Epic Games has partially won its request for temporary restraining order against Apple. Following a hearing today, Judge Yvonne Gonzalez Rogers has ruled that Apple cannot terminate the developer account of Epic Games (protecting Unreal Engine) but need not restore Fortnite to the App Store.
In her analysis, the Judge found that Epic Games' current predicament in regards to Fortnite appears to be of its own making. She suggests the sensible way to proceed would be for Epic to comply with Apple's guidelines while making its case against them in court.
"[t]he sensible way to proceed is for [Epic to comply with the agreements and guidelines] and continue to operate while it builds a record."
However, the Judge sided with Epic Games in regards to Apple's threat to crush the Unreal Engine.
"By contrast, with respect to the Unreal Engine and the developer tools, the Court finds the opposite result. In this regard, the contracts related to those applications were not breached. Apple does not persuade that it will be harmed based on any restraint on removing the developer tools. The parties' dispute is easily cabined on the antitrust allegations with respect to the App Store. It need not go farther. Apple has chosen to act severely, and by doing so, has impacted non-parties, and a third-party developer ecosystem. In this regard, the equities do weigh against Apple."
Today's TRO is effective immediately and remains in effect until an order is issued by the court on a motion for preliminary injunction. A hearing on that motion has been set for Monday, September 28, 2020 at 9:30 a.m. PDT.
You can read the Judge's full analysis below or click here for the full order via Verge.
Please download the iClarified app or follow iClarified on Twitter, Facebook, YouTube, and RSS for updates.
-----
III. ANALYSIS
The Court evaluates most of the factors through the lens of Apple's actions with respect to
(i) Epic Games specifically, including the delisting of Fortnite and other games authorized under Epic Games' contract with Apple, and (ii) the anticipated suspension/termination of developer rights authorized under other contracts, such as the one with Epic International.
Likelihood of Success on the Merits: Epic brings ten claims for violations of Sherman Act,
the California Cartwright Act, and California Unfair Competition. Based on a review of the current limited record before the Court, the Court cannot conclude that Epic has met the high burden of demonstrating a likelihood of success on the merits, especially in the antitrust context. However, the Court also concludes that serious questions do exist. Indeed, the Court related this action to the Cameron action because there are overlapping questions of facts and law, including substantively similar claims based on the same Apple App Store policies: namely, the 30% fee that Apple takes from developers through each application sale and IAP in the application. Compare Cameron, Consolidated Complaint, Dkt. No. 53 with Epic Games, Inc. v. Apple Inc., Complaint, Dkt. No. 1. The Court considers this context in weighing the other factors. Irreparable Harm: The issue of irreparable harm focuses on the harm caused by not maintaining the status quo, as opposed to the separate and distinct element of a remedy under the likelihood of success factor. Here, the Court's evaluation is guided by the general notion that "self-inflicted wounds are not irreparable injury." Al Otro Lado v. Wolf, 952 F.3d 999, 1008 (9th Cir. 2020) (quoting Second City Music, Inc. v. City of Chicago, 333 F.3d 846, 850 (7th Cir. 2003)). Further courts generally decline to find irreparable harm that "results from the express terms of [the] contract." See Salt Lake Tribune Publ'g Co., LLC v. AT&T Corp., 320 F.3d 1081, 1106 (10th Cir. 2003) (no irreparable harm where the alleged harm "results from the express terms of [the] contract"). At its core, irreparable harm is harm or injury that cannot be repaired.
The Court finds that with respect to Epic Games' motion as to its games, including Fortnite, Epic Games has not yet demonstrated irreparable harm. The current predicament appears of its own making. See Second City Music, 333 F.3d at 850 (" Only the injury inflicted by one's adversary counts for this purpose."). Epic Games remains free to maintain its agreements with Apple in breach status as this litigation continues, but as the Seventh Circuit recognized in Second City Music, "[t]he sensible way to proceed is for [Epic to comply with the agreements and guidelines] and continue to operate while it builds a record." Id. "Any injury that [Epic Games] incurs by following a different course is of its own choosing." Id. Epic Games admits that the technology exists to "fix" the problem easily by deactivating the "hotfix." That Epic Games would prefer not to litigate in that context does not mean that "irreparable harm" exists.
By contrast, Epic Games has made a preliminary showing of irreparable harm as to Apple's actions related to the revocation of the developer tools (SDKs). The relevant agreement, the Apple Xcode and Apple SDKs Agreement, is a fully integrated document that explicitly walls off the developer program license agreement. (See Dkt. No. 41-21 at 16.) Apple's reliance on its "historical practice" of removing all "affiliated" developer accounts in similar situations or on broad language in the operative contract at issue here can be better evaluated with full briefing. For now, Epic International appears to have separate developer program license agreements with Apple and those agreements have not been breached. Moreover, Apple is hard-pressed to dispute that even if Epic Games succeeded on the merits, it could be too late to save all the projects by third-party developers relying on the engine that were shelved while support was unavailable. Indeed, such a scenario would likely lead to nebulous, hard-to-quantify questions, such as, how successful these other projects might have been, and how much in royalties would have been generated, much less the collateral damage to the third-party developers themselves.
Balance of Equities: The battle between Epic Games and Apple has apparently been brewing for some time. It is not clear why now became so urgent. The Cameron case which addresses the same issues has been pending for over a year, and yet, both Epic Games and Apple remain successful market players. If plaintiffs there, or here, prevail, monetary damages will be available and injunctive relief requiring a change in practice will likely be required. Epic Games moves this Court to allow it to access Apple's platform for free while it makes money on each purchase made on the same platform. While the Court anticipates experts will opine that Apple's 30 percent take is anti-competitive, the Court doubts that an expert would suggest a zero percent alternative. Not even Epic Games gives away its products for free.
Thus, in focusing on the status quo, the Court observes that Epic Games strategically chose to breach its agreements with Apple which changed the status quo. No equities have been identified suggesting that the Court should impose a new status quo in favor of Epic Games. By contrast, with respect to the Unreal Engine and the developer tools, the Court finds the opposite result. In this regard, the contracts related to those applications were not breached. Apple does not persuade that it will be harmed based on any restraint on removing the developer tools. The parties' dispute is easily cabined on the antitrust allegations with respect to the App Store. It need not go farther. Apple has chosen to act severely, and by doing so, has impacted non-parties, and a third-party developer ecosystem. In this regard, the equities do weigh against Apple.
Public Interest: "[T]he public interest inquiry primarily addresses the impact on nonparties." HiQ Labs, Inc. v. LinkedIn Corp., 938 F.3d 985, 1004 (9th Cir. 2019). "The plaintiffs bear the initial burden of showing that the injunction is in the public interest." Storrnans, Inc. v. Selecky, 586 F.3d 1109, 1139 (9th Cir. 2009).
With respect to the gaming requests, the Court recognizes based on the numerous internet postings and comments submitted in the record that Fortnite players are passionate supporters of the game, and eagerly anticipate its return to the iOS platform. The Court further recognizes that during these coronavirus pandemic (COVID-19) times, virtual escapes may assist in connecting people and providing a space that is otherwise unavailable. However, the showing is not sufficient to conclude that these considerations outweigh the general public interest in requiring private parties to adhere to their contractual agreements or in resolving business disputes through normal, albeit expedited, proceedings. See S. Glazer's Distrib. of Ohio, LLC v. Great Lakes Brewing Co., 860 F.3d 844, 853 (6th Cir. 2017) (declining to enjoin termination of contract according to its terms because the "public has a strong interest in holding private parties to their agreements").
With respect to the Unreal Engine and the developer tools, the calculus changes. The record shows potential significant damage to both the Unreal Engine platform itself, and to the gaming industry generally, including on both third-party developers and gamers. The public context in which this injury arises differs significantly: not only has the underlying agreement not been breached, but the economy is in dire need of increasing avenues for creativity and innovation, not eliminating them. Epic Games and Apple are at liberty to litigate against each other, but their dispute should not create havoc to bystanders. Certainly, during the period of a temporary restraining order, the status quo in this regard should be maintained.
Weighing of Factors: In sum, the Court finds that based upon the record before it, the Winter factors weigh against granting a temporary restraining order based on Epic Games' requests as to Fortnite and other games and in favor of granting a temporary restraining order based as to the Unreal Engine and other effected developer tools.
-----
In her analysis, the Judge found that Epic Games' current predicament in regards to Fortnite appears to be of its own making. She suggests the sensible way to proceed would be for Epic to comply with Apple's guidelines while making its case against them in court.
"[t]he sensible way to proceed is for [Epic to comply with the agreements and guidelines] and continue to operate while it builds a record."
However, the Judge sided with Epic Games in regards to Apple's threat to crush the Unreal Engine.
"By contrast, with respect to the Unreal Engine and the developer tools, the Court finds the opposite result. In this regard, the contracts related to those applications were not breached. Apple does not persuade that it will be harmed based on any restraint on removing the developer tools. The parties' dispute is easily cabined on the antitrust allegations with respect to the App Store. It need not go farther. Apple has chosen to act severely, and by doing so, has impacted non-parties, and a third-party developer ecosystem. In this regard, the equities do weigh against Apple."
Today's TRO is effective immediately and remains in effect until an order is issued by the court on a motion for preliminary injunction. A hearing on that motion has been set for Monday, September 28, 2020 at 9:30 a.m. PDT.
You can read the Judge's full analysis below or click here for the full order via Verge.
Please download the iClarified app or follow iClarified on Twitter, Facebook, YouTube, and RSS for updates.
-----
III. ANALYSIS
The Court evaluates most of the factors through the lens of Apple's actions with respect to
(i) Epic Games specifically, including the delisting of Fortnite and other games authorized under Epic Games' contract with Apple, and (ii) the anticipated suspension/termination of developer rights authorized under other contracts, such as the one with Epic International.
Likelihood of Success on the Merits: Epic brings ten claims for violations of Sherman Act,
the California Cartwright Act, and California Unfair Competition. Based on a review of the current limited record before the Court, the Court cannot conclude that Epic has met the high burden of demonstrating a likelihood of success on the merits, especially in the antitrust context. However, the Court also concludes that serious questions do exist. Indeed, the Court related this action to the Cameron action because there are overlapping questions of facts and law, including substantively similar claims based on the same Apple App Store policies: namely, the 30% fee that Apple takes from developers through each application sale and IAP in the application. Compare Cameron, Consolidated Complaint, Dkt. No. 53 with Epic Games, Inc. v. Apple Inc., Complaint, Dkt. No. 1. The Court considers this context in weighing the other factors. Irreparable Harm: The issue of irreparable harm focuses on the harm caused by not maintaining the status quo, as opposed to the separate and distinct element of a remedy under the likelihood of success factor. Here, the Court's evaluation is guided by the general notion that "self-inflicted wounds are not irreparable injury." Al Otro Lado v. Wolf, 952 F.3d 999, 1008 (9th Cir. 2020) (quoting Second City Music, Inc. v. City of Chicago, 333 F.3d 846, 850 (7th Cir. 2003)). Further courts generally decline to find irreparable harm that "results from the express terms of [the] contract." See Salt Lake Tribune Publ'g Co., LLC v. AT&T Corp., 320 F.3d 1081, 1106 (10th Cir. 2003) (no irreparable harm where the alleged harm "results from the express terms of [the] contract"). At its core, irreparable harm is harm or injury that cannot be repaired.
The Court finds that with respect to Epic Games' motion as to its games, including Fortnite, Epic Games has not yet demonstrated irreparable harm. The current predicament appears of its own making. See Second City Music, 333 F.3d at 850 (" Only the injury inflicted by one's adversary counts for this purpose."). Epic Games remains free to maintain its agreements with Apple in breach status as this litigation continues, but as the Seventh Circuit recognized in Second City Music, "[t]he sensible way to proceed is for [Epic to comply with the agreements and guidelines] and continue to operate while it builds a record." Id. "Any injury that [Epic Games] incurs by following a different course is of its own choosing." Id. Epic Games admits that the technology exists to "fix" the problem easily by deactivating the "hotfix." That Epic Games would prefer not to litigate in that context does not mean that "irreparable harm" exists.
By contrast, Epic Games has made a preliminary showing of irreparable harm as to Apple's actions related to the revocation of the developer tools (SDKs). The relevant agreement, the Apple Xcode and Apple SDKs Agreement, is a fully integrated document that explicitly walls off the developer program license agreement. (See Dkt. No. 41-21 at 16.) Apple's reliance on its "historical practice" of removing all "affiliated" developer accounts in similar situations or on broad language in the operative contract at issue here can be better evaluated with full briefing. For now, Epic International appears to have separate developer program license agreements with Apple and those agreements have not been breached. Moreover, Apple is hard-pressed to dispute that even if Epic Games succeeded on the merits, it could be too late to save all the projects by third-party developers relying on the engine that were shelved while support was unavailable. Indeed, such a scenario would likely lead to nebulous, hard-to-quantify questions, such as, how successful these other projects might have been, and how much in royalties would have been generated, much less the collateral damage to the third-party developers themselves.
Balance of Equities: The battle between Epic Games and Apple has apparently been brewing for some time. It is not clear why now became so urgent. The Cameron case which addresses the same issues has been pending for over a year, and yet, both Epic Games and Apple remain successful market players. If plaintiffs there, or here, prevail, monetary damages will be available and injunctive relief requiring a change in practice will likely be required. Epic Games moves this Court to allow it to access Apple's platform for free while it makes money on each purchase made on the same platform. While the Court anticipates experts will opine that Apple's 30 percent take is anti-competitive, the Court doubts that an expert would suggest a zero percent alternative. Not even Epic Games gives away its products for free.
Thus, in focusing on the status quo, the Court observes that Epic Games strategically chose to breach its agreements with Apple which changed the status quo. No equities have been identified suggesting that the Court should impose a new status quo in favor of Epic Games. By contrast, with respect to the Unreal Engine and the developer tools, the Court finds the opposite result. In this regard, the contracts related to those applications were not breached. Apple does not persuade that it will be harmed based on any restraint on removing the developer tools. The parties' dispute is easily cabined on the antitrust allegations with respect to the App Store. It need not go farther. Apple has chosen to act severely, and by doing so, has impacted non-parties, and a third-party developer ecosystem. In this regard, the equities do weigh against Apple.
Public Interest: "[T]he public interest inquiry primarily addresses the impact on nonparties." HiQ Labs, Inc. v. LinkedIn Corp., 938 F.3d 985, 1004 (9th Cir. 2019). "The plaintiffs bear the initial burden of showing that the injunction is in the public interest." Storrnans, Inc. v. Selecky, 586 F.3d 1109, 1139 (9th Cir. 2009).
With respect to the gaming requests, the Court recognizes based on the numerous internet postings and comments submitted in the record that Fortnite players are passionate supporters of the game, and eagerly anticipate its return to the iOS platform. The Court further recognizes that during these coronavirus pandemic (COVID-19) times, virtual escapes may assist in connecting people and providing a space that is otherwise unavailable. However, the showing is not sufficient to conclude that these considerations outweigh the general public interest in requiring private parties to adhere to their contractual agreements or in resolving business disputes through normal, albeit expedited, proceedings. See S. Glazer's Distrib. of Ohio, LLC v. Great Lakes Brewing Co., 860 F.3d 844, 853 (6th Cir. 2017) (declining to enjoin termination of contract according to its terms because the "public has a strong interest in holding private parties to their agreements").
With respect to the Unreal Engine and the developer tools, the calculus changes. The record shows potential significant damage to both the Unreal Engine platform itself, and to the gaming industry generally, including on both third-party developers and gamers. The public context in which this injury arises differs significantly: not only has the underlying agreement not been breached, but the economy is in dire need of increasing avenues for creativity and innovation, not eliminating them. Epic Games and Apple are at liberty to litigate against each other, but their dispute should not create havoc to bystanders. Certainly, during the period of a temporary restraining order, the status quo in this regard should be maintained.
Weighing of Factors: In sum, the Court finds that based upon the record before it, the Winter factors weigh against granting a temporary restraining order based on Epic Games' requests as to Fortnite and other games and in favor of granting a temporary restraining order based as to the Unreal Engine and other effected developer tools.
-----