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Epic vs. Apple: the legal challenge that could reshape the future of the digital economy


Because it’s set it up that way, Apple wields tremendous power over the terms it can dictate to app makers. One in particular has become a thorny issue, although most consumers probably won’t notice it: Every time you purchase a digital product or service on many iOS apps, it is processed on a payment system operated by Apple and Apple collects 30%. charge of that.

Now a federal judge should decide: is Apple’s policy just a hugely successful business model – or is it a violation of US antitrust law?

In a lawsuit starting Monday, the judge will consider whether Apple is justified in requiring many app makers – and by extension consumers – to use the company’s payment technology. The potentially landmark lawsuit stems from a lawsuit filed by the maker of the hit video game Fortnite, which Apple started from its platform last summer for breaking its rule.

The high-profile case will involve witnesses, including Apple CEO Tim Cook and his senior lieutenants. Representatives from Facebook and Microsoft are also expected to testify. Corporate emails and presentations could fuel a fierce battle in courtrooms over app store policies, which are increasingly under scrutiny by regulators in Europe, lawmakers in the United States and many more. other.

The judge’s decision – and, of course, the appeals that will almost certainly follow – could have huge ramifications not only for Apple and its iOS ecosystem, but potentially for other app stores and the overall app economy, which has grown to hundreds of billions of dollars. dollars and supports millions of jobs. It’s a case that could either transform the way many in-app purchases operate, or consolidate energy technology platforms to set the rules for an increasingly digital world.

As the growing reach of Silicon Valley has prompted Congress to propose new laws aimed at restricting the biggest players in the tech industry, the outcome of the case could even shape the broader future of tech regulation. .

Quick withdrawal

App developers and tech industry watchers have complained about Apple’s policies for years. But things hit a boiling point last summer when Epic updated their hugely popular Fortnite app for iOS.

With the update, players were encouraged to purchase virtual currency (used for items like in-game outfits and emotes directly from Epic, rather than from the Fortnite app. Players who used the payment system from Epic would receive a reduction reflecting a portion of that of Apple’s fees, the company said.

As a violation of Apple’s rules against outside payment channels, the announcement led to the game’s prompt removal from Apple’s App Store. Existing players were unable to receive game updates, and new players were unable to download the app.

That’s when Epic filed a lawsuit and stepped things up by launching a flashy ad campaign with the hashtag #FreeFortnite. He even ran an ad that satirized, beat for beat, Apple’s famous “1984” ad.

With the lawsuit, Epic alleges that Apple has a monopoly on the distribution of iOS apps and that Apple’s payment rules are illegal because they exclude potential rivals.

The result, according to Epic, is higher prices for iOS users and less innovation in the app market. If it weren’t for Apple’s rules, Epic would launch its own iOS app store and offer cheaper payment systems, the company said in court filings.

But for now, “Epic is forced, like so many other developers, to charge higher prices on its users’ in-app purchases on Fortnite in order to pay Apple’s 30% tax,” the company wrote in his initial complaint.

Apple disputes that it operates a monopoly, arguing that consumers – and Fortnite fans – are not obligated to use Apple devices or Apple’s app platform. The 30% fee it charges on app transactions is comparable, he says, to the 30% commissions charged by other app stores and digital storefronts for video games. And it was Epic who went out of their way to create a legal crisis so that they could take legal action in the first place, Apple argues, citing what it describes as an “act of intentional sabotage” by Epic to break its ground. contracts with Apple. .

‘Liberty Project’

The trial is sure to have some lively moments, as the two sides have already argued before the judge who heard it, Yvonne Gonzalez Rogers, who was appointed by President Barack Obama in 2011 to sit on the US District Court. of the Northern District of California.

Epic’s decision to immediately prosecute and push to publicize her fight suggested she knew how events would play out – something Epic’s lawyers have acknowledged.

“When you take on the biggest business in the world, and get it where you know it’s going to hit back, you don’t lay down on the streets and die,” Epic’s lawyer said. , Katherine Forrest, in a court appearance. “You plan very carefully how you are going to react.”

Recordings introduced during the pre-test process showed that Epic developed a whole campaign to challenge Apple, called Project Liberty, of which updating and promoting the Fortnite app was a critical part. Apple argues that the existence of Project Liberty shows that the games company acted in bad faith from the start because the whole crisis was premeditated. Further, he argued that Epic is interested in its own profits, not the competition.

“She launched her ‘Project Liberty’ campaign as a way to lower the price she has to pay for using Apple’s intellectual property, and started this litigation on the pretext that she just wants to help the competition. , not increase its own profit margins, ”Apple said in a recent court filing.

Epic admitted to breaking the terms of its contract with Apple, but justified doing so as a reasonable response to alleged illegal behavior by Apple.

Housing framing

The central idea behind Epic’s lawsuit is that Apple allegedly used its exclusive ability to sell iOS apps as a form of monopoly leverage. Apple rejects this premise, arguing that there is no such thing as a monopoly, so there can be no violation of antitrust laws.

Apple’s store may be the only place users can download iOS apps, but it’s not the only place users can find Fortnite or other video games, Apple argues. Apple is of course part of a larger video game distributor market that includes Microsoft, Sony, Nintendo, Valve, and Epic itself, all of which operate their own video game software stores. Additionally, Apple has argued that its platform rules exist for good reasons, such as ensuring consumers cannot be targeted by malicious app makers.

It is not illegal to have a monopoly under US law; it is only illegal to try to preserve a monopoly at the expense of competition. By branding itself as part of a competitive market for video game sellers, Apple seeks to avoid both criticisms.

Epic vs. Apple: the legal challenge that could reshape the future of the digital economy

Much of the matter could rest on this framing exercise, as well as the underlying rationale for Apple’s store rules.

“The question at the heart of it,” said Adam Kovacevich, founder of Chamber of Progress, a Google-backed technology advocacy group, “is:“ Apple, as the owner of the marketplace, did they have the right, essentially, to manage their market as they wish? ”

Some jurists say that from a competition point of view things are more complicated.

“Once people are in an ecosystem, they are very much locked in,” said John Bergmayer, lawyer with consumer organization Public Knowledge. “I have an investment in the apps that I bought, I have all kinds of data and stuff. It would be a huge problem to change, and so most people just don’t.”

Under review

App Store policy reviews have skyrocketed internationally over the past year amid a broader shift against Big Tech. European officials announced an investigation into Apple’s rules last summer. British authorities said in March they were also investigating. Last month, Apple was fined $ 12 million in Russia for allegedly anti-competitive policies on app stores; the company disputed the allegations.

Last year, an investigation and report by the House Judiciary Committee’s antitrust panel concluded that Apple, Amazon, Facebook and Google have “monopoly power” and have exercised it in a way that has hampered it. innovation and reduced consumer choice.

Epic vs. Apple: the legal challenge that could reshape the future of the digital economy
Apple and Google were forced to defend their app store policies ahead of a U.S. Senate hearing last month, led by the powerful antitrust subcommittee. Major app companies, including Spotify, Tile, and Match Group – which owns the Tinder dating app – have accused Apple and Google of everything from sky-high market fees to retaliation for refusing to comply with the platforms’ terms. shapes.

Apple and Google dismissed the allegations, arguing during the hearing that their platform policies help keep their app stores safe and secure and that they do not engage in retaliation. But prominent lawmakers were not convinced; Subcommittee chair Senator Amy Klobuchar has vowed to investigate the retaliation allegations and Senator Mike Lee, the panel’s lead Republican, called Apple and Google’s power over Americans “without previous”.

On several occasions, both lawmakers have directly cited documents filed in the Epic case.

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