Epic vs Apple —
Is the App Store its own market or just one of many competing gaming markets?
With Epic Games and Apple set to face off before a judge in their high-profile trial in just a few weeks, new court filings from both companies outline the evidence and arguments each intends to make in detail.
Unsurprisingly, each document paints a radically different picture of Apple’s App Store and its role in the gaming and technology industry.
The disagreement between the two companies escalated publicly when Epic attempted to implement its own in-app payments system in Fortnite, one of the most popular games on Apple’s App Store. This set into motion a series of events that led to Apple removing Fortnite from the App Store as Epic ran a social media campaign around the hashtag “#SaveFortnite,” leveraging angry gamers against the tech giant.
Epic then went to court against Apple, alleging that the latter’s iOS App Store is a monopoly and its policy that app developers publishing to iOS must use Apple’s own payment system (among other restrictions in Apple’s review process) is anticompetitive.
Both Apple and Epic were required to file “Findings of Fact and Conclusions of Law” in the lead-up to the trial. The documents are lengthy and detailed, but some key arguments are summarized below.
The top-level gist of Apple’s argument (key aspects of which we already covered in some detail previously) is that developers have the option to develop and publish games for numerous other competing devices and platforms, including storefronts from companies like Sony or Nintendo that enforce similar rules and fees. Developers can also publish for the web, where experiences would still be available to iPhone users even if developers choose not to abide by the rules of the App Store and publish there.
Because Apple is just one of many players in a broader competitive market for video game transactions, and it does not control that entire market, it does not have a monopoly, the company argues. Here’s a snippet from Apple’s filing:
Apple has no monopoly or market power in the relevant product market for game app transactions. And there is no claim that it had any such power when the restrictions at issue were imposed around the launch of the App Store.
Apple has no obligation to license its intellectual property, and aside from a limited exception not applicable here, businesses are free to choose the parties with whom they will deal, as well as the prices, terms and conditions of that dealing.
Apple says its 30 percent commission charged to developers who earn over $1 million per year on its app marketplace is an industry-standard rate that does not represent an anticompetitive strategy.
The filing contends that a cut like that is reasonable because Apple has spent billions building out and maintaining infrastructure that makes developers’ success on the platform possible, from the App Store itself to various APIs and other software development tools. Apple discloses that Epic earned $700 million on the iOS platform in just two years of Fortnite being available on iPhones and iPads.
Also key to Apple’s argument is the assertion that the particular Epic update to Fortnite that led to the game’s removal from the App Store was planned months or even years in advance with the specific intent to wage a broad public relations battle to make Apple look bad. If the judge agrees with that interpretation of Epic’s actions, that may weaken Epic’s case that Apple unfairly removed Fortnite from the App Store after Epic submitted the game for approval in good faith.
The major distinction at play in Epic’s own argument is that iOS is an entire market unto itself and not just one of many competing products in a larger marketplace of video game transactions. If the judge agrees with this classification, Apple may be more likely to be seen as monopolistic.
Another key part of Epic’s argument involves comparing and contrasting iOS with macOS. Apple claims that its strict rules about what apps can and can’t do on the iOS App Store are driven at least in part by concerns about security and privacy for users. Epic points out, however, that Apple claims macOS is secure and private without placing all the same restrictions on the Mac operating system.
This is key to Epic’s case that Apple has enforced its rules for the iOS App Store for business reasons rather than user-centric ones like security or privacy, which could undermine part of Apple’s case.
Epic asserts that Apple’s controversial App Review process “does little to keep iOS devices secure,” and it alleges that Apple has on multiple occasions screened apps “primarily for non-security issues—including specifically for anti competitive purposes.”
Epic singles out Apple’s policy that apps must use Apple’s own payment system (and thus provide Apple a 15 percent or 30 percent cut of the revenue) as one that has no security benefits. The filing says:
There were no widespread or significant security issues regarding payment with the App Store prior to the introductions of IAP or the requirement that apps selling subscriptions use IAP rather than alternate payment solutions, nor evidence that IAP is far superior to third-party payment alternatives with respect to security.
As a side note we thought worthy of mentioning, Epic says in its filing that its own currently PC-based game marketplace will become profitable in 2023. The company spent considerable money on marketing, user acquisition, and exclusives to grow its install base in the early years, all of which led to expected losses in the first few years of operation.
The Rorschach test
The decision of the judge could have far-reaching consequences for not just Apple and Epic, but many other companies that trade in digital software, from platforms to individual developers.
Both Apple and Epic themselves have immense stakes in the outcome of this case. If the judge fully embraces Epic’s arguments, Apple will face an existential threat to a core part of its product-development philosophy and business strategy going back many years, and the consequences of a ruling fully in Epic’s favor would be far-reaching for the future of Apple.
Epic doesn’t have quite as much to lose in terms of its status quo position, arguably, but the company has a tremendous amount to gain should it come out ahead. If it defeats Apple on this battlefield, the flood gates may open for Epic to launch its own store on iOS—and perhaps, after the precedent is set, on other gaming platforms like those owned by Nintendo, Sony, or Microsoft.
The two arguments characterize the nature of Apple’s App Store completely differently, and it’s clear that the App Store has become something of a Rorschach test for onlookers.
There are many dimensions to the case that may end up being critical to the judge’s conclusions, like the question of whether Apple’s app review process actually provides security or privacy benefits to users, whether Epic pushed the app-review-policy-offending Fortnite update in good faith, and more.
Wait until May
But the trial may come down primarily to this question: does Apple’s App Store—despite a minority install base in the mobile space (Google’s competing Android platform has more than 70 percent market share) and the presence of numerous strong competitors in the video game industry—constitute its own marketplace over which the company can hold a monopoly?
Or is the App Store just one of many digital marketplaces in a vast and healthy competitive games industry, on a minority-market-position platform—with the implication that Apple is not truly limiting developers’ access to the marketplace in an anticompetitive way, because Apple does not have that kind of power over the larger marketplace?
We’ll see the arguments move forward when the trial begins on May 3 in Oakland, California, provided