Epic Games vs. Apple: A Tug-of-War in Tech

The ongoing legal conflict between Epic Games and Apple could potentially redefine the very framework of digital commerce. To understand the gravity of this battle and what it means for digital consumers, this blog post dissects key aspects, legal provisions, case law, expert opinions, and global implications of the lawsuit.

Background

At the epicenter of this legal face-off is Apple's App Store policies, with the stipulated 30% commission on in-app transactions particularly in dispute.[1] Epic Games, the creator of the popular game Fortnite, sought to bypass this fee by introducing its own payment system.[2] In response, Apple swiftly removed Fortnite from the App Store.[3] This ignited Epic's lawsuit, positioning it as a David against Apple's Goliath, bringing claims against Apple for monopolistic practices and antitrust violations.[4] Apple maintains its exclusive ecosystem through technical and legal methods. Developers must pay $99 and agree to the Developer Program Licensing Agreement (DPLA) to distribute apps on iOS.[5] This contract, rarely altered even for the millions of iOS developers, grants access to Apple's large user base—over 1 billion or 15% of the global smartphone market.[6] In return, developers get access to development tools, including Application Programming Interfaces (APIs), beta software, and testing tools, while Apple licenses its IP and collects a $99 fee plus a 30% commission on iOS app revenues.[7]

Historically, Apple's walled garden approach gave it control over the ecosystem, ensuring quality and security.[8] The pivotal point in this lawsuit revolves around determining whether Apple's ecosystem constitutes a monopoly and if its policies are anti-competitive.[9] In the district court, the judge ruled that Apple’s policy of preventing developers from introducing alternative payment methods violated the California Unfair Competition Law.[10] After the decision, the judge ordered Apple to change its policy and allow developers to advertise alternative payment methods for their applications.[11] Thereafter, Apple appealed the district court's ruling to the U.S. Court of Appeals for the Ninth Circuit, which upheld the district court's decision.[12] However, Apple has yet to implement the judicially-ordered change, and has asked the Supreme Court to hear the case and reject the lower courts’ rulings.[13] The Supreme Court has not decided whether it will hear the case.[14]

Why Should Digital Consumers and Developers Care?

For digital developers, if Epic wins this lawsuit, it could cause a significant ripple effect where application developers earn back a large percentage of their revenue.[15] This could create more competition in the digital marketplace because developers would not be forced to give Apple 30% of their earnings.[16] A victory for Epic Games suggests that, with the elimination of the 30% fee, app developers could enjoy better margins as they would retain 30% more money than they otherwise would.[17] However, if Apple emerges as the victor, developers will likely continue to be put in a tough position where they have to decide whether they are willing to accept a 30% haircut on in-app transactions.[18]

For digital consumers, a victory for Epic games could open the door for developers to make in-app purchases more seamless and user-friendly.[19] Apple's current system is not seamless and user friendly because users can only download apps through the App Store, as opposed to downloading apps directly from the developers.[20] What this means is that removing Apple as the middleman between the users and the developers will allow developers to compete in an open market.[21] In turn, this would create significantly more competition for in-app transactions.[22] Additionally, the removal of Apple’s policy would give users more choices when choosing to make in-app purchases as well as potentially lowering prices for applications because developers will not have to pay the Apple 30% of their earnings.[23]

The conclusion of this case could redefine the way that the public interacts with app stores, and it could make products more accessible by potentially lowering prices for otherwise expensive applications. Importantly, since most people have smartphones and use apps almost every single day of their lives, the public should keep a watchful eye on the outcome of this case.

 Major Legal Issues

One of the major legal issues in this case concerns antitrust law.[24] Epic Games alleged that Apple holds a monopoly over the “iOS” app distribution market and the “iOS” in-app payment system.[25] Epic Games supported its allegation by showing that Apple’s App Store is the sole distribution market available to iPhone users.[26] For example, developers must use Apple’s payment system in accordance with Apple’s guidelines to put applications on the App Store.[27] However, the district court struck down Epic Games’ argument because it found that Apple’s system was offset by procompetitive justifications and that the system was not illegal.[28] A procompetitive justification is a nonpretextual claim that the defendant’s conduct is indeed a form of competition on the merits because it involves greater efficiency or enhanced consumer appeal.[29] The district court accepted Apple’s procompetitive justification on the grounds that its policy improved.[30]  The district court also partially accepted Apple’s justification for the policy because it found that Apple has a right to be compensated for its IP investment.[31]

Another major legal issue concerned California’s Unfair Competition Law.[32] The district court found that Apple's policy of preventing developers from introducing alternative payment methods violated California's Unfair Competition Law because Apple hid “critical information from consumers and illegally stifle[d] consumer choice.”[33]

Global compliance and business ethics are also implicated in the case.[34] One of the ethical and legal issues raised by Epic's legal counsel was Apple's compliance with requests from foreign governments, including app removals.[35] This is reflective of a larger issue where global tech companies are often required to comply with the laws and regulations of the countries they operate in, which might sometimes conflict with the company's ethical standards or the expectations of their user base.[36] Apple, like other global companies, must navigate a fine line between adhering to local laws and maintaining a consistent ethical stance across markets.[37]

The Ninth Circuit upheld most parts of the district court's decision, favoring Apple.[38] The appeals court confirmed that Apple did not violate antitrust laws with its App Store policies.[39] Although the court recognized that Apple's practices might have an anticompetitive effect, it ruled that Epic Games did not successfully prove its case under the Sherman Act.[40] However, the court did uphold a part of the ruling favorable to Epic under California’s Unfair Competition Law. This ruling is a significant win for Apple and maintains the status quo of its App Store operations.[41]

Outlook For the Future

In summary, the lawsuit between Apple and Epic Games encapsulates crucial legal debates surrounding antitrust law, consumer protection, global compliance, and the regulatory landscape of digital marketplaces. The ongoing legal battles and their eventual resolutions could shape the legal framework governing tech companies and digital ecosystems for years to come. Lastly, the legal conflict between Epic Games and Apple could be a catalyst for transformative changes in the legal and operational frameworks of digital marketplaces, impacting consumer choices, developer opportunities, and the broader digital economy.

[1]  Epic Games, Inc. v. Apple, Inc., 67 F.4th 946, 968 (9th Cir. 2023).

[2]  Id. at 969.

[3]  Id.

[4]  Id.

[5]  Id. at 968.

[6]  Id. at 969.

[7]  Id.

[8]  Id. at 968.

[9]  Id. at 969.

[10]  Stephen Nellis, Apple asks US Supreme Court to strike down Epic Games Order, Reuters (Sept. 28, 2023, 10:31 AM), https://www.reuters.com/legal/apple-asks-us-supreme-court-strike-down-epic-games-order-2023-09-28/#:~:text=Sept%2028%20%28Reuters%29%20,Fortnite.

[11]  Id.

[12]  Id.

[13]  William Skipworth, Apple asks Supreme Court to overturn ruling in epic games legal battle, Forbes (Sept. 28, 2023, 3:53 PM), https://www.forbes.com/sites/willskipworth/2023/09/28/apple-asks-supreme-court-to-overturn-ruling-in-epic-games-legal-battle/?sh=1645b0bf79a9.

[14]  Epic Games, Inc., Petitioner v. Apple Inc., Supreme Court of the United States, https://www.supremecourt.gov/search.aspx?filename=%2Fdocket%2Fdocketfiles%2Fhtml%2Fpublic%2F23-337.html (last visited Nov 10, 2023).

[15]   Conor Hume & Will Deller, Epic Games goes to battle with Apple and Google: The dispute so far, MediaWrites (Sept. 25, 2020), https://mediawrites.law/epic-games-goes-to-battle-with-apple-and-google-the-dispute-so-far/.

[16] Id.

[17] Shannon Liao, What the epic v. Apple lawsuit means for the gaming industry, The Washington Post (2021), https://www.washingtonpost.com/video-games/2021/09/13/epic-games-apple-lawsuit-ruling-impact/ (last visited Oct 26, 2023).

[18]  Yen-Shyang Tseng & Garen N. Bostanian, Epic Gaming, L.A. Law. 36 (April 2021), https://lalawyer.advanced-pub.com/?m=69194&l=1&p=32&view=issuelistBrowser&ID=32&ver=html5.

[19]  Id.

[20]  Id. at 38

[21]  Id.

[22]  Id.

[23]  John Bergmayer, Who Won Wpic v. Apple? Consumers (But More Is Needed), Public Knowledge (Sept. 16, 2021), https://publicknowledge.org/who-won-epic-v-apple-consumers-but-more-is-needed/.

[24] Juan Londoño, A Primer on the Current Status of the Epic v. Apple Case, American Action Forum (May 18, 2021), https://www.americanactionforum.org/insight/a-primer-on-the-current-status-of-the-epic-v-apple-case/#:~:text=Apple%20lawsuit%2C%20which%20recently%20began,the%20federal%20and%20state%20levels.

[25] Id.

[26] Id.

[27] Id.

[28] Geoffrey Kozen, Summary of the Trial Decision in Epic Games, Inc. v. Apple Inc., Robins Kaplan LLP (Oct. 25, 2021), https://www.robinskaplan.com/resources/publications/2021/10/summary-of-the-trial-decision-in-epic-games-v-apple.

[29] Epic Games, Inc. v. Apple, Inc., supra note 1, at 986.

[30] Id.

[31] Id.

[32]  Id.

[33] Id.

[34] Makenzie Holland, Tim Cook takes stand in Apple, Epic lawsuit, TechTarget (May 21, 2021), https://www.techtarget.com/searchcio/news/252501257/Tim-Cook-takes-stand-in-Apple-Epic-lawsuit.

[35] Id.

[36] Id.

[37] Id.

[38] Epic Games, Inc. v. Apple, Inc., supra note 1.

[39] Id.

[40] Id.

[41] Id.