For years, some of the biggest companies in tech and media have complained about Apple’s policies in its mobile store. Those companies either found a way to work with Apple (Amazon) or found a way to exist without it (Spotify). The same could often be said of Google, which has shielded its Google Play Store from competition much like Apple has done.
Video game giant Epic Games, the maker of the online sensation Fortnite, just took a different tact. In a coordinated effort that included a secret product update, two lawsuits that total 125 pages and some social media trolling, the privately held publisher on Thursday launched a whole new offensive against the two tech giants, one that could have big ramifications beyond the billion-dollar world of esports and video games.
First, Epic offered users in the Apple Store the choice to bypass Apple’s in-house payment system, an option accompanied by a lower price because it didn’t include the 30% fee the company charges for transactions. That’s a violation of the Apple policy, and Apple responded by removing Fortnite from its store.
Epic then filed the federal complaint accusing Apple of operating an illegal monopoly. The lawsuit, posted on the company’s Twitter page, was accompanied by a website and online event that featured a parody of Apple’s famous “1984” ad, in which it used the George Orwell novel to frame its challenge to incumbent IBM.
“Fast forward to 2020, and Apple has become what it once railed against: the behemoth seeking to control markets, block competition and stifle innovation,” the company said in its lawsuit. “Apple is bigger, more powerful, more entrenched and more pernicious than the monopolists of yesteryear.”
Epic Games has defied the App Store Monopoly. In retaliation, Apple is blocking Fortnite from a billion devices.
— Fortnite (@FortniteGame) August 13, 2020
Epic made a similar move to allow direct payments in Google’s Play Store, the other dominant platform for U.S. smartphones, and it, too, removed Fortnite from its catalog Thursday night. Even though Google’s fees are significantly lower, Epic nonetheless filed a similar federal complaint against Google late Thursday. And just as it had mocked Apple, Epic ridiculed Google. Reminding it of its founding altruistic slogan, “Don’t Be Evil,” from 1998, Epic says Google, 22 years later, “has relegated its motto to nearly an afterthought” and “used its size to do evil upon competitors, innovators, customers and users in a slew of markets it has grown to monopolize.”
The timing here is likely not a coincidence. Last month Apple’s Tim Cook and Google’s Sundar Pichai were two of four big tech CEOs to testify in front of the House Judiciary Committee’s anti-trust subcommittee. Apple’s 30% fee and Google’s power over search and information were among the things discussed.
Epic also just recently closed a $1.78 billion round of funding, which valued the company at $17.3 billion. Investors include Chinese tech giant Tencent, Sony Corp., and Carolina Panthers owner David Tepper. It is both an extremely popular and extremely well-capitalized company.
Epic has valuable assets outside of Fortnite, principally the Unreal Engine, the popular backend software that powers hundreds of video games and is now being used in movie and TV production. Epic also has a strong presence in esports, and its games are the backbone for many popular Twitch and YouTube streamers.
Its legions of young, tech-savvy fans quickly jumped to the company’s defense. The #FreeFortnite hashtag went viral, and a Fortnite tweet about defying the “App Store Monopoly” has more than 65,000 likes.
But popularity won’t necessarily help it with the lawsuit itself. Epic is insisting that both Apple and Google have created illegal monopolies in multiple markets. With respect to Apple, two related markets are at issue: the market for the distribution of apps to users of mobile devices and the market for processing consumers’ payments for digital content used within apps.
Apple, Epic asserts, makes it a required step to “go through a single store controlled by Apple, the App Store.” Epic maintains this arrangement unlawfully enables Apple to “exact an oppressive 30% tax on the sale of every app.” To further its alleged scheme, Epic charges, Apple also requires software developers to use In-App Purchase, a payment processing system that also carries that “30% tax.”
North Carolina-based Epic contrasts Apple’s control over the mobile device market with the far more “open market” for software developers to market products to Mac and MacBook users. Developers can sell their products through “a variety of stores” and offer direct downloads. Related processing fees, Epic maintains, are only about 3% on average—a far cry from 30%.
Epic doesn’t want Apple or Google to pay it a penny. Instead, it seeks a court-issued injunction that would compel “fair competition” for the benefit of “hundreds of millions of consumers and tens of thousands, if not more, of third-party app developers.” Such a remedy would “mandate” that Apple and Google “take all the necessary steps” to “restore competition.” This type of remedy would be defined by the presiding judge—meaning Apple’s and Google’s business models could each be reshaped by someone who doesn’t work for the company.
The complaints, filed in the U.S. District Court for the Northern District of California, contain a total of 21 claims that draw from the federal Sherman Antitrust Act and California’s antitrust law, the Cartwright Act. The claims against Apple contend that the tech giant has unlawfully restrained trade by compelling developers to agree to Apple’s “unlawful terms” specified in developer agreements. If developers refuse to sign, they are denied access to consumers. From that lens, Epic maintains that developers have no meaningful choice—a situation sometimes described as a contract of adhesion. Epic insists this arrangement effectively makes it impossible for there to be competition to the App Store.
Similarly, Epic stresses that it and other app distributors are denied access to iOS—an essential marketplace for distributors unless they comply with Apple’s rules. Epic insists it “has suffered and continues to suffer harm and irreparable injury, and such harm and injury will not abate until an injunction ending Apple’s anti-competitive conduct issues.”
The case against Google focuses on Google’s tight—Epic says “monopolistic”—control of the Android OS. Google, Epic asserts, “has erected contractual and technological barriers that foreclose competing ways of distributing apps to Android users, ensuring that the Google Play Store accounts for nearly all the downloads of apps from app stores on Android devices.” Epic also takes aim at Google “bundling” its Play Store with other Google products, such as Gmail, Google Maps and YouTube, that Android OEMs are required to have.
In the weeks ahead, Apple and Google will answer Epic’s complaints. In addition to denying allegations of wrongful act, the two tech giants will begin to rebut and attempt to debunk Epic’s legal assertions.
Apple will maintain that the App marketplace has enhanced options for consumers, including gamers. Expect the company to also assert that it has forced developers to compete for consumers. Antitrust law is mainly about consumer welfare (interests) and ensuring that sellers have strong incentives to lower prices and innovate. To that end, Apple will likely charge that there is no monopoly but rather a creation, by Apple, of a marketplace that wouldn’t otherwise exist or that wouldn’t exist as efficiently and dynamically for the benefit of consumers.
Google can be expected to raise a similar set of arguments tailored for the Play Store and Android market. Like Apple, Google will be mindful of its enormous size and market dominance. And like Apple, Google will assert that its network of products caters to consumer demand and constantly adapts to maximize customer preferences. Put more bluntly, “big” and “exclusive” will be portrayed as benefiting, not hurting, the consumer.
Don’t expect a resolution to the litigation anytime soon. Federal antitrust cases can take years, especially when there are appeals. Epic, Apple and Google all have the financial wherewithal to pay their attorneys for the long game. Given that Epic has raised similar legal and factual arguments against Apple and Google, it’s possible the two cases could eventually be combined by the court. Apple and Google are competitors but aren’t strangers when it comes to being co-defendants in federal antitrust litigation and have also partnered in patent litigation. Combined or not, antitrust cases also tend to be complex, and heavily influenced by economic studies and expert testimony. Expect the three sides to offer unique windows into the app market.