Epic Games and Apple began to square off on Monday in an Oakland, California, courtroom in a legal battle that will have major ramifications on the tech world — and could take a bite out of the $64 billion that Apple earned from App Store purchases last year.
At the heart of the case is Apple’s practice of collecting up to 30% of sales from apps using its App Store. Epic, the company behind “Fortnite” and several other popular games, has scoffed at Apple’s cut and argued that the tech giant has abused its monopoly status to extort app developers. (The genesis of Epic’s began last year, when the company looked to circumvent Apple’s payment system by selling “Fortnite” digital currency directly to fans; Apple responded by pulling “Fornite” from its App Store altogether.)
Here’s a quick look at where the two sides stand and what the fallout could be following a trial that is expected to last three weeks.
- Epic Says Apple has a monopoly
The game maker, led by CEO Tim Sweeney, is arguing that Apple’s slice of App Store revenue is too high, based on antitrust grounds. According to Epic, Apple holds a monopoly by controling access (and the payment system) to more than 1 billion iPhones. Apple’s dominance of the mobile phone market, together with Android, allows it to take a 30% cut of App Store sales from app developers that bring in more than $1 million per year.
Apple is able to do that, Epic has argued, because it controls the App Store — the only market for iPhone users to acquire apps. If there were more options for Apple customers to download apps, Apple would likely be forced to reduce its 30% fee because of market competition. But because Apple has a stranglehold over app distribution on its iPhones, that’s not the case — and it’s harming customers and developers, according to Epic.
2. Apple’s counter-argument: It’s all kosher
Apple is going to argue that it isn’t a monopoly because there are, in fact, alternatives for app developers and customers. Apple will point to Google Play, Android’s version of the App Store, and other providers, like Sony’s Playstation, and say they offer competitive App Store alternatives.
On top of that, Apple will argue it’s perfectly kosher for it to charge a 30% fee because it put the time and resources into developing the App Store in the first place. And because of that, it’s able to determine what its platform is worth to app developers. If they don’t like it, they don’t have to be on Apple devices.
3. An Apple lost could be costly — and put it on the antitrust hot seat
An Epic win would have an epic impact on the tech world. Apple would have to give app developers and customers more ways to access apps than strictly through the App Store. With more competition, Apple would likely be forced to reduce its share of App Store purchases.
That’s a big deal for Apple, considering that the company’s Services business — which includes all App Store sales — brought in $16.9 billion during the company’s most recent quarter. That was up 27% from the same time last year and was bolstered, in large part, by more people spending time on their phones during the pandemic. More App Store competition could easily turn into a multi-billion-dollar hole in Apple’s quarterly sales.
An Epic victory could also turn up the regulatory heat on Apple. The company already faces new antitrust charges brought on by the European Union last week, claiming it exploited music streaming apps by forcing them to use its payment system within the App Store. Apple is also facing more antitrust scrutiny here in the U.S., where companies like Facebook and Google are already facing cases brought on by the government. Epic’s case could be used to solidify antitrust cases both domestic and abroad.
This case is also important for Google, considering Epic has filed a similar lawsuit against its parent company, Alphabet, over its handling of its own app store. That case doesn’t have a set trial date, but odds are Google CEO Sundar Pichai is keeping a close eye on this case. A win for Apple is essentially a win for Google.
4. Experts are divided on who will win
Even for antitrust scholars, this case is a tough one to predict.
John Lopatka, an antitrust scholar at Penn State University, told TheWrap that Apple has a slight edge in this case, but that it’s anything but a slam dunk. As with all antitrust cases, Lopatka said it’s not just about proving whether a company is a monopoly — Epic must also show Apple used its monopoly status to block competition.
“The challenge for antitrust in a situation like this is, well, has Apple done something that has stifled competition?” he said.
From Epic’s standpoint, Lopatka said, the answer is, yes, because Apple has given developers only one option for discovering and buying iPhone apps. Epic believes that unfair advantage has allowed Apple to charge its excessive 30% cut.
“You could look at that 30% [fee] and say that’s too much for what you do, you shouldn’t charge more than 20%,” Lopatka explained. “But our system is based upon private actors setting those prices, so we don’t have any real justification for saying 30% is too high. So what antitrust does is say, “Well, if we had competition, you wouldn’t be charging 30%, you’d be charging 20%.”
For Epic, the case will boil down to convincing federal judge Yvonne Gonzalez Rogers that Apple’s command of the App Store and its payment system violates antitrust law. (This is not a jury trial.) We’ll find out if they’re successful within the next few weeks.
