By Shannon Liao, Reed Albergotti, Mikhail Klimentov
The tech battle between Apple and "Fortnite"-maker Epic Games is headed to court. On Monday, a judge will begin 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 purchases made using its in-app purchase system. The case could change the way we use our smartphones.
- When and where is the trial taking place?
The trial is due to start Monday and last about three weeks. 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 will be posted on the court's website. Evidence entered into the trial will be viewable at this Box link: http://tinyurl.com/epicvapple
The trial is scheduled to start every day at 11:30 a.m. Eastern/8:30 a.m. Pacific.
- Wait, who is Epic? What's 'Fortnite?'
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 3-D development software used in numerous video games, as well as TV and film - most notably in the Disney+ series "The Mandalorian." The company has also 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.
- Catch me up on what happened with Apple
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 its 30 percent 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. And 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.
- How will the case be decided?
Both sides agreed to a "bench trial," which means there won't be a jury. Instead, the case will be decided by U.S. District Judge Yvonne Gonzalez Rogers. We have few early hints about which way Rogers is leaning; she's made it clear that she doesn't view Epic as a particularly sympathetic victim. 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.
- What are the legal questions in the case?
The case comes down to how 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 have 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 the "market" in this case should be defined as iOS, Apple's mobile operating system.
But Apple says the market is broader than even smartphones. "Fortnite" can be played on PCs and gaming consoles like 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 Google 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 Google's 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.
- Who will be testifying?
There will be several expert witnesses on each side. There will also be big name executives. Epic's founder and CEO Tim Sweeney is scheduled to take the stand, as is Apple CEO Tim Cook, one of the most recognizable names in the financial world.
Die-hard Apple fans will also recognize names like Apple Fellow Phil Schiller, senior vice president of software engineering Craig Federighi, and senior vice president of Internet software Eddy Cue. We'll also likely hear from software engineer Scott Forstall, who left Apple but was instrumental in the development of the iPhone.
- What's at stake here?
Apple could be forced to give app developers and consumers a choice between using Apple's 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. Lawmakers at the state and federal level are discussing new legislation to strengthen antitrust laws and enforcement. And the U.S. Department of Justice could bring its own lawsuit and use evidence and testimony from the Epic lawsuit.
- How will the trial affect smartphone users?
Right now, when you buy an iPhone, Apple allows you to download software from only one place: The Apple App Store.
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 that the underlying tech is functionally the same to begin with. One potential outcome of the trial is that the judge orders Apple to open up 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.
- How will this affect gamers?
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 that Apple's removal of "Fortnite" keeps millions of people from being able to play, and that 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.
The Washington Post