Epic vs. Apple - A lawsuit that might bring an ‘Epic’ change to the mobile gaming market
Rundown of events
A couple of weeks ago, iPhone prices skyrocketed to as high as $10,000. These premium-priced phones aren’t new, don’t have a special camera but do have a game pre-installed: Fortnite.
On August 13th 2020, Epic Games began offering their virtual currency V-Bucks in the Fortnite app directly from the developer at a discount, circumventing the usual purchase through the app stores and thereby the 30% fee that applies to all revenues from the app stores. In response, Apple and Google removed the game Fortnite from the iOS App Store and Google Play Store for terms of service violation. Both companies reasoned their behaviour with the fact that they cannot ‘favour’ Epic.
In a statement Apple said: "
Epic has had apps on the App Store for a decade, and have benefited from the App Store ecosystem - including its tools, testing, and distribution that Apple provides to all developers. Epic agreed to the App Store terms and guidelines freely and we’re glad they’ve built such a successful business on the App Store. The fact that their business interests now lead them to push for a special arrangement does not change the fact that these guidelines create a level playing field for all developers and make the store safe for all users. We will make every effort to work with Epic to resolve these violations so they can return Fortnite to the App Store.”
Similarly, Google stated:
“For game developers who choose to use the Play Store, we have consistent policies that are fair to developers and keep the store safe for users. While Fortnite remains available on Android, we can no longer make it available on Play because it violates our policies. However, we welcome the opportunity to continue our discussions with Epic and bring Fortnite back to Google Play.”
With the game no longer being available on the App Store, Epic filed a lawsuit against Apple (and Google, but that is a different story as Epic can only sue Google for advantaging the Play Store over other third-party app stores but not for monopolising the Android app market - so we focus on Apple for now) for antitrust and anticompetitive behaviour, followed by a PR campaign coined #FreeFortnite. Shortly after, Apple announced to terminate all developer accounts and tools linked to Epic from August 28th 2020, which would also affect many developers using Epic’s Unreal Engine. This led Epic to file for a temporary restraining order against Apple, asking that the court stop this “retaliation” by putting Fortnite back on the App Store and protecting Epic’s developer accounts.
Reactions
Microsoft showed strong support to Epic by submitting a declaration alongside Epic’s restraining order filing, emphasising how Apple’s actions will place Unreal Engine and countless game creators who rely on it at a great disadvantage.
Mark Zuckerberg addressed Apple’s retaliation as “problematic” and “extremely aggressive. Facebook had also recently released a statement criticising Apple for blocking Facebook from giving its app users a transparent notice on the 30% App Store fees.
Arguments of the suit
Epic’s legal complaint focuses on Apple’s monopoly in two areas, the iOS App Distribution Market and the iOS In-APP Payment Processing Market. Epic states that the company is "seeking injunctive relief to allow fair competition in these two key markets that directly affect hundreds of millions of consumers and tens of thousands, if not more, of third-party app developers.", and not monetary compensation.
The iOS user market is significant, both in size and value. A study from Analysis Group shows that the App Store accounted for $519 billion in estimated total billing and sales of physical and digital goods and services in 2019, $61 billion of which are digital goods Apple can charge 30% fee on. By offering third-party apps everyone benefits: users by having a large selection of apps and games to choose from, developers by easily reaching a billion users, and Apple by providing their users with more choices and imposing ‘Apple tax’ on app revenues.
However, according to the lawsuit, Apple has been enjoying a monopoly in the iOS App Distribution Market, since it is the sole means for users to access and install apps (unlike on Android phones where users can use different app stores such as Samsung Galaxy Store or even download and install apps directly from the developers with APK files). This anti-competitive conduct prevents users from downloading apps and games directly from the website of a developer, nor installing a different app store. Finally, the issue that started the whole fight in the first place: as a condition to have access to the app store, Apple requires developers to use Apple’s In-App Purchase Process. With this agreement, Apple extracts a “supra-competitive” 30% tax on purchases of paid apps. Comparative payment systems (PayPal, Stripe, Braintree) cost a tenth of the cost of Apple In-App Purchase.
Apple faces no constraints in the iOS market, but only in the sale of mobile devices. This harms both developers and users alike, and as such, Epic has taken legal action against the company.
No easy game for Apple or Epic
Thus far, the court gave a split ruling on the temporary restraining order, granting Epic the access to its Unreal Engine iOS tools, but not enforcing Fortnite be put back on the App Store without complying with Apple’s terms of service. Nevertheless, this is only a temporary order until September 28th 2020 when a preliminary injunction hearing will be held.
Subsequently to this decision, Apple followed through with its threat to block the developer account linked to Fortnite but had to leave Epic’s other accounts untouched. Fortnite is no longer able to be installed or updated via the App Store. iOS Fortnite players have become innocent victims of this feud, not being able to download the latest Fortnite season released last week or cross-platform play with other users. (Android players can still download Fortnite directly at fortnite.com/android)
Apple stated as follows regarding this ruling:
“The court recommended that Epic comply with the App Store guidelines while their case moves forward, guidelines they’ve followed for the past decade until they created this situation. Epic has refused. Instead they repeatedly submit Fortnite updates designed to violate the guidelines of the App Store. This is not fair to all other developers on the App Store and is putting customers in the middle of their fight. We hope that we can work together again in the future, but unfortunately that is not possible today.”
What does this mean for the future?
The outcome of this legal battle is likely to shake the mobile gaming ecosystem, if not the whole mobile app stores ecosystem.
If Epic wins this antitrust suit, App Store’s entire business model may be harmed. Apple may have to reform its revenue structure on in-app purchases at the very least, but may even have to allow competing app stores on iOS devices which would lead to Apple having to cut down the commission to remain competitive. This would take away a significant amount of revenue from Apple.
If the restructuring of the in-app purchase system was to happen, this will increase the profit margin on purchases made on mobile games for Epic and other mobile game developers. If competition is allowed between app stores on iOS, this would allow mobile app developers, not only game developers, more choices on where to publish their apps and what kind of fee structure to take. This would ultimately lead to increased choices of apps and lower prices for iOS users as well.
On the other hand, if Epic was to lose this case, Epic will either have to give in to Apple’s terms and pay up for the legal dispute, or give up the iOS market entirely. This will not have much effect on Apple or other mobile developers. Nevertheless, even if Epic loses, the legislators may be influenced by the unfolding of this case to review current antitrust laws or to investigate further into companies like Apple which has been repeatedly accused of monopolising.
No matter how this case unfolds, this suit will make a mark in the mobile gaming industry and antitrust cases. Billions of mobile users and developers will continue to watch in breathless suspense on what is likely to become a lengthy battle.
