Judge so far 'not convinced' on Epic's antitrust stance in 'Fortnite' battle
The Apple versus Epic debacle reached another major milestone on Monday as a judge heard each company's cases before making initial rulings and trial dates.
Epic vs Apple
Epic started the battle with Apple when the company snuck in a hot fix update to the popular app Fortnite. The update enabled a new purchasing system that bypassed Apple's 30% fee, which violated App Store guidelines.
Apple retaliated by removing the app from the App Store, but that is exactly what Epic was counting on. Fortnite's parent company had a lawsuit ready to go once the app was pulled, alongside a media campaign around the hashtag "Free Fortnite." A viral video was posted to mock Apple's own 1984 ad which told consumers to fight "Big Brother" and buy a Mac.
The obvious grab for global attention wasn't lost on Apple, which quickly revoked the developer accounts belonging to Epic, and threatened to do the same to their other properties like Unreal Engine. A temporary restraining order was placed on the action, forcing Apple to hold off on blocking the Unreal Engine account. Unreal Engine is used to develop a large portion of apps and games on Apple platforms and revoking its account could lead to catastrophic problems for developers.
Epic has since formed a Coalition of App Fairness which include Spotify and other vocal developers. Epic hopes to spurn as much public and developer support as possible before the hearings begin.
After lawsuit, counter suit, and much public discourse, Monday's injunction hearing is set to hear Apple's and Epic's case, and to determine initial rulings and set dates for the actual trial.
These are the main events of the hearing as they transpired:
Epic vs Apple
Epic started the battle with Apple when the company snuck in a hot fix update to the popular app Fortnite. The update enabled a new purchasing system that bypassed Apple's 30% fee, which violated App Store guidelines.
Apple retaliated by removing the app from the App Store, but that is exactly what Epic was counting on. Fortnite's parent company had a lawsuit ready to go once the app was pulled, alongside a media campaign around the hashtag "Free Fortnite." A viral video was posted to mock Apple's own 1984 ad which told consumers to fight "Big Brother" and buy a Mac.
The obvious grab for global attention wasn't lost on Apple, which quickly revoked the developer accounts belonging to Epic, and threatened to do the same to their other properties like Unreal Engine. A temporary restraining order was placed on the action, forcing Apple to hold off on blocking the Unreal Engine account. Unreal Engine is used to develop a large portion of apps and games on Apple platforms and revoking its account could lead to catastrophic problems for developers.
Epic has since formed a Coalition of App Fairness which include Spotify and other vocal developers. Epic hopes to spurn as much public and developer support as possible before the hearings begin.
After lawsuit, counter suit, and much public discourse, Monday's injunction hearing is set to hear Apple's and Epic's case, and to determine initial rulings and set dates for the actual trial.
These are the main events of the hearing as they transpired:
Epic Games opening statements
- Judge Gonzales begins, threatens to mute anyone presenting repeated arguments
- Forrest and Bornstein are Epic's lawyers; Richard Doren for Apple
- Judge opens by rebuking Epic for not producing documents of discovery, deems the action "convenient for Epic."
- Judge says that Epic's definition of the market is a fail safe definition, because as defined Apple must be a monopoly
- Bornstein says that Epic's definitions of market come from their lawyers, not an opinion of experts
- Judge says the 30% rate is the industry rate-- references Steam, Microsoft, Sony, and Nintendo have the same rate.
- Judge says that Epic's lawyers fail to establish a market, stating they hope to narrow the view to evade addressing market practices
- Epic's lawyers say that Xbox cannot be played on a bus, therefore should not be considered the same market as iOS platforms
- Bornstien: "Our concern is there is no competitive market right now, and there is no constraint on what they can charge."
Apple's opening remarks
- Apple lawyer Doren opens by discussing the "unicorn" case comparison with Kodak's
- Doren cites Epic CEO Tim Sweeney-- 10% of average daily players are on iOS, meaning 90% are on any other device
- Doren rejects the Kodak comparisons: "there was an undisclosed change of terms that impacted plaintiffs in a negative way"
- Doren insists that Apple's rules remain constant, that the 30% rule has always been in place since 2011
- Judge asks why its 30% and not 10% or other
- The 30% rule was made when the App Store was small, and remains as such despite its growth.
The litigation
- Epic's Bornstein feels that Apple could alter its 30% stake at any time, saying that developers have no power to challenge such a change
- Epic wants its own store to distribute apps, but cannot. Hence the anticompetitive case
- Doren says that Epic opening a store on Apple's platforms would be "an indictment of Apple's entire business model, which has been committed to the safety, security, and privacy of its users"
- Bornstein says 71 million users use iOS to play Fortnite and no other platform Judge remarks that the trial will be fascinating due to each expert having compelling arguments
- Judge says this is a "Wild West" that walled gardens have existed for four decades. References Sony, Microsoft, and Nintendo as examples similar to Apple creating a platform
- Bornstein says that console markets taking 30% is fundamentally different than Apple, since consoles generally operate at a loss
- Judge closes opening remarks stating that plaintiffs and defendants always want markets to be defined in their favor
Tying the App Store to IAP
- Second portion of the hearing begins regarding how the App Store is tied to IAP
- Apple's lawyer Doren: "IAP is simply the function within the App Store that administers the collection of a commission... It's never been marketed or sold separately."
- Apple argues that IAP is not a separate product like Stripe or Paypal, that it is tied to the App Store, and Epic offers no evidence to the contrary
- Judge agrees that it does not seem to be a separate or distinct product as Epic says
- Epic's argument that there is demand for a separate payment system, that Apple's IAP should be a separate system
- Epic says that 50% of people chose to use their payment system once introduced to Fortnite Doren responds that people are likely responding to the price difference, $7 vs $10, which only exists since Epic avoided the 30% cut
- Doren observes that the other 50% stuck with Apple's IAP despite the price difference because of security and safety
Other arguments
- Epic's lawyer Forrest is now in the seat
- Forrest says Apple is caused irreparable harm trying to ban Unreal Engine-- citing developers went to Unity for fear of losing Unreal on Apple platforms
- Judge says the argument is circular
- Forrest says that Apple's claims to need to shutter Unreal Engine development is "straw man" and "irrelevant"
- Judge takes Epic's side with this, says Apple's "sky is falling" approach is overblown
- Apple's lawyer Boutrous is now in the seat, says that Apple usually blocks all affiliate accounts to prevent retaliation. If Unreal is allowed to operate, they could sneak more past Apple's review process.
- Boutrous says that other developers may attempt the same, and it would unravel Apple's core business model. It's about protecting Apple's ecosystem
- Moving on to the monopoly argument, Judge asks when Apple became a monopolist
- Epic is not able to define a timeline, only asserts that Apple was already a monopolist when Epic entered the scene in 2018.
- Forrest asserts that the question isn't "when did Apple become monopolist, since they always have been, its "when did it become unlawful?"
- Forrest says it was unlawful to Epic at least as of 2018
Closing statements
- Judge to Epic: "You were not forthright. You weren't. You were told you couldn't do it, and you did." Referencing the hot fix
- Apple's Boutrous: "If Epic would just come into compliance, it can free Fortnite. It can free Unreal Engine by just complying with what it owes"
- Judge offers to place the 30% owed to Apple in escrow, and let Epic get Fortnite up to spec with Apple's rules. Would it be allowed back? Apple's lawyer says it would solve a lot of issues, but the decision is Epic's
- Epic's Forrest disagrees: "this court should not give its assistance to unlawful provisions by monopolists"
- Epic has no intentions of making Fortnite comply with Apple's rules
Comments
https://www.theverge.com/2020/9/28/21472139/google-android-12-app-store-installation-payment-fees
This one statement alone shows Epic hasn't a clue as to what constitute a "market". So does Epic think that desktop computers are a different market than laptops, just because one can use a laptop on a bus. Users of both are in the same market when it comes to developing software for computers. It doesn't matter if they are on Windows, OS X, Chrome or any variety of Linux or Unix.
Game developers developing games for IOS is no different that them developing games for the X-Box, PlayStation, Switch or computer platforms. The hardware shouldn't make a difference in determining the "market." Even Epic admitted that only 10% of Fortnight players are using IOS. That leaves 90% of the "market" on the other platforms, from which Epic can develop games for. How does that make devices on the iOS platform a monopoly, as far as Epic is concern?
Another question I have about all of this, is how much those IAP items cost Epic. In other words, what is their profit margin on IAPs? Presumably a shiny new hat for your character costs them something, but that cost is fixed, and then the item can be sold infinitely many times, unlike a real hat which has costs associated with the number of hats manufactured.
- "Epic says that 50% of people chose to use their payment system once introduced to Fortnite
- Doren observes that the other 50% stuck with Apple's IAP despite the price difference because of security and safety"
Would a 2nd paid app option without IAP solve the fundamental issue, offer choice to users, and ensure Apple gets paid for their distribution ecosystem either way ?Perhaps even both apps could co-exist on a device and not cross the IAP divide?
People probably don't remember that we all had to pay for OS upgrades. Mac OS was $129, and if I remember, iOS was $19.99 (or 9.99?). The advent and success of the App Store has allowed Apple to remove the need for revenue from OS upgrade sales (to sustain platform development) and that's when they started offering free upgrades. This in turn has allowed Apple to achieve the unusually high upgrade numbers and move the platform forward at a pace the industry had never seen and no one else can match.
While agree Apple does need to do something, allowing 3rd party App Stores on the platform is not one of them. I'm all for side-loading (from "identified" developers and at user's own risk), and dropping their cut from 30/15% to 20/10%.
It doesn't, but that's the magic word these companies like to throw around to get attention. Apple is not a monopoly, and other than possibly iTunes+iPod (where they had over 70% share at one point in time) has never had a monopoly in any market. A monopoly is not defined as being a proprietary market that is owned by a single entity. It is in fact when an "open" market, where many competitors are free to enter, becomes controlled by a single entity due to that entity's share of the market.
The App Store is a proprietary mobile app market that only exists on a proprietary platform (operating system and hardware). All of which are solely owned, maintained, and controlled by Apple. If that platform were to become a monopoly in the mobile platform/device market, which is an open market, then there could potentially be a huge issue with Apple being the sole App Store on that platform. That is not the case. As many, many, many pundits loved to point out over the years, iOS only commands a fraction of the mobile platform market; usually around 20% at any given time.
Epic is trying to claim "monopoly" simply because Apple has complete control of their platform and gets to decide what apps are allowed and what those apps are allowed to do.
Lately, governments and other companies are trying to rewrite the definition of what a monopoly is by changing the scope from "market share", to "user share" (or installed base) to define whether or not a company can be considered to behaving in a monopolistic way. I believe iOS user share is closer to 30% world wide, and 50% in the US. And by changing the scope, Apple's size becomes much more relevant. The differences in those two scopes is caused by the fact that while Apple sells less devices, the users of those devices hang onto them longer, which allows the installed base to seem to swell.
Actually, Apple providing “free” OS upgrades has absolutely nothing to do with the App Store. When Apple made that change, I think it was around the release of “Snow Leopard”, said they were using an accounting trick to integrate all future software upgrades into the purchase cost of the Apple device.
But seriously "Henry", what planet are you from? It’s not earth. That much is for sure.
It's worst. Like going to a Japanese restaurant and not wanting to pay for the food because you're Mexican.
Apple doesn't bribe or sponsor anyone. This is a stupid myth regurgitated by iKnockoff morons.
However in the home video console market you only have 3 companies and all 3 have similar, uniform policies for their online stores hence why Epic isn't doing anything there. There is no alternative way for Epic to distribute their product on Nintendo Switch, PlayStation 4 & 5 and Xbox One (X/S) & Xbox Series (X|S) without agreeing to their terms. A publisher like Epic can't skate around the console's digital storefronts in any way. To release a physical disc version (PlayStation/Xbox) or cartridge (Switch) a digital version of the game must be released either before the physical release or on Day 1 of the physical release.
Since Microsoft, Nintendo & Sony control the publishing of physical games on their platforms and do not allow third party companies to press their own game discs or cartridges to maintain quality control (to avoid what happened on the Atari 2600 in the 80s) the consoles are absolutely deadlocked.
Plus the userbase on consoles is too much to ignore. This why Microsoft never pulled Minecraft from Sony when Microsoft was going hard on cross-platform play and Sony was like "um, how about no". This is also why Epic will not force a situation where Microsoft, Nintendo & Sony have to enforce their policies that is just too much of a userbase that is way more brand loyal than the mobile phone market.
On the PC front Epic has been at war with Steam over Steam keeping 30% as well. Epic pulled their content from Steam and created the Epic Games Store and put all their content there. Epic also attracts other publishers to the Epic Game Store by offering to only take a 12% cut. They will even cover part of a game's production cost and waive licensing fees for their Unreal Engine if the game developer enters into either a timed or complete exclusivity agreement with Epic Games Store. This has created a huge amount of controversy on the PC space mainly hatred towards Epic for this.
On the Android side the primary storefront is the Google Play Store which has policies similar to Apple's App Store. However Android smartphone & tablet users can still play Fortnite and get the updates unlike their iOS & iPad OS counterparts. The reason is the Android OS allows for third party official storefronts and major device manufactures like Samsung operate their own storefronts alongside the Google Play Store.
Like on my iPad Pro I can't play Fortnite or any other Epic game even if I wanted to. On my Samsung Galaxy Note20 5G there are no Epic Games in the Google Play Store but I can download Epic's games like Fornite from the Samsung Galaxy Store. The alternate method on Android OS is you can download Fortnite directly from their website and sideload it onto your Android device.
So on the Android front there really isn't a anti-competitive case to be made. Epic has alternate ways to release their product for Android users if they don't like the Google Play Store like on PC. If Epic wants to use the Google Play Store then they need to abide by Google's rules.
Apple devices are the only non-console devices that have a complete walled garden with no other form of acquiring apps. This does give Apple way more control over apps than the Android OS and PC space. Apple can control what features an app has on their platforms and reject them or ask them to remove a feature.
Also the consoles treat all games and apps the same on their platforms. Apple does make special exemptions to their policies for streaming apps. (A big difference between the consoles and Apple here.) The only reason you don't find many streaming apps on Nintendo Switch is simply after they made the Hulu & YouTube agreements they decided they didn't want anymore streaming apps on Switch.
Apple takes a 15% cut from Prime Video in app subscriptions which Amazon used their opt-out on to prevent this. Apple doesn't collect anything from Prime Video rentals & purchases (normally Apple would collect 30% which is why Vudu opts out of allowing its customers to rent and purchase content from its app.) Apple's agreement allows them to take 15% of the revenue of Prime Video Channel subscriptions made within the app on Apple devices so Amazon disabled the feature which Apple allowed.
Netflix is given an opt-out of offering in-app subscriptions to avoid the 30% cut and also has an opt-out so they don't have to support the Apple TV app.
Spotify is given an opt-out from in-app purchases for their subscriptions because the app has a "free component" and its app can play your local audio files.
So while legally Epic may not have a leg to stand on here since they willfully agreed to and then broke the guidelines the more that comes to light about Apple's App Store practices clearly indicate not all apps are treated equally.
Apple has made it known however they can make exceptions when the exceptions benefit Apple. They want to get more people on Apple TV so the exceptions given to streaming apps benefits Apple especially when competitors do no have a particular app.