App developers await as Fortnite developer Epic Games and Apple head to trial this week before Judge Yvonne Gonzalez Rogers of the Northern District of California in a high-profile lawsuit. The decision in the antitrust legal matter could change Apple’s business model and app marketplace. The lawsuit may also shape the way antitrust law is interpreted in the future or spur various reforms or government-led litigation.
Epic Games sued Apple in August 2020 over its App Store policies (for which it faced a Congressional inquiry), particularly for its 30% commission on app sales and in-app purchases. Specifically, Apple was sued for its purported Sherman Act and state antitrust violations regarding restraints on competition and monopolistic practices. Epic Games claimed that Apple’s policies have caused it to exclusively distribute on the App Store and rely on Apple’s payment processing services and tax, which forced it to charge higher prices to consumers.
Epic Games allegedly tried to negotiate with Apple to no avail, then it created its own direct payment system via a software update to avoid Apple’s 30% commission and offered Fortnite users a 20% discount if they used its own system. However, this allegedly prompted Apple to remove Fortnite from its App Store, thus news users could not access the game and existing users could not update the game through the store.
Later in August, Judge Yvonne Gonzalez Rogers partially granted Epic Games’ motion for a temporary restraining order after finding that Apple should not have banned Epic Games’ affiliates and their developer tools after Epic Games breached its agreement with Apple. In September, Epic Games filed an answer denying Apple’s counterclaims. Meanwhile, in February 2021, Apple filed a joint discovery brief with non-party Valve Corporation regarding the subpoena of Valve for this instant action. As part of the subpoena, Valve was asked to provide extensive sales data for 436 games.
The court is expected to resolve a few questions presented in this case, namely, is Apple a monopoly in the market in question? If so, is Apple abusing its power? Epic Games will try to demonstrate that Apple’s App Store policies unfairly take advantage of Apple’s dominance for anticompetitive purposes, leading it to attempt negotiations and act against Apple. Meanwhile, Apple is likely to highlight the size of the App Store and the number of consumers it allows developers to reach and show that Epic Games was trying to disrupt the App Store to increase its profits.
As noted by the Washington Post, during the trial, which started today, Apple described Epic Games as determined to lower its costs. Counsel for Apple stated, “Epic has decided it doesn’t want to pay for Apple’s innovations anymore.” Apple’s counsel added, “Epic is here, demanding that this court force Apple to let into its App Store untested and untrusted apps.” In the opening argument, Apple primarily focused on the game industry. Apple also cited the decision in Federal Trade Commission v. Qualcomm Inc., pointing to the court’s decision that read, “Anticompetitive behavior is illegal under federal antitrust law. Hypercompetitive behavior is not.” As a result, proving this distinction could be difficult for Epic Games.
Meanwhile, in its opening statement, Epic Games described Apple’s iOS as a “walled garden” barring competing and innovation. Epic Games also attempted to expand the lawsuit beyond itself and Apple, noting it is suing for change for all developers. Epic Games CEO Tim Sweeney described Fortnite as more than a video game, calling it a “metaverse.” Sweeney elaborated that Fortnite is “a phenomenon that transcends gaming. It’s a social and entertainment experience that includes a variety of gaming experiences and nongaming experiences within it.” Epic’s argument that Fortnite is not just a video game addresses Apple’s allegations that Epic Games has many substitutes. Epic claims, however, that competition in the gaming industry should not apply to this case.
The trial is expected to last three weeks. The docket for this lawsuit was recently updated with various administrative motions, exhibits and other filings from interested parties, as well as those from Epic Games and Apple.
Epic is represented by Faegre Drinker Biddle & Reath LLP and Cravath, Swaine & Moore LLP. Apple is represented by Gibson, Dunn & Crutcher LLP.
