Security Arguments Helped Apple Skirt Monopolist Designation in Epic Games Suit

In the end, security helped Apple avoid being labeled a monopolist.

In a ruling handed down Monday (April 24) by a federal appeals court, and as reported here, Apple can no longer prohibit developers from offering links that enable payments outside of the tech behemoth’s Apple App Store.

And in that respect, Epic Games scored a victory in its nearly-three-year-old legal battle against Apple.

But Apple scored some legal wins, too, notably in its bid to skirt the “monopolist” designation and running afoul of antitrust rules, which in turn, might have led to a restructuring of, and restrictions on, various business activities. Broadly speaking, the federal court upheld lower court rulings that found Apple is not a monopolist in the distribution of iOS apps, and added that Apple did not violate antitrust laws by requiring app developers to use Apple’s proprietary in-app payment systems.

Turns out there’s a line separating anti-competitive behavior and true market dominance that winds up, as monopolies are classically defined, wielding control over all aspects of production and distribution of a good or service.

Apple had been, in the lower court’s estimation and as upheld this week, acting in an anti-competitive fashion, at least in some respects.

“Epic proved substantial anticompetitive harms through both direct and indirect evidence,” Monday’s ruling noted. “Apple has for years charged a supracompetitive commission on App Store transactions that it set ‘without regard’ for competition. That commission, in turn, creates an ‘extraordinary high’ operating margin of 75% for App Store transactions.

“Moreover, Apple has market power in the mobile-games transactions market, evidenced by its 52 to 57% market share and barriers to entry in the form of network effects.” The market dominance has allowed Apple to prevent competitors — Epic among them — from offering app distribution and payment processing alternatives. Those issues, we note, are addressed in the court’s allowance for links to payments outside of the App store.

The Security Aspect

Epic argued, too, that Apple’s security and privacy protocols did not fall under the purview of antitrust law — an argument rejected by the courts. Apple had long been arguing through the twists and turns of the case that restraints on iOS app distribution have the protection of iPhone users in mind.

And, indeed, the discussion of “enhancing consumer appeal,” which was referred in the filing as “the goal” of Apple’s security and privacy efforts, are pro-competitive. Consumer surveys, the court said, reveal that security and privacy remain important considerations driving device purchase for 50% to 62% of iPhone users and 76% to 89% of iPad users worldwide. Opening in-app processing to competing vendors, as Epic had petitioned, would not be “as effective,” Monday’s ruling noted, as Apple’s current model in protecting security. The “walled garden” approach, we note, has its detractors, but per the ruling is not a monopolistic hold on the mobile app landscape.

“With Apple’s restrictions in place, users are free to decide which kind of app-transaction platform to use. Users who value security and privacy can select (by purchasing an iPhone) Apple’s closed platform and pay a marginally higher price for apps,” the court wrote.