Setting the Stage for Epic v. Apple Trial Drama

1000 648 David Hoppe

With the curtain about to rise for the climax of Epic Games’ landmark lawsuit against Apple, here is a recap of the litigants, issues, current state of play, and what to look for when Judge Yvonne Gonzalez Rogers opens the proceedings on a bench trial on May 3 in the US District Court for the Northern District of California.

Background

It all started back in August 2020 when Epic Games, maker of the wildly popular video game Fortnite, set in motion a plan to undermine the 30 percent commission that Apple charges for in-game purchases made on its App Store infrastructure. In a meticulously calculated move, Epic incentivized players to purchase in-game items directly through its own, internet-based platform by offering an exclusive, 20 percent discount. As Epic anticipated, Apple responded by banning the game from the App Store, preventing any new installations of the game or sales of in-game items on the store, and effectively cutting off any future updates for players who owned the game on their iPhones and iPads.

Within hours, Epic filed suit (and simultaneously launched a similar suit against Google’s Google Play store) alleging that Apple uses its de facto monopoly position to force game developers to pay their exorbitant commission. Apple counter-sued on the grounds that Epic knowingly broke contract terms that forbid circumvention of the 30 percent fee.

Apple threatened to also block access to another of Epic’s popular apps, Unreal Engine, a popular video game engine that is widely used by game developers and film producers. In response to Epic’s request that she force Apple to reinstate Fortnite, Judge Gonzalez Rogers forbade the Unreal Engine blockage but permitted Apple to keep Fortnite off its platform pending the outcome of the case.

Skirmishes before the Battle

In the eight months since the initial suit and countersuit were filed, Epic and Apple have peppered the court with motions and allegations. While many of these pretrial activities are substantive, others are pedantic and even frivolous – designed to expose their opponent’s motives and business practices while framing them as cold, hypocritical, and conniving.

For instance, Apple researched and pointed to Epic’s rapid escalation of its own app store development: Epic has burned through well over a half-billion dollars to build infrastructure and secure exclusive rights to distribute other developers’ games. Apple claims this is a clear indication that Epic’s lawsuit is more of an attempt to grab market share than a legitimate challenge to Apple’s alleged anticompetitive behavior.

On the other hand, Epic has positioned itself as a champion for all of the little guys oppressed by Apple’s bullying. This tactic gained steam in the months following the filing of the initial suit. Spotify, Tile, and others joined Epic in forming the Coalition for App Fairness to lobby lawmakers, sway public opinion, and pressure Apple into decentralizing app hosting, eliminating preferential App Store placement and ranking for Apple-developed apps, and lowering commissions.

Apple may have earned points when it cut its commission in half for developers earning less than $1 million in annual revenues. Many small companies welcomed the news while Epic, predictably, framed the move as an attempt to blunt criticism and fragment the opposition.

Trial Highlights

Pretrial publicity, depositions, and the potential witness list submitted by each side give us a window into how the trial may unfold:

  • Each company’s top executives are expected to testify. Apple CEO Tim Cook likely will give a history of the App Store, an overview of the gaming landscape, and his view of the value the App Store provides developers. Cross-examination may touch on Epic’s contention that the App Store does not adequately vet the products it carries and provides little value-added services to justify its fee.

  • Epic CEO Tim Sweeney will comment on Fortnite’s success and the motivation behind circumventing Apple’s fee. Apple’s lawyers are likely to press Sweeney on Epic’s unmitigated breach of its contract with App Store.

  • Epic plans to call an Xbox executive to testify that Apple denied the console’s cloud platform a spot in the App Store because Xbox’s proposed payment system for streaming would have bypassed Apple’s commission. Epic’s strategy is to establish that Apple has long endeavored to quash competition.

  • Apple’s contention that the fees are justified, given that it provides a secure, trusted payment method and protects users against malicious content suffered a blow recently. In what could provide Epic with ammunition, an app developer discovered that an online casino masked as a children’s game was available on the Apple store.

  • An expert witness deposition contends that a ruling in Epic’s favor would require Apple to reconfigure its hardware and software. Apple says that in this event, making iOS interoperable with new app stores would be unreasonably burdensome.

Legal Arguments

Epic clearly initiated its end-run around the commission to trigger Apple’s response and then follow up by filing suit. Epic alleges that Apple holds and uses a monopoly position to create insurmountable barriers to entry, crush competition, and charge huge fees to anyone who wants to access the market.

Apple, on the other hand, points to Android phones as proof that it does not hold a monopoly on mobile gaming; if game developers don’t like Apple’s rules, they are free to play on Android’s court. Apple contends that developers willingly pay its commission because the services Apple provides sufficient value to warrant it.

The case will boil down to whether Gonzalez Rogers buys Epic’s argument that Apple’s range of hardware and one billion users constitute a market unto themselves – a market under the exclusive domain of Apple. If that’s the case, the judge could decide that developers have no realistic alternative to reach this market other than through Apple, and they must pay Apple’s extortionary toll to do so.

The judge could, on the other hand, agree with Apple’s contention iOS is not a distinct market, but rather one component of the much larger video gaming ecosystem which includes not only Apple and Android, but PCs, laptop computers, and gaming consoles. Under this definition, the total market dwarfs Apple’s share, which could then hardly be considered a monopoly.

Gamma Law has followed and reported on the preliminary injunctions, pretrial motions, and public relations maneuvers both sides have engaged in as they jockey for position as the trial begins. Visit Gamma Law’s Epic v. Apple Legal Resource Center for our comprehensive coverage, analysis, and predictions, along with links to court documents and other notable takes on the goings-on.

Gamma Law is a San Francisco-based firm supporting select clients in cutting-edge business sectors. We provide our clients with the support required to succeed in complex and dynamic business environments, to push the boundaries of innovation, and to achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs. 

Author

David Hoppe

All stories by: David Hoppe

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