Apple and Epic go to court for their slices of app pie
One Friday in August, Tim Sweeney, a billionaire game developer, emailed a Microsoft contact: “You’ll enjoy the next fireworks display.”
A week later, Mr. Sweeney’s Fortnite game delivered good news to iPhone gamers that they would get a discount on in-game items if they made purchases outside of Apple’s payment systems.
The change violated Apple’s rules and prevented the iPhone maker from collect a commission on one of the most popular games in the world. A few hours later, Apple launched Fortnite on the App Store.
Mr. Sweeney’s company, Epic Games, Apple immediately sued in federal court. He also began a month-long PR campaign, featuring a trending hashtag #FreeFortnite and a parody of Apple’s iconic “1984” ad featuring Apple CEO Tim Cook as the overlord of Apple. evil business with an apple for a lead.
The Epic attack has been Apple’s most direct challenge to power in years, and nine months later the fight is heading to federal court in Oakland, Calif. On Monday, a trial is due to open with Mr. Sweeney’s testimony as to why he believes Apple. is a monopoly that abuses its power.
The trial, which is expected to last around three weeks, has major implications. If Epic wins, it will turn the economy of the $ 100 billion app market upside down and create a path for millions of businesses and developers to avoid sending. up to 30% of their app sales to Apple.
An epic victory would also reinvigorate the antitrust fight against Apple. Federal and state regulators review Apple’s control over the App Store, and Friday, the European Union billed Apple by violating antitrust laws on the rules and fees of its applications. Apple faces two more federal lawsuits over its App Store charges – one from the developers and the other from the iPhone owners – seeking class action status.
Beating Apple would also bode well for Epic’s next try against Google on the same issues on the App Store for Android devices. This case should be tried this year and would be decided by the same federal judge, Yvonne Gonzalez Rogers of the Northern District of California.
If Apple wins, however, it will strengthen its grip on mobile apps and quell its growing chorus of criticism, further strengthening the power of a company that is already the most valuable in the world and has surpassed $ 200 billion in sales. in the past six months.
The lawsuit will center on a legal debate over whether Apple is a monopoly. Epic’s lawyers have argued that businesses need iPhones to reach their customers and that Apple is unfairly forcing app makers to use its payment system and pay its fees.
Apple lawyers responded that iPhones are just one way to reach consumers, and Apple’s fees are up to industry standards.
Apple probably has the upper hand, legal experts have said. Courts are often more sympathetic to defendants in antitrust cases because companies have the right to choose who they do business with.
But Epic argues that Apple is using its position of power to stifle competition, a legal theory “that has worked and overcame this drawback,” said William Kovacic, a law professor at George Washington University. The Justice Department made a similar argument against Microsoft in its antitrust lawsuit two decades ago.
The case could come down to a narrow technical question: what market are these two arguing in? Epic argues that the case is about iPhones and that Apple clearly has a monopoly on them. Apple lawyers insist that the market in question includes all gaming platforms – from smartphones to video game consoles to desktops – and that Apple has little monopoly on it.
The answer will come back to Judge Gonzalez Rogers. And after having decided this case, she is ready to hear the next two lawsuits of the App Store to obtain class action status.
An Apple spokesperson said in a statement that Apple executives will show how good the App Store has been for the world. “We are confident that the case will prove that Epic willfully violated its agreement only to increase its income,” she said.
Epic declined to comment.
Fortnite, a battle royale video game, is Epic’s biggest success in 30 years. It got there, in part, because Mr. Sweeney pushed the companies behind the big game consoles – Microsoft, Sony Group, and Nintendo – to let gamers compete against each other on different devices, which means that one owner of Microsoft Xbox could play a PlayStation owner Sony for the first time.
In 2018, Epic released Fortnite in an iPhone app. In about two years, Epic has made around $ 1 billion from Fortnite and its other iPhone apps. But he had to pay Apple about 30%. Epic paid similar commissions to game console makers.
Mr Sweeney has said in interviews and on Twitter that he realized that App Store commissions meant that Apple and Google could sometimes get more out of a game than the developers who made it. He saw an opportunity to challenge the tech giants.
Mr. Sweeney also said he was okay with paying commissions to companies like Microsoft and Nintendo because they were selling their gaming consoles for less or less and relied on commissions, while Apple earns large margins on all parts of it. his activity.
Other app makers were starting to complain about app stores as well, but Epic was one of the few who had the money, willpower, and independence to fight in court. While Chinese internet giant Tencent bought a large portion of Epic in 2012, Mr. Sweeney remains the majority shareholder. Investors recently valued Epic at $ 29 billion.
But Epic is still tiny compared to Apple. In its most recent quarter, Apple averaged around $ 30 billion in revenue per month.
“If we let Apple and Google get away with it, in a few years they will extend this monopoly to exercise some power over people and businesses, which is totally unprecedented in human history,” he said. Mr Sweeney said in an interview. Last year.
In 2019, Mr. Sweeney decided to take on Apple. Epic hired the law firm Cravath Swaine & Moore, hired a public relations consultant, assigned 100 to 200 employees to the project and has created an alliance with other app manufacturers “To make sure we’re not the only voice,” according to an Apple court filing. Epic named the effort Project Liberty.
Last June, Mr Sweeney emailed Mr Cook and a few of his deputies, asking to launch a competitive market for iPhone games and use Epic’s own payment system at instead of Apple’s, which allowed it to bypass Apple’s 30% cut.
Apple lawyers responded, writing that the company would not turn the App Store “into a public service.”
Mr. Sweeney dropped courtesy in his response. “It’s a sad state of affairs that Apple’s senior executives are handing over Epic’s sincere request to Apple’s legal team to respond with such a selfish and selfish rule,” he said. wrote to Mr. Cook. “We will continue to continue in this direction, as we have done in the past to address other injustices in our industry.”
Three weeks later, Mr Sweeney sent in his forecast for the fireworks, according to an Apple court filing.
Since then, lawyers for Epic and Apple have told different stories in court records and to reporters.
Apple said it has developed a revolutionary product in the iPhone which has led to an “economic miracle” in mobile applications. Apple spent billions of dollars developing the iPhone and another $ 100 million on its App Store, the company said, and charging a commission on app sales is part of how it recoups that investment and protects applications.
Epic retorted that Apple’s commissions do very little for security. Epic is expected to call witnesses from other companies to testify about their experiences with the App Store, including an executive from Match Group, which makes the Tinder dating app. A Facebook executive, which is locked up his own quarrel with Apple, had been scheduled to testify but dropped out.
Apple accused Epic of looking for a free ride. The game maker hasn’t looked for other companies that distribute Fortnite. Microsoft, Samsung, Sony and Nintendo all charge the same commissions on games, according to a study funded by Apple. This study did not note that Apple popularized the 30% rate with the App Store in 2008.
In response, Epic pointed out the commission it charges in its own marketplace for game developers: 12%.
After Epic sued, Apple halved his commission at 15% for developers who earn less than $ 1 million on their apps. This new rate applies to about 98% of developers who paid Apple’s commission, according to estimates from Sensor Tower, an app data company.
Still, this hardly affected Apple’s results. According to Sensor Tower, over 95% of Apple’s app revenue comes from companies that pay the 30% rate.