Court Splits Between Apple and Epic Games

The Fortnite makers loses its effort to force Apple to put it back into the App Store, but it does succeed in getting the court to restore Unreal Engine to the App Store.     

In response to Epic Games’ suit against Apple, the United States (U.S.) court denied the request for an injunction that would force Apple to put back the popular game Fortnite in its App Store. However, the court did rule for Epic Games regarding Apple’s shuttering of its Unreal Engine, a game engine other companies like Microsoft use in developing their games. If this first court decision is any indication, it appears Epic Games has an uphill battle in convincing the court that Apple in engaged in conduct that violates United States and California antitrust law.

In denying Epic Games’ request for a temporary restraining order against Apple in order to get Fortnite back into the App Store, the court decided the plaintiff does not necessarily have an antitrust case strong enough to succeed on the merits, has not demonstrated irreparable harm because the “current predicament appears to be of its own making,” would unjustifiably be enriched if Fortnite is reinstated to the App Store without having to pay 30% of in app purchases to Apple, and is not operating in a public interest strong enough to overcome he expectation private parties will honor their contracts or resolve disputes through normal means. While Epic Games suit is not over, the judge’s preliminary ruling suggests she may not rule in its favor.

However, the court did rule in Favor of Epic Games because it did make “a preliminary showing of irreparable harm as to Apple’s actions related to the revocation of the developer tools (SDKs)” aka Unreal Engine.

Both Epic Games and Apple asked that this dispute be linked to a suit filed last year against Apple on some of the same grounds. The developer who filed suit explained

  • Plaintiffs Donald R. Cameron and Pure Sweat Basketball, Inc., are application developers for the iPhone, a device powered by Apple’s iOS operating system. iOS developers create the applications and in-app products that bring Apple iPhones, iPads, and iPod touch music players to life. Their apps allow users to play games while on line at the grocery store, to edit documents, to make exercise more fun, to help meditate, and so much more.
  • Plaintiffs and their fellow iOS developers sell their iOS apps via Apple’s App Store. They have no choice in the matter, but not because Apple built an app store that beat all comers fair and square. Instead, from the outset, Apple attained monopoly power in the U.S. market for iOS app and in-app-product1 distribution services by slamming the door shut on any and all potential competitors. And it has barred the door ever since. On the thinnest of pretenses—that somehow it is uniquely qualified to ensure the safety and device-compatibility of apps—Apple has never permitted anyone else to distribute apps and related digital products4 to the many millions of U.S. owners of its mobile devices.
  • Further, Apple’s market power has allowed it to charge developers a supra- competitive 30% commission on the sale of paid apps and in-app products for almost 11 years now, despite the inevitable accrual of experience and economies of scale. Additionally, it collects a $99 annual fee from all developers who wish (and must) sell their products through the App Store. Apple also dictates minimum and greater price points, which prevent developers from offering paid products at less than $.99 or at price points ending in anything other than $.99. And so, while Apple is fond of pointing to impressive-sounding sales numbers and dollars earned by developers, nonetheless, its exorbitant fee for distribution (or retail sales) services, coupled with its $99 annual fee and pricing mandates, have cut unlawfully into what would have been developers’ earnings in a competitive landscape.
  • Also, Apple’s overly expensive 30% commission, its $99 annual developer fee, and its pricing mandate have depressed output of paid app and in-app-product transactions. The consumer apps marketplace, which gives rise to the sale of Apple’s distribution or retail-sales services to iOS developers, resoundingly favors low-priced or free apps.5 Developers and would-be developers, who can only earn 70% on the dollar on each paid app or product, in addition to paying $99 annually to gain entry to the App Store, undoubtedly think very hard about whether to spend the effort, time, and energy that is required to design and program an app or related product, bring it to market in the single store available, and hope to recoup costs and make a reasonable profit. For many, the calculus makes no economic sense. This process, which is ongoing, leads to less output in sales, and ergo, distribution transactions.

This litigation has become a class action and is now joined to the Epic Games/Apple dispute and s before the same judge.

Finally, Epic Games has filed a similar suit against Google on substantially the same grounds as it is brining against Apple. Google acted after Apple did to remove Fortnite from its Play Store once Epic Games started offering users a discounted price to buy directly from them as opposed to through Google. Epic asserted:

  • Epic brings claims under Sections 1 and 2 of the Sherman Act and under California law to end Google’s unlawful monopolization and anti-competitive restraints in two separate markets: (1) the market for the distribution of mobile apps to Android users and (2) the market for processing payments for digital content within Android mobile apps. Epic seeks to end Google’s unfair, monopolistic and anti-competitive actions in each of these markets, which harm device makers, app developers, app distributors, payment processors, and consumers.
  • Epic does not seek monetary compensation from this Court for the injuries it has suffered. Epic likewise does not seek a side deal or favorable treatment from Google for itself. Instead, Epic seeks injunctive relief that would deliver Google’s broken promise: an open, competitive Android ecosystem for all users and industry participants. Such injunctive relief is sorely needed.
  • Google has eliminated competition in the distribution of Android apps using myriad contractual and technical barriers. Google’s actions force app developers and consumers into Google’s own monopolized “app store”—the Google Play Store. Google has thus installed itself as an unavoidable middleman for app developers who wish to reach Android users and vice versa. Google uses this monopoly power to impose a tax that siphons monopoly profits for itself every time an app developer transacts with a consumer for the sale of an app or in-app digital content. And Google further siphons off all user data exchanged in such transactions, to benefit its own app designs and advertising business.
  • If not for Google’s anti-competitive behavior, the Android ecosystem could live up to Google’s promise of open competition, providing Android users and developers with competing app stores that offer more innovation, significantly lower prices and a choice of payment processors. Such an open system is not hard to imagine. Two decades ago, through the actions of courts and regulators, Microsoft was forced to open up the Windows for PC ecosystem. As a result, PC users have multiple options for downloading software unto their computers, either directly from developers’ websites or from several competing stores. No single entity controls the ecosystem or imposes a tax on all transactions. And Google, as the developer of software such as the Chrome browser, is a direct beneficiary of this competitive landscape. Android users and developers likewise deserve free and fair competition.

© Michael Kans, Michael Kans Blog and michaelkans.blog, 2019-2020. Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Michael Kans, Michael Kans Blog, and michaelkans.blog with appropriate and specific direction to the original content.

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