In August 2020, mega-publisher Epic Games decided to stop paying what is called the “Apple tax”: a 30 percent fee for digital purchases made through the iOS App Store. The company has added a new feature to its blockbuster game Fortniteallowing consumers to bypass the App Store payment system to purchase V-Bucks, Fortnite‘s currency in the game. This move violated Apple’s guidelines and Apple quickly began Fortnite off the App Store. Epic is suing Apple for antitrust violations, and the case will finally go to court on Monday.
Epic has a clear complaint against Apple: it has been blocked by the company̵
According to Epic, Apple is a “uniquely powerful” company that exercises “unique control” over iOS devices. Apple routes all downloads and purchases through the App Store for financial gain, exercising little oversight over the actual quality of applications – contrary to the public’s commitment to privacy and security. It uses its power in one market (the entire iOS ecosystem) to dominate another (distribution of applications and payments). This creates less competition to provide better service at lower prices, so consumers are stuck paying more and missing out on innovative new services.
From the other half of the courtroom, Apple claims that Epic threatens what users love about iOS. Creating a single proven application portal creates a “safe and convenient experience” for a device that stores a wealth of personal information, distinguishing the iPhone from competing platforms. Functions that restrict the spread of applications are “conscious, sensible solutions,” Apple says, not attempts to stop competition. Far from being the most important consumer interest, Epic will simply force Apple to spend money, cutting new loopholes in privacy and security.
Epic loses a significant market with its shutdown of iOS. Court documents say he earned $ 700 million in his two years in the App Store, even if the PlayStation and Xbox consoles were far bigger money makers. Apple plans to claim that iPhone and iPad owners have access to others Fortnite-supporting devices, but Epic counts that most people choose only one platform to play on, so a fun iOS user won’t necessarily take Fortnite elsewhere.
However, the main impact of the trial version will not be the return of a game to the App Store. A big enough loss for Apple could make the company rewrite iOS. “Apple bets a lot more here than Epic, even though Apple has a stronger hand,” said Christopher Crohn, an associate professor of marketing at the University of Chicago’s Booth School of Business. Crohn notes that at the beginning of the case, Epic worried that Apple could completely cut off access to the App Store, threatening Epic’s ubiquitous Unreal Engine. But Judge Yvonne Gonzalez Rodgers blocked the move. Meanwhile, in Apple’s worst-case scenario, the bench may decide that Apple can’t require all iOS developers to use the App Store – hitting a basic principle of the platform.
The bench may also conclude that Apple can maintain the exclusivity of the App Store, but cannot force developers to use its in-app purchase system. While that would be less destructive, it’s still a big deal. In-app purchases – including subscriptions to countless non-gaming services like Spotify – are a huge part of Apple’s business. Apple has reduced its 30 percent App Store commission to 15 percent for smaller developers, but according to an external estimate, those developers account for a small share of their revenue. Losing money from big players would make the App Store much less profitable for Apple, and this is a strong incentive for the company to withdraw against third-party subscription services – which currently dominate much of the application ecosystem.
Epic is facing a difficult battle. Over the past decade, U.S. antitrust enforcement has weakened, in part because the standard of consumer harm is slippery in a world where so many services are free. Senator Amy Klobuchar (D-MN), one of Congress’ biggest supporters of antitrust reform, called private antitrust claims “very difficult to win” in a recent interview. “It’s not easy, but Apple probably has an advantage,” concluded Michael Kusumano, vice dean of the MIT Sloan School of Management. And whoever wins the case, the loser will almost certainly appeal, which can delay any concrete results of the process.
However, the lawsuit is only part of greater antitrust pressure against Apple, and even if the company wins in court, the lawsuit could be a political turning point in the fight to unwind the app store. Over the next three weeks, Apple executives, including CEO Tim Cook, will enjoy hours of the company’s history and business practices, including details on how applications are viewed and how secure the iPhone is. Any unsympathetic comments, such as one of the deposits claiming that App Review employees “run a plastic knife for oil to fight weapons,” could provide fodder for lawmakers and oversight agencies. The test also provides a new soapbox for disgruntled iOS developers such as Match Group, which sent a witness to Congress last week and is due to testify in the upcoming trial.
The epic court documents also raise issues that are relevant to his appeal, but essential to the larger antitrust debate. This includes Apple’s strategy for vertical integration – a system in which it builds incredibly popular devices such as the iPhone, and then directly competes with companies that make applications and accessories for them.
The European Union has already focused on the practices of the Apple App Store. Last night, the EU issued antitrust charges for the exact problem that caused the epic process: Apple required developers to use its in-app purchase system. This case is specifically limited to music streaming services such as Spotify, but can be extended to e-books and other digital purchases. “This is not the last case we will have when it comes to the App Store,” European Commissioner Margrethe Vestager warned this morning.
If the Epic case fails, US lawmakers could use it to argue that the law itself has been violated. Klobuchar cited the Apple tax as an example of anti-competitive behavior, calling for new standards to be applied not only to technology but to the entire corporate world. Compared to the court that blew up the iOS ecosystem, this is still a victory for Apple – but it means that Epic’s case could leave a mark far beyond the verdict.
With a report by Elizabeth Lopato
Correction: The trial is in court, not in a jury trial. Sorry for the mistake.