Battle Royale: What are the legal arguments of Apple and Epic Games?
Where are we up to in the legal battle? And where do we go from here?
Epic Games’ antitrust lawsuit against Apple is now fully up and running. If you didn’t already know, Fortnite was banned from the App Store a few weeks ago, after Epic Games enabled a new way to make payments that breach App Store guidelines. A satirical video and some rhetoric later, Fortnite was banned from the App Store (and Google’s Play Store), and Epic had filed a massive antitrust lawsuit against Apple.
In the first round of fighting over a temporary restraining order (TRO), a judge handed down what amounts to a split decision. Epic Games asked that Fortnite be immediately reinstated to the App Store and that Apple be prevented from retaliating by cutting off apple’s developer accounts, including the one it uses to look after the Unreal Engine. The judge granted the latter but said Apple was right to ban Fortnite and that any harm Epic incurred as a result was self-inflicted.
The case will now call again on September 28 to decide a request for a preliminary injunction. More permanent than a TRO, but less permanent than a permanent injunction, the preliminary injunction will decide the status quo whilst the case is fought. As with the TRO, two questions are at stake. Should Fortnite be allowed back on the App Store? And, should Apple be precluded from terminating Epic Games’ developer accounts on iOS. The preliminary injunction will be needed by Epic to prevent Apple from taking further action because the TRO only prevents it from doing so for a short time.
So, to reiterate, the two matters at stake are:
- Should Fortnite be returned to the App Store whilst the case is fought?
- Should Apple be prevented from retaliating against Epic’s developer accounts?
As noted by smartphone litigation expert Florian Mueller at FOSS Patents, Epic is “going for broke.” Epic is essentially seeking to argue that the motion above should be granted almost entirely because it is going to win the case. A bit like throwing a Hail Mary on your first offensive play of the game, Epic is shying away from some of its earlier arguments that stated it would suffer “irreparable harm” if Fortnite remains banned. In the earlier TRO hearing, the judge was not at all interested in the argument that a ban on Fortnite would damage Epic Games because the problem was self-inflicted.
So, in a bid to get Fortnite back on the App Store, and to defend its iOS developer accounts. Epic’s primary argument is that it is “highly likely to succeed on the merits of its antitrust claims.” So what are those claims?
1. Apple has a monopoly on the iOS App Distribution Market – Epic claims that the iOS App Distribution Market constitutes a product market and that because Apple only allows iOS apps to be distributed one way, through the App Store, Apple has a monopoly on this market. Epic says that Apple’s market power and control over iOS give it “special access to its consumers”, enabling it to ensure its consumers have no other choice where they download their apps. Epic also says that consumers face significant switching costs if they want to leave the iOS ecosystem, further tightening its grip.
2. Apple unlawfully maintains a monopoly over iOS app distribution – Epic further claims that Apple’s restrictions which prevent users from downloading apps and app stores from anywhere except the iOS App Store represent unlawful maintenance of power. Apple also contractually obliges app developers to agree to distribute iOS apps solely through the App Store, eliminating competition.
3. Apple unlawfully ties the App Store and In-app purchases – Epic claims Apple has unlawfully fettered in-app purchases to its App Store, if developers want to put apps on the App Store and offer chargeable purchases, they must use Apple’s in-app purchasing system, ensuring Apple gets a 30% cut. Epic says that Apple does this even though these are two separate products, as evidenced by the fact that some App Store services are exempt such as physical products like Amazon goods, or ride-hailing services like Uber. Epic says its own Epic Games Store is further proof that a company can create an app store whilst not forcing developers to use its payment system.
4. This restrains trade and helps Apple maintain its monopoly on iOS in-app payment processing – Epic states that Apple’s conduct has “substantial ant-competitive effects on iOS”, and that there are no procompetitive justifications for Apple’s conduct.
These are the basic strands of Epic’s anticompetitive arguments against Apple. It does also speak to irreparable harm whilst Fortnite is banned from the App Store, but as mentioned, the emphasis is much less significant given how the judge responded to this argument at the last hearing. Epic extends this not only to Fortnite but to its Developer Program accounts and the Unreal Engine, the threat to which it says could make existing and potential customers (such as game developers) look to alternative tools if they think the viability of the Unreal Engine is threatened.
Epic also says that Apple is harming consumers who are unable to play the game, and for many of whom iOS is the only way they can access Fortnite.
Apple’s response to Epic is multi-faceted. In arguing that the motion to reinstate Fortnite should not be granted, Apple says that Epic is demanding that it be forced to “alter its contracts and give Epic privileges that no other developer enjoys.” Apple maintains that it has exercised its contractual rights in the face of Epic’s “willful breaches and intentional misconduct.” Apple states that Epic will not succeed on the merits of its antitrust claims for the following reasons:
1. Epic will not be able to prove Apple has a monopoly Apple says that all of Epic’s arguments hinge on the fact that the relevant “market” in the case is the iOS app distribution market, but says that Epic’s notion that “the market relevant for Epic’s apps is limited to distribution via iPhones—which Epic admits is the “foundation” of its antitrust argument—is meritless if not frivolous.” This is because Epic distributes Fortnite on PC, Android, Xbox, PlayStation, and Nintendo Switch. Apple further notes a previous case it had against Psystar Crop. where a judge stated that a “manufacturer’s own products do not themselves comprise a relevant product market.”
2. The App Store and in-app purchases are not separate – Apple claims that Apple does not force developers to use IAP to have an app distributed, but that they must pay Apple’s commission if they do charge for in-app purchases. It says IAPs are part of an integrated service delivered as a single transaction, not a separate product. Apple says developers are also totally free to adopt other business models that do not include in-app digital purchases, such as through advertising, sale of physical goods, and services. As Apple has frequently noted, 84% of developers pay no commission to Apple on their apps. Apple says that Epic could have “easily” chosen a different business model to monetize Fortnite without the use of in-app purchases.
3. Apple’s iPhone business model encourages competition – Contrary to claims of anticompetition, Apple is set to argue that Apple’s iPhone and iOS App Store actually “pro-competitive.” Apple notes that the App Store facilitated $138 billion in commerce in 2019, with $116 billion going to developers. It further states Epic “has benefited hugely” from this model, earnings “hundreds of millions of dollars” from tools Apple provides to developers. Apple further states that Epic’s assertion that creating the iOS platform “does not entitle Apple to compensation for app distribution and in-app payment processing services” is “absurd.
On the matter of Fornite being banned, Apple against asserts that Epic cannot argue “irreparable harm” because it is “entirely-self conflicted.” From the filing:
First, every bit of harm Epic asks this Court to address is entirely self-inflicted. This Court was right when it held in its TRO decision that Epic’s “current predicament” is “of its own making,” and that “self-inflicted wounds are not irreparable injury.”
Apple further notes it will be able to more fully explain to the court at the upcoming hearing that Apple’s historical practice is to remove all affiliated developer accounts of a developer in cases such as this.
Apple also says that Epic’s claims about reputational harm are hypocritical, given that Epic is engaged in a “pre-planned media blitz” including ad campaigns against Apple. Apple says that if Epic was so concerned about its reputational injury arising from the dispute, it would not be taking so much effort to publicize it.
Apple finally states that an injunction would harm the public interest, as it would signal to the entire world that developers were free to breach their contracts with Apple at will without consequence. It further notes that if it was forced to but Fortnite back on the App Store even though it doesn’t comply with App Store rules, customer privacy and security would be massively at risk:
The same considerations apply with full force to Unreal Engine. If Apple is compelled to continue supporting it despite Epic’s overt breach and announced intent to harm Apple on any “front” possible, Epic could use Unreal Engine as a “trojan horse” to enable developers to insert other unauthorized features that compromise customers’ security and privacy into apps. For example, Unreal Engine could be used to steal from users, or misappropriate financial information, or link to an illegal currency site for payment.
A lot for any judge to digest, let alone us onlookers, the case will next call on September 28, where the court will try to wade through all of this to decide whether Fortnite should be returned to Apple’s App Store and whether Apple should or should not be allowed to retaliate against Epic Games and its developer accounts on the platform.
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