As private and government litigation continues against high technology platforms, the ability of the courts to fashion appropriate and effective injunctive relief will likely have important implications for high technology firms, consumers, and the U.S. economy. Two developments last month in antitrust suits brought by Epic Games (the developer of the game Fortnite) illustrate the key role that injunctive relief may play and the challenges the courts may face in crafting injunctions.
In addition to the suits brought by Epic Games, numerous other current lawsuits seek injunctive relief against alleged anticompetitive behavior from firms in the high technology industry. As we explain below, economics and past antitrust enforcement actions demonstrate that the courts will face considerable challenges in establishing injunctive relief that enhances competition and benefits consumers.
The Epic Cases
Epic v. Apple
Developers providing software applications (apps) in Apple’s iOS App Store are required to follow Apple’s “App Store Review Guidelines.”1 In Epic Games, Inc. v. Apple Inc., Epic alleged that certain requirements of the App Store Review Guidelines were violations of federal and state antitrust laws and California’s Unfair Competition Law (UCL).2 After a bench trial, U.S. District Judge Yvonne Gonzalez Rogers ruled that two “anti-steering provisions” of Apple’s App Store Review Guidelines violate California’s UCL.3,4
The court issued a nationwide injunction to permanently enjoin Apple from prohibiting U.S. developers from:
“(i) including in their apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to In-App Purchasing [(IAP)] and (ii) communicating with customers through points of contact obtained voluntarily from customers through account registration within the app.”5
On January 16, 2024, Apple filed a notice of compliance with the injunction stating it is “striking the relevant parts” from its Guidelines and “implementing new rules” that allow developers to apply for the right or “entitlement” to include within their apps “buttons or links with calls to action directing users to out-of-app purchasing mechanisms other than IAP.”6 Apple also stated that it would provide a “disclosure sheet” that notifies users when they are going to an external website and states that Apple is not responsible for the privacy or security of their purchases.7
Additionally, Apple’s new rules call for a 27% commission on transactions “that take place on a developer’s website within seven days after a user taps through” a link to an external website.8 Apple currently charges many developers a 30% commission for sales made through its App Store, including initial app sales and additional sales of content within apps (“in-app purchases”).9
In response to Apple’s notice of compliance, Epic’s CEO, Tim Sweeney immediately asserted that the plan “undermines the [court’s] order” and “kills price competition” because “developers can’t offer digital items more cheaply…after paying a third-party payment processor 3-6% and paying this new 27% Apple tax.”10 On January 30, Epic notified the district court that it “disputes Apple’s purported compliance” and will file a motion identifying its bases and requesting relief.11 Presumably, the courts will have to weigh in again.
The case is Epic Games, Inc. v. Apple Inc., number 4:20-cv-05640, in the Northern District of California.
Epic v. Google
In Epic Games, Inc. v. Google LLC et al., Epic asserted similar claims against Google, i.e., alleging that requirements Google placed on developers providing apps in its Android app store (“Google Play”) were violations of federal and state antitrust laws and California’s UCL.12 In December 2023, a jury concluded that Epic proved “Google willfully acquired or maintained monopoly power by engaging in anticompetitive conduct.”13 Judge James Donato, the presiding judge, said he would arrange for a “hot tub” hearing with both sides’ experts to discuss a possible injunction.14
The case is Epic Games, Inc. v. Google LLC et al., case number 3:20-cv-05671, in the U.S. District Court for the Northern District of California.
Economics of Injunctive Relief and Past Enforcement Lessons
Antitrust remedies can involve penalties, structural relief (divestitures), or behavioral relief (such as injunctions in Epic’s cases). In the context of litigation against high technology platforms, Professor Hovencamp has recently argued that courts “should always look first to injunctions” as compared to structural relief.15 Other antitrust scholars have been less sanguine about the ability of antitrust injunctions to achieve their desired ends.
The impact of an injunction will often be quite challenging to determine ex ante. By its nature, a behavioral remedy often seeks to alter the profit maximizing behavior of a firm. As basic industrial organization textbooks recognize, “[w]hen laws prohibit firms from taking particular actions, firms seek alternative routes to accomplish their objectives.”16 In other words, economists can predict that a firm subject to injunctive relief will attempt to adapt to its next best alternative. However, predicting that next best alternative – or how consumers and competitors may respond, can prove to be a substantial challenge, particularly in rapidly evolving, high technology industries.
U.S. antitrust history is replete with examples of injunctive relief being imposed in antitrust cases. Legal scholars have questioned the ability of behavioral injunctions to achieve improved competition in some cases. In one well-known historical example, in 1947 the DOJ brought a suit against Standard Oil alleging that its contracts with retail gasoline stations (requiring them to exclusively purchase gasoline and other products from Standard Oil) were anticompetitive (United States v. Standard Oil Co. of California, Southern District of California). It obtained an injunction prohibiting such agreements under the theory that an injunction would improve competition from independent refiners for supply to retail stations. How did Standard Oil respond when no longer allowed to have such requirements contracts? It vertically integrated into retail gasoline stations, an outcome that did not open these stations to more supply from independent refiners.17
Adaptation to legal rules can also be seen in recent antitrust interventions in the high technology sector. In 2018, the European Commission fined Google for allegedly breaching EU Antitrust rules by denying “rival search engines the ability to compete on the merits,” and required Google to “bring its illegal conduct to an end,” or face additional penalties.18 Google responded to this decision by changing its Google Chrome browser as the default option on Android devices in Europe and introducing a choice screen with three alternative browsers (in addition to Google’s Chrome), with the three alternatives selected through a competitive auction. By 2021, many alternative browser firms were complaining that they did not have access to consumers (because they did not win a top three position through auction); some news articles were reporting that Google’s share of search browsers had not declined; and the European Commission was discussing new remedies with Google. Then, in 2021, Google offered a new choice screen and adapted its behavior again.
It will often be challenging for a court, or anyone for that matter, to predict how an injunction will trigger alternative actions by the firm subject to the injunction, its competitors, and its customers. This can be particularly true in the high technology sector in which technology and competitive conditions are rapidly changing. Indeed, even the firms subject to injunctions may not be able to predict what their best response will be far into the future. And, if a court finds that a firm’s strategic response to an injunction is objectionable and seeks to alter the injunction, it risks falling into a game of “whack a mole” with no winner resulting from the process.
The Future
We do not suggest that behavioral remedies are always impractical. However, as developments in Epic’s cases against Apple and Google demonstrate, they can present substantial challenges for the courts. How the courts meet those challenges will have important effects on high technology firms and, indeed, the U.S. economy.
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Kelly Lear Nordby, Ph.D., is a managing director and Jon Tomlin, Ph.D., is a senior managing director at Ankura Consulting Group, LLC.
This article was originally published in Law360, March 14, 2024.
1. Complaint, Epic Games, Inc. v. Apple Inc., 4:20-cv-05640-YGR (N.D. Cal. Aug. 13, 2020), ¶ 128.
2. Id., at ¶¶ 3, 6, 184-291.
3. Rule 52 Order after Trial on the Merits, Epic Games, Inc., v. Apple Inc., 4:20-cv-05640-YGR (N.D. Cal. Sep. 10, 2021), at 2, 142, 162-166.
4. On appeal, a three-judge panel for the Ninth Circuit affirmed the district court’s judgment (except the ruling on attorney fees). Opinion, Epic Games, Inc. v. Apple, Inc., 67 F.4th 946, 966 (9th Cir. 2023).5. Permanent Injunction, Epic Games, Inc. v. Apple Inc., 4:20-cv-05640-YGR (N.D. Cal. Sep. 10, 2021).
5. These new rules apply to the first provision. Apple claims it came into compliance with the second provision as part of the Cameron settlement, which was previously approved by the court. Id., at 15.
6. Notice of Injunction Compliance, Epic Games, Inc., v. Apple Inc., 4:20-cv-05640-YGR (N.D. Cal. Sep. 10, 2021), at 1, 4-
7. Id., at8-9.
8. Id., at 12. The commission is 12% for developers in the App Store Small Businesses Program. Ibid.
9. Rule 52 Order After Trial on the Merits, Epic Games, Inc., v. Apple Inc., 4:20-cv-05640-YGR, 9/10/2021, at 3. In late 2020, Apple introduced a lower, “Small Business Program commission” of 15% for developers that earn less than $1 million annually. Id.. at 74.
10. Matthew Perlman, “Epic CEO Blasts Apple’s ‘Bad-Faith’ Anti-Steering Compliance,” Law360, January 17, 2024.
11. Notice of Non-Compliance and Intent to Move to Enforce UCL Injunction, Epic Games, Inc., v. Apple Inc., 4:20-cv-05640-YGR-TSH, at 1.
12. Complaint for Injunctive Relief, Epic Games, Inc. v. Google LLC, et al., 3:20-cv-05671 (N.D. Cal. Aug. 13, 2020), at ¶¶ 6, 135-238.
13. See, e.g., Bonnie Eslinger, “Epic Games Jury Says Google Monopolized App Market,” Law360, December 11, 2023.
14. Ibid.
15. Herbert Hovencamp, “Structural Relief Against Digital Platforms,” Journal of Law and Innovation, forthcoming, 2024.
16. Dennis W. Carlton, and Jeffrey M. Perloff, Modern Industrial Organization, Pearson Addison Wesley, 4th Edition, 2005, at 677.
17. Robert W. Crandall and Kenneth G. Elzinga, “Injunctive Relief in Sherman Act Monopolization Cases,” Journal of Research in Law and Economics, April 24, 2002.
18. Press Release, European Commission, “Antitrust: Commission fines Google €4.34 billion for illegal practices regarding Android mobile devices to strengthen dominance of Google’s search engine,” 18 July 2018, https://ec.europa.eu/commission/presscorner/detail/en/IP_18_4581.
The views expressed herein are those of the author and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
