Epic Games, Inc v Apple Inc: choice of forum clauses to which parties have ‘no choice’ – Epic Games, Inc v Apple Inc (Stay Application) [2021] FCA 338

On 9 April 2021, the Federal Court of Australia stayed proceedings brought by Epic Games against Apple for various breaches of the Competition and Consumer Law Act 2010 (Cth) (CCA) on the basis of a clause in the underlying agreement between the parties requiring that all disputes be heard by courts in the Northern District of California. The practical implication of this decision is that companies should be aware of any choice of law clauses in agreements they enter into. This applies even in respect of standard form contracts where they have ‘no choice but to agree’ to the terms, unless the company has concrete evidence that the relevant international court would decline to hear the matter.

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The stayed proceedings related to claims that Apple was lessening competition under Part IV and s 21 of the CCA by way of what was held to be a ‘contract of adhesion or standard form agreement’ governing the distribution of the Fortnite gaming app on IOS devices by way of the Apple App Store (the Agreement), the terms of which ‘an app developer would have no choice but to agree to’. The relevant terms included that:

  • developers of apps for use on Australian iOS devices may only distribute such apps through Apple’s Australian App Store; and
  • Apple’s in-app payment processing systems exclusively must be used for any purchases of in-app content, through which Apple receives a 30% commission.

Epic argued that this power imbalance rendered the agreement unenforceable on grounds of unconscionability, however, this was unsuccessful as both parties were ‘large corporations’ and unconscionability is not satisfied by the mere fact of unequal bargaining power.

The Court applied the ‘usual rule’ in respect of interpretation of choice of forum clauses, that the bargain of the parties is to be enforced unless there are strong reasons that it should not be.

The strong reasons unsuccessfully argued by Epic included that Part IV and s 21 of the CCA are ‘mandatory laws’ (referring to those which parties cannot contract out of) and there was a risk that the foreign court selected may decline to hear the case. In this instance, the parties agreed that there was no risk that the mandatory laws would not be applied, but the factors upon which a dismissal might be based were discretionary, meaning that Epic could only prove that there was a non-trivial chance the application might be dismissed, which did not meet the evidentiary burden. Given this uncertainty regarding dismissal, rather than awarding a permanent stay, the Court imposed a temporary stay on proceedings, set to apply unless the US proceedings were dismissed, stayed or did not determine the merits of the Part IV or ACL s 21 claims. Such stay was also set to become permanent if no suit was commenced within 3 months of the decision.

It is unclear from this decision whether small to medium sized corporations entering into similar standard form agreements will also fall outside the unconscionability protections. Accordingly, corporations seeking to litigate such agreements should be aware of any applicable choice of forum clauses in their proposed and existing agreement and, if any mandatory laws are applicable to the claim, should assess whether the jurisdiction specified in the agreement would apply such mandatory laws. The underlying decision, whether occurring in California or Australia, may also have far-reaching consequences for developers of apps distributed through the App Store and other large platforms offered on standard form terms.

Separately, despite concerns in Epic v Apple that if the decision was determined in the US it would have no value as a precedent in Australian law, on 28 April 2021 the ACCC released its interim report on the second Digital Platform Services Inquiry regarding App marketplaces, in which it makes restrictions on payment systems for any in-app purchases a key focus.  Our article on these reforms can be found here

Please contact Sophie Dawson for any further information on the above.

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