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Apple vs Epic Games – A technology legal battle you should actually care about

This previously written as a blog post for a course in Fall 2020 

Apple, a global tech firm needs no introduction here, selling iPhones, Macs, etc. they have existed and dominated the landscape for at least the last 10 years. Servicing ~1.8 million customers in its iOS store including a massive landscape of apps and services, both paid and free.

Epic Games on the other hand might need a bit of an introduction, an American video game and software developer firm has made its mark on the world in the past few years through the release of Fortnite. The game everyone and their little brother has raved about, where the user is dropped onto an island with 100 other people and must collect loot and weapons to defend off the other 99 people and ultimately win, being the last person alive. Epic Games the studio behind Fortnite actively develops the game on various platforms, PC, iOS, Android, Xbox, PS4, Nintendo Switch. Fortnite is built on the Unreal Engine, also owned and created by Epic Games, the Unreal Engine is a gaming development engine used by some very notable game development studios, and has been used to make other notable games outside of Fortnite. Epic Games business relies on 3 main sources, first being in game purchases in Fortnite in which players can exchange real money for virtual currency that can then be used to purchase items. Second being the Epic Games Marketplace platform on PC which aims to take a chunk out of competitors by selling its own titles in addition to many others. Lastly Epic Games licenses its Unreal Engine to developers to create their own games across a multitude of platforms, another lucrative business avenue that has proven very successful in the past, mostly based on the sheer power the engine has to showcase beautiful visuals.

So why don’t they like each other? And why are they having a massive legal battle in court that is flooding the tech news weekly?

Let us start from the beginning, around mid-June Epic Games CEO Tim Sweeney tells news sources and Twitter about his various thoughts on Apple and the iOS App Store. “The iOS App Store’s monopoly protects only Apple profit, not device security.” A bold statement with the number of iOS players and sales that Fortnite has generated on iOS devices, in addition to the licensing of Unreal Engine games. Later that day Sweeney quote tweets the original news post’s story saying “Here Apple speaks of a level playing field. To me, this means: All iOS developers are free to process payments directly, all users are free to install software from any source. In this endeavor, Epic won’t seek nor accept a special deal just for ourselves.”

The Twitter battle ensures through the rest of June and into late July where Sweeney on July 24th tells CNBC that the App store is an “absolute monopoly,” arguing that “Apple has locked down and crippled the ecosystem by inventing a monopoly on the distribution of software, and on the monetization of software.” Just a few days later it becomes clearer what Sweeney is arguing about, the 30% fee that Apple takes out of every App Store purchase. Furthermore, it is within the App Store policies that developers may not implement their own payment processing system, and all payments made within apps on iOS must go through the App Store, where Apple will take 30%.

On August 1st Epic CEO Tim Sweeney tweets, “Apple’s intentional anti-competitive strategy has been running for much longer than most realize. Here they are in 2011 muscling Kindle purchases off iPhone by demanding 30% of e-book revenue, ‘which we acknowledge is prohibitive for many things.’” His patience has worn out at this point, and Apple’s unwillingness to work with Epic Games on this issue is nonexistent.

On August 13th Epic Games introduced a direct payment option into their Fortnite app for iOS, allowing users to purchase in game currency at a 20% discount than what was offered in the App Store. But wait… Isn’t that against Apple’s App Store policies…? Correct.

Epic Games implemented their own payment processing for both the Android and iOS apps, although Tim Sweeney and Epic Games are more at arms with Apple about the 30%, even though Google still takes the same 30% cut. With this implementation and functionality in the app Apple takes down Fortnite from the App Store, Google doing the same. A bold move for Apple considering the number of players that Fortnite has, with a large portion of users being on iOS devices. Apple released the following statement regarding Epic Games actions.

“Today, Epic Games took the unfortunate step of violating the App Store guidelines that are applied equally to every developer and designed to keep the store safe for our users. As a result their Fortnite app has been removed from the store. Epic enabled a feature in its app which was not reviewed or approved by Apple, and they did so with the express intent of violating the App Store guidelines regarding in-app payments that apply to every developer who sells digital goods or services.

Epic has had apps on the App Store for a decade, and have benefited from the App Store ecosystem – including its tools, testing, and distribution that Apple provides to all developers. Epic agreed to the App Store terms and guidelines freely and we’re glad they’ve built such a successful business on the App Store. The fact that their business interests now lead them to push for a special arrangement does not change the fact that these guidelines create a level playing field for all developers and make the store safe for all users. We will make every effort to work with Epic to resolve these violations so they can return Fortnite to the App Store.”

So why did Epic Games do this? They were aware of the policies, yet they decided to take these actions and violate the policy?

Epic Games is seeking a much larger argument as far as the mandatory in app purchase mechanism. Epic Games claims that other apps like Uber, Door Dash, and StubHub who all offer purchases through their apps do not have to abide by this mechanism and do not pay the 30% fee for all purchases. As a result of Apple’s actions Epic Games filed a lawsuit against Apple describing Apple as having “monopoly power” accusing them on “unfair and anti-competitive actions.”

Throughout the whole lawsuit process Epic Games has made it clear its intentions and what it is aiming to achieve by launching a full social media campaign rallying its massive fanbase against Apple. A rather interesting aspect of this is the “Nineteen Eighty-Fortnite” parody that Epic Games posted of the “1984” ad where Apple portrayed IBM as the evil “big brother”. Oh, how the tables have turned. The whole “app tax” refusal by Epic Games was spread using the #FreeFortnite hashtag on social media as Epic Games looks to remedy this larger issue rather then just getting Fortnite back on the App Store.

Google on the other hand is not on the best of terms with Epic Games either, taking down Fortnite from the Google Play Store, resulting in Epic Games filing a similar lawsuit against Google. The whole movement has grown with Tim Sweeney rallying the troops with a tweet stating the following on August 14th, “At the most basic level, we’re fighting for the freedom of people who bought smartphones to install apps from sources of their choosing, the freedom for creators of apps to distribute them as they choose, and the freedom of both groups to do business directly.”

Just a few days after the lawsuit was filed Epic Games reveals the Apple Developer Program account that is used for its Unreal Engine business will be terminated on August 28th, unless the violations of the new payment functionality are fixed. A dangerous move by Apple expanding the issue from just Fortnite to now the entire Unreal Engine that is used by countless developers. This developer account is crucial to development operations being used to access Apple’s software, SDKs, APIs, and developer tools that are essential to develop Unreal Engine for iOS and macOS. Apple stood by this decision stating that “we won’t make an exception for Epic because we don’t think it’s right to put their business interests ahead of the guidelines that protect our customers.”

In a court filing Apple says Epic Games emailed the company on June 30th asking for a “special deal” that would allow for Epic Games to sidestep Apple’s in-app purchase mechanism. Apple related this to shoplifting claiming the following, “If developers can avoid the digital checkout, it is the same as if a customer leaves an Apple retail store without paying for shoplifted product: Apple does not get paid.” On the defense Tim Sweeney defends himself with the following tweet, “Apple’s statement is misleading. You can read my email in Apple’s filing, which is publicly available. I specifically said in Epic’s request to the Apple execs, ‘We hope that Apple will also make these options equally available to all iOS developers…”

Just a few days later on August 23rd Epic Games argues that the plan to terminate the developer program account would be “overbroad retaliation” and “an unlawful effort to maintain its monopoly and chill any action by others who might dare oppose Apple.” To Epic Games argument a US Judge grants a temporary restraining order preventing Apple from terminating the developer account. Through the growing tensions of this battle and Apples suspensions of the Epic Games developer account (not the Unreal Engine account) Epic Games has been and will continue to be unable to update the game with any form of content.

On September 4th Epic Games files for preliminary injunction that would allow for Fortnite back on the App Store and restoring access to its developer account. To which Apple countersues Epic Games just 4 days later requesting damages for breach of contract. Apple describing Epic Games as a “multi-billion-dollar enterprise that simply wants to pay nothing for the tremendous value it derives from the ‌App Store‌.” Throughout the whole process Apple has been doing everything imaginable to annoy and bother Epic Games, even going to disable the “Sign in with Apple” button on all Epic Games accounts.

Where does this leave the case now? Well On September 28th the same judge that offered the temporary restraining offer for the Unreal Engine account hears both arguments and recommends a jury trial to settle the case in July, however both sides agree that it should be tried with a bench trial instead of a jury trial.

Lately the actions of Epic Games have been through the court room, and now via social media as it appears to have quieted down on rallying the troops, however Tim Sweeney is more then active on his Twitter account about being vocal about this issue. In one court filing Apple accused Epic Games of kicking off this legal battle as a marketing scheme to boost attention and bring more players to the game stating at 70% increase in interest in Fortnite.

On October 6th, amongst this chaos the House Judiciary Committee released its conclusions on whether Amazon, Facebook, Apple, and Google are violating antitrust law. The 449-page report criticizes the companies for buying competitors, preferences over their own services, and holding outsized power over smaller businesses that use their platforms. Epic Games, is that you in the House Judiciary Committee? Jokes aside Epic Games will for sure be using this argument and portions of the report to back up its argument against Apple.

Epic Games is not alone though, from the day the lawsuit was filed Spotify backed Epic Games, and on August 23rd Xbox gaming executive backs Epic Games as well. Microsoft even as far to publish a “10 app store principles to promote choice, fairness and innovation.” A blog post that stands behind all if not most of Epic Games argument. And although never particularly calling out the case, or either parties, seeks for change within the field. The Coalition for App Fairness(appfairness.org) was created including members like Epic Games, Spotify, Tile, Match Group, and many others. The coalition outlines the following…

Carefully Crafted Anti-Competitive Policies – Apple uses its control of the iOS operating system to favor itself by controlling the products and features that are available to consumers. The company requires equipment manufacturers to limit options, forces developers to sell through its App Store, and even steals ideas from competitors

30% “App Tax” on Creators & Consumers – For most purchases made within the App Store, Apple takes 30% of the purchase price. No other transaction fee – in any industry – comes close. This app tax cuts deeply into consumer purchasing power and developer revenue. This app tax is especially unfair when it is imposed on apps that compete directly with those sold by Apple, driving up their prices and putting them at a distinct competitive disadvantage.

No Consumer Freedom – If consumers want to use a modern mobile device, Apple levies a tax that no one can avoid. No competition, no options, no recourse. The Apple App Store policies are prisons that consumers are required to pay for and that developers cannot escape.

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So why is this important to Consumer Protections?

Well previously there has been little to no legal dispute regarding app marketplaces across any platform. Making the precedent that this case sets very important. Think about the amount of app or store marketplaces, the Xbox store, Microsoft store, iOS store, Nintendo store, Sony store, and many more. The outcome of this case could have a serious impact on the cut that these marketplace owners take out of every sale. Sony made over $12 Billion through the PSN Store in 2019. The shear number of sales that these stores bring in is absurd, and there is often little to no policing or upkeep required with such an operation, the profit these companies make off these stores are crazy.

Google in the past has been one with a very open app store, whereas Apple is the opposite with regards to policing content and apps that are put on each’s app store. It has been an awfully common occurrence for malicious apps that harvest data or are straight malware to make it onto the Google Play store sadly.

What is my take?

Apple is crazy. Apple is Apple, Apple loves money. Apple charges a premium for its ecosystem. I would like it if Epic Games won this dispute because it would allow for a more open marketplace environment for creators and developers, benefiting consumers the most. However, they are going up against Apple, it will not be easy whatsoever.

I could speculate all I want but I know that we will just have to ride this one out as this seems like a long legal battle ahead between these two companies. I do really like the arguments and ideas of Tim Sweeney, someone who I have never followed before and regardless of the outcome of this case I’ll be interested in following some of the ideas movements he pushes for.

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