Epic will put Apple’s business under a microscope
In August 2020, mega-publisher Epic Games decided to stop paying what’s dubbed the “Apple tax”: a 30 percent fee on digital purchases made through the iOS App Store. The company added a new feature to its blockbuster game Fortnite, letting users bypass the App Store’s payment system to purchase V-Bucks, Fortnite’s in-game currency. The move violated Apple’s guidelines, and Apple promptly kicked Fortnite off the App Store. Epic sued Apple for antitrust violations, and on Monday, the case will finally go to court.
Epic has a clear grievance against Apple: it’s locked out of the company’s billion-plus iPhoneand iPad user base. But US antitrust law focuses on whether a company has hurt consumersby suppressing competition. So over the next three weeks, Apple and Epic will lay out sharply conflicting stories about how a locked-down App Store affects users. Unlike a lot of tech trial arguments, which focus on abstract hypotheticals and metaphors, these are vivid narratives about some of the most central products in our lives — and they play into one of the most important debates in US politics.
In Epic’s telling, Apple is a “uniquely powerful” company that exerts “unique control” over iOS devices. Apple routes all downloads and purchases through the App Store for financial gain, exercising little oversight over the actual quality of apps — contradicting a public commitment to privacy and security. It leverages its power in one market (the overall iOS ecosystem) to dominate another (app distribution and payments). That’s created less competition to deliver better service at cheaper rates, so users get stuck paying more and miss out on innovative new services.
From the other half of the courtroom, Apple claims Epic is threatening what users love about iOS. Creating a single well-vetted app portal produces a “safe, convenient experience” on a device that stores reams of highly personal information, distinguishing the iPhone from competing platforms. Features that limit app distribution were “conscious, reasonable decisions,” Apple says — not attempts to shut down competition. Far from having consumers’ best interests at heart, Epic would simply force Apple to spend money shoring up new privacy and security holes.
Epic is losing out on a significant market with its iOS suspension. Court documents say it earned $700 million over its two years in the App Store, even if PlayStation and Xbox consoles were far bigger moneymakers. Apple plans to argue that iPhone and iPad owners have access to other Fortnite-supporting devices, but Epic counters that most people choose only one platform to play on, so a stymied iOS user won’t necessarily pick up Fortnite elsewhere.
The main impact of the trial, though, won’t be getting one game back on the App Store. A big enough loss for Apple could make the company basically rewrite iOS. “Apple has a lot more at stake here than Epic does, though Apple has the stronger hand,” says Christopher Krohn, adjunct associate marketing professor at the University of Chicago Booth School of Business. Krohn notes that early in the case, Epic worried that Apple might cut off its App Store access altogether, threatening Epic’s ubiquitous Unreal Engine. But Judge Yvonne Gonzalez Rogers blocked that move. Meanwhile, in Apple’s worst-case scenario, the bench could decide that Apple can’t require all iOS developers to use the App Store — striking at a fundamental tenet of the platform.
The bench could also conclude that Apple can maintain App Store exclusivity, but it can’t make developers use its in-app purchase system. While that would be less disruptive, it’s still a big deal. In-app purchases — including subscriptions to countless non-gaming services like Spotify — are a huge part of Apple’s business. Apple cut its 30 percent App Store commission to 15 percent for smaller developers, but according to one outside estimate, those developers accounted for a tiny share of its revenue. Losing money from big players would make the App Store a lot less profitable for Apple, and it’s a strong incentive for the company to push back against third-party subscription-based services — which, right now, dominate much of the app ecosystem.
Epic is facing an uphill battle. US antitrust enforcement has languished over the past decade, in part because the consumer harm standard is slippery in a world where so many services are free. Sen. Amy Klobuchar (D-MN), one of Congress’ biggest proponents of antitrust reform, called private antitrust suits “very hard to win” in a recent interview. “This is not straightforward, but Apple probably has an advantage,” concludes Michael Cusumano, deputy dean of the MIT Sloan School of Management. And whoever wins the case, the loser will almost certainly appeal, which could delay any concrete results from the trial.
That said, the trial is just one part of a larger antitrust push against Apple, and even if the company wins in court, the trial could prove to be a political turning point in the fight to unwind the app store. Over the next three weeks, Apple executives — including CEO Tim Cook — will be grilled for hours on the company’s history and business practices, including the minutiae of how apps are reviewed and how secure the iPhone is. Any unflattering comments, like one deposition’s claim that App Review employees were “bringing a plastic butter knife to a gun fight,” could provide fodder for lawmakers and watchdog agencies. The trial also gives a fresh soapbox to disgruntled iOS developers like Match Group, which sent a witness to Congress last week and is scheduled to testify in the upcoming trial as well.
Epic court documents also raise issues that are tangential to its complaint but pivotal to the larger antitrust debate. That includes Apple’s strategy of vertical integration — a system where it builds incredibly popular devices like the iPhone, then directly competes with the companies making apps and accessories for them.
The European Union has already taken aim at Apple’s App Store practices. Last night, the EU issued antitrust charges over the exact issue that sparked the Epic trial: Apple requiring developers to use its in-app purchasing system. That case is limited specifically to music streaming services like Spotify, but it could expand to ebooks and other digital purchases. “This is not the last case we will have when it comes to the App Store,” warned European Commissioner Margrethe Vestager this morning.
If Epic’s case fails, US lawmakers could use it to argue that the law itself is broken. Klobuchar has singled out the Apple tax as an example of anti-competitive behaviour run amok, calling for new standards that would apply not only to tech but the entire corporate world. Compared to a court blowing up the iOS ecosystem, that’s still a win for Apple — but it means Epic’s lawsuit could leave a mark well beyond the verdict.
All Rights Reserved for Adi Robertson