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Epic Games takes on Apple and Google in Australia over alleged misuse of market power

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Epic Games takes on Apple and Google in Australia over alleged misuse of market power

When Apple’s first iPhone launched in 2007, all of its apps were made by Apple.

Steve Jobs was reluctant to allow apps from third-party developers on the iPhone, according to his biography by Walter Isaacson. It finally bowed to pressure when the App Store launched in 2008. But the company wanted tight control over what was allowed on the platform, an email released in 2021 revealed.

Apple’s control over its empire will be at the center of a case heard over the next five months in the Federal Court in Melbourne. At the same time, Google – which prides itself on having a more open ecosystem than Apple – will see its own practices put to the test.

Two trials in the Australian Federal Court were suspended in April 2021, pending the outcome of similar cases in the United States. Epic Games, creator of the popular game Fortnite, has spent the past three years in a global legal battle against Apple and Google, alleging abuse of market power over the control they have over their app stores.

Fortnite launched on the Google and Apple app stores in 2020 after Epic Games offered its own in-app payment system that bypassed that used by the platforms and removed fees charged by Apple and Google for in-app payments .

Epic lost its antitrust case against Apple in 2021, but won its case against Google late last year. Initially separate, the Australian cases are now grouped into a single monolith. Judge Jonathan Beach decided to hear both cases and a related class action at the same time to avoid duplication of testimony.

David and Goliath?

In the Australian cases, which began in 2020, Epic Games alleged that Apple’s control over in-app purchases and its actions to ban the Fortnite app constitute an abuse of market power, which significantly reduced competition in application development. The company also alleged that Google harmed app developers and consumers in Australia by preventing choice in app distribution and in-app payments on Android devices.

Much like their phone operating systems, the legal affairs between Apple and Google have many similarities – but also key points of difference. Apple’s iOS and App Store are completely closed off and controlled by Apple. This means that if an app is on your phone and there is a payment through that app, it must go through Apple.

Similar rules apply to Google’s Android operating system for the Play Store, but Google also allows “sideloading” of apps, that is, apps installed directly on the phone without using the App Store. It also allows phone makers like Samsung to have their own app stores. Fortnite is still available on Android, but only via sideloading or through the Samsung store.

Each company charges fees for transactions in its app stores. Google Play charges a 15% fee for the first US$1 million developers earn each year, increasing to 30% beyond that. Apple developers pay a 15% fee if revenue generated in the previous year is less than $1 million, but pay 30% if they earn more than that.

Fees are common in the industry – Epic’s own store charges developers a 12% fee.

Epic argues that it should be able to offer its own store in competition with Apple’s store, and also offer alternative payment options within its app in the official games store.

Although Google has claimed that it is more open than Apple’s App Store, it is this openness that has cost the technology company dearly in the American case. A jury found that tying the Google Play Store to in-app payments was illegal and that the company made anticompetitive deals with some developers to keep their apps in the Play Store.

In the Apple case, the judge took a narrower view, looking specifically at mobile game transactions rather than the app store as a whole. The judge ruled that Apple was not a monopoly, but was in competition with Google and others. The judge also backed Apple’s concerns about the security implications of opening the App Store and backed the company seeking to charge fees for use of its intellectual property through in-app payments to the application.

Apple is expected to run a very similar deal in Australia. The company believes there are few differences between the cases and that the principles underlying Australian competition law are similar to those of US antitrust laws.

Apple does not view Epic as David facing Goliath, but as a multi-billion dollar company seeking to generate more profits at the expense of the security of iPhone users.

Google says it offers customers choice in app stores, as well as alternative options for developers to sell content outside of Google Play. He also highlights its permissions allowing sideloading of apps while trying to keep users safe – something Epic is trying to water down, he says.

“It’s clear that Android and Google Play offer more choice and openness than any other major mobile platform and it’s a model that is good for Australian developers and consumers,” Wilson said White, Google’s vice president of government affairs and public policy, in an article published this week. .

“We will continue to vigorously defend our right to a sustainable business model that allows us to keep users safe, collaborate with developers to grow their businesses and keep the Android ecosystem thriving and healthy for all Australians.”

Apple forced to make changes to the European App Store

Opening presentations will last two weeks, followed by testimony from witnesses and experts for three months, followed by two weeks of final presentations ending in mid-July.

Expected witnesses include Epic CEO Tim Sweeney, who is in Melbourne for the hearing, as well as key executives from Apple and Google.

A class action lawsuit conducted simultaneously on behalf of Australian developers and consumers will fail if Epic’s case fails.

The case is unlikely to be resolved this year, since Beach is not expected to issue a judgment within six months, after which appeals could be filed.

Whether Epic wins the battle or not, Apple and Google may ultimately lose the app store war. Apple was forced to implement changes to its App Store in the European Union – including allowing other payment options and marketplaces – following the Digital Markets Act. As a result, Apple restored Epic’s developer account in the EU last week.

According to Epic, Apple’s implementation of these changes is imperfect, but it could lead other governments, including Australia, to follow suit.

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