Epic Games, Inc. v. Apple Inc.

• Decision Date: 09 October 2020
• Docket Number: Case No. 4:20-cv-05640-YGR
• Citation: 493 F.Supp.3d 817
• Parties: EPIC GAMES, INC., Plaintiff, v. APPLE INC., Defendant.
• Court: U.S. District Court — Northern District of California

493 F.Supp.3d 817

EPIC GAMES, INC., Plaintiff,

v.APPLE INC., Defendant.

Case No. 4:20-cv-05640-YGR

United States District Court, N.D. California.

Signed October 9, 2020

Christine A. Varney, Pro Hac Vice, Katherine B. Forrest, Pro Hac Vice, Michael Brent Byars, Pro Hac Vice, Yonatan Even, Pro Hac Vice, Lauren Ann Moskowitz, Pro Hac Vice, Gary Andrew Bornstein, Pro Hac Vice, Cravath, Swaine and Moore LLP, New York, NY, Paul Jeffrey Riehle, Faegre Drinker Biddle & Reath LLP, San Francisco, CA, for Plaintiff.

Cynthia Richman, Pro Hac Vice, Mark A. Perry, Gibson Dunn and Crutcher LLP, William F. Stute, Pro Hac Vice, Orrick, Herrington and Sutcliffe LLP, Washington, DC, Daniel Glen Swanson, Theodore J. Boutrous, Jr., Jagannathan P. Srinivasan, Richard Joseph Doren, Gibson, Dunn & Crutcher LLP, Los Angeles, CA, E. Joshua Rosenkranz, Pro Hac Vice, Orrick Herrington Sutcliffe LLP, New York, NY, Veronica Smith Lewis, Pro Hac Vice, Gibson Dunn Crutcher LLP, Dallas, TX, for Defendant.

ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR PRELIMINARY INJUNCTION

Re: Dkt. No. 61

Yvonne Gonzalez Rogers, United States District Judge

Preliminary injunctive relief is an extraordinary measure rarely granted. Plaintiff Epic Games, Inc.’s lawsuit against defendant Apple Inc. challenges the fundamental operation of digital platforms affecting millions of users. To resolve it, the Court must apply the Sherman Act, California's Cartwright Act, and California's Unfair Competition Law—statutes enacted more than a century ago—to a technology context where lawyers and economists can merely hypothesize about the future of the digital frontier. While courts are charged with adjudicating cases of significant impact, they do so cautiously, and on full records, with the status quo intact.

In this motion for preliminary injunction, Epic Games asks the Court to force Apple to reinstate Fortnite to the Apple App Store, despite its acknowledged breach of its licensing agreements and operating guidelines, and to stop Apple from terminating its affiliates’ access to developer tools for other applications, including Unreal Engine, while Epic Games litigates its claims. Having carefully considered the parties’ arguments, and for the reasons set forth more fully below, the Court maintains its findings from the temporary restraining order and hereby GRANTS IN PART and DENIES IN PART Epic Games’ motion for a preliminary injunction.

Epic Games bears the burden in asking for such extraordinary relief. Given the novelty and the magnitude of the issues, as well as the debate in both the academic community and society at large,¹ the Court is unwilling to tilt the playing field in favor of one party or the other with an early ruling of likelihood of success on the merits. Epic Games has strong arguments regarding Apple's exclusive distribution through the iOS App Store, and the in-app purchase ("IAP") system through which Apple takes 30% of certain IAP payments. However, given the limited record, Epic Games has not sufficiently addressed Apple's counter arguments. The equities, addressed in the temporary restraining order, remain the same.

I. BACKGROUND

The Court summarizes the limited record before it on this motion for preliminary injunction. To expedite issuance of this Order, the Court cites to some of the basic background from its prior order² as the background is equally relevant here. The Court notes disputes in the evidence where otherwise appropriate.

A. The Players

With respect to Epic Games:

Epic Games is a United States-based tech-company that specializes in video games, including, as relevant here, the popular multi-platform³ game, Fortnite. Fortnite is structured around "seasons," whereby narratives, themes, and events are introduced for a limited time. Cross-platform play is enabled for all users so long as those users remain on the same version of the game....

Epic Games International, S.a.r.l ("Epic International") is a related company based in Switzerland and hosts, among others, the Unreal Engine. The Unreal Engine is a graphics engine created by Epic International to assist in its development of video games that it later began licensing to other developers. The Unreal Engine 4, the current version of the engine on the market, is used by third-party developers for the development of video games for both console and mobile platforms, including for games currently offered in the iPhone App Store. These third parties range from smaller game developers to larger corporations, such as Microsoft Corporation. The Unreal Engine has also been used by third parties for architecture projects, film and television production, and medical training.

Epic Games , 2020 WL 5073937 at *1 (Dkt. No. 48 at 2). Epic Games has released twenty-five (25) updates to Unreal Engine since 2014, and anticipates releasing future updates to ensure that Unreal Engine remains compatible with new versions of Apple's software, such as the now released iOS 14. Developers can use Unreal Engine commercially on a royalty model or negotiated license, but it is otherwise free for non-commercial use. Although more applications on the iOS platform are powered by a rival game engine, Unity, a significant number of iOS applications are constructed based on Unreal Engine, including Fortnite competitor PlayerUnknown's Battlegrounds ("PUBG ").

Epic Games also maintains or controls other affiliates including: Epic International, Life on Air, Inc. (both in San Francisco, California and Austin, Texas), KA-RA S.a.r.l., Psyonix LLC, and Quixel AB (collectively, "Epic Affiliates"). The Epic Affiliates maintain control over certain applications and software within the Epic Games business. These identified applications include: Unreal Engine, Unreal Remote 2, Unreal Match 3, Action RPG Game Sample, Unreal Remote, Live Link Face, and House Party, among others. Meanwhile, Epic Games itself controls Battle Breakers , Infinity Blade Stickers, Spyjinx , and, as relevant here, Fortnite.

Beyond these games and applications, Epic Games also operates a digital marketplace to sell game software called the Epic Games Store. As pled in the operative complaint: the Epic Games Store was created to compete against the leading multi-publisher digital video game marketplace on computer platforms, Steam, which is operated by Valve Corporation. The Epic Games Store provides access to more than 250 games from more than 200 developers. Like other video game digital distribution platforms, the Epic Games Store offers personalized features, including friends list management and game matchmaking services. As alleged, absent Apple's alleged anti-competitive conduct, Epic Games would also create an analogous Epic Games Store for the iOS platform independent of Apple's digital marketplace.

With respect to Apple:

Apple is a ubiquitous tech-company that makes products ranging from hardware to software. Apple, as relevant here, maintains an App Store for the iOS platform that is geared for its mobile devices, the iPhones [and iPads]. The App Store allows third-party developers an opportunity to create and thereafter sell applications to iPhone [and iPad] users. Apple generally takes 30% of the sale of the application or of the IAP made within the third-party application itself. Apple's agreements with developers and the App Store guidelines do not generally permit third-party developers to circumvent the IAP system.

Id. at *2 (Dkt. No. 48 at 2). In addition to preventing developers from circumventing the IAP system, developers are also prohibited from distributing applications outside of the App Store on the iOS platform.⁴ In short: Apple maintains the iOS platform as a walled garden or closed platform model, whereby Apple has strict and exclusive control over the hardware, the operating system, the digital distribution, and the IAP system.

In order to access the App Store and to obtain developer tools, developers are required to comply with Apple's rules and regulations through a web of agreements and guidelines:

As relevant here, Apple maintains separate developer agreements and developer program licensing agreements between Epic Games, Epic International and four other affiliated entities. Apple also maintains a separate agreement, "Xcode and Apple SDKs Agreement," regarding its developer tools (software development kits, or "SDKs").

Epic Games , 2020 WL 5073937 at *1 (Dkt. No. 48 at 2-3). These agreements have broad language including terminable at-will clauses.⁵

The relationship between Epic Games and Apple dates to at least 2011, when Epic Games released its first Infinity Blade game on the iOS platform. Epic Games and Apple collaborated for several Apple events, showcasing Epic Games’ iOS games and the earlier iterations of the Unreal Engine running on the iOS and macOS platforms. Following the success of Fortnite on other video game platforms, Epic Games launched Fortnite on iOS in April 2018, where it remained on the platform until, as discussed below, August 13, 2020. During this time period: (i) 116 million iOS device users accessed Fortnite , spending more than 2.86 billion hours in the game; (ii) the daily average users numbered approximately 2.5 million daily iOS players, representing nearly 10% of Fortnite ’s total average daily players; and (iii) 63% of iOS players on Fortnite have only accessed Fortnite from an iOS device. Finally, iOS users accounted for more IAPs within Fortnite than those on the Android platform, but iOS users spend less on IAPs than those on the console platforms, including the Sony PlayStation 4 and Microsoft Xbox One.

B. Relevant Background

On June 30, 2020, the developer program licensing agreements for the Epic Games account, the Epic International account, KA-RA S.a.r.l. account, and the Epic Games enterprise account were renewed by the payment of separate consideration.⁶ That same day, Epic Games founder and Chief Executive Officer ("CEO") Tim Sweeney sent an email to Apple executives, including...