In Epic Games, Inc v Apple Inc, the Full Court of the Federal Court of Australia considered whether an exclusive jurisdiction clause in an agreement between Epic Games and Apple required a competition law claim brought by Epic Games against Apple to be stayed to allow the dispute to play out in the United States.

Background

Epic Games is an American video game developer renowned for developing Fortnite – an acclaimed video game that has become a cultural phenomenon in Australia and worldwide.

Fortnite is a cross-platform game that is compatible with various devices, including Apple’s iOS devices. In Australia, Apple requires the iOS version of the game to be distributed through its App Store. Moreover, Apple requires any in-app payments made through the iOS version of the game to be processed using Apple’s in-app payment processing system. Apple then deducts 30% of those payments as commission.

The License Agreement

The relationship between Apple and Epic Games is governed by an agreement called the Apple Developer Program License Agreement (the License Agreement). The License Agreement relevantly empowers Apple to cease distributing apps to end users if the developer has breached Apple’s App Store Review Guidelines. It also contains the following exclusive jurisdiction/choice of forum clause:

“Any litigation or other dispute resolution between You and Apple arising out of or relating to this Agreement, the Apple Software, or Your relationship with Apple will take place in the Northern District of California, and You and Apple hereby consent to the personal jurisdiction of and exclusive venue in the state and federal courts within that District with respect any such litigation or dispute resolution. This Agreement will be governed by and construed in accordance with the laws of the United States and the State of California, except that body of California law concerning conflicts of law.”

Software update and action taken by Apple

In August 2020, Epic Games introduced a payment system into the Fortnite game, which allowed in-app payments to be processed using Epic Games’ own system, thereby effectively bypassing Apple’s in-app payment processing system. The effect of this was that Apple would not receive its 30% cut. Apple then promptly removed Fortnite from the App Store on the basis that Epic Games breached the App Store Review Guidelines.

The (multi-jurisdictional) proceedings

Almost immediately after Fortnite was removed from the App Store, Epic Games brought an antitrust suit against Apple in the US District Court for the Northern District of California in relation to Apple’s practices in the iOS App Store.

A couple of months later, in November 2020, Epic Games commenced similar proceedings against Apple and its Australian subsidiary (Apple Pty Limited) in the Federal Court of Australia, alleging anti-competitive and unconscionable conduct in contravention of Part IV of Competition and Consumer Act 2010 (Cth) (the CCA) (regarding ‘Restrictive Trade Practices’) and section 21 of the Australian Consumer Law (the ACL). Among other things, Epic Games sought injunctions restraining Apple from contravening certain sections of Part IV of the CCA (namely sections 45, 46 and 47).

The stay application

In reliance on the above-mentioned exclusive jurisdiction clause in the License Agreement, which states that any litigation between the parties arising out of the License Agreement ‘will take place in the Northern District of California’, Apple applied for the Federal Court proceeding to be stayed so the dispute could be determined in the Northern District of California as agreed.

Primary court’s decision

In the first instance decision, Justice Perram found in favour of Apple. His Honour ordered that the proceedings be temporarily stayed for a period of 3 months to enable Epic Games to commence a suit in the Northern District of California alleging contraventions of Part IV of the CCA and/or section 21 of the ACL. If no suit was commenced within those 3 months, the stay would become permanent.

In his reasons, his Honour relevantly observed: “… I do not consider that the state of the law concerning choice of forum clauses permits me to refuse Apple’s application although I am distinctly troubled in acceding to it.” 

Issues on appeal

Epic Games appealed Justice Perram’s decision, arguing inter alia that:

  • Public policy considerations mandated that its claims be determined by the Federal Court of Australia;
  • The exclusive jurisdiction clause was unenforceable for public policy reasons; and
  • If the clause was enforceable there were ‘strong reasons’ for not enforcing the exclusive jurisdiction clause.

Full Court’s decision

In the appeal, the Full Federal Court (Justices Middleton, Jagot and Moshinsky) overturned Justice Perram’s decision. Their Honours had particular regard to the High Court of Australia’s decision in Akai, noting that: “The determination of this appeal is to be made on the basis of existing principles of law and the approach set out by the High Court in Akai.

In Akai, the High Court considered whether a choice of forum clause should defeat the mandatory law of the forum. The High Court affirmed the rule that, where there is an agreement to submit to another jurisdiction, Australian courts should require the parties to abide by their agreement and grant a stay unless there are “strong reasons” against doing so. The majority of the High Court also went on to say that a stay “may be refused where the foreign jurisdiction clause offends the public policy of the forum whether evinced by statute or declared by judicial decision”.

The Full Court found that in considering whether there was a ‘strong reason’ to refuse a stay, the primary court should have:

  • Made a ‘cumulative assessment’ of the relevant considerations (e.g. that the nation has an interest in maintaining the integrity of its own markets) and weighed those matters in an overall evaluation;
  • Recognised the juridical disadvantages of proceeding in a foreign court (e.g. that the US does not have the same statutory scheme, or similar statutory provisions concerning proof and remedies that are not otherwise available at common law); and
  • Accepted that the joinder of Apple’s Australian subsidiary (Apple Pty Limited) as a party to the proceeding was not merely ‘ornamental’, as Epic Games raised allegations and sought relief against it for conduct undertaken in Australia in connection with arrangements affecting Australian consumers in an Australian sub-market (being claims under the CCA and ACL, as distinct from the License Agreement).

Having regard to the well-established principles outlined in Akai, the Full Court then itself re-evaluated whether there were ‘strong grounds’ to refuse the stay.

In making a cumulative assessment of public policy considerations, their Honours noted that the far-reaching effect that the proceeding would have on the pockets of a large part of the population, and commented that the alleged contravening conduct adversely affects the state of competition in markets in Australia and a large number of Australians. They also had particular regard to the legislative policy that claims pursuant to Part IV of the CCA (being claims of economic significance that concern the protection of competition in Australian markets) should be determined in Australia.

Their Honours then highlighted various advantages of having Part IV claims heard in Australia versus in the US, such as:

  • Claims can be determined by specialist judges with relevant expertise (rather than alleged contraventions being determined through the prism of expert evidence, in which case aspects of the CCA could be lost in translation and matters of meaning and context could be overlooked or misconstrued);
  • The ACCC can intervene if necessary;
  • Private parties can obtain the benefit of any factual findings and admissions; and
  • An Australian court’s judgment could contribute to the development of a single, coherent body of doctrine (whereas any judgment of a US court is unlikely to make a contribution to the body of doctrine).

Finally, in relation to the issue of Apple’s Australian subsidiary being a party to the proceeding, their Honours considered it relevant that the Australian subsidiary was not itself a party to the exclusive jurisdiction clause.

Accordingly, the Full Court was satisfied that there were strong reasons for the proceeding to remain in the Federal Court of Australia and allowed the appeal, thereby enabling Epic Games to pursue its claim against Apple in Australia.

Key Takeaway

Notably, Apple has stated publicly that it will apply for special leave to appeal the decision to the High Court. The matter is therefore subject to a potential High Court appeal (if special leave is granted by the High Court).

However, assuming it is not overturned on appeal, this case provides clarity around the circumstances in which courts will refrain from enforcing exclusive jurisdiction clauses. It affirms that alleged breaches of Australian competition laws, which involve ‘serious issues of public policy’, are to be treated differently to commercial disputes and are to be heard in Australia. While a cause of action under Part IV has some resemblances to foreign laws such as an American ‘antitrust’ suit, Part IV of the CCA is uniquely Australian and is best determined before an Australian court.