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Now that the landmark antitrust trial of Epic vs Apple has been running for more than one week this explainer should provide you with all you need to know.
Epic filed an anti-trust lawsuit against the tech company for kicking Fortnite off their App Store. This is more than a challenge over a single videogame, this is a major challenge to the entire walled garden ecosystem that Apple has built. The heart of the issue is the 30 percent surcharge Apple collects on purchases made through the App Store. Fortnite was kicked off the App Store by offering in-app purchases that circumvented the App Store and avoided the 30 percent surcharge, the so-called Apple Tax.
Epic Games argues that while the control Apple has over what app can be allowed on their App Store is perfectly legal, the issue arises when they use that control to influence and profit from the secondary in-app purchase market.
Before the trial
Proposed findings of fact
Before the Epic vs Apple trial even began, there was plenty of information floating around. Both parties had to file a document called a “proposed finding of fact”. This essentially lays out every factual claim that they will use in their arguments at the trial. They are some seriously hefty documents, totalling at about 650 pages and they draw on the history of both companies. Already, this first wave of information was affecting Epic Game’s stocks.
“Epic just wants to free-ride on Apple’s innovation,” Apple said in its filing on Thursday, arguing that Epic is using the lawsuit to “revive flagging interest in Fortnite.” The issue with this claim is pretty obvious, Fortnite is still a hugely popular title, even Fortnite betting sites and its esports ecosystem remain popular attractions this long into their lifecycles.
Different marketplaces
Comparisons were made to a similar system employed by console manufacturers and publishers. While consoles from the likes of Sony and Microsoft operate on a similar model, they believe that the issue comes down to the profits. In their filing, they state that “video game consoles operate under a radically different business model than smartphones.” This means that most console manufacturers offer their hardware at cost or often lose money by selling them, it is in their interest to attract developers so the charges on the game and in-app purchases are necessary to maintain their profits. On the other hand, Epic claims that Apple still makes the most of their profits from the sale of iPhones, so the charge should be different.
The opening week
Epic’s case
The first week of the Epic vs Apple lawsuit has mostly focused on Epic putting forward its case. Apple has been allowed some cross-examination of their witnesses, but their defense will not begin in earnest until later this week.
Early in the trial, witnesses were brought to the stand to emphasize the differences between having a native app on iOS and using a web-based app as well as the major differences between console gaming markets compared to those on mobile gaming platforms.
This was an attempt to claim that the refusal of Apple to allow third-party payment systems on their native apps was a blatant attempt to force developers into using inferior web-based options. Epic brought Aashish Patel, director of product management at Nvidia, Lori Wright, Microsoft’s VP of business development for gaming media and entertainment, and Andrew Grant, engineering fellow at Epic Games.
Lori Wright
Lori Wright spoke about the differences between console, PC, and mobile game sales. She reiterated the arguments put forward by Epic in their proposed finding of facts. Xbox sells consoles at a loss and therefore requires the 30% commission on games to recoup costs. She compared it to the PC and iOS devices, quoting that on PC games, developers retain 95% of the profit compared to 61% of the profit when it comes to mobile gaming.
This highlights the major thrust of Epic’s first week in court. They are trying desperately to define what a relevant marketplace is. The case could get weighed down by comparisons to irrelevant marketplaces and different commissions. If the judge is swayed by Apple’s arguments that they operate in a similar way to console manufacturers, the 30% cut does not seem out of the ordinary. While this would be good for Apple, this would most likely invalidate a lot of the arguments that have been prepared by Epic.
The second week
The economists
The second week of the trial has been given over to economists on both sides of the lawsuit. They are still attempting to define the specifics of the Apple gaming market. Experts on the side of Epic Games attempted to define the App Store as its own gaming universe, meaning that there are players who choose to only interact with videogames through Apple devices.
On the other hand, Apple has tried to argue that gaming on their devices is more of a fleeting experience. They argue that gamers would only choose to play Fortnite on iOS devices if they could not access their console or PC. This argument was backed up by the statistic that only a little more than 10% of Fortnite players and 13% of the game’s revenue came from players using iOS.
The Judge
Another major point of interest in the second week of the trial, was the conduct of Judge Yvonne Gonzales Rogers. She is certainly not new to the world of tech lawsuits, but the gaming industry was relatively new to her. Despite that, her interjections and questions throughout the trial shows a remarkably quick acclimation to the world of gaming.
The questions that the judge is asking hints at what the potential outcome of the case may be. She is focused on the idea of choice, even saying at one point: “What’s so bad about it anyway, for consumers to have choice?”
This could hint at a future of the Apple ecosystem where they may be forced to let developers offer third party payment systems. This would certainly not be the best outcome for Apple, but it would also not be the ideal one for Epic either. She seems to be stuck in the middle.
The upcoming week
The final week will be focused on Apple getting the chance to fully defend their position as a walled garden ecosystem that cannot accept the inclusion of third-party payment systems. In terms of a realistic outcome, it is still too early for the decision to become clear although the questions asked by the judge does hint at a potential option for a relaxing of the App Store restrictions.
The future of the case
Our opinion
In my opinion, it all just boils down to cold hard cash. No matter how these companies care to spruce up their arguments regarding the freedom of the industry or the need for competition, the simple fact of the matter is that Epic Games believed they could make a lot more money if Apple wasn’t taking a 30 percent cut of the in-app purchases. Now, with a serious lawsuit on the horizon, who knows what will happen to Epic Game’s stocks and more generally, esports stocks.
There will be some interesting things to come out of this lawsuit. If it is determined that Apple is now too big to be run out of their Cupertino offices, we could see one of the biggest anti-trust cases in years. They could be regulated in a similar manner to wireless carriers or banks, regulatory limits could be placed on the smartphone companies which may impact the control they have over their own ecosystem.
