The video game manufacturer Epic Games is taking the tech group Apple to court. The lawsuit targets the core of Apple’s philosophy of a closed ecosystem. It could make waves as far as Europe.
Et was a daring move: Last August, Epic Games put new software for its popular video game “Fortnite” in the Apple App Store. It violated the rules of the iPhone manufacturer, which requires app suppliers to use the in-house payment system through which he collects fees. Epic bypassed this system, the update was also smuggled in like a Trojan horse, because the changed payment function only became active after Apple’s approval in the App Store. All of this amounted to a blatant breach of contract, Apple sees it as an “act of sabotage”.
“Fortnite” immediately flew from the App Store, but that was part of the calculation, because the illegal software was only the starting signal for a meticulously planned campaign. Hours after the “Fortnite” expulsion, Epic filed an antitrust lawsuit against Apple and published an elaborate commercial with the catchphrase “FreeFortnite”. The company portrayed itself as the real victim, exploited by a tech giant who uses its power and collects excessive fees from app developers.
The dispute is now facing a showdown. The trial of Epic’s lawsuit begins on Monday in Oakland, California. A spectacle is to be expected, and Apple is taking the process extremely seriously, CEO Tim Cook wants to testify. It’s about much more than a conflict between two companies. The entire business model in the App Store is at stake and with it the future of the closely related iPhone. The lawsuit also targets the core of Apple’s philosophy of a closed ecosystem, in which the company reserves maximum control and everything that goes into its products is developed or strictly curated by itself.
The discussion about Apple’s practices in the App Store goes well beyond this legal dispute. Other companies, such as the music service Spotify, are also complaining and are thus increasingly being heard by politicians and regulators. The EU Commission has initiated antitrust proceedings against Apple and only tightened it a few days ago, with which it delivered more ammunition to Epic shortly before the start of the process. There are bills on both sides of the Atlantic that could force rule changes in the App Store.
App Store enabled iPhone hype
Apple launched the App Store in 2008, a year after the iPhone. It happened reluctantly because it meant populating the cell phone with strange programs. But the App Store was a big hit. It was the apps that made the iPhone the all-rounder it is today, and Apple opened up a new market for its developers. Both sides benefited, and for a long time Apple’s commission of 30 percent on revenue was not questioned. That has changed the bigger this app economy got.
The App Store is an important source of revenue for Apple today, and the company has increasingly become a competitor to its app developers because it relies more heavily on online services such as Apple Music. Epic sees it as an abuse of market power that Apple only gives its app developers one route to the iPhone.
You have to go through the App Store and use Apple’s payment system, which incurs fees. Epic says this is a shame for developers and leads to higher prices for consumers. Apple counters that this approach serves security and data protection. The group has invested a lot of money in the App Store and is entitled to remuneration. The fees are standard in the industry, Apple has also lowered them in some cases and does not require any money from many developers. A central question in the process will be what is defined as the relevant market and thus also as Apple’s abundance of power.
The world looks to Oakland
Epic draws the boundaries much closer than Apple and describes the App Store and its payment system as separate markets within the iPhone realm. Apple thinks this is nonsensical because it automatically creates a monopoly. Of course, the EU also argues with a similarly narrow market definition.
Still, it won’t be easy for the video game maker. The judge responsible has already signaled that the dispute is breaking new ground in competition law. For this reason alone, the process will probably only be the first of several instances. It is always dangerous for Apple. This is not only about the benevolence of the judge, but also about public opinion.
Apple attaches great importance to a pure white reputation, the image drawn by Epic as a tech suppressor is difficult to reconcile with it. And whatever happens in the process could also have an impact on antitrust laws and procedures. In Brussels and Washington, people will certainly look eagerly to Oakland.