Epic Games’ Fortnite was removed from the iOS App Store in August over the implementation of an unauthorised in-app payment system – Epic direct payment – which circumvented the 30% commission that Apple takes from all purchases in the App Store. In bypassing Apple’s internal payment system, Epic Games breached the App Store terms and guidelines to which it had voluntarily agreed since its appearance on the App Store in 2008. The ensuing legal battle has since developed into a significant and closely observed dispute surrounding the legality of the tech giant’s conduct in its app ecosystem, anti-competition principles and consumer protection.
Epic Games’ lawsuit against Apple
Epic sued Apple after Fortnite was taken off the App Store, alleging that Apple has violated antitrust law and used its total control of iOS software to extract an exorbitant commission on all software passing through the App Store. The company cited Section 1 of the Shearman Antitrust Act 1890, holding that Apple’s tying of In-App Purchases (IAPs) to app distribution is in violation of this primary antitrust legislation. The original complaint read:
In early September, Epic also filed for a preliminary injunction requiring Apple to restore its developer account and put Fortnite back onto the App Store, but this is unlikely to happen as the court decided it would not require Apple to do this.
Apple retaliated to Epic Games’ in-app payment system by promptly removing Fortnite from the iOS App Store, and then proceeded to file a countersue against them, accusing the company of “self-help and subterfuge” and calling its conduct “willful, brazen and unlawful”. On the face of it, the courts seemed to accept the relatively black and white issue that Epic Games did, quite obviously, breach the conditions of its presence on the app store. Judge Yvonne Gonzalez Rogers, whilst prohibiting Apple from further retaliation in the termination of the developer account for Unreal Engine (another Epic Games commodity), decided that Apple would not be required to restore Fortnite, stating that Epic “strategically chose to breach its agreements with Apple”.
However, the question of whether Apple’s terms on the App Store result in anti-competitive behaviour has yet to be answered, with a final hearing due to take place on 28 September. The company has been facing heightened criticism recently over not only how it manages the App Store and its mandatory fees, but for how its guidelines are applied; a number of developers feel that it is unfair and benefits Apple.
Epic Games’ CEO Tim Sweeney has complained that mobile app stores can no longer justify the 30% commission, calling for fundamental changes in how tech giants like Apple and Google do business with third-party developers. It would seem that his grudge is not lone-standing: Spotify filed an antitrust complaint against Apple in March 2019, alleging that the App Store guidelines “purposely limit choice and stifle innovation at the expense of user experience”. Likewise, the European Commission opened two antitrust investigations into Apple in June 2020, one regarding the App Store and one regarding Apple Pay. Support for the European Commission cases has been given both by Epic Games and Match Group, indicating that Epic Games’ issue with the management of the app store is not unique.
Epic Games also alleges that the App Store terms result in damages to consumers. As developers cannot avoid the 30% fee, it will sometimes make more financial sense to provide a poorer customer experience. Moreover, the control Apple exhibits over the App Store gives the company little incentive to improve its customer service due to the lack of competition.
However, it will not necessarily be easy to elicit the fundamental changes that Epic is after. Apple holds that the commission is a fair fee for the value and service that the App Store provides – not only the logistics of distributing apps and processing transactions but also the safety and security of the approved system. The requirement that all iOS purchases go through the App Store infrastructure is not only profitable, but it also ensures that all iOS apps meet Apple’s high privacy, security and quality standards.
Epic will need to be careful in how it approaches its antitrust case, particularly in relation to how it defines “the market” it claims Apple is monopolizing. Apple does indeed account for about half of the smartphone market in the USA but holds a much lower market share globally. There are 2.5 billion active Android users in the global market, comparative to Apple’s 1.4 billion supporters. Statistics like this mean that, if Epic evidences its monopolistic claims with a broad definition of the market, it is much less likely to be able to prove the existence of a monopoly than if it adopts a narrower view of the market, encompassing just iOS mobile devices.
Another interesting variable about this case is the fact that the defendant here created the market it is accused of monopolizing. There is no legal precedent to guide the courts on this unique situation. It is fair to say that it will be closely watched as the consequences of Apple having to re-haul its entire app store ecosystem could be enormous.