Epic Games
Apple’s app store goes on trial in threat to ‘walled garden’
On Monday, Apple faces one of its most serious legal threats in recent years: A trial that threatens to upend its iron control over its app store, which brings in billions of dollars each year while feeding more than 1.6 billion iPhones, iPads, and other devices.
The federal court case is being brought by Epic Games, maker of the popular video game Fortnite. Epic wants to topple the so-called “walled garden” of the app store, which Apple started building 13 years ago as part of a strategy masterminded by co-founder Steve Jobs.
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Epic charges that Apple has transformed a once-tiny digital storefront into an illegal monopoly that squeezes mobile apps for a significant slice of their earnings. Apple takes a commission of 15% to 30% on purchases made within apps, including everything from digital items in games to subscriptions. Apple denies Epic’s claims.
Apple’s highly successful formula has helped turn the iPhone maker into one of the world’s most profitable companies, one with a market value that now tops $2.2 trillion.
Privately held Epic is puny by comparison, with an estimated market value of $30 billion. Its aspirations to get bigger hinge in part on its plan to offer an alternative app store on the iPhone. The North Carolina company also wants to break free of Apple’s commissions. Epic says it forked over hundreds of millions of dollars to Apple before it expelled Fortnite from its app store last August, after Epic added a payment system that bypassed Apple.
Epic then sued Apple, prompting a courtroom drama that could shed new light on Apple’s management of its app store. Both Apple CEO Tim Cook and Epic CEO Tim Sweeney will testify in a Oakland, California federal courtroom that will be set up to allow for social distancing and will require masks at all times.
Neither side wanted a jury trial, leaving the decision to U.S. District Judge Yvonne Gonzalez Rogers, who already seems to know her ruling will probably be appealed, given the stakes in the case.
Much of the evidence will revolve around arcane but crucial arguments about market definitions.
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Epic contends the iPhone has become so ingrained in society that the device and its ecosystem have turned into a monopoly Apple can exploit to unfairly enrich itself and thwart competition.
Apple claims it faces significant competition from various alternatives to video games on iPhones. For instance, it points out that about 2 billion other smartphones don’t run iPhone software or work with its app store — primarily those relying on Google’s Android system. Epic has filed a separate case against Google, accusing it of illegally gouging apps through its own app store for Android devices.
Apple will also depict Epic as a desperate company hungry for sources of revenue beyond the aging Fortnite. It claims Epic merely wants to freeload off an iPhone ecosystem in which Apple has invested more than $100 billion over the past 15 years.
Estimates of Apple’s app store revenue range from $15 billion to $18 billion annually. Apple disputes those estimates, although it hasn’t publicly disclosed its own figures. Instead, it has emphasized that it doesn’t collect a cent from 85% of the apps in its store.
The commissions it pockets, Apple says, are a reasonable way for the company to recoup its investment while financing an app review process it calls essential to preserving the security of apps and their users. About 40% of the roughly 100,000 apps submitted for review each week are rejected for some sort of problem, according to Kyle Andeer, Apple’s chief compliance officer.
Epic will try to prove that Apple uses the security issue to disguise its true motivation — maintaining a monopoly that wrings more profits from app makers who can’t afford not to be available on the iPhone.
Read Also: Epic Games complains about Apple to UK competition watchdog
But the smaller company may face an uphill battle. Last fall, the judge expressed some skepticism in court before denying Epic’s request to reinstate Fortnite on Apple’s app store pending the outcome of the trial. At that time, Gonzalez Rogers asserted that Epic’s claims were “at the frontier edges of antitrust law.”
The trial is expected to last most of May, with a decision to come in the ensuing weeks.
3 years ago
Epic Games complains about Apple to UK competition watchdog
Epic Games submitted a complaint Tuesday about Apple's alleged “monopolistic practices" to the U.K. competition watchdog, which is investigating the iPhone maker over concerns it has a dominant position in app distribution.
The move by the maker of the popular video game Fortnite is the latest salvo in its bitter battle over Apple's App Store. Epic Games has also filed legal challenges in the United States and Australia, and an antitrust complaint in the European Union against Apple.
The game-maker's complaint accuses Apple of anti-competitive behavior and setting strict rules on app distribution and payments in alleged violation of U.K. rules.
Apple said it wasn't surprised by Epic’s U.K. complaint “as we have seen them use the same playbook around the world.”
The Competition and Markets Authority confirmed it received the complaint and said it would be considered as part of its investigation opened last month into whether Apple's practices result in higher prices or less choice for consumers.
The dispute stems from Apple taking a 30% cut from some purchases made through apps, which music streaming service Spotify and other apps have also taken issue with. Epic tried to bypass the App Store with a direct payment system, but Apple responded by dropping the Fortnite app from the platform.
“By kneecapping the competition and exerting its monopoly power over app distribution and payments, Apple strips U.K. consumers of the right to choose how and where they get their apps, while locking developers into a single marketplace that lets Apple charge any commission rate they choose,” Epic Games CEO Tim Sweeney said in a statement.
“These harmful practices lead to artificially inflated costs for consumers, and stifle innovation among developers, many of whom are unable to compete in a digital ecosystem that is rigged against them,” Sweeney alleged.
Epic said it's not seeking monetary damages but wants regulators to come up with fixes to prevent market distortion and manipulation.
Apple said Epic Games became hugely successful thanks to the App Store and now "wants to operate under a different set of rules than the ones that apply to all other developers. The result would be weakened privacy and data security protections for our customers, and we think that’s wrong.”
3 years ago