Apple App Store case gives a glimpse of future problems if Congress overregulates tech
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Apple App Store case gives a glimpse of future problems if Congress overregulates tech

Federal tech regulations are likely to be out of date or redundant by the time they are implemented.

A recent US District Court Decision in Epic Games v. Apple offers a look at the forces encouraging changes in so-called Big Tech’s behavior without the onerous federal intervention circulating around Capitol Hill.

The California case involves Epic Games, creators of the popular video game Fortnite, bringing antitrust action against Apple and its App Store which hosts the game. Epic’s revenue for the game relies entirely on users purchasing in-game upgrades called “microtransactions.” As Epic Games grew well beyond a billion dollars, the company became dissatisfied with the requirement to use the App Store to process payments and Apple’s industry-standard 30% fee for each transaction.

When Apple refused to lower this percentage, Epic Games set up its own payment system and alleged that Apple was in violation of antitrust laws by prohibiting alternative payment methods and forcing users to use the App Store for software downloads. Apple countersued Epic Games for violating its Developer Program License Agreement. Specifically, Apple claimed Epic Games violated an agreement not to “provide, unlock or enable additional features or functionality through distribution mechanisms other than the App Store.”

Although the court did not find that restricting individuals to the App Store for downloads was monopolistic behavior, they said Apple was guilty of restricting competition by forbidding other payment methods. TechCrunch reports:

A federal judge declared last month that Apple was not a monopoly when issuing the court’s decision on California’s Epic Games v. Apple case. But the one area where Apple lost ground was in what sort of rules it can make for its own App Store. On this point, the judge sided with Epic Games, saying that Apple can no longer prohibit developers from pointing to other means of payment beyond Apple’s own payment systems. Now, Apple is appealing that decision and asking for a stay on the injunction the judge had put into place. The move could delay any sort of changes to the App Store’s rules until a final decision is made after the appeals case has been decided.

The dispute shows that Apple’s policies on the App Store are matters of contract between the two companies. Epic may think the contract allows them to use alternative payment systems, Apple disagrees, and the court is the right place to settle such disputes over the interpretation of the contract. Or Epic may think Apple is violating anti-trust law and sue on that basis, which is not a contract dispute.  But since Epic is not required to sell its game through Apple and has chosen to contractually do so, the anti-trust argument is not very credible.

App developers challenging hosting companies’ policies and contract terms in negotiations and the courts is the right way to affect change without requiring new federal action. The idea of companies having the right to negotiate and litigate contract disputes is not new, and the Epic Games v. Apple case shows that exercising this right is a viable alternative to onerous and restrictive antitrust legislation. Beyond the benefit of settling similar disputes without the need for additional legislation, judicial avenues for discussions between programmers and tech giants allow developers to approach tech companies when they want to change an aspect of their contract, and so promote negotiations on equal ground. Likewise, such actions would afford greater flexibility and longevity than similarly-purposed legislation.

For instance, microtransactions continue to evolve beyond their initial use when they were pioneered ten years ago. Apple had no precedent to guide their policies, and so the company used its special knowledge to set what have now become industry standard terms. Today, we have a better understanding of how microtransactions and other aspects of the digital economy function, but just imagine if we tried to regulate these items five or ten years ago.

Consider Apple’s requirement to go through the App Store when processing in-app purchases. If the government had passed legislation targeting App Store purchases following the antitrust case involving Apple’s e-book pricing, it likely would not have even thought to include the requirement that Apple Stores allow users to pay via third-party payment options. That’s because the Apple e-book suit was introduced in 2012, and now popular third-party mobile payment options, like Cash App and PayPal, did not even exist until 2013 and 2014, respectively.

If Congress had passed an antitrust bill shortly after this suit was filed several years ago, as it threatened to do, those laws would have to have been updated and changed because o new inventions since then like microtransactions and how they affect the user experience. Otherwise, users would be stuck using a 2012 system. And changing existing legislation is a lengthy process, and any modifications would more than likely simply be a restatement of the Epic Games v. Apple decision.

Politicians trying to overly legislate or micromanage technology companies is a perpetually losing battle. As a World Economic Forum white paper noted:

Given the Fourth Industrial Revolution’s extraordinarily fast technological and social change, relying only on government legislation and incentives to ensure the right outcomes is ill advised. These are likely to be out of date or redundant by the time they are implemented.

Tech companies are fast. The federal government is slow. At best, federal antitrust legislation designed to control Apple and developers would restate what a court had already determined. At worst, it would require constant monitoring and oversight to ensure it includes all products and practices that might lead to monopolistic behavior.

The relationship between tech giants that host App downloading services and the developers who provide content for these platforms is a tricky one. However, the recent Epic Games v. Apple decision shows that changes to hosts’ terms do not require federal antitrust legislation. Instead, meaningful modification may be pursued by trusting those who are impacted by these contracts to seek their desired changes in their own time and on their own terms.