Is Epic Games About to Take a Bite of Apple?

By: Sabin Jackson

Apple’s legal team is doubtlessly accustomed to receiving and dealing with complaints, but rarely do they face one with the implications of Epic Games’ recent request for injunctive relief. On Thursday, August 13th, Epic filed a complaint against Apple alleging anticompetitive and monopolistic business practices. [1] The main stab of the complaint is that Apple’s 30% commission on all in-app sales is unconscionably high, especially when juxtaposed with the standard transaction rates of other electronic payment processing tools and credit cards. [2] This complaint only arose after several attempts by Epic to see the App Store’s payment mechanism changed and Apple refusing to do so; each communication from Apple included a reminder that to bypass the App Store commission in any manner would put Epic in breach of their contract. [3] Instead of continuing to bash their head into a wall, Epic added an “Epic Direct” payment option to their flagship game, Fortnite, which was immediately removed from the App Store and barred from further updates. [4] In return, Epic filed a suit with Sherman Act implications in the federal court for the Northern District of California. [5]

The Sherman Act, the crown jewel of the wave of “trust-busting” regulations around the end of the 19th Century, penalizes those who “monopolize any part of the trade or commerce among the several States.”[6] The Ninth Circuit has held that three elements must be satisfied to prove the existence of a monopoly under the Sherman Act: Antitrust injury, “possession of monopoly power in the relevant market,” and “willful acquisition or maintenance of that power.”[7] Epic hopes to show that by levying such taxes on app developers, Apple is restricting growth, and thereby severely restricting competition in the realm of online app development and maintenance. [8]

Apple is no stranger to allegations of monopolization; on July 29th, CEO Tim Cook testified to Congress that the App Store afforded boundless opportunities for smaller developers, ironically the ones who likely stand to lose the most from the App Store tax.[9] “If Apple is a gatekeeper,” Mr. Cook said, “what we’ve done is open the gate wider. We want to get every app we can on the store . . .” [10] This specific talking point might haunt Apple. Several apps including WordPress and Basecamp have claimed that Apple threatened to take their apps out of the store unless they added paid features. [11] Of course Apple would want as many apps as possible in the store if they stand to make 30% of each app’s profits.

Every app developer is certainly watching this suit closely. A lower tax would mean more cash for massive developers like Facebook, who have         had well-documented problems with the tax in the past, even though they have not filed any suits over it. [12] Smaller app developers are certainly watching too, because a lower tax would mean more opportunity to develop and grow in ways that are simply impossible under the current financial agreement. [13] The result of this case will have massive implications for developers throughout the tech world.

[1] Troy Wolverton, ’Fortnite’ Maker Epic Games Just Set an Antitrust Trap for Apple, and Tim Cook Walked Right Into It, Business Insider  (Aug. 13, 2020), https://www.businessinsider.com/apple-walked-right-into-epics-antitrust-trap-by-banning-fortnite-2020-8.

[2] Ben Thompson, Rethinking the App Store, Stratechery (Aug. 25, 2020), https://stratechery.com/2020/rethinking-the-app-store.

[3] Nick Statt, Read the Emails Between Epic and Apple That Led to Fortnite’s App Store Ban, The Verge (Aug. 21, 2020), https://www.theverge.com/2020/8/21/21396313/apple-fortnite-lawsuit-emails-app-store-ban-epic

[4] Wolverton, supra note 1.

[5] See Taylor Hatmaker, Epic Files Motion for Injunction Against Apple Over Threat to Revoke All Developer Access, Techcrunch (Aug. 17, 2020, 3:50 PM), https://techcrunch.com/2020/08/17/epic-games-apple-injunction.

[6] Sherman Antitrust Act, 15 U.S.C.S. § 2, (1890).

[7] Feinstein v. Nettleship Co. of Los Angeles, 714 F.2d 928, 934 (9th Cir. 1983).

[8] Thompson, supra note 2.

[9] See Tim Cook Opening Statement Transcript Antitrust Hearing July 29, Rev (Jul. 29, 2020), https://www.rev.com/blog/transcripts/tim-cook-opening-statement-transcript-antitrust-hearing-july-29.

[10] Id.

[11] Thompson, supra note 2.

[12] Sarah Fischer, Facebook Goes After Apple, Axios (Aug. 14, 2020), https://www.axios.com/facebook-apple-app-store-22774656-4221-40e7-b6b6-307a1a2de4d5.html.

[13] Thompson, supra note 2.