By: Michael Blumenthal
On August 3, 2020, Epic Games Inc., the maker of the popular game Fortnite, installed an update to the iOS version of their game allowing users to bypass Apple’s payment processing system and pay Epic directly for in-app purchases at a lower price. In response, Apple removed Fortnite from the App store. On August 13, 2020, Epic filed a complaint in the Northern District of California against Apple, alleging monopolistic practices in the operation of the iOS App store and in payment processing on the iOS platform. Apple filed its counterclaim on September 8 alleging breach of contract, tortious interference, and unfair business practices, ultimately seeking compensatory and punitive damages. This case is potentially much more than a financial battle between two tech giants and is poised to reshape the landscape of app distribution.
The controversy is not complicated: Epic alleges that Apple engages in anti-competitive and monopolistic practices by preventing competition with its proprietary App store and iOS payment processing, which it requires third party apps to use for digital transactions, including in-app purchases. Apple charges app developers a royalty of up to 30% of their Apps store sales to be listed on the App store, a fee that Epic characterizes as a “tax”. Epic is not the first to challenge these practices: Spotify has previously brought an antitrust action against Apple in the EU, and there is ongoing litigation by customers against Apple that the Supreme Court recently decided could move forward. Epic contends that App Distribution on Apple’s iOS platform, which gives functionality to iPhones and iPads, is an “essential facility” within the meaning of the Sherman Act, and that Apple’s actions have a detrimental monopolistic effect on competition and on consumers.
Apple characterizes this action as a contractual dispute: Epic is in breach of their developer agreement. Apple argues that Epic is merely attempting to reap the benefits of iOS without respecting their contractual obligation to pay Apple for access to the platform. Apple proposes that their customers are paying for a “walled garden” experience where Apple curates the computing environment, maintaining “high standards for privacy, security, content, and quality.” They also argue their platform provides a market advantage for developers who can capitalize on the established platform and goodwill of customers. According to Apple, Epic and other app developers benefit from this business model since the App Store for iOS has 27 million app developers and is installed on over 1.5 billion devices in 175 countries. Fortnite has 130 million downloads on the App Store.
Epic offers the counterargument that iOS treats software developers differently than the Apple’s desktop OSX, which does not force consumers to use an App store – users can download computer programs directly from third parties – yet the Apple brand and customer experience has not suffered as a result. Epic also points out that because of Apple’s 1 billion user base, app developers face substantial pressure to develop for the platform, and because Apple customers “face substantial switching costs and lock-in to the iOS ecosystem,” there is an anti-competitive effect. Apple addresses Epic’s antitrust theory by emphasizing that competition exists at every level of the smartphone and tablet industry. Apple argues that other digital stores like “Google Play, the Amazon Appstore, Steam, and Xbox” charge similar commissions and have similar requirements to their own App store.
This dispute is not merely two giant tech companies fighting about money; in fact, Epic is not seeking damages. The outcome of this litigation will set a precedent about the degree of control platforms can have over their space and intellectual property. If Apple wins, the status quo will continue, and monolithic platform operators will be emboldened to continue leveraging their platforms to increase their market power.
Epic wins, Apple will lose much of the discretion to curate the iOS experience
for consumers, which thus far has proven to be a winning strategy. Epic is arguing for the freedom to compete with
Apple’s App Store by offering an iOS version of the Epic game store, and to open
the platform up to other similar stores and services. Consumers will be faced with more choices
about where to download their apps, and how to pay for them; it remains to be
seen whether more choice is a net positive.
 Sarah E. Needleman, ‘Fortnite’ Fans Are Pushed to Choose Sides in Epic’s Legal Spat with Apple, Google, Wall Street Journal (Aug. 27, 2020), https://www.wsj.com/articles/fortnite-fans-are-pushed-to-choose-sides-in-epics-legal-spat-with-apple-google-11598545530.
 Complaint at 62, Epic Games, Inc. v. Apple Inc., No. 4:20-cv-05640 (N.D. Cal. Aug. 13, 2020).
 Counterclaim at 6, Epic Games, Inc.v. Apple Inc., No. 4:20-cv-05640 (N.D. Cal. Sept. 8, 2020).
 Complaint, supra note 2, at 47–60.
 Complaint, supra note 2, at 1.
 See Apple Inc. v. Pepper, 139 S. Ct. 1514 (2019) (holding that cell phone owners were proper plaintiffs for an antitrust action when a corporation used its monopoly power to force higher-than-competitive prices for apps); see also Joan E. Solsman & Sean Keane, Apple Slams Spotify’s ‘Misleading’ Claim App Store Abuses its Power, Cnet, (Mar. 15, 2019), https://www.cnet.com/news/apple-slams-spotify-claim-app-store-abuses-power-to-stifle-competition/ (arguing that Apple’s 30% markup for in-app purchases abuse the power of the App store).
 See 15 U.S.C. §1, 2 (basing their claims on §§ 1 and 2 of the Sherman Act, Epic is arguing that app developers need to offer their products on the App store in order to access a significant share of the market, and that Apple uses this market position to promote its own services, charge exorbitant fees, and prevent customers from switching, all at the expense of competition and consumers).
 See Counterclaim, supra note 3, at 1 (“Epic’s demands for special treatment and cries of ‘retaliation’ cannot be reconciled with its flagrant breach of contract…”).
 See Counterclaim, supra note 3, at 52 (alleging that Epic plotted a scheme to obtain a “free ride”).
 Counterclaim, supra note 3, at 4.
 See Counterclaim, supra note 3, at 1 (arguing that Epic benefited from Apple’s efforts to build a successful platform).
 Counterclaim, supra note 3, at 1, 14.
 Counterclaim, supra note 3, at 1.
 See Complaint, supra note 2, at 12, 13.
 Complaint, supra note 2, at 18.
 See Counterclaim, supra note 3, at 3 (“Competition both inside and outside the App Store is fierce at every level: for devices, platforms, and individual apps.”).
 Counterclaim, supra note 3, at 23.
 Complaint, supra note 2, at 7.
 Complaint, supra note 2, at 10.