs to compete with Kodak in servicing

Kodak equipment.” Id. at 455. The Supreme Court affirmed our court’s denial of

9 summary judgment, id. at 486; on remand, the ISOs prevailed in a jury trial and the

district court entered an injunction requiring Kodak to sell its parts to ISOs on

“reasonable and nondiscriminatory terms and prices.” Image Tech. Servs., Inc. v.

Eastman Kodak Co., 125 F.3d 1195, 1201 (9th Cir. 1997). The injunction remedied

the ISOs’ harm: their inability to compete for “large contracts” because they lacked

“sufficient parts.” Id. at 1222. But the injunction also incidentally benefited

consumers by breaking up what the jury had found to be an unlawfully maintained

monopoly. See id. at 1207–12. The injunction was challenged on several grounds,

see id. at 1224–25, but there was no hint of the radical argument that Apple now

advances: that a competition-law injunction is invalid if it benefits consumers.

CONCLUSION

Apple’s standing and scope-of-the-injunction arguments challenge an

imagined panel opinion on an imagined record. When the panel opinion’s reasoning

and the district court’s factual findings are fully considered, the motion’s arguments

fall far short of establishing legal error.