Story update: Initial action has been taken by the U.S. District Court of Northern California, since this story was originally written. An update appears below.*
Epic Games is suing Apple for antitrust behavior which includes banning its popular game Fortnite from the App Store. According to the 65-page complaint filed on behalf of Epic Games in the U.S. District Court of Northern California, Apple imposes “anti-competitive restraints and monopolistic practices,” violating the Sherman Antitrust Act. This behavior includes imposing “an oppressive 30% tax” on the sale of each app sold and on in-app purchases, and by requiring that app-related payments are processed through the App Store, rather than through third parties which may help developers avoid the so-called Apple tax.
Fortnite uses freemium model
The popular Fortnite is a mobile gaming app that utilizes the freemium model. It is free to download the app, but users can purchase virtual currency within the app to enhance their experience. Apple gets a cut of those in-app purchases. Recode reports that Epic Games offered a workaround to Fortnite players by letting them purchase the virtual currency directly from their website at a discount. When they did, Apple banned Fortnite from the App Store, saying that Epic Games had violated its terms of service.
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“Allow fair competition”
Epic Games explains their intent for the lawsuit in item 6 of the complaint.
“Epic brings this suit to end Apple’s unfair and anti-competitive actions that Apple undertakes to unlawfully maintain its monopoly in two distinct, multibillion dollar markets: (i) the iOS App Distribution Market, and (ii) the iOS In-App Payment Process Market…Epic is not seeking monetary compensation from this Court for the injuries it has suffered. Nor is Epic seeking favorable treatment for itself, a single company. Instead, Epic is seeking injunctive relief to allow fair competition in these two key markets that directly affect hundreds of millions of consumers and tens of thousands, if not more, of third-party app developers,” the complaint says.
In section 13, Epic Games further elaborates.
“Apple’s anti-competitive conduct in these markets is unchecked; Apple faces little, if any, constraint on its monopoly power in both the iOS App Distribution and iOS In-App Payment Processing Markets, as Apple has foreclosed all direct competition in these markets. And Apple stands as the sole middleman between a vast and dispersed group of iOS users, and a vast and dispersed group of app developers, each with little power individually to constrain Apple,” reads the complaint.
Epic Games alleges that Apple is imposing unreasonable restraints and holds a monopoly on any app made for the 1 billion iOS users. If a developer wants to reach iOS users, they are beholden to Apple, giving up 30% of their purchase price to Apple, retaining only 70% for themselves. In many cases, developers artificially inflate their prices to compensate for this “tax.” (Editor’s note: In 2016, Apple changed its revenue structure to continue the 30% commission in the first year, but it drops to 15% in subsequent years.)
The Wall Street Journal reports that Fortnite has been downloaded on more than 130 million Apple devices since 2018, generating $1.2 billion. Epic Games is fighting back to protect their company as well as other developers who are tired of Apple’s heavy-handed ways. The #FreeFortnite campaign shows how serious Epic Games is.
Apple refutes claims
Apple refutes Epic Games’s claims and said they won’t make an exception for one company, says The Verge. Here is Apple’s statement on the issue:
“The App Store is designed to be a safe and trusted place for users and a great business opportunity for all developers. Epic has been one of the most successful developers on the App Store, growing into a multibillion dollar business that reaches millions of iOS customers around the world. We very much want to keep the company as part of the Apple Developer Program and their apps on the Store. The problem Epic has created for itself is one that can easily be remedied if they submit an update of their app that reverts it to comply with the guidelines they agreed to and which apply to all developers. 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,” Apple says.
Epic Games is not alone
A similar situation occurred with Spotify. In March 2019, Sweden-based Spotify filed an antitrust complaint against Apple with EU regulators for anti-competitive behavior. Spotify tried to resolve the issue with Apple without success. Spotify alleged that Apple’s 30% commission was unreasonable. Also, when Spotify offered an alternate payment option for subscribers, Apple stopped Spotify from communicating with its customers, and it blocked service upgrades. The European Commission announced in June that it will investigate Apple for potential antitrust violations, says Recode.
*Story update: 8/25/20, 11:46 a.m. EDT
In a late night decision yesterday, Judge Yvonne Gonzalez Rogers decided that Apple is not required to allow Epic Games’s Fortnite back into the App Store, because Epic Games violated terms of service, reports The Verge. However, the court ruled that Apple must allow Unreal Engine, Epic Games’s graphics software, to be accessible to game developers. Essentially, Apple can’t hold Unreal Engine hostage while they duke it out with Epic Games.
“Epic Games and Apple are at liberty to litigate against each other, but their disputes should not create havoc to bystanders,” wrote Judge Rogers.
This is just one example of why Amazon, Apple, Facebook, Google and Twitter were called to testify before the House Judiciary Antitrust Subcommittee in July. There have been countless accusations against these companies for anti-competitive behavior with a big focus on Apple and Google. Apple and Google have also been the subject of similar complaints in Europe. At some point, things will come to a head and some sort of compromise will need to be reached to keep developers and those to whom they are beholden happy. We don’t know what that looks like, or how it might happen, but it seems likely the federal government will need to be involved to force change.