Epic v. Apple, Explained
What does all of this mean?
In August 2020, Epic filed a lawsuit against Apple (and Google) for antitrust violations. Since then, the case against Apple has continued for three years with various complications. So, what’s going on right now?
The most recent news in the case was a decision made by Justice Kagan three days ago. To be clear, this decision did not further deny, change, or support Apple’s policies. It simply denied Epic’s request for Apple to immediately enact the existing changes, giving Apple until October (or potentially longer) to do so. (Apple has “stalled” so far by saying that it plans to appeal the current decision to the US Supreme Court).
As of now, here’s what the current decision looks like (this decision was originally issued by Judge Yvonne Gonzales Rogers in a lower court and was upheld by a federal appeals court in April):
- Apple has a right to require their in-app payment (IAP) option and solely theirs. There are complications around this, however, but I’ll discuss that later.
- Developers have a right to inform their users of alternative payment options via buttons, external links, or other call-to-actions. (Previously, Apple’s policy, known as anti-steering, went against this). The reasoning for developers to do so would be to avoid Apple’s 30% fee, and as a result, provide lower prices to their users. (Developers no longer have to account for the fee while pricing products like virtual outfits or in-game currency, so they can lower prices).
- While Apple has around a 55% market share in mobile gaming and extremely high margins, the court ruled that Apple does not currently have a monopoly in mobile gaming. This goes against Epic’s original claim under the Sherman Act that Apple maintained a monopoly. (By extension, this portion also “shut down” two other claims made by Epic under the Cartwright Act, which deals with anti-competitive activities).
- The App Store has been intentionally designed to lack competition. As of now, there is no legal action required to address this, only criticism regarding it. The court did rule, however, that this design is valid in terms of data security and privacy, because if other app stores were allowed, Apple could no longer ensure that every app (more specifically, games from cloud gaming services like the Epic Games Store and Google’s Stadia) and their updates were safe and secure.
Since the beginning of this case, two things have been of focus: the 30% fee and anti-steering.
As expert Matthew Ball points out, the former originated when Nintendo agreed to license its titles to Namco, an arcade manufacture, for a 30% fee (10% licensing plus 20% manufacturing). Since then, consoles, the PC gaming industry, and mobile (ie. mainly, Apple and Google) have continued this 30% fee.
Apple’s reasoning for this fee, besides it being standard in the gaming industry, was because they enabled the mobile video game industry. Thus, they were simply exerting leverage (or fees) where they had leverage. However, many believe this to be unreasonable.
Ball explains that alternative payment options like Visa or Square, if allowed, would have much smaller in-app fees (up to 5%). This is because there’s a lot more competition in credit cards or peer-to-peer payment networks, so one way these services compete are through lower fees. In mobile, however, there’s really only two options: the payment option offered by Android or iOS. Neither have any reason to lower their 30% fee. While Apple does provide more services that the typical payment network, such as software development kits (SDKs) or the App Store itself, Ball notes that these benefits are forcibly bundled. There’s no option for a lower fee with less benefits. The court also scrutinized the forcible bundle, but it opposed any request to make Apple undo the bundle.
Regarding anti-steering, Apple supported this because they believed it allowed them to protect consumers and safeguard its platform. However, the court ruled that anti-steering directly violated California’s Unfair Competition Law, stating that Apple made its platform a black box by impeding users from obtaining digital goods on other platforms.
The Court’s Injunction: Apple Inc. and its officers, agents, servants, employees, and any person in active concert or participation with them (“Apple”), are hereby permanently restrained and enjoined from prohibiting developers from (i) including in their apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to In-App Purchasing and (ii) communicating with customers through points of contact obtained voluntarily from customers through account registration within the app. — Courtesy of The Verge
Earlier I mentioned there were complications surrounding this. Firstly, the Court now has and retains jurisdiction over Apple’s anti-steering policy (or rule 3.1.1 in their App Store policy). As Neil Patel of the Verge points out, the court, not Epic or other developers or Apple themselves, decides if Apple is supporting anti-steering policies or not. The court controls the interpretation of the injunction, and the court enforces the injunction.
Secondly, among external links and other call-to-actions, buttons are also allowed to direct consumers to purchasing mechanisms. Patel notes that the “Proceed to checkout” in the Amazon Shopping app is a button that directs consumers to payment options. So, could games have buttons similar to the “Proceed to checkout” button that allows users to purchase something in the app (instead of outside out of it)? The value of this is that it would not have to use Apple’s 30% fee, as it meets the requirement of an external link, call-to-action, or button that directs consumers to payment mechanisms. Of course, this goes against Apple’s policies, but Patel reminds us that it’s not Apple’s choice to make (it’s the court’s).
There’re several other criticisms of Apple’s policies regarding cloud games; Epic Games CEO Tim Sweeney has even went so far to say that Apple had outlawed the Metaverse, a future Epic Games was and is still building towards. However, (so far), the court believes only one criticism is valid to the extent that the policy needs changing — anti-screening.
