Why Apple Didn’t Lose in the Epic Games Ruling

A decision that split in Big Tech’s favor

A federal judge’s split decision on Friday in the high-profile case between Apple and Epic Games, which stopped short of declaring Apple a monopoly but said it was anticompetitive, allowed parties on both sides of the argument to claim victory. The ruling also set off celebrations among developers who said the ruling would allow them to avoid Apple’s 30 percent commission on in-app purchases. Spotify, one of those developers, said it was pleased with the ruling.

Conversely, so did Apple. That suggests that much of the coverage over the weekend about the ruling representing a meaningful setback to the tech giant, whose shares fell on the news, should be taken with a grain of salt. It’s also telling that Epic filed an appeal against the decision yesterday.

A quick recap: Epic sued Apple in August last year, after the iPhone maker removed Epic’s popular game Fortnite from its app store. Apple said the developer had broken its rules by steering players to make purchases outside of Apple’s app store, circumventing Apple’s ability to collect a commission on in-app purchases. Epic, in its suit, said Apple violated antitrust laws by forcing developers to use its payment system and forbidding them from telling app users about alternative ways to pay.

The judge sided with Apple on questions of monopoly. “While the Court finds that Apple enjoys considerable market share of over 55% and extraordinarily high profit margins, these factors alone do not show antitrust conduct,” Judge Yvonne Gonzalez Rogers wrote. “Success is not illegal.” But she said that Apple’s policy against steering, by forcing developers to withhold information from consumers, was anticompetitive under California state law, and therefore should not be allowed, not just within the state, but anywhere.

The main strike against Apple is open to interpretation. There is plenty of room for interpretation in the judge’s order on Apple’s steering rules, which said that Apple cannot prohibit developers from “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,” the judge’s decision said.

There is debate about the difference between buttons and links, which could make the effect of the ruling less significant than it seems. If a button, like a shopping cart icon or “pay now” call-out, isn’t the same as a link, then Apple could interpret the ruling as allowing things that look like buttons but don’t take users to external sites when they tap them. This might set up more fights between Apple and developers.

Legal experts said that the decision was not a road map for future antitrust litigation, but rather another dead end for those who want to rein in tech giants via the courts. It’s more evidence of “how narrow our federal antitrust laws are,” Eleanor Fox, an antitrust law scholar at N.Y.U., told DealBook. “Some people are saying it’s a big win for Epic, but that may not be so.”

Apple said that it needs to control the entire App Store ecosystem to ensure privacy and protect consumers from being ripped off, and the judge basically agreed. In fact, Judge Gonzalez Rogers argued that a world where Apple had no ability to protect its commissions would be unfair. “The ruling shows the gap between the popular perception of what is a monopoly and what the law says,” Fox said. And that, in turn, “gives those pushing to change the laws in Congress pretty good ammunition,” she said.

HERE’S WHAT’S HAPPENING

Beijing reportedly wants to break up Alipay. As part of the Chinese government’s crackdown on domestic tech giants, The Financial Times reports that regulators may order the fintech company, which is part of Jack Ma’s Ant Group, to split off its lending business and turn over user data to a partly state-owned credit scoring joint venture. This follows recent rumblings that state-backed companies would take a stake in Ant Group.

The stock market looks to rebound from a rough week. Futures are up today, after five days of losses marked the longest consecutive stretch of down days since February. But a growing number of Wall Street strategists warn that more market drops could be ahead.

Democrats outline tax increases for the richest businesses and individuals. The plan circulating among House Democrats proposes to raise the corporate tax rate to 26.5 percent for companies that report more than $5 million in income, make the top marginal income tax rate for individuals 39.6 percent and hike the capital gains tax rate to 25 percent. The plan is less aggressive than President Biden had earlier proposed, with projected revenue falling short of fully funding the White House’s $3.5 trillion spending plans.

Whirlpool is offering employees $1,000 to be vaccinated, DealBook has learned. The incentive, announced to employees last week, came as Biden ordered OSHA to require companies with more than 100 employees to require that workers be vaccinated or face weekly testing. This morning, the Consumer Brands Association, a trade group, wrote to Biden with a long list of questions its members have about the order, reflecting the confusion among companies about how to apply vaccine mandates.

Kansas City Southern is back together with Canadian Pacific. The railroad operator said yesterday that it deemed a $29 billion takeover offer from Canadian Pacific superior to a higher bid from Canadian National. Canadian National was the preferred suitor until its bid to create the first railroad to connect all of North America hit a regulatory snag, and if it loses out in the bidding war it will receive a $700 million breakup fee.

A new type of advisory firm

As companies put more focus on diversity, political engagement and working with a broader range of stakeholders, their consulting needs have changed in turn. Advisers are adapting to meet this demand. Today, Jon Henes, a former restructuring partner at Kirkland & Ellis, is launching C Street Advisory to offer C.E.O.s and boardrooms advice on issues that span business, politics and social justice.

The firm blends Henes’s experience and relationships at Kirkland with his time as the national finance chair for Kamala Harris’s presidential campaign and a co-finance chair for Ray McGuire’s New York mayoral campaign.

C Street has four main functions: Corporate advisory, like the work Henes did at Kirkland; diversity, equity and inclusion (also known as D.E.I.); employee recruitment and retention; and communications. C Street will compete with advisory firms like Teneo, among others, that have turned their attention to helping clients navigate the complex social issues facing companies today. “It’s not about just checking boxes, it’s about really helping to build value in corporations,” Henes told DealBook.

The firm has already hired about 15 people. They include Beth Kojima, a director of special events for McGuire’s mayoral campaign; Melissa Prober, a former deputy general counsel at the Clinton Foundation; Al Tillery, a founding director for Center for the Study of Diversity and Democracy at Northwestern University; and Lisa Hernandez Gioia, who handled communications for Hudson Yards. Board members include Minyon Moore, who previously worked in the Clinton White House, and the prominent entertainment lawyer Matt Johnson.

“We’ve been a little bit peacetime generals at a time where, actually, we’re in a war again.”

— Mark Malloch-Brown, president of the Open Society Foundations, which was started by the billionaire investor George Soros and is now the second-largest private charitable foundation in the U.S. The left-leaning foundation is undergoing a restructuring, which includes buyouts for more than 150 employees, as it focuses on fighting the rise in authoritarianism around the world.

The week ahead

Price check: Tomorrow, investors will scour the August data for the Consumer Price Index for clues on whether higher inflation is temporary. Some of the recent rises were in categories where prices dropped as lockdown orders took effect last year, such as airline tickets, or for items like cars that have been affected by shortages. Another sign that inflation may be temporary? Prices have also popped in advanced economies around the world — despite vastly different policy approaches in response to the pandemic.

Poverty report: The Census Bureau will release its annual report on income and poverty in the U.S., also tomorrow. Poverty is expected to have risen only slightly last year, despite the huge increase in unemployment, signaling that government aid helped offset the economic impact of the pandemic.

New iPhones: Apple is set to unveil its latest line of smartphones at a virtual event tomorrow. (Tuesday is shaping up to be a busy day.) Camera upgrades, improvements in battery life, and other tweaks to iPhones, smart watches, laptops and other products are expected.

From the TimesMachine: On this day in 1956, I.B.M. unveiled four computers, which The Times called “think units,” designed to aid factories and offices with accounting and typing. One of the devices, the Ramac, cost $3,200 a month to rent. The electronics company’s president, Thomas J. Watson Jr., said the launch was the “greatest product day” in the history of I.B.M., and in the history of the office equipment industry as a whole.

THE SPEED READ

Deals

• Blackstone’s abandoned $3 billion takeover of Soho China wiped more than 30 percent off the property firm’s share price. (NYT)

• The consortium looking to buy Sydney Airport raised its bid to $17.4 billion and won permission to conduct due diligence. (Reuters)

• The credit reporting company TransUnion is reportedly close to a $3.1 billion deal for the information-services company Neustar. (WSJ)

Policy

• Ireland, the European Union’s lead data protection regulator, has failed to resolve 98 percent of complaints about privacy abuses. (FT)

• Salesforce will help relocate employees who wish to leave Texas, after the state passed a restrictive law on abortion. (NBC)

• Security experts are concerned that a surge in cryptocurrency use in the wake of the Taliban’s takeover of Afghanistan could hamper efforts to impose sanctions on the group. (WSJ)

• Corporate America has pledged to fight racism and support Black Americans, but a similar initiative started decades ago in Rochester shows that the promise is difficult to sustain. (NYT)

• Britain’s labor market is in a logjam, with thousands of job vacancies and plenty of people who are looking for work but lack the skills to match empty positions. (NYT)

Best of the rest

• Global airlines are now carrying $340 billion of debt, an increase of nearly 23 percent since 2020. (Bloomberg)

• “Hear That? It’s Your Voice Being Taken for Profit.” (Times Opinion)

• Facebook is buying $100 million worth of unpaid invoices from thousands of small businesses owned by women and minorities. (CNBC)

• Mattel is rebooting He-Man with a new cast of more diverse sidekicks. (NYT)

• “Why Our Monsters Talk to Michael Wolff.” (NYT)

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