Apple, Fortnite, and the Apple App Store: What’s at stake in the antitrust court case

Apple, Fortnite, and the Apple App Store: What’s at stake in the antitrust court case

2021-05-01 11:00:00

The trial, which will begin 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, & # 39; the world's most valuable company.

Epic wants Apple to make fundamental changes to its powerful Apple App Store. If it succeeds, it will change the way the app economy works.

A sign of the importance of the trial for both companies: Apple CEO Tim Cook and Epic CEO Tim Sweeney will both testify during the trial. In fact, Sweeney plans to attend the procedure in person for three weeks.

But even though the Epic trial is … epic, it's more of a leading indicator for Apple than a one-off. Apple has been able to run its app store by its own rules – no matter how much grumbling from developers big and small – for more than a decade. Now a growing list of lawmakers, regulators and companies is trying to change that with the help of antitrust arguments. Even if Epic doesn't pass, someone else can.

When that happens, it won't just affect a $ 2 trillion company and a slew of businesses that depend on their iPhone to get their software into your hands. It can also affect iPhone users. In theory, if Apple is forced to lower its grip on its app store, Apple could lower prices for the apps you're paying 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. Then Epic tried to sell virtual currency on its popular Fortnite game without visiting Apple's app store, where it would have to pay a 30 percent tax to Apple. Apple responded, as Epic expected, by kicking Fortnite out of its app store, and then Epic responded by filing an antitrust lawsuit.

Epic wasn't the first developer to complain about it the rules set by Apple around the app store, the only way developers can get their software on Apple's phones. Magazine and newspaper publishers, Netflix and Spotify have also complained about the scheme. They all say that the 30 percent fee Apple charges on each transaction – that number can drop to 15 percent in some cases – is too expensive.

There are other complaints as well, such as Apple's way of controlling access to subscribers 'and buyers' personal data or Apple's way of preventing developers from telling customers they can also pay for services outside of the app store ecosystem – which means customers or developers could save money.

But until Epic sued Apple last summer, no developer had directly addressed Apple. Instead, they were inclined to agree to Apple's terms, or as Netflix and Spotify did, they stopped selling things through the Apple App Store.

Epic's decision to press charges appears to have been motivated in part for business reasons. If it didn't have to pay Apple's 30 percent tax, Epic could generate a lot more revenue from the sale of its digital currency, which players use to buy funny costumes and other ephemera. But other platforms that Epic uses to distribute Fortnite, including Sony and Microsoft, are also taking a 30 percent discount on microtransactions, and Epic isn't complaining about that. Hence, the suit also appears to be driven by Tim Sweeney & # 39; s personal belief that Apple, a company he says he idolized, is stifling developers' ability to build interesting and innovative businesses.

Last fall, Sweeney even compared his suit to the efforts of civil rights activists in the 1960s. And when criticized for that reach, doubled:

And unlike some other people who complain about Apple, Sweeney has the resources to do something about it: Epic is a very profitable software company currently estimated at $ 29 billion – about $ 10 billion more than before he sued Apple last summer – and Sweeney himself is estimated to be worth $ 7 billion to $ 9 billion.

That doesn't mean Epic will win its case. The 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 courts ruling against companies controlling the market for their own product brand.

An important exception is one 1992 judgment against Kodak, who had been sued by salespeople who repaired the copiers; In that case, the Supreme Court said sellers complaining that Kodak was forcing them to use Kodak-made or Kodak-approved parts to repair Kodak machines had a good antitrust argument. The sellers eventually won their case and received damages plus the opportunity to purchase Kodak parts at reasonable prices.

Another example that Epic will likely refer to is the Justice Department campaign against Microsoft in the 1990s, when the software company essentially owned the PC market, but that case ended in a settlement. (Epic has hired antitrust expert Christine Varney, who headed the DOJ's antitrust arm during Barack Obama's tenure and also represented Netscape, the Internet browser company, during the DOJ-Microsoft lawsuit.)

Apple's counter-argument is pretty straightforward: 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 powered by many other companies were created, including Sony, Microsoft and Nintendo. Apple also more or less claims that it built the Apple App Store and the iPhone and thus should be able to set the conditions that govern the ecosystem around them. Epic, it says, wants to run its own store, on its own terms, on Apple's property.

Apple's antitrust problems are growing

Regardless of who wins the Apple-Epic case in the first round of this fight, there is almost certainly an appeal, so whatever happens in Judge Yvonne Gonzalez Rogers' courtroom won't be the end of the story.

But it's not Apple's only antitrust story right now, either. Spotify says its music service is at a disadvantage over Apple's music service because Apple wants Spotify to pay 30 percent in subscription revenue that it doesn't charge itself. Spotify hasn't directly sued Apple, but it has pressured lawmakers in the United States and Europe to take antitrust action against Apple, and it has made progress: On Friday, the EU released a preliminary finding supporting Spotify's argument.

In theory, an EU ruling could ultimately lead to a fine of up to 10 percent of Apple's annual sales. But all the changes that the EU is ultimately pulling out of Apple could be huge, as the app store is the main driver for Apple's growing drive to "services". instead of just hardware. Today, services account for nearly 20 percent of Apple's revenue.

Other charges may come in other countries. The United Kingdom Apple is investigating over similar allegations, and this week Australia's Competition and Consumer Commission said Apple – as well as Google – "must improve results for app developers and consumers" or face additional regulations. And in the US, where anti-Big Tech scrutiny has focused on social media companies, a growing number of lawmakers are starting to pay attention to how Apple runs its app store.

Earlier this month, Senator Amy Klobuchar held a hearing that focused primarily on Apple's control over iOS apps, and included testimonials from app makers who did their best to support Epic in its lawsuit, including Spotify and Match Group. the online dating company. Klobuchar, which has just been published a book about monopolies from the digital age, looks set to make Apple its biggest test case. “You could still have a successful Apple, but still demand more consumer protection to make it easier for people to compete,” she says Nilay Patel told The Verge earlier this month.

I am skeptical of the general story of an emerging & # 39; techlash & # 39; especially in Washington where Democrats and Republicans don't seem to live on the same planet – which makes creating legislation that will keep big tech companies in check quite challenging . But a variety of observers think Apple and Amazon may be easier targets for lawmakers looking to slow down technology: Both companies run marketplaces and sell their own products in the same marketplaces. Forcing them to stop can be a much easier task than determining how much free speech Facebook or Twitter should allow on their platforms.

So yeah: watch the Apple Epic fight over the next three weeks – it's at least an opportunity to see two tech billionaires battle it out in public. But watch out for any other anti-trust battle Apple is engaged in at the same time. Collectively, chances are they can change the way Apple – and your iPhone – works.


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