Epic is claiming that Apple illegally linked access to the store to the use of its payment system, which takes a 30% commission on most sales. The game developer also took issue with Apple’s refusal to license the Epic Game Store, which sells hundreds of games, on iPhone and iPad.
The Epic case resonated with broader concerns about how gigantic tech players like Apple, Google, and Facebook came to dominate the internet, positioning themselves as gatekeepers in what was once an open ecosystem.
“If Epic is able to achieve a victory, it will also largely unleash the Internet economy,” said Andy Yen, CEO of Protonmail, an email app that has meddled with Apple on its App Store rules and which supports Epic. “This will allow many more companies to innovate and develop in the space. Basically, you take all the mobile space and make it competitive again. “
Almost everyone is watching antitrust.
The Fallout from Epic case has already made its way to Congress, where senators cited documents filed at a hearing in April on the antitrust implications of app stores – particularly Apple’s store and the one Google monitors for Android phones and tablets. Department of Justice antitrust prosecutors, who have been probing Apple since 2019, are also a likely hearing for any big reveal from the civil lawsuit.
“Apple and Google function as gatekeepers with the power to decide how or if apps can reach iPhone and Android users,” said Amy Klobuchar (D-Minn.), Chairman of the Senate Antitrust Subcommittee , during the hearing on April 21. “I’m concerned that these commissions could be used to suppress competition.”
A loss would be a blow to Apple, which relies on its App Store for around $ 500 billion in revenue a year – and a growing share of its profits. But ordinary consumers would also notice the difference, said John Newman, professor of antitrust at the University of Miami Law School.
Users tend to think of PC and Mac computers as a “blank canvas” where they can download whatever they want, but Apple and Google have much tighter control over which apps consumers can install on iPhones. or Android phones, Newman said. (Google, which has less control over Android apps than Apple in its kingdom, is leading a separate lawsuit filed by Epic last year.)
Epic’s lawsuit “targets the possibility of putting your own application store on the App Store. It would be a fundamental shift in Apple’s business model, ”said Newman, who worked in the Justice Department’s antitrust division before joining academia. “If Apple is forced to allow competing app distributors … you think a little less” I take what Apple gives me “and more” I can do with this phone whatever I want. “”
A legal victory for Epic, however, is far from certain. At the start of the case, U.S. District Judge Yvonne Gonzalez Rogers ruled that Apple could kick Fortnite from the App Store while the trial was ongoing and said Epic’s allegations raised “border issues. of the antitrust law ”.
In its defense, Apple plans to roll out the big guns, calling on CEO Tim Cook to testify with other senior Apple executives who helped take the App Store from a Steve Jobs idea to the monster it is today. Epic, meanwhile, will offer testimony from its CEO, Tim Sweeney, as well as executives from Microsoft, Nvidia and Tinder owner Match Group, to claim that Apple has no justification for the limits it has. requires developers.
Apple plans to argue that its App Store has given a platform to millions of developers and that its 30% commission is comparable to what Google, Amazon and Microsoft charge in their own app stores. About 83 percent of developers in the Apple store offer their apps for free and only pay the $ 99 fee everyone charges for access, the company says. Developers with sales of less than $ 1 million pay 15%.
Apple also argued that its strict app review process improves the privacy and security of iPhone and iPad, preventing users from having to deal with malware and other security threats. cybersecurity.
Both sides have brought in top economics and cybersecurity experts to argue on their behalf in what is expected to be a three-week test bed ahead of Gonzalez Rogers. The judge is expected to render a decision later this year.
Filings in the case have already generated embarrassing revelations for Apple – such as sworn testimony from Phillip Shoemaker, its former director of the App Store review, where he said the company “has used the App Store” as a weapon against its competitors “and” has rejected or delayed competing applications on pretextual grounds. ” Utah Senator Mike Lee, the top Republican on the Senate Judiciary’s antitrust panel, quoted from this document during the April hearing while questioning Apple about its policies.
“How can competitors, customers, lawmakers and others be sure that security and privacy are not being used as a pretext to exclude competition as Mr. Shoemaker claims?” Lee asked the Apple representative.
DOJ prosecutors are likely to tune in to the trial to extract bits and pieces for their investigation, Newman said. Still, he said it’s not unusual for the department to decide not to pursue its own lawsuit if someone else’s “serious and well-funded case” is already underway.
“The Department of Justice has few enforcement resources and if there is already a well-funded complainant, they really think about it,” he said. “They take into account that they are not the only cop on the spot.”
Across the Atlantic, the European Commission is continuing its own investigations into Apple and is “certainly interested in the outcome” of Epic’s case, said Anu Bradford, an expert in comparative antitrust and European regulation at Columbia Law School.
The European Commission on Friday accused Apple of violating EU competition law, claiming the company had “abused its dominant position to distribute music streaming apps through its App Store” – a case which originated in a complaint from streaming rival Spotify. Apple will. now have an opportunity to respond, which could lead to settlement negotiations or the commission to push forward with a fine and an order requiring Apple to change its practices.
“The commission will be following the US case with keen interest, but it is ready to chart its own course,” said Bradford, who practiced in Brussels before moving to the United States. “The interesting thing to watch is whether the more interventionist turn of the American agencies against Big Tech will be adopted by the justice system.”
That Apple’s most serious challenge comes from a video game company isn’t as surprising as it sounds.
About 2.6 billion consumers play online games, a number expected to grow to over 3 billion by 2023.
And much of that growth has come from smartphones and tablets, which have dramatically expanded the reach of the gaming industry. About 64% of US adults and 70% of children play video games – and the most common device. commonly used is the smartphone, according to the Entertainment Software Association business group.
Apple has benefited greatly from this. In 2019, the App Store allowed a turnover of 500 billion dollars. While the iPhone is still Apple’s cash cow, the devices have slowly lost their significance to the company’s bottom line as consumers keep their phones for longer. Two years ago, financial analysts at Piper Jaffray estimated that Apple’s service business – which grossed around $ 50 billion in 2019 through subscriptions and sales in its App Store – was now worth more than the iPhone.
Games, for which the company takes a 30% commission on in-app sales and purchases, like virtual currencies, are a major contributor to this.
In court cases related to the Epic lawsuit, Apple said it generated $ 13.2 billion in revenue from App Store transactions in 2018 – of which $ 8.3 billion, or nearly 62%, came from games.
Fortnite took nearly six years to build Epic, starting in 2017, and incorporates two popular game genres: first-person shooters, like Halo, Call of Duty, and Doom, where players use weapons. to eliminate their opponents, and world builders like Microsoft’s Minecraft. .
Players can compete against each other, play as a team to complete missions, or build their own structures and games in the game. Fortnite has 400 million registered users and is free, although players can purchase in-game currency, known under the name V-Bucks, to purchase character upgrades, equipment, or in-game dance moves called emotes.
The game can be played on game consoles such as Sony’s PlayStation, Microsoft’s Xbox, and Nintendo Switch, as well as Windows PCs, Apple Macs, and Android smartphones and tablets. It was also available on iPhone and iPad until Apple removed it from the App Store in August 2020 after Epic attempted to introduce its own payment system for V-Bucks.
Epic spent months developing a plan to take over Apple, internally named Project Liberty, which has grown to involve more than 100 company employees. The company hired a public relations firm and the law firm Cravath, Swaine & Moore, which is home to Christine Varney, senior antitrust chief of President Barack Obama’s DOJ, and Katherine Forrest, a leading competition lawyer who spent seven years as a federal judge. Epic also helped found the Coalition for App Fairness to Advocate for Developers, a group that now has 45 members, including Spotify, Tile, and Match.
It’s not just smartphones at stake. One of the reasons Epic’s Sweeney gave for engaging in this fight with Apple is concern about future technologies. In an interview with the New York Times in November, Sweeney said his first computer was an Apple II Plus – a model that debuted in 1979 and allowed a wide range of third-party add-ons. He said he hopes the industry returns to the “fully open” personal computing ecosystem early on.
“The power of these ecosystem operators, whether it’s Apple and Google, or the social media companies … you can have a utopia of online communities or a dystopia where powerful companies use their control over the media to exercise. more and more control and influence. on society, ”he said.