(Author’s Note: Just so we’re clear, I am not a lawyer, nor do I play one on TV. What follows here is a “man on the street” perspective on the Apple v. Epic case, and any citations given should not be considered as definitive or authoritative in any fashion. I have no connection to either party or to the judges, clerks, reporters, or bailiffs in the case. Any errors of commission or omission are entirely my own fault, and my apologies in advance for them.)
It is the first big tech legal battle of the 2020s, between two very different entities with different interests and goals. Like any significant court case, there are doubtlessly going to be after-effects which will disturb the status quo, though how exactly it will all shake out is a matter of conjecture.
On August 13, Apple announced they were removing the game Fortnite from the iOS App Store following an update from Epic Games, the developer, which allowed players to purchase in-game currency (known as V-Bucks) directly from Epic. In doing so, they bypassed Apple’s payment processing system, which from Apple’s perspective is a “do not pass Go, do not collect $200” offense. The same day Apple removed Fortnite, Epic filed a lawsuit for injunctive relief in US District Court, Northern District of California, Oakland Division. The fight was on.
Epic’s Position
Epic’s position is blunt and to the point: Apple is engaging in anti-competitive activities by requiring developers to accept a 30% cut of revenues (which Epic describes as a “tax”) and by refusing to allow alternate storefronts or payment processors. They point out that Apple does not require the same sort of procedures on Macintosh computers running MacOS, and that there is no single storefront or payment processor required to obtain and install MacOS applications. Epic alleges that developers are forbidden from even mentioning that an individual could go outside of the iOS app, such as going to the developer’s website, to purchase content. As Fortnite is the particular bone of contention, it should be mentioned that alternate vendors do exist for Fortnite content, such as physical stores like GameStop or Best Buy or sites like Amazon. Epic’s complaint is that iOS customers are not allowed to be officially informed (by Epic) of those alternatives. The filing points out that, while Epic is looking for injunctive relief, the potential monetary damages which could be involved exceed $75,000 USD.
Epic alleges six violations of the Sherman Anti-Trust Act, three violations of California’s Cartwright Act, and one violation of California’s Unfair Competition Law. There’s some doubling up in some instances, as the referenced Cartwright violations duplicate some of the referenced Sherman violations from a state level.
- Section 1 of the Sherman Anti-Trust Act prohibits “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or foreign nations.” Epic asserts that the terms of the Developer Agreement which developers have to sign in order to put apps on the App Store (as well as the App Store Review Guidelines) represent the sort of restraint described in the Act by requiring apps getting sold through the App Store, by requiring developers to use the Apple payment processing system, and by tying the payment system directly to the App Store.
- Section 2 of the Sherman Anti-Trust Act prohibits “monopolization of any part of the trade or commerce among the several States, or with foreign nations.” Epic asserts that Apple has violated this section of the Act by requiring developers to only use the App Store for distribution, by refusing to allow developers access to iOS, and by requiring developers to use Apple’s payment processing system.
- The Cartwright Act prohibits “the combination of resources by two or more persons to restrain trade or commerce or prevent market competition.” Such a “combination,” as indicated by Epic, includes scenarios where the anti-competitive conduct of a single firm coerces other market participants to involuntarily participate in that conduct. Epic asserts that the Cartwright Act’s provisions have been breached by requiring apps be sold through the App Store, by requiring developers to use the Apple payment processing system, and by tying the payment system directly to the App Store. Since it’s California state law, and since Apple (along with a untold number of app developers) are based in California, Epic asserts it’s absolutely appropriate to be charging them with violation of the Cartwright Act.
- Additionally, with particular reference to tying the App Store and the payment processing together, Section 16727 of the Cartwright Act states it is “unlawful for any person to lease or make a sale or contract for the sale of goods, merchandise, machinery, supplies, commodities for use within the State, or to fix a price charged therefor, or discount from, or rebate upon, such price, on the condition, agreement or understanding that the lessee or purchaser thereof shall not use or deal in the goods, merchandise, machinery, supplies, commodities, or services of a competitor or competitors of the lessor or seller, where the effect of such lease, sale, or contract for sale or such condition, agreement or understanding may be to substantially lessen competition or tend to create a monopoly in any line of trade or commerce in any section of the State.“
- Finally, the Unfair Competition Law prohibits “any unlawful, unfair, or fraudulent business act or practice.” If Epic could demonstrate that Apple’s actions are, in fact, a violation of the Sherman Anti-Trust Act and the Cartwright Act, then it is also a violation of the Unfair Competition Law.
Could Epic Win?
The dichotomy between iOS and MacOS, between iPhones and Macintoshes, is probably the strongest single position Epic can take. It does not invite the “apples and oranges” comparison of iOS and Android devices, but exposes a fundamental difference between how Apple handles one class of devices it manufactures in a different fashion compared to another class of devices it manufactures. However, it’s potentially a double-edged sword. The court might rule that, while such a double standard is annoying, it doesn’t quite rise to the level of a violation of anti-trust or anti-competitive law.
The “gag order” Epic complains about is more subtle, and in fact might be too subtle if the judge or jury doesn’t think about it too hard. It’s an inconvenience to Epic, but the fact that it is Fortnite, which has an absolutely ridiculous amount of exposure in the games industry, is what keeps things at the level of “inconvenience.” If it wasn’t something on the scale of Fortnite, just another random game made by a hole-in-the-wall developer who wasn’t shamelessly cloning existing titles, the prohibition on mentioning alternative purchasing methods moves from “inconvenient” to “crippling.” Getting the judge to see that hypothetical, particularly coming from Epic, is going to be a hard row to hoe.
Epic’s charge that Apple denies access to the inner workings of iOS brings up “apples and oranges” again, only this time it’s at the OS level. Android, being open source, can viewed directly and modified. Theoretically, Epic could make a fork of Android that was optimized to run Unreal Engine apps if they wanted to, or they could open source an earlier iteration of Unreal Engine as a GUI for smartphones which could flip between 2D “desktop” environments and 3D augmented reality or “pocket” VR functionality. Epic almost certainly had access to iOS APIs in order to create compatibility for Unreal Engine (before most of their accounts were killed by Apple), but the APIs are not the source code of the OS. Arguably, if there is something hardcoded into iOS which prevents any potential break of the “garden wall” that is an iPhone, Apple wouldn’t want it getting out. But given recent iOS malware infections which were passed off as legitimate software due to Apple’s “notarization” system, any potential damage Apple is afraid Epic might do is purely hypothetical.
The allegation which is probably most likely to fail is that Apple is a monopoly, and it goes back to that “apples and oranges” comparison of iOS and Android devices. Looked at one way, Apple could be said to be a monopoly if the “market” is strictly defined as iOS-compatible devices. But, as a practical matter, the market is bigger than iOS devices. There are Android smartphones and Android tablets, ones which can be sideloaded with apps directly, ones which can access storefronts other than Google Play. Epic’s point about the degree of “lock-in” which Apple creates is well taken, since an Android device from one manufacturer (LG, for example) can generally transfer their contents to another device from another manufacturer (say, Samsung) with relatively little friction. Apple users who want to abandon the Apple platform for Android wouldn’t be able to port over anything, except perhaps for personally created data like pictures and text messages. But if that’s what the individual consumer decides to do, then that’s part and parcel of the initial decision to buy an iPhone in the first place. Frankly, there would have to be some absolutely fascinating legal gymnastics for this one to pass muster.
Apple’s Position
Apple is no less blunt than Epic in the countersuit it filed roughly a month after Epic’s suit. If anything, their language veers into the hyperbolic, if not histrionic. While Apple’s first line frames the dispute as “a basic disagreement over money,” it quickly devolves into innuendo (mentioning Tencent’s stake in Epic), alarmist language (the term “Trojan horse” is used twice, and not in an IT security context), and blame shifting (Epic’s hotfix which enabled direct payment is described as a “sneak assault on the App Store,” despite Apple’s “rigorous, human-assisted review” process mentioned a couple pages later). Apple’s description of what happened immediately before and after it booted Fornite off the App Store makes it sound like a conspiracy theory from somewhere in the bowels of 4chan. And it is hard to argue that Epic hasn’t been working from a carefully structured battle plan, particularly their “#FreeFortnite” ad which spoofed Apple’s “1984” ad so perfectly. Unlike Epic, who is simply asking for injunctive relief, Apple is demanding compensatory and punitive damages.
Most of Apple’s countersuit boils down to selective acknowledgements of portions of Epic’s assertions joined up with blanket denials of most of the assertions as a whole. In fact, out of the 291 paragraphs Apple responds to, the only one it unequivocally admits to is Epic’s description of Apple and its products (Paragraph 36 in the original suit). It then goes on to list a large number of reasons why Epic’s case should not prevail ranging from statute of limitations (meaning there was a window where Epic could have filed something like this, but didn’t) to indemnity clauses in the contract in the Developer Agreement. Oddly, the countersuit seems almost petulant about the fact that they could only suspend the Epic Games developer account because of the temporary restraining order which currently protects the Epic International account which is responsible for updates to the Unreal Engine for iOS. The subtext seems clear: “Every Epic account has to go.” Apple is requesting a jury trial and is seeking damages in the form of the money made between the time Fortnite enabled their payment option and the time Apple kicked Fortnite off the App Store, though the request for punitive damages could very well include all the money Epic has made since Fortnite got booted.
Could Apple Win?
If their lawyers keep things framed as a breach of contract case, which even Epic likely wouldn’t deny in a response to the countersuit, Apple will probably win. However, there’s a strong probability that Apple could win the battle and lose the war.
Part of the problem is that even within their own countersuit, Apple shoots itself in the foot. It attempts to portray Epic (and Tim Sweeney, in particular) as a band of cynical manipulators half a step removed from terrorists who tried to stage a coup within the App Store, and that Fortnite is still a potential vector for malware and hackers to exploit. Yet they seem to have glossed over (or willfully ignored) the fact that both the App Store’s automated review tools and the flesh-and-blood reviewers let the update which sparked this whole thing get through without anybody batting an eyelash. It minimizes Sweeney’s attempt to get a “side letter” as an annoyance, almost contemptuous that he should even try to do something like that. “The son of bitch, how dare he make $600 million and try to renegotiate with us!” The problem here is that Apple will undoubtedly have to explain instances where it did give a side letter to other companies (Amazon comes rather firmly to mind here), and what its criteria for granting or denying those letters are. The passing reference to Tencent’s stake in Epic is baffling, almost literally a non sequitur which might get vigorous nods from the “China sucks!” contingent, but also potentially opens Apple up to closer scrutiny. After all, they received a heavy investment from a convicted monopolist about twenty years ago, so if they try to cast aspersions on the legitimacy of their opponent’s investors, it might be good to make sure Apple’s investment history doesn’t have any “questionable” associations.
Innuendo aside, there seems to be a feeling of aggrievement disproportionate to the offense, and Apple appears to be gearing up for a scorched earth campaign which doesn’t just keep Fortnite off iOS devices, but also kills the use of Unreal Engine on iOS for the foreseeable future. As Judge Yvonne Gonzalez Rogers pointed out when granting the TRO, “Epic Games and Apple are at liberty to litigate against each other, but their dispute should not create havoc to bystanders.” And with the number of developers out there who use Unreal Engine, there’s a lot of bystanders. Any action Apple takes which potentially threatens those bystanders will almost certainly generate a far closer degree of scrutiny about potential anti-trust activities. Whether Apple’s leadership team or their legal department is thinking that far ahead is a serious question mark at this moment, but given Apple’s rhetoric so far, they don’t seem overly concerned about developers who chose to associate themselves with Epic.
There’s also a very real possibility that Section 16727 of the Cartwright Act could hamstring any attempt to keep the case limited to the merits of the contractual breach. If a contract deliberately or inadvertently breaks a law, the contract is invalidated. That particular legal principle is why you can’t have a legally binding contract to murder somebody and then claim you can’t be charged for murder because you were executing a contract. If the Developer Agreement (or possibly the License Agreement) is found to violate Section 16727, a lot of Apple’s defenses go out the window. It’s hard to argue a breach of contract case when the contract is found to be fundamentally invalid.
One final element to consider: Apple is specifically requesting a jury trial. That is its right. However, there is a risk that Judge Rogers could ultimately set aside the jury’s verdict, particularly if it’s clear that the jury isn’t rendering their verdict on the basis of the evidence. For example, if it becomes clear to Judge Rogers that the Developer Agreement did violate Section 16727, but the jury still finds for Apple for breach of contract, she could set the verdict aside and rule against Apple because their entire case rested on an invalid contract.
The Final Analysis
Both sides want to win this case, though the conditions which define “victory” are likely going to be radically different. Apple wants the money it feels Epic stole from them by introducing the direct payment option, and they sound like they want their pound of flesh extracted in a method which even Shylock would have considered excessive. It’s harder to tell exactly what Epic wants out of this. If it was just about squeezing more money out of Fortnite, they could have basically said, “Screw you, we’re taking our game and going home.” They would have alienated some fans, sure, but by and large it would have been a net non-issue given the other platforms the game is available on. When you look at the Epic Games Store and the lower commissions they charge compared to Steam, Epic’s claim that they want to open things up and create better options for consumers does sound at least somewhat more plausible.
Considering Apple is a $2 trillion USD company, even legitimate claims it’s been robbed by Epic are probably going to be met with a certain degree of disdain. Sure, Epic’s currently valued at $17 billion USD, but that’s less than one percent of Apple’s valuation. No matter how Apple tries to spin it, they are the 800 pound gorilla in the room and Epic is not. And if the current mood is ugly against billionaires, it might be well be a hundred times worse for trillionaires, even if they’re just companies.
A lot of ink has been spilled on Epic’s “charm offensive” in this whole dispute. They point out to the speed of response from the moment Fortnite got booted, and Apple’s certainly not been shy about denouncing it as a cynical plot. Yet there’s other elements to consider. If Epic went to that much effort to prepare, it suggests that they expected any effort at getting a side letter to be a failure. One could argue that Epic was simply going through the motions without any intention of negotiating in good faith. One could also argue that such preparation came about from negotiations which we don’t know anything about, and that Apple’s unwillingness to negotiate in good faith was telegraphed so blatantly that Epic made contingency preparations well in advance in the expectation the negotiation process would fail. And if you’re know you’re going to be getting into a fight with an 800 pound gorilla, you don’t fight on the gorilla’s terms.
The court case is not going to be over quickly. It’s going to be long, drawn out, and ugly for everybody involved. The discovery process alone will probably be several months. The only comparable case which comes to mind is SCO v. IBM, and that one is still technically going on despite most of the major issues having been settled. And the longer the case goes on, the more interested anti-trust regulators both in the US and abroad will be looking at it. Indeed, if it turns out Apple did violate anti-trust laws, winning the case against Epic might very well lead to the very sort of changes Epic indicated it wanted to engender in the iOS ecosystem. Only those changes would be imposed from outside Apple.
At the time of this article’s publication, both sides will be involved in the opening hearing on the case. Game Luster will continue to follow the story as it develops.
