The Federal Court has pressed pause on the Australian case forming part of the international dispute between Epic Games, creator of the wildly popular Fortnite video game, and Apple, creator of wildly popular personal computing devices and services. Thanks to the choice of forum clause in Apple’s Developer Program License Agreement (DPLA), the battle is now set to be waged in the courts of the Northern District of California.
First, let’s fill up your inventory on this dispute: Apple requires developers to make any iOS applications available through Apple’s App Store, and to use Apple’s in-app payment processing system, through which Apple generally takes a 30% cut. Epic, apparently dissatisfied with this scenario, made virtual currency used in the game available for iOS users to purchase through its own payment processing system. This being contrary to the DPLA, Apple removed the game from its App Store.
Epic retaliated by suing Apple in various international jurisdictions on competition grounds, and in Australia claims that Apple’s requirements are restrictive and contrary to Part IV of the Competition and Consumer Act 2010 (Cth) (CCA). Apple, in turn, applied for a permanent stay of those proceedings, citing the ‘choice of forum’ clause in its DPLA.
The Federal Court’s decision in Epic Games, Inc v Apple Inc (Stay Application) [2021] FCA 338 (9 April 2021) to grant a temporary stay is a reminder of the importance of carefully considering oft-overlooked boilerplate provisions such as choice of law and forum.
Choice of forum: a shield
The DPLA contains a clause stating that any litigation or dispute resolution arising out of or relating to the DPLA is to take place in the Northern District of California and the parties consent to the personal jurisdiction of and exclusive venue in the state and federal courts of that District.
The Court dismissed Epic’s arguments that:
- the dispute did not relate to the DPLA, stating that ‘If there was no DPLA, there would be no dispute’, establishing sufficient connection (at [12]); and
- it was unconscionable for Apple to rely on a standard form contract where it had superior bargaining power, noting unsympathetically that Epic is also a large corporation and not so vastly disadvantaged that unconscionable conduct could arise.
Choose your location: mandatory law of the forum
The majority of the decision, however, considers Epic’s argument that claims in relation to Part IV of the CCA must be heard by an Australian court on the basis that it is a ‘mandatory law of the forum’, being a law that cannot be contracted out of.
As noted by the Court, a choice of forum clause should be given effect unless there are strong reasons not to. Where a mandatory law is involved, the question is whether that mandatory law itself constitutes a strong reason. Perram J dismissed a number of arguments in this vein made by Epic, including a contention that the Californian court would exercise a discretion to decline to hear the case on procedural grounds.
Perram J was most concerned, however, by the policy implications of allowing a US court to rule on crucial issues of Australian competition law, citing the case of Akai Pty Ltd v People’s Insurance Co Ltd (1996) 188 CLR 418 to the effect that a stay may be refused where the choice of forum clause ‘offends the public policy of the forum’ (at 445). Perram J considered various policy issues, including that:
- Part IV of the CCA is ‘concerned with maintaining effective competition in Australian markets’ and that there are a range of persons who have an interest in this litigation (at [57]). Although not referenced by the Court, it seems apposite to note that the Australian Competition Consumer Commission is expected shortly to release a report into competition issues affecting app marketplaces (for more on this, see our publication ‘Opportunity for app developers to give views on app marketplaces’);
- within Australia, only the Federal Court has jurisdiction to hear this type of case;
- there is precedent for refusing to stay a Part IV proceeding to allow it to proceed to arbitration; and
- the Californian court will be required to rule based on the expert evidence on Australian law, rather than the law itself, and as such ‘the role of the High Court as the ultimate explicator of Australian competition law is undermined. Ordinarily this might be of little moment, however, in this case the most serious issues of public policy are at play’ (at [63]).
Despite these considerations and being ‘distinctly troubled’ in doing so, Perram J concluded that the law on choice of forum clauses did not permit him to refuse Apple’s stay application (at [64]).
It is also worth noting Perram J’s aside that a choice of law clause by itself, without the support of choice of forum, would not suffice to remove a claim regarding a mandatory law away from the forum where that law applies (in this case, Australia) to a forum applying the chosen law (in this case, California). This is because the parties cannot use a choice of law clause to agree that the mandatory law does not apply.
Play again?
In the end, Apple took the ‘W’, despite failing to secure the immediate permanent stay it had sought. Epic’s proceeding is stayed in Australia on a temporary basis, which will become permanent if Epic fails to file proceedings on Australian competition law grounds in the US within three months. The temporary stay may be lifted in the event that the California court refuses to hear the Australian competition law claim, so there remains a chance we will see the case play out locally.
With the United Kingdom’s Competition Appeal Tribunal having similarly referred proceedings in that jurisdiction back to the US, we will be watching the ‘battle royale’ in California with great interest.
HWL Ebsworth’s Technology team has extensive experience advising businesses on key contractual arrangements (but unfortunately not Fortnite tips). Please contact a member of our team for further information on how we can assist you.
This article was written by Luke Dale, Partner and Nikki Macor Heath, Senior Associate.
