By Shannon Liao, Reed Albergotti, Mikhail Klimentov
The tech battle between Apple and "Fortnite"-maker Epic Games has headed to court. On May 3, a judge began hearing arguments over whether Apple is running a monopoly in its App Store and whether it should be allowed to take a 30 percent cut of revenue from buys made using its in-app purchase system. The case could change the way we use our smartphones.
Q: When and where is the trial taking place?
A: The trial started May 3 and is in its third week. It's estimated to end Monday or Tuesday. U.S. District Judge Yvonne Gonzalez Rogers is overseeing the case. It's being held in federal court in Oakland, just across the bay from San Francisco.
The general public can listen to the trial via teleconference. Details on how to listen in have been posted on the court's website. Evidence entered into the trial is viewable at this Box link, although some files were uploaded and then deleted after companies such as Sony filed confidentiality requests: http://tinyurl.com/epicvapple
The trial starts every day at 11 a.m. Eastern/8 a.m. Pacific.
Q: Wait. What is Epic? What is 'Fortnite'?
A: Epic Games is the company behind "Fortnite," one of the most popular contemporary video games. "Fortnite" is a battle royal, which means the objective is to be the last player or team standing. At the beginning of a round, 100 players are dropped into a big cartoonish world and tasked with picking up materials, items and weapons that will help them outlast their opponents. The game is free to play - a big factor in its popularity - and makes the bulk of its money through players paying for an in-game currency to buy cosmetics. The game also often hosts showy high-profile events, including a Marvel tie-in around the Avengers series and a Travis Scott "concert."
Epic isn't just a game developer, though. A core part of its business is developing and licensing the Unreal Engine, a 3D development software used in numerous video games, as well as TV and film - most notably in the Disney Plus series "The Mandalorian." The company also has been on an acquisition spree, purchasing game developers in an effort to bolster Epic's offerings in its eponymous Games Store, a free piece of software that serves as a digital storefront for games and other apps.
Q: What happened with Apple and its App store?
A: Apple's App Store is the only way to install software on Apple's mobile operating system, called iOS. Developers who make software for iOS must follow Apple's rules and use its payment system, which charges a commission on every sale.
In August 2020, Epic Games updated the "Fortnite" iPhone app to offer gamers the ability to pay Epic directly, bypassing Apple's payment processing system and its 30% commission. Apple responded by removing "Fortnite" from the App Store. Apple also cut off Epic's access to its Mac and iOS developer accounts, endangering the company's work on Unreal; a judge later ordered Apple to restore Epic's access.
Epic was prepared. It had a public-relations campaign calling for Apple to #FreeFortnite and posted a video that parodied Apple's "1984" Big Brother advertisement. Its legal complaint was 60 pages long. Epic's legal team includes Christine Varney, who represented Netscape in its antitrust suit against Microsoft more than two decades ago and served as U.S. assistant attorney general of the antitrust division under the Obama administration.
Amid a global pandemic, there have been Zoom hearings, rulings and lots of document discovery, with a few bombshells. Epic found emails in which Apple executives discuss the decision to keep iMessage, Apple's messaging service, exclusively on iPhones. It was notable because Epic is making the case that Apple is making it hard to switch mobile operating systems, which is part of its case about Apple dominating the market. Another internal email showed Apple executives discussing the difficulty Apple has in detecting fraud on the App Store. One executive compared Apple's ability to stop sophisticated fraudsters to "bringing a plastic butter knife to a gunfight," in an email revealed in court documents.
Q: How will the case be decided?
A: Both sides agreed to a "bench trial," which means there won't be a jury. Instead, the case will be decided by Gonzalez Rogers. We have few early hints about which way Gonzalez Rogers is leaning; she's made it clear she doesn't view Epic as a particularly sympathetic victim. Gonzalez Rogers admonished Epic for its tactics ahead of the lawsuit: Epic says it knew it was violating Apple's rules, but Epic has argued in court that they amount to an illegal contract. Epic was, in essence, baiting Apple into kicking it off the App Store.
But the case isn't about Epic. It's about Apple's App Store business model and whether it's legal.
On Monday, both sides will present their best arguments, debate style, in a practice that's been nicknamed "hot-tubbing." Gonzalez Rogers requested this format as it's what she does in her patent cases she's overseen, and she's remarked that the Epic and Apple expert testimonies haven't been helpful when experts from both sides argue past each other's points. In a debate-style setting, both sides will need to address each other's points head-on. Gonzalez Rogers has also said she will need a few weeks to reach a decision, so it's likely we won't get a verdict by Monday.
Q: What are the legal questions in the case?
A: The case comes down to how Gonzalez Rogers interprets existing antitrust laws. This lawsuit comes amid an atmosphere of change in which the public, lawmakers and smaller competitors have pushed to rein in the power of large technology companies.
The case will rest in large part on two big debates. First, does Apple run a monopoly? If you look at the U.S. smartphone market, it's a duopoly of Apple and Google. About half of U.S. smartphones are iPhones and the other half run Google's Android operating system. But Epic argues that the "market" in this case should be defined as iOS, Apple's mobile operating system.
But Apple says the market is even broader than smartphones. "Fortnite" can be played on PCs and gaming consoles such as Nintendo and PlayStation, as well as on phones running Android. In fact, Google's Play Store has similar rules about its proprietary payment system to Apple. Google also removed "Fortnite" from the Play Store after finding Epic had violated its guidelines by announcing a way to buy in-game currency without going through Google's proprietary payment system. Epic then also sued Google. The difference is that the Play Store isn't the only way to install software on Android phones.
If Epic can prove Apple is, in fact, a monopoly, it then needs to prove Apple is abusing its monopoly power in violation of antitrust laws. Epic's key argument is that Apple forces all app developers to use the App Store to distribute software and forces them to use Apple's payment processing system. U.S. law prohibits monopolies from tying one product or service to the sale of another - in this case, Epic argues, the App Store and the payment system. Apple says its App Store and its payment processing service are part of a single product. Therefore, it can't be guilty of "tying" two products together.
As Gonzalez Rogers put it on Friday, "Of course, they [Apple] have a monopoly" if we define the market as the App Store. "So that doesn't need much argument. The question is whether I accept that argument or not," she said. There isn't much legal precedent for defining a market as an entire brand; the 1992 Kodak case where it was ruled that Kodak ran its own monopoly is the exception. For Gonzalez Rogers to rule in favor of Epic, that would make this case a rare exception and not the rule, she said.
Q: Who will be testifying?
A: Several expert witnesses have testified on each side. Big-name executives have also taken the stand. Epic founder and CEO Tim Sweeney was first up, and Apple CEO Tim Cook, one of the most recognizable names in the financial world, launched into testimony on Friday.
Die-hard Apple fans will also recognize such names as Apple fellow Phil Schiller, Senior Vice President of Software Engineering Craig Federighi and Senior Vice President of Internet Software Eddy Cue. Third parties were also invited on, including Xbox Vice President of Business Development Lori Wright, who testified for Epic but was protested by Apple in subsequent filings, which requested the court throw out her testimony.
Q: What's at stake here?
A: Apple could be forced to give app developers and consumers a choice between using the App Store for software distribution and payments and alternative methods. Apple stands to lose significant revenue if it loses at trial.
But even if Apple wins, the case could foreshadow other major changes for Apple. Since the Epic v. Apple trial began, various developers have spoken up on social media and to journalists about their grievances with Apple and its laborious App Review process. Lawmakers at the state and federal level are discussing new legislation to strengthen antitrust laws and enforcement. The Justice Department could bring its own lawsuit and use evidence and testimony from the Epic lawsuit. On an international scale, Epic has filed a complaint against Apple in Europe, and a complaint against Google in Australia.
Q: How will the trial affect smartphone users?
A: Right now, when you buy an iPhone, Apple allows you to download software from only one place: the Apple App Store. When you make a purchase in an app, it goes through Apple's payment system and Apple pockets its standard revenue commission.
Things are much different on traditional computers. On a Mac or Windows computer, there are many different ways to download software. The makers of the software can sell it to you using any payment system they choose.
Epic and other critics of Apple and Google's restrictive operating systems say smartphones should be more like traditional computers - and the underlying tech is functionally the same to begin with. One potential outcome of the trial is that the judge orders Apple to open its operating system to allow alternative methods of software distribution and payments. This would give consumers more freedom, but it would also create more opportunities for developers to experiment with new distribution methods and business models, and that could lead to new, more innovative products.
Q: How will this affect gamers?
A: Gamers who downloaded "Fortnite" on iOS or Android before Apple and Google removed the app from their stores haven't been able to receive updates to the game since last August. They can still play with each other, but have not been able to play with users on other platforms such as PlayStation or Xbox.
Epic says Apple's removal of "Fortnite" keeps millions of people from being able to play, and other console platforms aren't the same as Apple's devices (you can't take your PlayStation onto the bus, for example). Apple has brought up how Nintendo's Switch is light and portable, like a smartphone. Epic has also alleged that Apple makes it intentionally difficult to switch to a different mobile device, so iPhone players can't easily swap to, say, an Android phone.
Depending on how the judge rules on this trial, "Fortnite" could either make its return to iOS and Android or continue to remain off the platforms.
There are also smaller, subtle changes across the industry.
Roblox has been name-dropped in court and brought up by Epic counsel as an example of a game containing multiple games that Apple allows on its App Store, while Apple doesn't allow the same of apps like Facebook Gaming or GameClub. Apple has explained that Roblox is allowed to do this because it doesn't view Roblox as a game. Following the many times Roblox has been mentioned in court, the company has since removed language on its site describing Roblox as a game and now calls it an "experience."
The Washington Post