Apple and Epic Head to Court docket Over Their Slices of the App Pie

On a Friday last August, Tim Sweeney, a billionaire game developer, emailed a contact at Microsoft: “You’re going to enjoy the upcoming fireworks show.”

A week later, Mr. Sweeney’s game Fortnite delivered good news to players on iPhones: They’d get a discount on in-game items for making purchases outside of Apple’s payment systems.

The change violated Apple’s rules and prevented the iPhone maker from receiving a commission for one of the world’s most popular games. Hours later, Apple kicked Fortnite from the App Store.

Mr. Sweeney’s firm, Epic Games, immediately sued Apple in federal court. It also started a PR broadside that was months in the works, including a trending #FreeFortnite hashtag and a parody of Apple’s iconic “1984” ad portraying Apple CEO Tim Cook as the evil corporate overlord with an apple for a head .

The Epic attack was the most direct challenge to Apple’s power in years, and nine months later the battle is pending in federal court in Oakland, California. A lawsuit is due to open on Monday with statements from Mr. Sweeney about why he believes Apple is a monopoly that abuses its power.

The study, which is expected to last three weeks, is having a significant impact. If Epic wins, it will improve the economics of the $ 100 billion app market and create a path for millions of businesses and developers to avoid sending up to 30 percent of their app sales to Apple.

An epic victory would also enliven the cartel war against Apple. The federal and state supervisory authorities are reviewing Apple’s control over the App Store. On Friday, the European Union accused Apple of violating antitrust laws regarding app rules and fees. Apple is facing two more federal lawsuits over its App Store fees – one from developers and one from iPhone owners – that are seeking class action lawsuit status.

Beating Apple would also bode well for Epic’s upcoming test against Google for the same issues in the App Store for Android devices. This case is expected to go to trial this year and will be ruled by the same federal judge, Yvonne Gonzalez Rogers of the Northern District of California.

However, if Apple wins, it will strengthen its hold on mobile apps and stifle its growing criticism, further strengthening a company that is already the World’s Most Valuable Company, with over $ 200 billion in revenue for the past six months Has.

The process will focus on a legal debate on whether Apple is a monopoly. Epic’s lawyers have argued that businesses need iPhones to reach customers and that Apple is wrongly forcing app makers to use its payment system and pay their fees.

Apple lawyers have responded that iPhones are just one way of reaching consumers and that Apple’s fees are industry standards.

Apple likely has the upper hand, legal experts said. Courts are often more sympathetic to defendants in antitrust proceedings, as companies have the right to decide who to do business with.

But Epic argues that Apple is using its position of power to stifle competition, a legal theory “that works and has overcome this disadvantage,” said William Kovacic, a law professor at George Washington University. The Justice Department made a similar argument against Microsoft in its antitrust case two decades ago.

The case could be due to a narrow technical question: what market are these two fighting over? Epic argues that these are iPhones and that Apple has a clear monopoly on them. Apple’s lawyers insist that the market in question spans all gaming platforms – from smartphones to video game consoles to desktop computers – and that Apple has little monopoly there.

The answer lies with Judge Gonzalez Rogers. And after she settles that case, she’ll hear the next two App Store lawsuits that are about class action status.

An Apple spokeswoman said in a statement that Apple’s top executives would show how good the App Store has been for the world. “We are confident that the case will prove that Epic intentionally violated its agreement just to increase its revenue,” she said.

Epic declined to comment.

Fortnite, a battle royale video game, is the biggest hit in Epic’s 30 years of business. This happened in part because Mr Sweeney pushed the companies behind the big game consoles – Microsoft, Sony Group, and Nintendo – to pit gamers on different devices against each other, which means that a Microsoft Xbox owner is a Sony PlayStation owner for the could play first time.

In 2018, Epic released Fortnite in an iPhone app. In about two years, Epic made around $ 1 billion from Fortnite and its other iPhone apps. But it had to pay Apple about 30 percent of that. Epic paid similar commissions to game console manufacturers.

Mr Sweeney has said in interviews and on Twitter that he realized that the commissions on the App Store mean that sometimes Apple and Google can get more out of a game than the developers who made it. He saw an opportunity to challenge the tech giants.

Mr Sweeney also said he was okay to pay commissions to companies like Microsoft and Nintendo for selling their game consoles at or below cost and depending on the commissions, while Apple makes big margins in all areas of its business.

Other app makers started complaining about the app stores as well, but Epic was one of the few with the money, willingness, and independence to argue in court. While the Chinese internet giant Tencent bought a large part of Epic in 2012, Mr Sweeney remains the majority shareholder. Investors recently valued Epic at $ 29 billion.

But Epic is still tiny compared to Apple. In the last quarter, Apple had average revenue of $ 30 billion per month.

“If we let Apple and Google get away with it, in a few years’ time they will expand this monopoly to wield a level of power over people and companies that is completely new in human history,” Sweeney said in an interview last year.

In 2019, Mr. Sweeney decided to confront Apple. Epic hired the law firm Cravath Swaine & Moore, hired a PR consultant, hired the project with 100 to 200 employees, and formed an alliance with other app makers “to make sure we weren’t the only voice,” according to an Apple Court filing. Epic named the effort Project Liberty.

Last June, Mr Sweeney emailed Mr Cook and some of his deputies asking for a competing marketplace for games on the iPhone to be unlocked and to use Epic’s own payment system instead of Apple to get the 30 percent cut from Bypass Apple.

Apple’s lawyers responded, writing that the company would not “turn the App Store into a public utility”.

Mr. Sweeney dropped courtesy in his reply. “It is a sad state of affairs that Apple executives are passing Epic’s sincere plea to Apple’s legal team to respond with such a self-righteous and self-serving screed,” he wrote to Mr. Cook. “We will continue to pursue this, as we have in the past, to address other injustices in our industry.”

Three weeks later, Mr Sweeney sent out his forecast for fireworks, according to an Apple lawsuit.

Since then, lawyers from Epic and Apple have told different stories in court files and reporters.

Apple has announced that it will develop a globally modified product for the iPhone that has led to an “economic miracle” in mobile apps. Apple spent billions of dollars developing the iPhone and another $ 100 million on its app store, the company said, and charging a commission on app sales is partly why that investment pays off and keeps apps safe .

Epic countered that Apple’s commissions do very little for security. Epic is expected to call witnesses from other companies to share their experience with the App Store, including a senior executive at Match Group, who makes the Tinder dating app. A Facebook executive involved in their own feud with Apple was due to testify, but dropped out.

Apple has accused Epic of looking for a free ride. The game maker has not tracked other companies that distribute Fortnite. According to an Apple-funded study, Microsoft, Samsung, Sony, and Nintendo charge the same commissions for games. In this study, it was not found that Apple posted the 30 percent quota in the App Store in 2008.

In response, Epic pointed out the commission it charges on its own market for game developers: 12 percent.

After Epic sued, Apple halved its commission for developers making their apps less than $ 1 million to 15 percent. That new rate applies to about 98 percent of developers who paid Apple’s commission, according to estimates by Sensor Tower, an app data firm.

However, Apple’s bottom line was hardly affected. According to Sensor Tower, more than 95 percent of Apple’s app revenue comes from companies that pay the full 30 percent.

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