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May 28, 2021

Epic Epic-Apple legal struggle awaits final judgement

By Eric Johansson

The trial between Epic Games and Apple came to an end this week, leaving the tech industry and regulators holding their breath ahead of the final ruling.

Over the past month, the two companies have clashed in a California courtroom. The beef basically boils down to whether or not Apple is using its market dominance to choke competition and to extort an unjust cut on apps sold through its App Store. Apple takes 30% on App Store sales.

Apple spent the last three weeks arguing that it loves competition and that 30% is a mere trifle. Epic Games, the developer behind the Battle Royale video game Fortnite, disagrees.

Now, with both sides of having wrapped up their arguments, the tech world is waiting for judge Yvonne Gonzalez Rogers’ ruling.

The outcome could change how app developers get paid, change the future of the iPhone maker – and set a precedent for similar antitrust cases on both sides of the Atlantic.

How the Epic and Apple trial got started

Tim Sweeney, founder and CEO of Epic, has been voicing his concerns about the state of Apple’s App Store and Google’s Play Store for years.

However, these concerns came to a head in August last year when Epic essentially dared Apple and Google to kick it off their platforms.

Here’s how it went down: first Epic announced an update of Fortnite. The update would enable users to get a 20% discount on the in-game currency V-Bucks by buying it straight from Epic rather than going via the two tech behemoths. Then it made the update known to the world.

However, this would directly conflict with the rules in the App Store that stipulate that Apple should get a 30% cut of all fees and subscriptions paid in apps available on iOS. Google’s Play Store, funnily enough, charges 30% also.

To the surprise of absolutely no one, both Apple and Google quickly booted Fortnite from their virtual stores.

Epic then rolled out a prepared PR campaign named Project Liberty and fired off a broadside of lawsuits against both Apple and Google in the US, the UK, Australia and the EU.

However, it was pretty clear from the start that Sweeney and his cohorts were predominantly focused on Apple. Illustrating this, Epic released a video that was clearly targeted at the Cupertino-headquartered company.

The video took more than a cue from Apple’s own iconic 1984 commercial where a Big Brotheresque character held a speech in a dystopian future in front of a subjugated crowd only to for the massive screen he’s sermonising from to be smashed by a hammer hurled by a young woman.

The only difference was that in Epic’s video, Big Brother had been replaced with a talking apple with a worm slithering from its head and the audience had been replaced by Fortnite characters.

Over the following months, the $2tn iOS goliath and the $28.7bn videogame developer David circled each other, waiting for their May court date.

In April, Apple and Epic filed their main arguments ahead of the trial. Apple accused Epic of simply trying to turn around “flagging interest” in its flagship Fortnite game. Epic, on the other hand, accused Apple of unfairly controlling a multi-billion market on its platforms.

Thus, the stage was set for the trial.

What happened at the epic Epic Apple trial

Over the past three weeks and almost 100 hours of testimony from top executives at Apple – including CEO Tim Cook – and from the ranks of Epic, the trial ran.

The argument essentially boiled down to whether or not Apple is in a monopoly position or not. To do that, the two companies presented very different definitions of what the market in question actually was. And it’s easy to see why.

“If we were talking about the mobile app distribution market, then it’s easy to make the case that Apple is a monopoly,” Laura Petrone, senior analyst at GlobalData, tells Verdict. “But Apple doesn’t agree with this. It considers the market to be the whole gaming market, which is is quite wide.”

With that argument, if anyone is unhappy with the terms, they could simply join another smartphone network to peddle their solutions.

Epic has, however, maintained that the iOS platform in itself constitutes a market that is too big for any developer to ignore.

Apple fellow Phil Schiller also argued that the locked down nature of iOS was necessary to keep the platform safe for iPhone and iPad users.

The argument lost some of its credibility after Craig Federighi, senior Vice President of software engineering at Apple, had to concede that Apple has a significant malware problem.

Apple essentially said that Epic is looking for a free ride on Apple’s achievements.

Epic, on its part, branded the trial as a crusade on the behalf all developers who have had 30% of their earnings sliced off by Cupertino.

On Monday the final arguments were heard and, with that, the Epic and Apple trial concluded.

Setting a precedent

The Epic and Apple trial is just one of several antitrust cases Cupertino is facing. Gonzalez Rogers ruling in favour of either company could therefore set a precedent for other cases brought against iPhone maker, which is why regulators and businesses on both sides of the Atlantic are awaiting the ruling with great anticipation.

For instance, the ruling could affect the probe launched in April by the European Commission into whether it used its market position to unfairly dominate music streaming service providers on iOS.

Margrethe Vestager, executive vice-president at the European Commission, was adamant that Apple has done this, saying: “Apple has a monopoly in the Apple App Store.”

Apple refuted the claims, saying that Spotify essentially just wanted a free ride.

“At the core of this case is Spotify’s demand they should be able to advertise alternative deals on their iOS app, a practice that no store in the world allows,” an Apple spokesperson said.

“Once again, they want all the benefits of the App Store but don’t think they should have to pay anything for that. The commission’s argument on Spotify’s behalf is the opposite of fair competition.”

If that sounds familiar, it’s because it should: it’s essentially the same argument used in the Epic and Apple trial.

The US Justice Department also filed an antitrust lawsuit against Apple in October. Dutch and UK regulators are also investigating the $2tn company on similar grounds.

So what’s going to happen now?

With the trial wound up, the tech world and the regulators supervising it are eagerly awaiting Gonzalez Rogers’ verdict.

Developers on both the App Store and on the Play Store are anticipating that the ruling could mark a dramatic shift in how they conduct business – or it could end up being more of the same.

However, don’t hold your breath as the judge has thousands of documents and reams of testimony to consider. The process could still take months.

Verdict deals analysis methodology

This analysis considers only announced and completed artificial intelligence deals from the GlobalData financial deals database and excludes all terminated and rumoured deals. Country and industry are defined according to the headquarters and dominant industry of the target firm. The term ‘acquisition’ refers to both completed deals and those in the bidding stage.

GlobalData tracks real-time data concerning all merger and acquisition, private equity/venture capital and asset transaction activity around the world from thousands of company websites and other reliable sources.

More in-depth reports and analysis on all reported deals are available for subscribers to GlobalData’s deals database.

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