Epic Games v. Apple: The high-stakes battle that could change the iPhone and App Store forever
Video game publisher Epic Games goes to battle with Apple today over the iPhone maker's decision to remove Fortnite from its App Store. If Epic wins, Apple might be forced to change its iOS software and business practices that some developers say have made the App Store a de facto monopoly.
The court fight, which is overseen by U.S. District Judge Yvonne Gonzalez Rogers, is expected to play out over three weeks and feature testimony from Apple CEO Tim Cook, Epic head Tim Sweeney and other high-ranking executives at the two companies. This is Apple's first significant legal challenge since 1989, when Xerox sued the firm for violating copyright related to the Apple Lisa and Macintosh computers. Apple largely won that fight, but today's stakes are even bigger. Its App Store, which works seamlessly with the iPhone and Apple's iOS hardware, is a $100 billion market. Depending on the outcome, the case could dent Apple's brand and give competing app stores access to the iPhone market.
The conflict now in play in court kicked off last summer when Epic, creators of the popular game Fortnite, implemented a direct payment mechanism in the iPhone version of the game that bypassed the 30% commission fee Apple collects for in-app purchases made within apps purchased on its App Store.
Apple responded to the alternative payment option by booting Fortnite from the App Store for violating store rules. Epic responded instantly with a lawsuit in which it claimed "Apple's removal of Fortnite is yet another example of Apple flexing its enormous power" to maintain a monopoly.
Epic says the case isn't about profit — the hit game made about $700 million in the two years it was sold on the iOS store before being yanked by Apple.
Apple's "walled garden"
The video game publisher argues that the iPhone platform is a unique market that Apple unfairly controls because it owns the App Store, the iOS software and the iPhone. This platform structure gives Apple an edge, according to Epic, because consumers are required to use the iPhone payment processing system, which prevents developers from collecting payment directly. Developers in turn have no choice but to use Apple's in-app payment system and agree to the App Store's fee structure, the company argues. Epic says this fee structure costs consumers more money in the long run.
Epic contrasts the Apple iPhone's closed ecosystem with the fully open ecosystems of PC platforms, as well as Apple's Mac computer, both of which allow software to be installed from a variety of sources and neither of which restricts how consumers pay developers and e-commerce companies.
In addition to the lawsuit, Epic launched a massive PR campaign, including a #FreeFortnite hashtag and video mocking Apple's famous "1984" commercial depicting a revolt against the tyranny of the PC. Epic also helped create the Coalition for App Fairness, an industry advocacy organization with nearly 50 members — including Spotify, Tile, ProtonMail and Basecamp — that make similar arguments about the App Store and Apple's power.
"When you become a monopolist the normal rules don't apply anymore," said Basecamp's David Heinemeier Hansson in an interview with CBS News. "Apple has such control and such dominance that it's no longer [a free market]. No one can go to Apple and try to negotiate different terms with them because Apple simply has all the power."
Can developers go elsewhere?
Apple's counterargument is that developers are not required to publish products though the App Store, and can distribute software and games on a variety of competing platforms, including Google's Android operating system, Nintendo's eShop, Sony's PlayStation market and Epic's Game Store, which runs on macOS and Windows.
Apple also says that its 30% commission for in-app purchases is the same rate charged by the company's competitors, and small developers that generate less than $1 million per year pay only a 15% commission. Apple says that all developers can also run web apps on iOS, and charge customers without a fee using browsers that run on the iPhone.
Cook recently told the Toronto Star that permitting third-party app stores on the iPhone would threaten iOS security and shake consumer confidence in Apple by turning the App Store into a "flea market."
"At the heart of the Epic complaint is they'd like developers to each put in their own payment information. But that would make the App Store a flea market and you know the confidence level you have at the flea market," Cook stated.