Three questions that will decide Epic vs Apple


May 3 Fortnite publisher Epic Games is finally getting its day in court, forcing Apple to defend spades Fortnite last year from the iOS App Store. Epic’s antitrust lawsuit is bigger than a single game; it is a direct challenge to the App Store model, the main legal challenge facing Apple since the Xerox days.

Last night, both sides filed a document called “Proposed Factual Findings”, which sets out essentially any factual assertion that they will rely on in their arguments. Spanning over 650 pages in total, the documents provide a detailed roadmap of how each side sees the matter – from the early days of the iPhone to Epic’s specific preparations to take on this battle with Apple. But the files also highlight the case, raising three questions that will be central to the process in the coming months.

At the heart of the matter is the so-called App Store tax – a 30 percent surcharge that Apple collects on purchases made through the App Store. Fortnite was kicked out of the App Store for evading that tax by installing its own payment system, which is prohibited by App Store rules. Now Epic is pleading in court that the rules should never have been introduced.

You often hear that this case is about whether the App Store is a monopoly – but Epic’s argument is more subtle than that, drawing on antitrust ideas about legal monopolies and the abuse of market power. As Epic sees it, Apple’s monopoly on iOS is legal, but it uses the market power of that monopoly to dominate the secondary app distribution market. Epic likens the situation to Microsoft’s antitrust case in the 1990s: a legitimate monopoly on Windows, illegally extended to the secondary market in web browsers.

It’s a good theory, but it only works if you fundamentally separate the App Store model from iOS. In its statement of fact, Apple describes the exclusive App Store as a fundamental part of the iPhone, as part of the wider offering that makes the devices valuable. “Apple wanted to make sure that iOS devices were better protected against those malware, instability, and quality issues that the PC world has been accustomed to,” Apple claims in its submission. App Store exclusivity is part of that, but so are security measures like code signing and hardware root-of-trust systems. On the software side, there is a set of private APIs and OS-level permissions that are only enabled after review in the App Store, which makes the systems much tighter.

Obviously, it’s inconvenient for this argument that Google offers a competing mobile operating system without any of these restrictions – not to mention Apple’s own macOS, which allows for side-loading. Obviously, it would be technically possible to allow competing app stores on iOS. The question is whether the court sees that as changing Apple’s business model or as changing iOS itself.

One of the biggest challenges for Epic is that the App Store model is quite widespread. Consoles like Xbox and PlayStation run on basically the same playbook, delivering games digitally through an open but managed digital store that is locked to the hardware and managed by the manufacturer. That alone doesn’t make it legal, but it adds credence to Apple’s assertion that the App Store lockdown doesn’t trick consumers. If you don’t want to play Fortnite on an iPhone you can play it on a console or a pc. Some devices are locked into a specific distribution channel and others are not, giving users a chance to vote with their feet.

Epic’s contradiction to this argument, as explained in the filing, is that “video game consoles operate on a radically different business model from smartphones.” Development for console games is slow and expensive work, and consoles are useless without a steady supply of those games, so console manufacturers are under tremendous pressure to attract developers. That means that hardware itself is often sold at cost, making App Store commissions the main source of profit.

Apple is different, Epic argues, because most of the profit still comes from iPhone sales. “Developers do not participate in those gains,” says the petitioner, “although the availability of apps is a major contributor to device sales.”

At some level, this boils down to arguing that console companies are nicer to developers, so their platform power is less of an issue. The constant competition between Xbox and PlayStation gives game developers the opportunity to obtain more favorable conditions. But iOS and Android don’t compete for app developers in the same way, and the lower cost of mobile development means that the competition takes place on completely different terms. Apple has given people a lot of reasons to buy an iPhone, which means there is less pressure on a particular industry. But that’s way behind the standard for monopoly power, and Apple eventually gets away from the console equation and looks pretty good.

Above all, Apple faces the profound question of how much control it can exercise over its own devices. For critics, this is Apple’s original sin: they use industrial and graphic design to lure customers into a walled garden and then lock the gate. For fans, it’s Apple’s genius, integrating hardware and software to deliver a more targeted and powerful user experience. But it all rests on Apple’s ability to keep a closed stack, using hardware integration to control what’s going on in software.

This trial won’t undo that stack, but it could limit what Apple can do with it. The Epic Games battle started over payment processing, but the same legal standard could enable alternative app stores or limit the restrictions Apple can impose on rogue apps like Parler. It is a first step towards setting legal limits on how technology companies operate, similar to the regulations for wireless providers or banks. At its most basic level, Epic claims that Apple’s ecosystem has become too big and too powerful to be run entirely out of Cupertino, and that it is time to be directly accountable to antitrust laws.

Hundreds of pages in Apple’s archives are devoted to the benefits of that system for developers and iPhone owners, much of which is undeniably true. There really is less malware on iOS devices because of Apple’s software controls, even if scam apps sometimes slip by. The system really makes a lot of money for iOS developers, many of whom couldn’t compete outside of Apple’s walled yard. The shift to digital distribution has saved real money for developers who no longer need to distribute their product through physical retail.

But in a sense none of that matters. Abuses of market power are not only excused for being useful at times, and classical monopolies such as Standard Oil or Bell Telephone also had many side benefits. The bigger question is whether courts are ready to dive into the mobile software stack and dictate the terms for setting up their marketplaces. That’s a tough question, and it won’t be resolved by a single statement or case. Regardless, it is a question that this court will have to answer.