The trial that begins Monday in a federal courtroom in San Francisco is extraordinary: Epic Games, one of the world’s most popular and valuable game companies, is suing Apple, the world’s most valuable company.
Epic wants Apple to make fundamental changes to its powerful Apple App Store. If this is successful, it would change how the app economy works.
A sign of how important the lawsuit is to both companies: Apple CEO Tim Cook and Epic CEO Tim Sweeney are both expected to testify during the trial. Sweeney even plans to attend the debates in person for three weeks.
But while the Epic trial is… epic, it’s more of a leading indicator for Apple than just one. Apple has been able to run its App Store on its own terms – regardless of complaints from developers big and small who created it – for over a decade. Today, a growing list of lawmakers, regulators, and businesses are trying to change that using antitrust arguments. Even if Epic doesn’t succeed, someone else might.
If that happens, it won’t just affect a $ 2 trillion business and a constellation of businesses that depend on their iPhones to get their software into your hands. It could also affect iPhone users. In theory, if Apple is forced to loosen its grip on its App Store, it could lower the prices of the apps you pay for today. Or, in Apple’s version of the story, it could make its iOS ecosystem more vulnerable to scams and malware.
The battle lines of the Epic-Apple fight were drawn last summer. That’s when Epic tried to sell virtual currency on its famous Fortnite game without going through Apple’s App Store, where it would have to pay Apple a 30% tax. Apple responded, as Epic expected, by kicking Fortnite from its App Store, and then Epic responded by filing an antitrust lawsuit.
Epic wasn’t the first developer to complain the rules that Apple has put in place around its App Store, which is the only way for developers to install their software on Apple phones. Magazine and newspaper publishers Netflix and Spotify also complained about the arrangement. Everyone says the 30 percent fee that Apple takes for each transaction – that number can drop to 15 percent in some cases – is too expensive.
There are other complaints as well, such as how Apple controls access to the personal information of subscribers and buyers, or how Apple prevents developers from telling customers that they can also pay for services outside of. the App Store ecosystem – which could save customers or developers. money.
But until Epic sued Apple last summer, no developer had directly attacked Apple. Instead, they tended to agree to Apple’s terms, or like Netflix and Spotify did, they stopped trying to sell things through Apple’s App Store.
Epic’s decision to sue appears to be driven in part by business reasons. If it didn’t have to pay Apple’s 30% tax, Epic could generate a lot more revenue from sales of its digital currency, which gamers use to buy. funny costumes and other ephemeral items. But other platforms Epic uses to distribute Fortnite, including Sony and Microsoft, are also taking 30% off microtransactions, and Epic isn’t complaining. This is why the lawsuit also appears to be motivated by Tim Sweeney’s personal belief that Apple, a company he says he used to idolize, is stifling developers’ ability to build interesting and innovative businesses.
Apple thinks you should have a choice! But not on payments. Neither stores. Nor the choice to play Fortnite. Neither a choice for developers to distribute applications directly. Apple believes these choices should be up to Apple alone.
– Tim Sweeney (@TimSweeneyEpic) April 28, 2021
Last fall, Sweeney even compared his costume to the efforts of civil rights activists in the 1960s. And when he was criticized for being overbreadth, he doubled down:
This is a good article. Hey critics, read what I said and tell me if it’s really wrong: when the rules were wrong, it was right to disobey them. It’s the comparison with the civil rights movement. pic.twitter.com/WMomQXwEjr
– Tim Sweeney (@TimSweeneyEpic) November 18, 2020
And unlike other people who complain about Apple, Sweeney has the resources to do something: Epic is very profitable software company currently valued at $ 29 billion – about $ 10 billion more than before suing Apple last summer – and Sweeney himself is worth between $ 7 billion and $ 9 billion.
None of this means Epic will win its case. Its main argument is that Apple’s control over the distribution of its iOS devices constitutes an illegal monopoly. But there isn’t a long legal history of court rulings against companies that control the market for their own brand of products.
A major exception is a 1992 ruling against Kodak, who had been sued by salespeople who repaired his photocopiers; in that case, the Supreme Court said that sellers who complained that Kodak had forced them to use parts made by Kodak or approved by Kodak to repair Kodak machines had a viable antitrust argument. The sellers eventually won their case and received damages as well as the opportunity to purchase Kodak parts at reasonable prices.
Another example Epic will likely refer to is the Justice Department’s campaign against Microsoft in the 1990s, when the software company primarily owned the PC market, but that case ended in a settlement. (Epic hired antitrust expert Christine Varney, who headed the DOJ’s antitrust division during Barack Obama’s tenure and also represented Netscape, the internet browser company, in the DOJ-Microsoft lawsuit.)
Apple’s counter-argument is quite simple: The company says it can’t be a monopoly because it doesn’t own the phone market – it shares it with Google’s Android – and because Fortnite players can play the game on devices manufactured by many other companies including Sony, Microsoft, and Nintendo. Apple also argues, more or less, that it built the Apple App Store and the iPhone, and therefore should be able to define the conditions that govern the ecosystem around them. Epic, he says, wants to run its own store, on its own terms, on Apple property.
Apple’s antitrust problems are on the rise
No matter who wins the Apple-Epic case in the first round of this battle, it’s almost certain that there will be an appeal, so whatever happens in Judge Yvonne Gonzalez Rogers’ courtroom won’t be. the end of the story.
But that’s not Apple’s only antitrust story right now, either. Spotify says its music service is at a disadvantage compared to Apple’s music service because Apple wants Spotify to pay a 30% fee on subscription revenue that it does not charge itself. Spotify has not sued Apple directly, but it has pressured lawmakers in the United States and Europe to pursue antitrust actions against Apple, and it has made progress: on Friday, the EU released a preliminary finding supporting Spotify’s argument.
In theory, an EU decision could potentially result in a fine of up to 10% of Apple’s annual revenue. But any change the EU could possibly squeeze out of Apple could be huge because its App Store is the main driver behind Apple’s growing push to sell “services” instead of just hardware. Right now, services account for nearly 20% of Apple’s revenue.
Other fees may be charged in other countries. The United Kingdom Apple investigation into similar charges, and this week the Australian Consumer and Competition Commission said Apple – along with Google – must “improve outcomes for app developers and consumers” or face additional regulation. And in the United States, where anti-Big Tech scrutiny has mostly focused on social media companies, a growing number of lawmakers have started paying attention to how Apple runs its App Store.
Earlier this month, Senator Amy Klobuchar held a hearing that focused on Apple’s control of iOS apps, and included testimony from app makers who went out of their way to support Epic in its legal case, including Spotify and Match Group, the online dating company. Klobuchar, who just published a book on monopolies in the digital age, seems determined to make Apple its biggest test case. “You could still have a prosperous Apple, but still demand more protections for consumers to facilitate competition,” she said. said Nilay Patel of The Verge earlier this month.
I’m skeptical of the general narrative of a rising ‘techlash’, especially in Washington, where Democrats and Republicans don’t seem to live on the same planet – making creating legislation that will overpower big business technological quite difficult. But various observers believe Apple and Amazon may be easier targets for lawmakers who want to slow down the technology: Both companies operate markets and sell their own products in the same markets. Forcing them to stop doing this can be a much easier task than figuring out what free speech Facebook or Twitter should allow on their platforms.
So yes: For the next three weeks, watch the Apple-Epic fight – at the very least, it’s a chance to see two tech billionaires go head to head in public. But watch out for all the other antitrust battles Apple is fighting at the same time. Collectively, there’s a good chance they can change the way Apple – and your iPhone – works.