One Friday August last year, Tim Sweeney, a billionaire game developer, sent an email to a contact at Microsoft: “You will enjoy the upcoming fireworks show.”
A week later, Sweeney’s Fortnite game brought good news to iPhone players: They get a discount on in-game items if they complete the purchase outside of Apple’s payment system.
This change violated Apple’s rules and prevented the iPhone maker from earning commissions on one of the world’s most popular games. Hours later, Apple removed Fortnite from the App Store.
Mr. Sweeney’s company, Epic Games, immediately sued Apple in federal court. It also began working on the public relations aspect spanning months, complete with a popular #FreeFortnite start tag and a parody of Apple’s iconic “1984” ad depicting Apple’s CEO, Tim Cook, is an evil warlord with an apple head.
Epic’s assault was the most direct challenge to Apple’s power in years, and nine months later, the war is headed for federal court in Oakland, California. On Monday, a trial is scheduled to open with a testimony from Mr. Sweeney about why he believes Apple is a monopolist who abuses his power.
The trial, expected to last about three weeks, has had a big impact. If Epic wins, it will enhance the economics of the $ 100 billion app market and create a path for millions of companies and developers to avoid sending up to 30% of their app sales to Apple.
An Epic victory will also give strength to the antitrust war against Apple. Federal and state regulators are scrutinizing Apple’s control over the App Store, and on Friday, the European Union charged Apple with violating antitrust laws for rules and fees. use of them. Apple faces two other federal lawsuits over its App Store fees – one from developers and one from iPhone owners – seeking class action.
Beating Apple is also a blessing for Epic’s upcoming trial against Google for similar issues on the Android app store. That case is expected to go to trial this year and will be decided by the same federal judge, Yvonne Gonzalez Rogers of Northern California County.
If Apple wins, however, it will cement its position in mobile apps and stop critics’ growing chorus, empowering an already-priced company. value in the world and achieved sales of 200 billion USD in just the last six months.
The trial will revolve around a legal debate over whether Apple is a monopoly or not. Epic lawyers have argued that companies need iPhones to reach customers, and that Apple unjustly forces app makers to use their payment and payment systems.
Apple attorneys have responded that the iPhone is just one way to reach consumers, and that Apple’s fees align with industry standards.
Legal experts say, Apple is probably dominant. Courts are more sympathetic to defendants in antitrust trials, because companies have the right to choose who they do business with.
But Epic argues that Apple is using its position of power to curb competition, a legal theory that “works and overcomes that weakness,” said William Kovacic, professor of law at George University. Washington, said. The Justice Department made a similar argument against Microsoft in its antitrust lawsuit two decades ago.
This case might come up to a narrow technical question: What is the market in which the two are competing? Epic argues that this is the case with the iPhone, and Apple has a clear monopoly on them. Apple’s lawyers emphasized that the market in question encompasses all gaming platforms – from smartphones to video game consoles to desktops – and that Apple has almost no monopoly. over there.
The answer will depend on Judge Gonzalez Rogers. And after deciding this case, she will have to listen to the next two lawsuits on the App Store looking for class action status.
An Apple spokesperson said in a statement that top Apple executives would point out just how good the App Store has been for the world. “We believe the incident will prove that Epic was deliberately breaching its agreement just to increase sales,” she said.
Epic declined to comment.
Fortnite, a battle royale video game, was the biggest hit in Epic’s 30 years of business. It gets there, in part because Mr. Sweeney has pushed the companies behind the big consoles – Microsoft, Sony Group and Nintendo – to let players fight each other on different devices, which means Microsoft Xbox owners can act as Sony PlayStation owner for the first time.
In 2018, Epic released Fortnite in an iPhone app. In about two years, Epic has made around $ 1 billion from Fortnite and its other iPhone apps. But it pays about 30% of that to Apple. Epic paid similar commissions to console makers.
Mr. Sweeney said in interviews and on Twitter that he realized that commissions from the app store meant that Apple and Google could sometimes make more money from a game than the developers did. create it. He saw an opportunity to challenge the tech giants.
Mr. Sweeney also said He has accepted to pay commissions to companies like Microsoft and Nintendo because they sell their consoles at or below the price and depend on commissions, while Apple makes a big profit on all. its business department.
Other app makers have also started complaining about the app stores, but Epic is one of the few people with enough money, willing and independent to fight in court. While Chinese internet giant Tencent bought Epic in 2012, Mr. Sweeney remains a controlling shareholder. Investors recently valued Epic at $ 29 billion.
But Epic is still small compared to Apple. In the most recent quarter, Apple averaged about $ 30 billion in revenue per month.
“If we let Apple and Google get rid of this, in a few years, they will extend that monopoly to exercise a degree of power over people and the public,” Mr. Sweeney said in an interview. ty. last year.
In 2019, Mr. Sweeney decided to confront Apple. Epic hired law firm Cravath Swaine & Moore, which operated a public relations consultant, assigned 100 to 200 employees to the project, and forged alliances with other application makers “to ensure us. Not the only voice, “according to an Apple court filing. Epic named the effort Project Freedom.
Last June, Mr. Sweeney emailed Mr. Cook and some of his deputies, asking to release a competitive marketplace for iPhone games and use Epic’s own payment system instead of Apple’s. , allowing it to avoid Apple’s 30% cut.
Apple attorneys have responded, writing that the company will not make the App Store “a public utility”.
Mr. Sweeney dropped politeness in his response. He wrote to Cook: “It is a sad state of affairs when Apple’s senior executives forward Epic’s sincere requests to Apple’s legal team in response to a self-esteem and self-service attitude. so. “We will continue to pursue this, as we did in the past to address other injustices in our industry.”
Three weeks later, Mr. Sweeney submitted his fireworks forecast, according to Apple court records.
Since then, Epic and Apple attorneys have told different stories in court records and with reporters.
Apple says it has developed a world-changing product on the iPhone, leading to an “economic miracle” in mobile applications. Apple spent billions on iPhone development and another $ 100 million on its App Store, the company said, and charging commissions on app sales is partly how it recouped that investment. and keep the app safe.
Epic has countered that Apple’s commissions contribute very little to security. Epic is expected to call on witnesses from other companies to testify of their experiences with the App Store, including an executive at Match Group, the dating app maker Tinder. An executive at Facebook, which has a personal feud with Apple, was scheduled to testify but ignored.
Apple has accused Epic of looking for a free ride. The game maker didn’t pursue other companies distributing Fortnite. Microsoft, Samsung, Sony and Nintendo all charge commissions on games the same, according to an Apple-sponsored study. That study did not note that Apple popularized the 30% rate with the App Store back in 2008.
In response, Epic indicated the commission it charges on the private market for game developers: 12%.
After Epic sued, Apple halved commissions to 15% for developers earning less than $ 1 million on their apps. That new rate applies to about 98% of developers that have paid Apple commissions, according to an estimate from Sensor Tower, an app data company.
However, it barely affects Apple’s bottom line. According to Sensor Tower, more than 95% of Apple’s app revenue comes from companies that pay 30%.