The Federal Court of Australia has granted Apple, Inc (Apple) a temporary stay of proceedings brought against it by Fortnite developer Epic Games, Inc (Epic) in relation to alleged breaches of Australian competition and consumer law arising from contractual arrangements between Apple and Epic for the distribution of Fortnite via Apple's App Store.1
The contract between Apple and Epic
Before any app is made available via the App Store, Apple and the app developer enter an 'Apple Developer Program License Agreement' (DPLA) whereby the terms include:
- developers of apps for use on Australian iOS devices must only distribute their apps through the App Store;
- all in-app purchases must be made via Apple's in-app payment processing system;
- Apple retains as commission 30% of any payment made for in-app purchases; and
- any litigation arising out of or relating to the DPLA is to occur in the Northern District of California (the 'choice of forum' clause).
The DPLA is a standard-form agreement, meaning Apple does not negotiate the terms of the agreements with individual developers. That is, if a developer wants their app to be available in the App Store, it has no choice but to agree to the terms of the DPLA.
The Fortnite update
Fortnite has been a huge success for Epic. As noted in the Federal Court reasons, there are 3 million users of Fortnite on iOS devices in Australia, 116 million users on iOS devices worldwide, and 350 million users across all platforms worldwide.
In August 2020, Epic released an international update to the iOS version of the Fortnite game that introduced a mechanism for making in-app purchases on its own payment system, bypassing Apple's in-app purchasing facility.
In response to the update, Apple ceased distributing Fortnite, including by:
- preventing any updates of Fortnite on devices where the game was already installed; and
- preventing any new downloads of
The Australian Proceedings
On 16 November 2020, Epic commenced proceedings in the Federal Court of Australia alleging:
- contravention of Part IV ('Restrictive Trade Practices') of the Competition and Consumer Act 2010 (Cth) (CCA); and
- unconscionable conduct in contravention of s 21 of the Australian Consumer Law (ACL).
Part IV of the CCA relevantly prohibits:
- a corporation with a substantial degree of power in a market in Australia from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition (s 46);
- a corporation from engaging in the practice of exclusive dealing (s 47); and
- amongst other things, a party from making a contract which has the purpose, effect or likely effect of substantially lessening competition (s 45).
The Choice of Forum clause
Epic denied that it was prevented from bringing proceedings in the Federal Court of Australia as a result of the choice of forum clause contained in the DPLA.
The question for determination was whether the claims under the CCA and ACL could be said to "relate to" the DPLA.
The evidence was said to establish that a dispute will "relate to" the DPLA if it has some logical or causal connection to the DPLA.
Justice Perram was satisfied that the proceeding commenced in the Federal Court had a logical or causal connection to the DPLA, as the allegations in issue concerned Apple's conduct in requiring all app developers to agree to the DPLA. In the circumstances, the proceedings should have been instituted in the Northern District of California.
Choice of Forum and Mandatory Laws
Justice Perram accepted that Part IV of the CCA and s 21 of the ACL were "mandatory laws" in the sense that parties are not able to agree amongst themselves that those provisions do not apply to their contracts.
The usual rule where a choice of forum clause is concerned is that the bargain of the parties is to be enforced unless strong reasons are shown that it shouldn't be. It is for the party seeking to resist the stay (on the basis that it should not be forced to comply with the choice of forum clause) to demonstrate the existence of a "strong reason".
Where mandatory laws are concerned, the question is whether the relevant mandatory law constitutes a strong enough reason to abandon the choice of forum clause, given the risk that the foreign court may not apply the mandatory law when hearing the case, or it may decline to hear the case altogether.
The parties agreed that a court in the Northern District of California could decline in its discretion to hear a case concerning Part IV of the CCA and s 21 of the ACL. The difference between the parties was whether it would do so.
Justice Perram formed the view that it was for Epic to show that if it commenced a CCA or ACL case in the Northern District of California that the case would be stayed.
Although Epic had shown that there was a non-trivial chance that the matter might be stayed (on the basis that the courts of the Northern District would decline to hear the case on discretionary grounds), it had not proven on the balance of probabilities that this would occur.
Concerns with overseas courts determining matters of Australian law
Although the Federal Court granted Apple a temporary stay, Justice Perram noted he was "distinctly troubled" in acceding to the choice of forum clause, including because:
- litigating the matter in the Northern District of California would necessarily require the court to deal with complex questions of Australian competition law via expert evidence. If the matter was dealt with in Australia, issues concerning the operation of the law would be a matter for legal submission, rather than evidence;
- if a decision of a court in the Northern District of California was appealed, the consideration of the appeal would not be directed to the question of how the law should develop in Australia, but would simply focus on ascertaining as a matter of fact what the law in Australia was (on the basis of the expert evidence); and
- by "relinquishing" the case to the courts of another nation, the role of the High Court as the ultimate interpreter of Australian competition law could be undermined (and this is particularly concerning where there are serious issues of public policy in play).
Justice Perram granted Apple a temporary (3 month) stay of the Federal Court proceedings. If Epic fails to commence a proceeding in the Northern District of California within this period, the stay will become permanent.
If Epic does issue proceedings in the Northern District of California, but the relevant court declines to hear the dispute, then Epic may apply to lift the stay and continue its Federal Court claim against Apple.
- When entering agreements containing "choice of forum" clauses you should pay close attention to the nominated jurisdiction and confirm that you would be comfortable litigating in that forum, as these clauses can be very difficult to later resist;
- the fact that a choice of forum clause will result in the determination of matters of mandatory Australian law in foreign jurisdictions will not prevent their operation unless the party resisting the application of the clause can prove, on the balance of probabilities, that the relevant court in the foreign jurisdiction would refuse to hear the matter (or would otherwise fail to apply the mandatory law); and
- although the Federal Court has indicated that it may be uncomfortable with matters of Australian law being determined in foreign jurisdictions, as the law currently stands there is no basis for the Federal Court to set aside a choice of forum clause without "strong reason".
1 Epic Games, Inc v Apple Inc (Stay Application)  FCA 338.
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