In August 2020, Epic Games made a small change to its highly-popular game Fortnite on the iOS platform. Epic introduced a new way by which players could buy V-bucks, the in-game currency, for 20% cheaper than what they had to pay previously. The only catch – players would be taken to Epic Games’ website and would pay directly to Epic, instead of buying it through an in-app purchase on the App Store.
The Story So Far
This small change sparked a year-long battle between Apple and Epic that stemmed way past just these two companies. Apple removed Fortnite from the App Store and banned Epic Games’ user account. Epic expected this to happen and, in an orchestrated move, immediately filed a case against Apple for monopolistic behavior. While the current fight started after Epic tried to circumvent the App Store’s in-app purchase system, the conflict had been brewing for a long time as Epic CEO Tim Sweeney had criticized Apple’s App Store policies as far back as 2015.
The trial ended less than 4 months ago in May and today, U.S. District Judge Yvonne Gonzalez Rogers finally handed her decision, ending the case after a highly-publicized few months. The decision found 9 counts out of 10 to be in Apple’s favor while only 1 in Epic’s. Apple was ruled not a monopolist while Epic was blamed for failing to prove Apple as such. Overall, this would be considered a landslide victory for Apple as they lost out on only one ground, but that ground is perhaps the most lucrative one for Apple.
Given the trial record, the Court cannot ultimately conclude that Apple is a monopolist under either federal or state antitrust laws. While the Court finds that Apple enjoys considerable market share of over 55% and extraordinarily high profit margins, these factors alone do not show antitrust conduct. Success is not illegal. The final trial record did not include evidence of other critical factors, such as barriers to entry and conduct decreasing output or decreasing innovation in the relevant market. The Court does not find that it is impossible; only that Epic Games failed in its burden to demonstrate Apple is an illegal monopolist.
The One Count Apple Lost On
The court ruled that Apple can no longer prevent developers to include links or other ways that allow the customer to buy in-app items directly from the developer if they chose to. Before, Apple was the one in control of all microtransactions. If you wanted to buy something inside an app, you would have to go through App Store’s purchase system and pay to Apple and not the developer. Apple takes a 15-30% cut on all in-app purchases and this “monopolistic tax” that the company imposes on each purchase was the crux of the lawsuit in the first place.
The court found that Apple’s anti-steering provisions were illegal and against California’s competition laws. They hide crucial information from the user and limit choice which is an anti-competitive stance that goes against the state law. The court has given 90 days to Apple to remove these provisions and permit developers to include direct payment methods within their apps, alongside Apple’s own App Store payment system. Ultimately, putting the choice in the user’s hands.
The Court concludes that Apple’s anti-steering provisions hide critical information from consumers and illegally stifles consumer choice. When coupled with Apple’s incipient antitrust violations, these anti-steering provisions are anticompetitive and a nationwide remedy to eliminate those provisions is warranted.
Epic Games added a way you by which you could buy Fortnite’s in-game currency directly from them and that’s why Apple removed the game off their platform. So, you can see why a court decision that essentially bars Apple from collecting a major chunk of that revenue does not sit right with the company. It is expected that Apple and Epic Games both will appeal the court’s decision, in fact, an Epic Games spokesperson has already confirmed that the game-maker will appeal the ruling.
Earlier this month, Apple already made a change to its App Store policy allowing “reader” apps like Netflix, Amazon Prime Video, and Spotify to redirect users to their own payment methods. Now, following the court’s ruling, this change will have to extend to all apps across the App Store. Apple will not be allowed to intentionally stop developers from telling users that cheaper payment methods exist outside of the App Store.
A Somber Celebration
This can be considered a partial win for Epic Games as they essentially emerged victorious in their original battle of allowing alternate payment methods. However, Epic Games’ main goal in this case was to push Apple to reduce their 15-30% cut on in-app purchases rather than just allow a separate payment method. The reason being that App Store’s payment method is ultimately more convenient and user-friendly. Most people that own iPhones own them because they’re locked into Apple’s ecosystem. So, taking them out of that into unknown territory can potentially lock developers out of sales.
Going to a foreign site or landing page where the user has to enter their credit card info, sign up for an account and punch in other details can be cumbersome. Some users may even have security or privacy concerns over such a thing. Whereas, just buying from within the App Store would be as simple as confirming the purchase as the account and payment details are all already set up. Unfortunately, the court did not rule in favor of Epic here and said that Apple’s 15-30% tax on in-app purchases is lawful.
Apple Is Not A Monopoly
Adding insult to injury, the court did not find Apple’s App Store policies monopolistic or anti-competitive. The court does not see Apple as a major player in the gaming industry. In fact, the judge went on to correct both Epic and Apple as either of their definitions for the market at effect here was wrong. Epic said that Apple was running a monopoly in the gaming market while Apple said that they have control over only their own App Store. The court said that, in actuality, the market in question is “digital mobile gaming transactions” and in that market, it was ruled that the “the court cannot ultimately conclude that Apple is a monopolist under either federal or state antitrust laws”.
The Damage To Epic
The court also ruled that Epic’s circumvention of the App Store’s payment system was against App Store policy and breached the contract Epic had with Apple. Even though today’s decision legalized alternate payment methods, at the time it was against App Store guidelines. Hence, Epic is liable to pay Apple 30% of all revenue generated in the time it sold in-app purchases outside of App Store’s payment system. That comes out to around $3.5 million out of the total $12,167,719 Epic earned in sales. Epic is set to appeal this ruling.
Furthermore, because of Epic’s breach of contract, the court gave its verdict that Apple will not be forced to put Fortnite back up on the App Store. The final decision will remain with Apple and it’s up to them if they chose to allow Fortnite on the App Store or not. So, even though alternate payments methods are permitted now, Epic themselves cannot benefit from them. Epic lost even after technically winning but, at least, they fought for developers at large and the payment method change, if implemented, can send unprecedented ramifications down the industry.
Apple vs. The People
Apple has already been under severe scrutiny over its harsh policies and business model that assumes monopoly over competitors. Various anti-trust violations have recently landed Apple (among other tech giants) in court multiple times before the Epic case even came into fruition. Regulators in South Korea, India, Japan, Britain and the EU are already looking into App Store’s dominance within the mobile market and how that can create a monopoly. Not only that, but the Justice Department of the United States has launched an antitrust investigation into Apple as well. As we move forward, even the governments are inclining towards standardizing third-party app stores and payment methods more than ever.
These stains on Apple’s once-clean image have made it more vulnerable than ever in the law’s eye. If the court ruled in Epic’s favor today labeling Apple a monopoly, it would’ve been a huge win for anti-trust concerns and cases already piled up against Apple. Regulators and politicians are stern on breaking the company’s control over the market and a court ruling calling Apple a monopolist would’ve been a big setback for Apple, and a confident booster for the plaintiffs. Still, the fact that Apple is not the unstoppable kingpin of the market anymore, and can actually be put into question, can prove to be one of the most significant shifts in the tech landscape in a long time.
Reactions To The Verdict
As mentioned before, the court has given 90 days to Apple to change their App Store policy but Apple will most likely appeal this decision. They don’t want to loose out on any App Store revenue, which is one of the biggest sources of income for Apple and generated $64 billion in total sales in 2020. That being said, Apple does consider the overall verdict a victory. A representative from the company stepped forward and issued the following statement to the press:
Today the Court has affirmed what we’ve known all along: the App Store is not in violation of antitrust law. Apple faces rigorous competition in every segment in which we do business, and we believe customers and developers choose us because our products and services are the best in the world. We remain committed to ensuring the App Store is a safe and trusted marketplace.
It is important to note that Apple’s statement saying they don’t break antitrust law is a self-made claim and not something the court ruled absolutely. There are far too many antitrust investigations that Apple is already stuck in for it to label itself itself free of doubt. At the moment, it definitely cannot be said that Apple (or in this case App Store) does not break antitrust laws and only time will tell what becomes of other cases against Apple.
On the other hand, Epic Games CEO Tim Sweeney had starkly different sentiments to express:
Today’s ruling isn't a win for developers or for consumers. Epic is fighting for fair competition among in-app payment methods and app stores for a billion consumers. https://t.co/cGTBxThnsP
— Tim Sweeney (@TimSweeneyEpic) September 10, 2021
As you can see, Tim is not too happy about the verdict. Ever since the trial started, Tim and Epic have positioned themselves as the frontline soldiers in the battle against unfair monopoly. Many companies have stepped forward in support of Epic, including Microsoft who itself is critical of Apple’s App Store policy. When Epic stepped into the ground to go up against Apple (something that only few dare to do) it wanted to fight for not only itself and Fortnite, but the gaming community at large. Tim believes that separate in-app payment methods should be permitted on iOS natively.
As I discussed earlier, this means that instead of allowing alternate payment systems, such as redirecting to a website, in-app purchases should be done through the App Store but without Apple’s absurd 30% cut. Epic envisioned a system similar to PC and MacOS to thrive on iOS, where multiple different storefronts, like Steam, can be installed on the device and act as the primary marketplace for purchases. Purchases unhindered by Apple’s policy.
People are misunderstanding the verdict. Epic wanted to offer in-app payments of their own. They can't. All they can do is offer a link to another payment system. Most people aren't going to go through the trouble of leaving the app to use it these payment systems.
— Chance (@Chance_Cooke) September 10, 2021
Even though, the case was largely in favor of Apple, the court has issued a permanent injunction on Apple to allow alternate payment systems on the App Store within 90 days. Apple will most likely appeal this. Apart from this one blow, Apple has won on all the other counts and has dodged the bullet of being labeled a monopoly. And, Epic Games will appeal that. Even though the case concludes today, it has far from ended. Both companies are ready to go to court once again to oppose the verdict and we will likely hear more about Epic vs. Apple soon.
You can see artistic illustrations of inside the courtroom here, they offer a glimpse of what it was like to be there in the same room as the court hearing. If you want to read for yourself, the permanent injunction and the full 185-page decision have been attached below.