lawsuit Archives - ARTAEV AT LAW PLLC

In-App Purchases No Longer Mandatory for Developers: Federal Court Issues Injunction As Part of Epic v. Apple Ruling.

There is no question about Apple’s dominance in the smartphone market. The iPhone accounts for approximately 50% of all smartphones in the United States and there are an estimated 1 billion iPhones across the globe. For developers looking to distribute their apps or games to as many customers as possible, the Apple App Store is a must. Of course, Apple tightly controls access and requires developers to comply with Apple’s terms and policies, including with respect to customer payments. For real-money skill-game developers, the App Store is even more important because it is essentially the only way to get their product onto mobile phones. In May 2021, Google banned real-money skill games from its Play store. Setting aside sideloading (risky) and progressive web apps (not familiar to all), if you want real-money skill games on a smartphone, Apple is your only option.

One of the more controversial App Store rules is the 30% commission on all transactions. In essence, whether a developer sells their app for a one-time fee, offers a reoccurring subscription, or provides an option for in-app purchases, 30% of the payment goes to Apple. In the gaming market, this model is especially profitable in so-called “freemium” games, which are free to download and play, but offer players the option to unlock additional content, levels, and other upgrades for an additional fee. The insanely popular game Fortnite is a great example of a game that’s free to download and play, but brought an estimated $5.1 billion in revenue from cosmetic and other optional items in 2020 alone. In response to increased media and regulatory pressure (including outside the United States), Apple modified its rules to allow for a reduced commission of 15% for “small” businesses that make less than $1 million in annual revenue. Recently, Apple further amended its polices to allow certain “reader” apps like Netflix or Spotify to redirect their users to outside the app for additional payment and subscription options. The out-of-app payment option was added in direct response to laws passed in South Korea and Japan.

In the United States, the recent court decision in the Epic v. Apple antitrust lawsuit unlocked the out-of-app payment options for all. In early 2020, Epic (the owner and developer behind Fortnite) decided to deliberately circumvent Apple’s rules against out-of-app payment options and offer mobile players a discounted option to purchase in-game currency directly through Epic’s website. Apple predictably responded by pulling Fortnite from the App Store, and Epic sued, alleging anti-competitive behavior and violations of various federal and state antitrust laws. Apple countersued for breach of contract, accusing Epic of deliberately breaching the terms of the App Store agreement and diverting Apple’s share of app revenue.

After a 16-day trial, the United States Court for the Northern District of California issued a 185 page decision largely in Apple’s favor and ordered Epic to pay Apple $6 million in breach of contract damages. However, the Court also found that Apple’s “steering” provisions that prohibited developers from offering alternative out-of-app payment options violated California’s antitrust laws. The Court issued a permanent injunction that precludes Apple from implementing these “steering” provisions, leaving developers free to include buttons, external links, and “other calls to action that direct customers to purchasing mechanisms, in addition to In-App Purchasing.” The injunction will take effect on November 10, 2021.

What does this ruling mean for real-money skill-based game developers? It certainly opens up more options to direct customers to your external website, advertise promotional pricing, and innovate your business and pricing model without direct involvement from Apple. Additionally, the Epic v. Apple ruling also frees developers to communicate directly with customers through information obtained via the in-app registration process. At the same time, developer guideline 5.3.3 already prohibits in-app purchases from being used to “purchase credit or currency for use in conjunction with real money gaming of any kind.” In other words, real money skill games were treated like casino gambling apps and excluded from the in-app purchase mechanism. The Epic ruling simply means that all app developers will have access to a flexible business model and be able to determine how to best monetize their game without Apple dictating the business terms and imposing a mandatory 15-30% commission on revenue.

Nevertheless, real-money skill-based games remain subject to heightened review and scrutiny from Apple. Advertising through Facebook, Instagram, Twitter, etc., also requires a specialized (and sometimes lengthy) approval process. Skill-based real-money gaming operates in an unregulated area, and applicable laws and regulations change frequently. For example, the IRS recently signaled that it intends to tax daily fantasy sports wagers the same as sportsbook bets. Although DraftKings and FanDuel will likely fight the IRS’s interpretation of the Internal Revenue Code, any resulting ruling may impact the skill-gaming industry as well. Stay vigilant and retain an experienced gaming attorney to guide and consult your business the right way.

Have more questions? Do you need help getting your app through the review process? Contact Dan Artaev today by emailing dan@artaevatlaw.com or by phone or text at (269) 930-0254.

Disclaimer: This guide is not intended to be and does not constitute legal advice. It is for informative and promotional purposes only. Do not take any action or refrain from taking any action based on this guide, and always consult with a qualified professional about the circumstances of your particular case. Each set of facts is unique and different circumstances apply to each individual business.

Is Your Lawsuit Stuck Due to COVID? Stipulated Mediation May Be the Answer.

You may wish to give mediation a second look. If you are business owner involved in pending business litigation, you are likely frustrated with the progress – or rather the lack of progress – in your case. Whether as a plaintiff looking for a resolution of your grievance or a defendant eager for vindication, it is frustrating when the courts keep pushing back deadlines and hearings, with no end in sight. When Michigan shut down back in March 2020, the Michigan Supreme Court directed (and rightfully so) that criminal cases be prioritized. Civil matters – and especially business disputes – got pushed to the back of the docket. Now, as many of the courts have resumed normal (albeit remote) operations, they are playing catch-up. This is especially so in busy circuits like Wayne and Oakland.

Business owners do not make money in litigation. Lawsuits are expensive in terms of both time and money – there is little doubt that you are not making the best use of your time if you are stuck in an 8-hour deposition, rather than out there selling your product. This is why mediation is always a good idea, even in the best of times, but during COVID, it is the best possible solution to a number of complicated problems facing business owners attempting to resolve their disputes in the courts.

Even if you have already mediated (unsuccessfully), you may consider another attempt. There is no limit to how many times you can try to facilitate a case. Some judges even order the parties to mediate multiple times during the process at different stages of the case. The court rule that governs mediation, MCR 2.411, is very flexible and allows the parties to stipulate to a mediator of their choosing, whether an attorney, a former judge, or even a respected neighbor in the community. COVID has brought about a sea change for businesses across the United States and there is little doubt that the primary facts, interests, and goals, are different now than they may have been pre-COVID. Accordingly, you may want to try again and possibly with a different mediator.

Effective mediation can work wonders, even with the most stubborn parties. I once represented a former employee, whose employer owed her at least $60,000 in back wages. The employer was a start-up entrepreneur in the fitness business, who was big on making promises, but not so big on delivering them. In other words, he promised to pay many times, but at the end of the day, was either unable or unwilling to write a check for services rendered. The employer was also very aggressive and responded to a rather simple breach of contract complaint with counter-allegations of embezzlement and fraud that were unsupported by any evidence whatsoever. The court strongly suggested mediation, but I had no hopes that this case was going to end up anywhere other than trial. Much to my surprise, our mediator was able to craft a solution that settled the case. Not only that, but the mediator’s resolution made both sides feel like they won. That to me is the hallmark of a good mediation – where both sides feel like they are better off than they were prior to mediation. Better yet, the employer could now devote his time and money to his business instead of the lawsuit, and the former employee could spend her time working elsewhere and making money, instead of paying attorneys and going to hearings.

Now is a time like no other to engage a mediator to resolve that business case. The advantages are numerous:

Many judges will encourage parties to settle anyway, and even before COVID less than 1% of all business cases were resolved through trial.
The monetary cost of taking a case to trial has increased exponentially, as disputes have been more complex and the costs of discovery has skyrocketed in large part due to technology.
The time opportunity cost of taking a case to trial has also increased exponentially, as discovery has grown more complex and requires more time input from business owners.
The opportunity cost of taking a case to trial is also unpredictable and may largely depend on the forum and the particular judge’s preferences. I once was involved in a relatively straight-forward contract dispute that was pending for over a year, the judge refused to rule on any motions or set the case for trial, and ordered mediation at least 3 times. The parties eventually gave up and settled after the third mediation.
In the same vein, the parties can mutually decide on a mediator that fits their needs, whereas in litigation, the parties do not chose their judge.
If you filed pre-COVID litigation, consider whether mediation (even if you have previously tried mediation) can be a way out of the slowed-down docket across the state. After all, the facts, interests, and goals of the parties may look quite different than they looked back in February 2020.

Also, online mediation through videoconferencing (like Zoom) is viable and surprisingly effective option. Consider the following advantages:

No need for parties or attorneys to travel, allowing for convenience of all.
Greater flexibility means potentially lower costs and quicker resolution.
Potentially lower mediator fees.
Option to have multiple days or extended sessions, as may be needed.
Increased scheduling flexibility for all parties.
Technological advances such as separate virtual conference rooms, screensharing, text chat, and online whiteboards make it easy for the parties to share information with each other and the mediator.

Artaev at Law offers mediation services as well as representation in alternative dispute resolution proceedings. Contact Dan at dan@artaevatlaw.com or by call or text at 269-930-0254 to schedule your mediation or to secure representation.