Three-month stay of Epic Games’ Australian case against Apple

Epic Games (the developer of Fortnite) sued Apple for competition law breaches and unconscionable conduct in Australia under Australian law. However, its case will be temporarily stayed for 3 months.

The 3-month stay will allow Epic to sue Apple in a court in the Northern District of California for these breaches of Australian law, in accordance with a contractual choice of forum clause. If Epic does not do so within 3 months, the stay will become permanent. If Epic does sue Apple in California, the stay will continue. However, if the Californian court declines to determine the alleged breaches of Australian law, Epic can apply to lift the stay and continue its case in the Federal Court of Australia.

Dispute — must use Apple’s in-app payment system

Epic has 2 complaints: that Apple requires developers of apps for Australian iOS users to (1) only distribute their apps through Apple’s Australian App Store and (2) only use Apple’s in-app payment processing system. Apple typically deducts a 30% commission for in-app payments.

Epic developed a popular online video game called Fortnite. It changed the iOS version of Fortnite, by adding an in-app purchase facility using its own payment processing system. This breached the App Store Review Guidelines. Under the Apple Developer Program License Agreement (DPLA), Apple was authorised to stop distributing Fortnite due to this breach.

Apple prevented further downloads of Fortnite from the App Store in all jurisdictions and stopped any updates of Fortnite. Fortnite players can only play against each other if the version being played on other platforms is compatible. This means iOS device users cannot play with players on other platforms who have installed updates since August 2020. There are around 3 million users of Fortnite on iOS devices in Australia, 116 million on iOS devices worldwide and 350 million across all platforms worldwide.

US case — expedited hearing in May

Epic sued in the US District Court for the Northern District of California, alleging that Apple’s conduct was anti-competitive. Epic’s motion for a preliminary injunction requiring Apple to reinstate Fortnite to the App Store was refused. An expedited hearing for the substantive US case is due to start on 3 May 2021. Epic’s US case does not allege any breaches of Australian competition or consumer law.

Australian case — Choice of forum clause required stay, but judge “distinctly troubled”

Allegations: Epic sued Apple for misuse of market power, exclusive dealing, anti-competitive agreements and unconscionable conduct under ss 46, 47 and 45 the Competition and Consumer Act 2010 (Cth) (CCA) and s 21 of the Australian Consumer Law (ACL).

Should competition law cases be heard in Australia? Perram J was “distinctly troubled” by granting the stay, but held that the law on choice of forum clauses did not permit him to refuse Apple’s application for the stay. The troubling question was whether there was something about the nature of competition law cases under Pt IV of the CCA which meant they should generally be heard in the Federal Court of Australia. Part IV is designed to maintain effective competition in Australian markets. The effects of this case will be particularly far reaching, affecting Australian app developers and iOS users, and financially affecting a large part of the population. The jurisdiction of state courts was expressly excluded by s 86(4) of the CCA. The Federal Court had also refused to stay a competition law case under Pt IV for arbitration, in Petersville. If the case was decided by a Californian court, “complex questions of competition law will be litigated through the lens of expert evidence”, and the Californian court would not consider how Australian competition law should develop, but merely what that law was. Relinquishing the case to a foreign court would undermine the High Court of Australia’s role as the ultimate explicator of Australian competition law. Despite these matters, Perram J granted the stay.

Choice of forum clause: In a choice of forum clause in the DPLA, Epic contractually agreed with Apple to litigate in the Northern District of California. The Federal Court of Australia held that the choice of forum clause was enforceable. The court rejected the argument that choice of forum clauses in all standard form contracts are unenforceable. It was not unconscionable for Apple to insist on including the choice of forum clause in the contract. Both Apple and Epic were large corporations.

Non-excludable laws: The court held that the competition laws in Pt IV of the CCA and the unconscionable conduct law in s 21 of the ACL are mandatory laws in the sense that parties cannot contract out of their application. However, there was no concern that a Californian court would not apply the mandatory law. Both Apple and Epic accepted that the courts of the Northern District of California had jurisdiction to entertain a suit under Australian competition and consumer law and both assumed that if such a case was brought, those courts would regard Australian competition and consumer law as the applicable law.

US court might decline to hear the case: The concern was rather that the Californian court might decline to hear the case, eg on forum non conveniens grounds. The court held that if a Californian court declined to hear Epic’s case under Australian competition and consumer law, then it would not be appropriate to stay the present case. Both Apple and Epic accepted that a Californian court could decline to hear such a case, but disagreed about whether it would do so. The Australian court held that a Californian court might decline to hear the case, or it might not.

The party resisting the stay needs to show there is a strong reason why it should not be forced to honour its contractual obligation in the choice of forum clause. In other words, Epic needed to show that if it brought a Pt IV or ACL s 21 case in California, that case will be stayed. Epic did not prove that its case would be stayed. It only proved that there was a non-trivial chance that this may occur. Strong reasons were not shown.

Multiple cases: It is important to avoid multiple case proceedings, but the circumstances meant that there would be 2 cases, regardless of whether the Australian case was stayed. It seemed impossible that the Australian allegations would be included in the trial due to commence on 3 May 2021.

US case not substitutable for Australian case: Epic’s case under the US Sherman Act, the Californian Cartwright Act and the Unfair Competition Law was not an adequate substitute for Epic’s claims under Pt IV of the CCA and s 21 of the ACL. They were different in important ways. The US case under the Sherman Act could only take into account Apple’s conduct outside the US to the extent that it impinged on commerce in the US.

Costs and appeal: Epic was ordered to pay 95% of Apple’s costs. Epic was granted leave to appeal.

Source: Epic Games, Inc v Apple Inc (Stay Application) [2021] FCA 338, 9 April 2021.