Epic Games and Apple spar over consoles and walled gardens on opening day of trial
Epic Games and Apple kicked off their high-profile trial on Monday, beginning a legal battle that is expected to run for at least two weeks and has the potential to change not only the iPhone maker’s app ecosystem, but also the broader app economy worth hundreds of billions of dollars.
At the center of the lawsuit is Fortnite, the hugely popular video game made by Epic that was kicked out of Apple’s App Store last summer for flouting its rules on digital payments by establishing its own system. Apple (AAPL) gets a 30% cut of many in-app purchases on iOS devices and does not allow alternative payment systems. Fortnite’s removal from the App Store prompted Epic to sue Apple.
On day one, Epic and its first witness — the company’s CEO, Tim Sweeney — sought to establish that Apple’s App Store and its refusal to allow other app stores on its platform constitute anti-competitive behavior. The company argued that Apple’s strict control of its iOS ecosystem — referred to as a “walled garden” — constitutes a monopoly and are calling on the iPhone maker to allow alternative app stores, and potentially apps, on its devices outside of its own and what it approves.
“Epic is solely seeking changes to Apple’s future behavior” and not any financial damages, Sweeney said during his testimony.
Apple argues that allowing apps on its devices that are not subject to its restrictions would compromise the security and privacy of its ecosystem — features it has emphasized as selling points. Additionally, it argues that it is competing in a massive video game market of which it is only a small part, therefore it has no monopoly and cannot abuse such a position.
Much of the day’s proceedings were centered around both companies trying to frame how they define their businesses. Sweeney described Fortnite as a “metaverse” and a “social experience” — a virtual world with movies, TV shows and concerts beyond just gameplay.
Defining the market is key to any potential antitrust case. It’s not illegal to have a monopoly under US law; it’s only illegal to try to preserve a monopoly at the expense of competition. Apple is seeking to establish that its operating system, iOS, competes with several other platforms and thus doesn’t run afoul of antitrust law.
Epic says Apple uses iOS to lock users and developers into a restrictive environment where it then charges them hefty fees for additional transactions. An Epic lawyer, Katherine Forrest, at one point likened Apple to a car dealership that charges customers every time they fill their cars with gas.
Apple pushed back on accusations of anti-competitive behavior by focusing on the gaming industry, arguing that Fortnite is available on several other major platforms including personal computers, Google’s Android operating system and even Epic’s own online game store, as well as popular video game consoles such as Sony’s PlayStation, Microsoft Xbox and the Nintendo Switch. Users of all those platforms can play Fortnite against each other, and largely make in-app purchases on one platform to use on another, Apple argued.
“Epic is asking for government intervention to take away a choice that consumers currently have,” Karen Dunn, a lawyer for Apple, said during her opening statement.
Another Apple lawyer, Richard Doren, pointed out during his cross examination of Sweeney that Epic pays the console platforms a similar 30% fee, even though those platforms also don’t allow external apps or alternative payment methods. Sweeney argued that consoles, which lose money on hardware sales and make it up with software, have a different business model than Apple’s profitable app store.
Several other big names are expected to testify in the coming days, including Apple CEO Tim Cook and a representative for Microsoft (MSFT).
The judge’s ruling — and, of course, the appeals that will almost certainly follow — could have huge ramifications not only for Apple and its iOS ecosystem, but potentially for other app stores and the overall app economy, which has grown to hundreds of billions of dollars and supports millions of jobs. It’s a case that could either transform the way many in-app purchases work, or entrench the power tech platforms have to set the rules of an increasingly digital world.