Apple vs. Epic Games: Awaiting a Critical Verdict

After a three-week trial, the yearlong legal affair between technology giant Apple and Fortnite developer, Epic Games, is nearing its end. US District Court for the Northern District of California Judge Yvonne Gonzalez Rogers has heard the arguments from both sides and will issue a decision in the next several months as to whether Apple’s App Store is anticompetitive.

How did these two companies get here, and what did we learn from the trial? We dive in below.

One Chapter of a Larger Saga

Apple, along with other major tech players, has been drawing antitrust scrutiny from US and European lawmakers and regulators for some time. One major suit with potential major repercussions, Apple Inc. v. Pepper, continues after a US Supreme Court ruling allowed it to continue in mid-2019; the Epic Games lawsuit is just one of the most recent.

Perhaps hoping to earn some leeway with the lawsuits at hand, Apple decided in November to reduce its commission on smaller developers by 50%. The Wall Street Journal reported the company “will collect 15% rather than 30% of App Store sales from companies that generate no more than $1 million in revenue through the software platform, including in-app purchases. The fee will remain 30% for developers whose sales through the App Store, excluding commission payments, exceed $1 million.”

Despite the positive ramifications for a portion of Apple’s business, the beneficiaries represent only a small portion of the overall App Store sales, with some projections putting the figure between 0.5% of Apple’s total annual revenue or 3% of App Store sales. Among the loudest critics are those outside of the less-than-$1 million scope, including Epic CEO Tim Sweeney, who accused Apple of “hoping to remove enough critics that they can get away with their blockade on competition and 30 percent tax on most in-app purchases.”

The Trial

The lawsuit is the byproduct of intentional provocation from Epic, who in August 2020 “encourage[ed] Fortnite’s mobile-app users to pay it directly, rather than through Apple or Google” to avoid paying the App Store’s commission. Apple proceeded to remove Fortnite from the App Store for “enabl[ing] a feature in its app which was not reviewed or approved by Apple… with the express intent of violating the App Store guidelines.” Epic then quickly sued the company for “flexing its enormous power in order to impose unreasonable restraints and unlawfully maintain its 100% monopoly” and launched a PR campaign to paint Apple as out-of-touch and stifling.

Both Apple CEO Tim Cook and Epic CEO Tim Sweeney testified in the case, with the former “peppered… with a series of questions about how the App Store makes money, noting that the majority of the market’s revenue comes from video games’ in-app purchases.” Reporters noted that Gonzelez Rogers was “pointed” in her questioning of both parties, chastising Sweeney for “ignor[ing]” other developers’ lawsuits against Apple to go “on your own”; Gonzalez Rogers also observed the 30% commission “has been [part of the App Store] since the inception. And if there was real competition, that number would move. And it hasn’t,” while Cook acknowledged that allowing external payment options would “in essence give up [Apple’s] total return on our [intellectual property]” through the App Store.

Potential Outcomes

While Epic’s deep pockets gave it the ability to challenge Apple effectively in court, they are not a guarantee of success. Gonzalez Rogers noted that “courts do not run businesses,” and at one point asked Epic’s lawyers for examples of cases that have “survived appellate review where the court has engaged in such a way to limit or fundamentally change the economic model of a monopolistic company” – perhaps poor harbingers of a completely successful outcome for Epic.

Regardless of her ruling, Gonzalez Rogers expects the decision to be “appealed to the US Court of Appeals for the Ninth Circuit”; a ruling from the three-judge panel there could then be appealed by Apple or Epic to the US Supreme Court. Gonzalez Rogers could also rule in favor of “smaller changes” that are less desirable to both parties.

CBS reports that Wall Street “expects Apple to prevail in the trial” with few (if any) major “changes to iOS and the App Store.” In lieu of a favorable outcome for Epic, however, the case is yet another addition to a series of data points for Apple’s antitrust opponents in the US and beyond. Epic had the financial ability to take on Apple effectively in the court of law, and while it is unlikely they will win a full victory there, their efforts may help others’ causes (and ultimately their own) going forward. Even a win here for Apple could mean losses down the line: in both the court of public opinion and legal cases that could diminish its standing and future profits.

This article is authored by

Quandary Peak Research

Based in Los Angeles, Quandary Peak Research provides software litigation consulting and expert witness services. We rapidly analyze large code bases, design documents, performance and usage statistics, and other data to answer technical questions about the structure and behavior of software systems.