It’s been nine months since Epic set off its legal battle with Apple over the right to include alternative payment options in the iOS version of Fortnite. After months of pre-trial arguments and maneuvering, the case goes to trial Monday before US District Judge Yvonne Gonzalez Rogers in Oakland, California.
The bench trial, which is expected to last three weeks, will center on the question of what it means to have “monopoly power” in the market for downloadable phone apps. The final outcome could produce huge ripple effects throughout the multi-billion dollar smartphone market, as well as other digital app delivery platforms.
How did we get here?
On August 13, 2020, Epic used an unreviewed “hotfix” update to add an “Epic Direct Payment” option to the standard Apple App Store and Google Play payment options for microtransactions in the mobile versions of its hit free-to-play game Fortnite. By using Direct Payments, players could get a 20 percent discount over the “standard” payment methods, which Epic said was a way to pass on some of the savings that Epic enjoyed by going around the 30% cuts taken by the OS makers’ mobile storefronts.
Hours later, Apple removed Fortnite from the iOS App Store for violating its developer guidelines (Google did the same on its Play Store later that evening). Less than an hour after Apple’s move, Epic filed its original complaint for injunctive relief and posted a video about how it had “defied the App Store monopoly.”
In the wake of Epic’s lawsuit, Apple tried to completely block Epic’s access to the iOS and Mac App Stores, a move which would have had a huge impact on games and apps that use Epic’s Unreal Engine. Epic’s introduction of an alternative payment method in Fortnite amounts to a “Trojan horse” that was “little more than theft,” Apple argued in a later countersuit.
Given that, Apple also argued that it was worried Epic could insert a similar “Trojan horse” through the iOS Unreal Engine if Epic’s actions weren’t checked. By going around the App Store’s standard payment structure, Apple argues that Epic “sought to enjoy all of the benefits of Apple’s iOS platform and related services while [lining] Epic’s pockets at Apple’s expense.”
Judge Rogers denied those arguments in her first major pre-trial ruling in the case, saying that if Apple eventually won the case, “Epic just owes you money… You don’t have to take the step of removing access [for Unreal Engine development]… With respect to Unreal Engine, that seems like an overreach.”
At the same time, Gonzalez said Epic only had itself to blame for Fortnite‘s removal from iOS. “Your client created this situation,” Rogers told Epic’s lawyers in an August hearing. “Your client does not come to this action with clean hands… in my view, you cannot have irreparable harm when you create the harm yourself.”
When is a monopoly not a monopoly?
In the trial, Epic is looking for nothing less than the ability to run its own competing app distribution platform on iOS, completely separate from the Apple App Store. “To be clear, Epic does not seek to force Apple to provide distribution and processing services for free, nor does Epic seek to enjoy Apple’s services without paying for them,” Epic wrote in a pre-trial motion. “What Epic wants is the freedom not to use Apple’s App Store or IAP, and instead to use and offer competing services.”
But Apple argues that its 30 percent cut of App Store revenues is about more than just payment processing. The cut also “reflects the immense value of the App Store, which is more than the sum of its parts and includes Apple’s technology, tools, software for app development and testing, marketing efforts, platinum-level customer service, and distribution of developers’ apps and digital content.”
More than that, Apple says that requiring iOS apps to go through the Apple App Store is necessary to “ensure that iOS apps meet Apple’s high standards for privacy, security, content, and quality.” A separate App Store would essentially be free-riding on the iOS platform, Apple argues, and would expose iOS users to additional risk.
Whether Epic has a right to its own iOS App Store largely depends on the legal determination of whether or not Apple’s control of iOS constitutes a monopoly in a relevant market. Apple says that’s ridiculous, since Fortnite is available on competing platforms like Android, Windows, and MacOS, as well as all major consoles. And in the case of consoles, at least, those platform-holders often impose equally restrictive terms for accessing exclusive game download stores.
“Fortnite is not entitled access to everyone on the globe,” Apple’s lawyers argued in September. “They just need alternatives [to iOS] available, and they have that in spades.”
But Epic’s lawyers have argued that it’s equally ridiculous to define the relevant market as “all the ways someone can reach a user to play a video game… In order for Apple to face competitive discipline [from the market], it would mean there would need to be a meaningful number of developers who would give up the [iOS] platform if Apple raises its price. We know that’s not the case. They’re not going to give up the opportunity to reach a billion users.”
Legally, Apple could have monopoly control of the “secondary market” for iOS app downloads if users are unfairly “locked in” to that market, without the ability to easily switch. Arguing such lock-in exists could be an uphill battle for Epic, though, requiring the company to show that users have difficulty switching away from iOS thanks to network effects or other monopoly-style elements.
Epic also says that Apple unfairly ties the use of the App Store to the use of Apple’s payment systems for in-app purchases. It points to double standards on this score, saying that ride-sharing apps like Uber can collect payments directly from customers, even as game developers can’t.
But Apple argues that these are two elements of an “integrated part of Apple’s offerings” intended to collect commissions across the platform. The in-app purchases are an “essential ingredient of Apple’s formula for success” Apple argues, and necessary to help pay for the infrastructure that makes the iOS platform possible and to ensure security and privacy protections for users.
Epic’s counterarguments point to macOS, where Apple maintains its own App Store but also allows users to run apps obtained elsewhere. If that situation is sufficient to maintain privacy and security on the Mac, why is iOS treated differently? That’s purely a business decision for Apple, Epic contends.
What to expect
Following opening arguments today, Epic is expected to spend the first week of the trial calling witnesses including CEO Tim Sweeney and VP of Business Development Mark Rein. After that, the second week of the trial will likely be taken up by competing economic experts arguing about the meaning of monopoly in dry legal terms.
Then Apple will present its case in the third week with witnesses including CEO Tim Cook, Senior VP of Internet Software and Services Eddy Cue, Senior VP of Software Engineering Craig Federighi, and former Apple marketing chief Phil Schiller. Supporting witnesses from Microsoft, Nvidia, and other third parties could also be called to testify about competing app marketplaces, much as Valve has already been dragged into the legal fight.
After that, it will be up to Judge Gonzalez to decide if the status quo prevails or if iOS has to open itself up to new methods of payment and app distribution (or some compromise in between). Whatever her decision (and how it holds up on appeal), Apple will also face similar arguments in front of EU courts and regulators, as well as from multiple early legislative efforts to enforce more competition on iOS hardware in some US states.