A decision of epic proportions: Federal Court finds that app store providers contravened Australia’s competition laws

One year since the final submissions concluded, the Federal Court has handed down its decisions in the proceedings commenced by Epic Games (“Epic”) against Google and Apple. Epic alleged that Apple and Google engaged in anticompetitive behaviour by limiting the use of alternative app payment services and app distribution methods on their operating systems. It also alleged that Apple and Google engaged in unconscionable conduct in breach of the Australian consumer law.

The Federal Court found that Google and Apple had contravened section 46 of Australia’s Competition and Consumer Act (“misuse of market power”) by placing restrictions on the distribution of apps and in-app payment processing services. However, the Court did not find that Apple and Google had engaged in prohibited exclusive dealing, anticompetitive arrangements, or unconscionable conduct.

Assuming it withstands appeal, the judgement will have significant implications for digital app stores, app developers and consumers, and digital platforms more broadly in Australia.

This case is particularly significant given that Australia’s misuse of market power provision has been relatively untested since it was reformed in 2017. The reforms removed the requirement that a company ‘take advantage’ of its market power and also introduced an ‘effects’ test (as well as the ‘purpose’ test). This means that a company with significant market power can contravene s 46 by simply engaging in conduct that has the effect or likely effect of substantially lessening competition (“SLC”) even if it did not leverage its market power to do so.

The proceedings were heard by Justice Beach who has decided some of Australia’s most significant competition law cases including the ACCC v Olex Australia cartel proceedings and the ACCC v Pacific National contested merger case.

In this article, we summarise some of the key takeaways from each case.  

Epic Games, Inc & Anor v Apple Inc & Anor (NSD1236/2020)

The Court accepted Epic’s characterisation of markets for iOS app distribution and iOS in-app payment solutions and found that Apple held substantial market power in both markets throughout the relevant period.His Honour Justice Beach found that Apple contravened section 46 by engaging in conduct with either the purpose, effect or likely effect of substantially lessening competition across the two markets. In particular, Justice Beach ruled that Apple's restrictive practices—specifically prohibiting app sideloading and blocking alternative payment methods—contravened section 46.

While acknowledging Apple's legitimate security concerns behind these restrictions, Justice Beach found that the security benefits were not relevant to the anticompetitive harm caused. His Honour also found that the conduct had the purpose of SLC.

Epic Games, Inc & Anor v Google LLC & Ors (NSD190/2021) 

The Court also found in favour of Epic concerning the three posited markets. These were: a market for the supply of mobile operating system licensing, a market for the distribution of Android apps, and a market for Android in-app payment solutions. Justice Beach found that Google had a substantial degree of power in each market.

Google’s conduct was found to have contravened s 46 of the CCA in two of the three posited markets. In the market for Android in-app payment solutions and the market for distribution of the Android apps, Justice Beach was satisfied that Google’s conduct had the effect or likely effect of substantially lessening competition (in some cases the conduct was also found to have the purpose of SLC). This conduct included a program that Epic alleged incentivised developers not to distribute apps outside Google’s Play Store.

Anthony & Anor v Apple Inc & Anor (VID341/2022); McDonald v Google LLC and Ors (VID 342/2022)

Apple and Google are also facing class actions brought on behalf of the app developers who sold apps and in-app content on the Apple and Google stores, as well as the users that purchased them, between November 2017 and June 2022.  The app developers alleged that Google and Apple had engaged in anticompetitive conduct that harmed app developers and consumers.

Given the similarity of the competition law issues raised, the four cases were heard in a single trial. The class action cases were also successful at trial, and a relief hearing will soon be pencilled in to determine damages in the class actions.

Summary

The written judgment is currently with the parties to be reviewed for the purpose of seeking confidentiality orders, and the parties have 28 days to appeal the decision. Given how much is at stake, an appeal by at least one of the parties seems likely.

Stay tuned for a more detailed summary of the decision once it has been published.

This article was written by Thomas Jones, Jonathon Ellis, Dylan McGirr, Ruby Simpson, Charlotte Ainsworth and Cassandra Wong.