Epic’s Antitrust Case Against Apple’s App Store Monopoly

In a broad challenge to the power of one of the tech industry giants, Epic Games has filed a lawsuit against Apple alleging violations for pulling Fortnite out of the Apple App Store because Epic included a way for players to cut Apple out of its 30% cut on sales.

The suit starts out by hitting Apple at the heart of what it stood for in the past, and Epic Games even created a short cartoon in Fortnite itself to express its point of view.

In the lawsuit, Epic Games said, “In 1984, the fledgling Apple computer company released the Macintosh — the first mass-market, consumer-friendly home computer. The product was announced with a breathtaking advertisement evoking George Orwell’s 1984 that cast Apple as a beneficial, revolutionary force breaking IBM’s monopoly over the computing technology market. Apple’s founder Steve Jobs introduced the first showing of the 1984 advertisement by explaining, ‘It appears IBM wants it all. Apple is perceived to be the only hope to offer IBM a run for its money. … Will Big Blue dominate the entire computer industry? The entire information age? Was George Orwell right about 1984?’”

Fast forward to 2020, and Epic said, “Apple has become what it once railed against: the behemoth seeking to control markets, block competition, and stifle innovation. Apple is bigger, more powerful, more entrenched, and more pernicious than the monopolists of yesteryear.”

The suit pointed out that Apple’s market capitalization is nearly $2 trillion. Against that, Epic Games’ valuation of $17.3 billion, driven by the success of Fortnite (and its 350 million registered players), looks puny. But it’s certainly enough for Epic Games to set up a rival Epic Games Store to fight against Apple’s App Store and the Google Play store. Epic Games cited eight counts against Apple, including violations of the Sherman Antitrust Act as well as California’s Cartright Act against unreasonable restraint of trade.

What triggered the lawsuit

Epic Games fired the first shot in what could be a gigantic App Store war. Epic Games deliberately violated Apple’s terms of service by adding a direct payment for the popular game, cutting out Apple from sales.

Late in the day, Google also banned Fortnite from the Play Store for a similar reason.

Epic Games announced its Fortnite “mega drop,” a permanent discount on V-bucks (Fortnite’s in-game currency) and other cash purchases in the game of up to 20%. It also introduced a new direct-payment option. If you purchased V-bucks in the game through the iOS app store or Google Play, the cost is the same as it used to be. But under the new direct option, the discount is included.

Apple responded by deleting the game from the iOS app store. Apple said, “Today, Epic Games took the unfortunate step of violating the App Store guidelines that are applied equally to every developer and designed to keep the store safe for our users. As a result, the Fortnite app has been removed from the store. Epic enabled a feature in its app which was not reviewed or approved by Apple, and they did so with the express intent of violating App Store guidelines regarding in-app payments that apply to every developer who sells digital goods or services.”

Apple suggested that Epic Games pushing 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.” But Apple said it would work with Epic to resolve the violations so Fortnite can return to the app store.

On an iPhone, Fortnite requires an update, and the update says the app has been removed, so players can’t play it. That prompted Game Awards founder Geoff Keighley to tweet, “Free Fortnite.”

Measurement firm Sensor Tower said Fortnite saw approximately 2.4 million installs in the last 30 days and generated $43.4 million in consumer spending on the App Store globally. To date, the game has reached 133.2 million installs and seen $1.2 billion in spending worldwide on the App Store alone.

The details of Epic’s case

In the suit filed in U.S. District Court in Northern California, Epic alleges that Apple has used a series of “anticompetitive restraints and monopolistic practices in markets” for the distribution of software apps and the processing of consumer payments for digital content within iOS mobile apps. Epic said in the lawsuit that “Apple imposes unreasonable and unlawful restraints to completely monopolize both markets and prevent software developers from reaching the over 1 billion users of its mobile devices unless they go through a single store controlled by the App Store, where Apple exacts an oppressive 30% tax on the sale of every app.”

Ironically, when Apple launched its App Store in 2009 and enabled third-party apps, it said that its 30% fee was liberating developers from having to accept a 70% fee from mobile carriers on third-party apps and games. Apple’s in-app purchases on free-to-play games like Fortnite also require a 30% fee that Apple collects.

Epic Games said Apple’s devices have become an indispensable tool of modern life, and consumers are being hurt directly because they are paying higher prices. That’s one of the basic foundations of any antitrust case. If the result of the anticompetitive behavior is a rise in prices or higher than normal prices for consumers, it could be a violation of antitrust law.

In addition to arguing that its app store is safer without Epic’s own direct payment solution, Apple is sure to argue that it has competition in the form of Google Play, which has more market share than Apple. It’s not clear whether the courts would say that a duopoly is just as harmful as a monopoly.

Epic said it is not just seeking relief for itself. It is seeking monetary compensation for the industry of third-party developers who are also affected.

Epic Games was able to enable side-loading of Fortnite in the Google Play store, though it complained that Google tried to tell users that such side-loading was unsafe and could prompt hackers to exploit users with malware. But Apple doesn’t allow side-loading. Now that Fortnite has been removed from the App Store, users cannot play it on an unlocked iPhone.

Developers could use Google Play as an alternative, but they face the same “30% tax” as on the Apple App Store. Epic Games said that alternative distributors are harmed by the practices, as well as developers who are denied choice for how to distribute apps if they want to reach the most lucrative part of the mobile game market: Apple’s billion users.

Payment processing complaint

On the payment processing side, Apple “coerces” all developers who wish to use its App Store to exclusively use Apple’s own payment processing platform for all in-app purchases. Apple also prohibits developers from even mentioning the option of alternative payments for in-app goods outside of the app.

Other payment processors can’t compete with Apple. It stands as the “sole middleman” between users and a vast array of developers. Those developers don’t get access to Apple’s data on their users. By contrast, Epic Games pointed out that on the Mac, Apple allows third-party payment processing services. One result is lower prices.

“It’s Apple’s way or the highway,” Epic Games said.

Epic Games also complained that Apple gobbles up two-thirds of the profits of the global smartphone industry.

Epic said it approached Apple to negotiate relief that would stop the unlawful practices, and it has publicly called for Apple to change, but Apple has refused to “let go of its stranglehold on the iOS ecosystem.”

Epic closed its argument, asking the court to stop Apple from “continuing to impose its anti-competitive restrictions on the iOS ecosystem and ensure 2020 is not like 1984.”

Other possible allies

Epic mentioned a couple of other companies that might be sympathetic to its case. Epic Games noted that Microsoft said that its Project xCloud test had expired on the Apple App Store and would not launch on that platform. Apple confirmed that it rejected xCloud for violating its policies — the same policies described above that are designed to protect Apple’s monopoly over the iOS app distribution market, Epic said. Microsoft expressed its discontent, saying Apple is “stand[ing] alone as the only general-purpose platform to deny consumers from cloud gaming and game subscription services like Xbox Game Pass.”

On top of that, on August 7, Facebook said it had unsuccessfully attempted for six months to obtain Apple’s approval of a new Facebook Gaming app that would allow users to watch livestreams of online games and then play those games directly within the Facebook Gaming app. As it had done with Microsoft, Apple refused to allow Facebook to distribute its competing game store on the App Store.

Ultimately, Facebook “caved under Apple’s power and removed the ability for users to play games on its app, limiting it to a simple video streaming service,” Epic Games said.

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