…proceedings commenced in Australia – stay application – forum for determination of disputes under Part IV of Competition and Consumer Act 2010 (Cth)
In Epic Games, Inc v Apple Inc [2021] FCAFC 122 (July 2021), the Full Court of the Federal Court of Australia (Middleton, Jagot and Moshinsky JJ) considered whether Australian proceedings should be stayed on the basis of an exclusive jurisdiction clause nominating a foreign jurisdiction, which clause appeared in an agreement between some (but not all) of the parties.
Their Honours also considered the role of the Federal Court of Australia (FCA) as the preferable forum for certain disputes under the Competition and Consumer Act 2010 (Cth) (CCA).
Background
Epic Games, Inc. (Epic Games) is the developer of the game ‘Fortnite’, which may be played on smartphones produced by Apple, Inc. (Apple), in addition to other platforms. There are approximately three million players of Fortnite on Apple devices in Australia alone.
Pursuant to an agreement between Epic Games and Apple, apps (such as Fortnite) for use on Apple devices may only be sold through the ‘App Store’, and likewise in-app purchases may only be made through the App Store, from which purchases Apple takes a 30% commission.
Further, the agreement contained an exclusive jurisdiction clause, limiting litigation arising out of or relating to the agreement, Apple software or Epic Games’ relationship with Apple, to the state and federal courts of the Northern District of California (where Apple is headquartered).
On 13 August 2020, Epic Games introduced its own system for in-app purchases in Fortnite, outside the App Store, whereupon Apple immediately exercised its power under the agreement to cease to distribute Fortnite. Epic Games commenced proceedings in California alleging breaches of various US and Californian competition statutes (Californian proceedings).
On 16 November 2020, Epic Games also initiated proceedings against Apple in the FCA for alleged contraventions of Part IV of the CCA and of the Australian Consumer Law (ACL) (Australian proceedings). The provisions of the CCA and ACL are similar, but not identical, to the statutes which were at issue in the Californian proceedings.
On 9 April 2021, the primary judge in the FCA granted Apple a stay of the Australian proceedings, pending Epic Games’ initiating proceedings for the alleged contraventions of the CCA and ACL in California.
On 16 April 2021, Epic Games appealed to the Full Federal Court. In the meantime, the Californian proceedings were heard and judgment was reserved on 24 May 2021.
Decision
The Full Federal Court allowed the appeal and set aside the stay of the Australian proceedings. Their Honours confirmed that the onus of proof lay on Epic Games, as the party resisting a stay application based on an exclusive jurisdiction clause, but went on to find that, in determining whether to stay the Australian proceedings, the primary judge had made three significant errors in his reasoning.
First, in applying the High Court’s judgment in Akai Pty Ltd v People’s Insurance Co Ltd [1996] HCA 39; (1996) 188 CLR 418, the primary judge had failed to assess whether or not there was a strong reason for refusing the stay having regard to the various considerations on a cumulative basis, and had incorrectly taken each consideration separately.
Second, the primary judge had failed to properly assess the disadvantage of litigation of provisions of high Australian public policy being conducted in the United States. The disadvantage was significant, as the findings of a US court would not be able to be relied on in subsequent Australian proceedings as readily, the Australian Competition and Consumer Commission could not intervene in US proceedings, and the full range of remedies under the CCA would not be available (remedies being part of the law of the forum: Stevens v Head [1993] HCA 19; (1993) 176 CLR 433).
Further, the far-reaching impact which the Australian proceedings would have on Australian consumers diminished the significance of the fact that Epic Games, as an individual company, had agreed to the exclusive jurisdiction clause in its agreement with Apple.
Third, the primary judge had failed to properly evaluate the significance of the second defendant, Apple Pty Ltd (an Australian subsidiary of Apple), not itself being party to the agreement which contained the exclusive jurisdiction clause. Epic Games’ claims against Apple Pty Ltd were substantive, and not merely “parasitic” on the claims against the parent company Apple, and this weighed against a stay being granted.
Their Honours also held that an analysis of the provisions of the CCA and other relevant legislation revealed that there was a legislative policy that claims under Part IV of the CCA should be determined in an Australian court and preferably in the Federal Court (at [99]-[122]). Notwithstanding the desire to avoid clashing outcomes in the Australian proceedings and the Californian proceedings, there were strong reasons not to grant the stay of the Australian proceedings.
Aftermath
Apple has applied to the High Court of Australia for special leave to appeal. The special leave application has not yet been decided.
Judgment was delivered in the Californian proceedings on 10 September 2021, largely in favour of Apple, although with one ground in favour of Epic Games. Both Apple and Epic Games have appealed to the US Court of Appeals (Ninth Circuit) in respect of the grounds on which each party was unsuccessful, and Apple has applied for a stay of the injunction issued against it in the decision below pending outcome of its appeal.
Apple has reportedly declined to re-admit Fortnite to the App Store until the conclusion of all legal proceedings in the United States.
Anthony Lo Surdo SC is a barrister, arbitrator and mediator at 12 Wentworth Selborne Chambers, Sydney, Lonsdale Chambers, Melbourne, William Forster Chambers, Darwin and Outer Temple Chambers, London and Dubai.
Dr David J Townsend is a barrister at 3rd Floor Wentworth Chambers, Sydney.
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