Why is epic suing Apple?
In its suit against Apple, Epic accused Apple of antitrust behavior with its practices around the App Store and its payment system, charging that these were in violation of the federal Sherman Act and the California Cartwright Act. wikipedia.orgEpic Games v. Apple - Wikipedia
SAN RAMON, Calif. — Apple’s top app store executive on Thursday faced an avalanche of documents unleashed Thursday by an Epic Games lawyer aiming to prove allegations that the iPhone maker has been gouging app makers as part of a scheme hatched by Apple’s late co-founder Steve Jobs.
Among them: Complaints from developers about Apple’s app store.
“One unidentified developer complained that the store ‘is plagued with outdated low-quality apps which make it harder for higher-quality apps to get the exposure they need,'” Bloomberg news reported. “Another wrote that ‘you tend only to feature indie apps and apps that spend or earn most the money.’ A third said: ‘I’m satisfied as consumer. As a developer it’s a nightmare.'”
The confrontation in an Oakland, California, courtroom came during the fourth day of an antitrust trial targeting the empire that Apple has built around its iPhone and the digital storefront that serves as the exclusive outlet for people to install apps on the ubiquitous device.
Epic, the maker of the popular Fortnite video game, contends Apple’s insistence that apps to pay a 15% to 30% commission on transactions has turned into illegal monopoly that that should be blown up so other options can be offered on the iPhone, iPad and iPod.
Apple so far has mounted a fierce defense of its so-called “walled garden,” in part by highlighting evidence that its app store commissions and practices mirror those of major video game consoles such as PlayStation, Xbox and Switch that Epic has embraced.
After spending the first three days of the trial soliciting testimony from Epic’s own executives and other parties sympathetic to the company’s case, Epic attorney Katherine Forrest and her supporting team took their first stab an Apple executive — Matt Fischer, who has been running the app store since 2010.
While Fischer was on the witness stand, Forrest repeatedly asked him to review e-mails and slide presentations revolving around the app store’s finances, concerns about fraudulent activity and complaints about Apple highlighting its own services in the search results in the app.
Although significant sections of the documents were redacted to shield confidential business information, they still revealed intriguing tidbits.
For instance, a November 2010 slide presentation showed that the app store already had generated $2.1 billion in billings — far more than Jobs envisioned when he came up with the idea in 2008, a year after release of the first iPhone.
Not long after the app store opened, Jobs speculated that it at most might become a $1 billion business. “We don’t expect this to be a big profit generator,” Jobs said in an interview that Fischer shared with his team in July 2018 as a reminder of how far the app store had come since its inception.
Epic contends app store’s unexpectedly fast start prompted Jobs, who died in August 2011, to shift gears and draw up a new strategy to trap iPhone users by building the walled garden around the device and the app store. Fischer told Forrest that he never heard of such a plan, although he conceded it was possible the strategy was created before he took over management of the app store and was never told about it.
Apple has never revealed how much money it makes from the app store but estimates have pegged its annual profit at $15 billion to $18 billion. The Cupertino, California, company has disclosed that it has invested more than $100 billion in the iPhone and its supporting software, including the app store, to help support its argument that Epic simply wants to freeload off its innovations by evading commissions that have been in place for more than a decade.
Epic also tried to cast doubt on one of Apple’s justifications for forbidding other app stores on the iPhone. Apple says its walled garden and commissions help protect consumers against malicious activity that could defraud them and invade their personal privacy.
Forrest confronted Fischer with a variety of documents raising security questions, including a July 2018 email in which he worried about “an epidemic of apps that are trying to to defraud consumers.”
Under questioning by an Apple lawyer, Fischer said he wasn’t responsible for the store’s privacy, security and fraud controls.
“We have been fighting and combatting fraud for a long time,” Fischer testified on the stand.
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07 May, 2021 - 09:47am
“You’ll enjoy the upcoming fireworks show,” wrote Epic Games CEO Tim Sweeney in an email to Microsoft head of Xbox Phil Spencer. It was August 7, 2020, mere days before Epic would publicly launch Project Liberty, its master plan to dismantle the $91 billion mobile gaming market as we know it. Sweeney wanted to shatter Apple and Google’s iron grip on mobile app stores and pave the way for a more open market, and he wanted Microsoft to help.
Project Liberty is now underway, as the first week of Epic’s antitrust trial against Apple comes to a close. Sweeney’s crusade against Apple is not quite David and Goliath—it’s a fight between two multibillion-dollar tech companies, after all. And yet, Epic’s strategy to win friends (corporate peers like Sony, Microsoft, and Samsung) and influence people (the general public) appears so far to be paying off.
The inner workings of Epic’s years-long plan to present itself as gaming’s knight in shining armor are now public thanks to court filings. Epic has been laying the groundwork for Project Liberty since 2018. The goal? As outlined in one 2020 email from chief operating officer Daniel Vogel to Epic executives: Get the public to turn on Apple (and Google) “without us looking like the baddies.”
Last August, Epic initiated stage one: rallying the children. Epic, which publishes hit game Fortnite, decided to sell discounted V-bucks, its in-game currency—but only through Epic’s own direct payment system, including on smartphone. The move was bound to provoke Apple, which requires mobile developers to use its payment system and pay up to a 30 percent commission. Epic took issue with that 30 percent cut, alleging Apple was exercising monopoly power over this ecosystem, and its 30 percent cut was a monopoly tax that ultimately was paid by consumers.
“Our message is about passing on price savings to players,” Vogel wrote in that same email.
Shot fired. The chaser was a cleanly produced bit of anti-Apple propaganda titled “Nineteen Eighty-Fortnite - #FreeFortnite.” In a July 2020 Project Liberty pitch deck to Epic’s board, Epic noted that Fortnite had 81.2 million monthly active users in May of that year. Potentially, a little army. Not many would be sympathetic to Apple’s argument about App Store commissions, but cheap V-bucks were easy to rally behind. Apple booted Fortnite from its platform. The kids were mad. #FreeFortnite trended.
Shortly after this stunt, Epic filed a lawsuit against Apple, alleging Apple’s control over the iOS market is “unreasonable and unlawful,”—the “two” in Project Liberty’s “one-two” punch. (Epic is also suing Google over similar charges; that trial date has not yet been set.) For Epic, the thinking is simple: Apple controls iPhones. Apple controls their operating system, the mobile iOS. And Apple controls the App Store, the only option for distributing apps and games on the mobile iOS. Epic designed its “fireworks show” to prove that they couldn’t distribute Fortnite or sell V-bucks on iPhones through anything other than the App Store.
When Epic filed its complaint last August, its charges did not come as a surprise to Sally Hubbard, director of enforcement strategy at the anti-monopoly think tank Open Markets Institute. “I've long thought that Apple had monopoly power in the App Store,” she says. US law defines monopolies by their power to control prices and exclude competition “So when Apple is unilaterally setting the 30 percent commission,” she says, “that is direct evidence of monopoly power, because that's the power to control prices.” It’s not about whether Apple is offering superior-quality services to consumers, she says; their consumers aren’t going to switch to Android or Xbox or PlayStation to avoid App Store prices.
In the trial, Apple is arguing that Epic breached its contract in an effort to make more money, and that Apple deserves its 30 percent commission due to its development and curation of the app store. However, Apple’s practices are facing increased scrutiny around the world. Late last month, the European Union charged Apple with violating antitrust regulations, in connection with a 2019 complaint from Spotify.
Epic’s crusade against closed ecosystems like Apple’s has been going on for many years, as revealed by documents made public throughout the trial. In 2015, Sweeney questioned Apple CEO Tim Cook in an email over whether it was tenable for Apple to be “the sole arbiter of expression and commerce over an app platform approaching a billion users.” (In response, Cook asked a colleague, “Is this the guy that was at one of our rehearsals?”) Sweeney was not afraid to make his thoughts about Apple’s business practices public, though. In 2018, he tweeted that Apple is “fundamentally wrong in blocking competition and choice on devices they make, and that holds up entire fields of technological progress.”
Apple wasn’t Sweeney’s only target. Epic in 2018 famously took on the PC gaming marketplace Steam with its Epic Games Store, luring developers for exclusive deals by taking a 12 percent cut of sales as opposed to Steam’s 30 percent cut.
These documents have also exposed a complex network of attempted alliances between Epic and other tech giants. In 2018, Sweeney offered Sony the option to “look like heroes” in a newly revealed email to a Sony Interactive Entertainment executive: Sony just had to announce cross-play for Fortnite. When Sony demurred, Sweeney went on the offensive, arguing that Sony was being adversarial to consumers and, a little dramatically, tearing apart friendships between kids playing Fortnite on different systems. (Sony would continue blocking cross-play until later that year, but apparently charges Epic fees for it.)
With Microsoft and Samsung, Sweeney tried honey, not vinegar. In emails with Microsoft’s Phil Spencer last August, Sweeney vaguely referenced upcoming plans that would “provide an extraordinary opportunity to highlight the value proposition of consoles and PCs, in contrast to mobile platforms.” So, Sweeney added, it would be good for Microsoft to announce subscription-free multiplayer later that month—just a little after Project Liberty’s first stage. (Microsoft wouldn’t announce free-to-play multiplayer until late April 2021). Samsung was a little more amenable. Early in 2020, Sweeney pitched Samsung Mobile president T. M. Roh on his mission to “change the status quo on mobile payments,” according to a newly revealed email. Later that year, Samsung partnered with Epic to send out #FreeFortnite swag to influencers.
For the most part, Epic’s Project Liberty strategy appears so far to have worked. In interviews with WIRED, two game developers expressed renewed invigoration to fight for lower app store commissions. Fortnite players are still peeved they can’t play a current build of the game on iOS. Some took advantage of a mute button error to scream “Free Fortnite!” as the trial began.
The question remains: Did Epic succeed in winning over big industry players—especially ones who look up to Apple? In the trial, executives from Nvidia and Microsoft described barriers they faced to getting their cloud gaming programs on the App Store. Outside of the courtroom, others seem reticent to speak negatively about Apple’s business practices. The case remains so controversial that just five out of 30 games companies or professionals WIRED contacted this week were willing to talk about it by press time.
Kristian Segerstrale, CEO of mobile game company Super Evil Megacorp, has been making mobile games for 20 years, including and especially with Apple. In his view, it would be unfair to punish Apple for its success. “They were the original innovator,” he says. “They were the original folks who built the underlying infrastructure, culture, models and technologies that enabled mobile gaming.” While he does sympathize with Epic’s point about the 30-70 revenue split, Segerstrale says it is important to continue incentivizing innovation.
Epic, too, has innovated—and years of strategic business decisions and alliances have put the company in a good position to pitch itself as a champion of the consumer. But the fact remains: Epic is a behemoth in its own right, and not just with Fortnite, which earned Epic $9 billion in 2018 and 2019. It has a massively popular game development toolkit, Unreal Engine. Chinese tech giant Tencent owns a 40 percent stake in Epic (and Tencent itself takes a 50 percent cut of apps it sells). Just in the last couple of months, Epic bought up RAD Game Tools, Fall Guys creator Tonic Games Group, Capturing Reality, and ArtStation.
And despite all its talk about being fair to small developers, the trial has revealed that Epic paid startlingly uneven rates to developers to distribute their games for free on its Games Store (and attract gamers). So while Epic paid about $50,000 for Canary or RiME, each downloaded about 2.5 million times, it paid $700,000 for Enter the Gungeon, downloaded 2.7 million times. Several sources speaking with WIRED joked, with undertones of seriousness, that Epic should just go and make its own phone.
It’s not so unbelievable that Epic is killing many birds with one stone. Sweeney’s savvy emails to friends in high places all make the same ask: Help us grow Fortnite, and it will be the Trojan Horse that introduces the cause of open mobile ecosystems. Partner with Epic, and then, maybe, Epic will be better poised to make the ecosystem healthier for everyone.