Epic Games filed a civil antitrust suit against Apple today in the U.S. District Court for the Northern District of California after Apple removed the mobile version of Fortnite from its App Store.
Apple removed Fortnite after Epic decided to bypass the Apple store for its in-app currency purchases, a move that Apple argued violated its terms of service. Regardless of how the suit started, losing this case could have the potential to break up Apple's monopoly on iOS app distribution or at the very least force the company to change its developer monetization rules.
The scrutiny over the iOS App Store
Apple’s App Store oversaw an estimated $519 billion in sales and billings in 2019 alone, according to a study published in June 2020 by the Analysis Group. This number was great news for Apple’s investors, but the scale and exclusivity of the App Store has raised eyebrows among regulators. In late July, Apple CEO Tim Cook appeared before Congress to testify at an antitrust hearing along with the CEOs of Facebook, Google, and Amazon. Among other topics, congressional committee members focused on Apple taking 30 percent of some application’s revenue.
Apple takes 30 percent of in-app purchases for any application that operates as a “service.” These services include things like Spotify, YouTube, Fortnite, and most other major applications. With no other options for getting onto iPhones, Epic and other developers have argued that the App Store is run like a monopoly. If you want to operate on iPhones, you have to fork over a third of your app revenue.
"Apple has a monopoly in the iOS App Distribution Market," according to Epic’s lawsuit. This is because the App Store is the sole means by which apps may be distributed to consumers in that market. Apple’s anti-competitive conduct forecloses all potential competitors for entering the iOS App Distribution Market."
Epic’s specific complaint about Apple’s practices is that all payments on iOS apps must run through Apple’s payment system. "Apple is able to unlawfully condition access to the App Store on the developer’s use of a second product—In-App Purchase—for in-app sales of in-app content,” the suit reads.
The lawsuit goes on to systematically lay out the case for why Apple’s various practices violate the Sherman Act of 1890, which "prohibits activities that restrict interstate commerce and competition in the marketplace,” according to the Cornell School of Law.
Epic claims that Apple violated the Sherman Act on nine separate counts, including denial of essential facility, unlawful monopoly maintenance, and unreasonable restraints of trade.
"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." Apple said in a statement. "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."
This isn't the first time Apple has been sued by iOS app developers over its competitive practices. But Epic is by far the most powerful developer thus far to pursue antitrust litigation against them. If Epic is able to prove any of their nine counts, there are a number of major implications for Apple, Epic, and developers.
The implications of the lawsuit
The majority of antitrust suits are settled out of court, but with Epic holding so much power and money, it's possible it'll force a trial in an attempt to create fundamental change in the mobile market. A full trial with a court-rendered decision could be bad news for Apple because the court could pass a precedent that harms its entire mobile business model.
If the court finds that Apple did indeed violate the Sherman Act, the App Store could be blocked from taking 30 percent of in-app purchases, or at the very least forced to restructure how it go es about that ongoing monetization. This would apply to Fortnite and any other application or game currently on the App Store, which would represent a massive blow to Apple’s bottom line. They might even have to compete with other marketplaces on iOS.
Obviously the reason Apple functions so exclusively is because it's profitable to do so. This suit threatens to change that paradigm, which would in turn force Apple to pivot or adjust to the new norm.
For Epic Games
A win for Epic would mean that it effectively increases its profit margin on mobile Fortnite purchases from Apple phones. Millions of players use iPhones and other mobile devices to access Fortnite and its mobile store. Fortnite reached over 100 million iOS downloads within the first five months of the mobile release, so there's a significant player base on the line.
For its part, Epic seems determined to win this in court, not just settle for a sum of cash. The company released a short film titled Nineteen Eighty-Fortnite to hype up its lawsuit against Apple, using the hashtag #FreeFortnite.
If Epic loses the lawsuit, it'll face a crossroads to either capitulate and pay Apple the disputed sum of money or abandon its massive iOS player base. In a world where the court rules against Epic and there's no settlement, Epic is likely to partner with Apple to figure out a solution to this disagreement.
For game developers
It’s tricky to say what the end result of a suit like this could be for developers. Obviously, if Epic loses, the status quo will likely continue with no change for developers.
If the court finds Apple liable on all fronts, Apple would be forced to change its current App Store policies, which would fundamentally alter the mobile gaming landscape for developers. Depending on the specifics of the decision, Apple may even be forced to work with other app marketplaces on iOS.
More competition between app marketplaces would be a win for developers since they'd have more choices about where and how they publish their work. Further, the developers who do want to publish on the App Store will reap the same benefits as Epic, possibly not having to share ongoing revenue with Apple.