Apple has been making headlines recently over the row with the entertainment company, Epic Games, the creator of the Fortnite games franchise. The disagreement centres around Epic’s membership of Apple’s Developer Program. The Program gives developers (such as Epic) everything they need to build, test, and deploy apps across Apple’s devices through the App Store.
What is the central issue? In short, Apple charge a 30% commission on all apps posted on the App Store. Apple have been taking a 30% cut of the payments that Fortnite’s customers are making through the app. Fortnite calls these payments “V-bucks”. V-bucks are in-app purchases, made using real money.
However, Epic Games are not happy with this. Throughout the legal proceedings they have contested that the commission is a way of Apple taking advantage of the fact that they own the App Store. Epic Games alleges that Apple’s control of the App Store gives it a monopoly status, thus breaching competition laws. An immediate sticking point for Epic could well be that they are up against the might of a technology giant in Apple.
If you were on Apple’s side you could probably relax knowing that if there were any issues with the 30% commission, then the App Store would not have been able to operate in the first place as a regulatorily feasible marketplace. However, this case needs further explaining…
Epic Games offered a discount on purchases made outside of the app for game upgrades, such as weapons, costumes, and character customisations, where Apple’s 30% commission will not apply. It is likely this was done in an attempt to claw back some of their hard-earned revenues, for their own survival and growth. It has probably also been achieved to protect Fortnite’s customer base and incentivise them to keep playing. After all, Fortnite’s share price saw a slight increase amidst the pandemic!
(The average price over the last 12 months to October 2020 was $116.21, but rose, particularly over the summer of 2020, to a high of $149.60 on the 9th July 2020, so the discount was almost certainly implemented to capitalise on gamers being at home more during the lockdown period).
The (Legal) Battle Commences:
As a response to this, Apple have blocked Fortnite app downloads from the App Store. Apple have also stopped Fortnite updates on the Store (however, the current version of Fortnite still works where it has already been downloaded to the user’s phone, as does Epic’s payment system). Apple claims that the disagreement is merely a basic financial dispute. Apple have also argued that the Fortnite app has benefited from Apple’s promotion and app developer tools, earning more than $600m (£462m) through the App Store.
In August 2020, as an immediate reaction to Apple’s banning of Fortnite, Epic Games filed a lawsuit against Apple.
What is the significance of this? To the reader, this may be seen as a rather dishonest and calculated move by Epic. This is because Epic have started both the argument and the court case. It undoubtedly shows the unease Epic has towards Apple, going straight for the hard option and ignoring a gentler negotiation process to keep intact any business relationship. The ‘hard option’ – litigation – is almost undoubtedly the long term plan for these two sides, an apparent fact to the general reader, having seen how explicitly harsh the two sides are already. In addition, the case is not exactly a flash in the pan…both sides have gone for top-shelf legal representation: Cravath, Swaine & Moore are the lawyers acting for the claimants, Epic, whereas Gibson, Dunn & Crutcher are fighting in Apple’s corner as the respondents.
Apple’s immediate counter-argument to the lawsuit was that Epic Games has breached its contract by offering the discount for out-of-app purchases. To follow this up, Apple have said that they will allow the Fortnite app back onto the App Store if Epic remove the direct payments feature, in order to comply with its developer agreement. However, Epic Games have ignored this lifeline, believing they can succeed in this case. To be honest though, from the view of someone looking at this case, it appears difficult for Epic to really come back from this.
Some may say, and quite rightly, that Epic should have bitten Apple’s arm off for this ‘slap on the wrist’, taken it as a warning, and carried on with their own business.
However, you could break down Apple’s counter-argument by saying it is a simple case of breach of contract – Epic Games have breached the developer agreement by skirting around the essential term, which is that Apple require a 30% cut for the services they provide.
A Hopeless Marketing Campaign, Why?
Apple are arguing that Fortnite have purposely swept up media interest in the case to offset a wane in popularity for the game. This is backed by substantive evidence as, by July 2020, users of Fortnite had decreased by nearly 70% as compared to October 2019.
Although this is Apple’s take on events, you could easily agree with what they are saying. Epic are one of the few companies to complain about Apple’s App Store commission, so it makes sense that they are trying to save their brand and their balance sheet, certainly?
On Thursday 24th September 2020, Epic Games announced publicly the ‘Coalition for App Fairness’, a campaign to fight what they see as the unfair control Apple possess over app makers in the app store. Along with several other campaigners including Spotify, Tile, Deezer, Protonmail, and Match Group, Epic are attempting to influence law makers and the public by campaigning against Apple’s 30% levy and deem this unfair, especially considering that Apple own both the hardware and the software.
However, there is one major factor that denies this movement any weight: 30% is in fact the going rate for online marketplace commissions.
As has been commented by the Judge in this case, Yvonne Gonzalez Rogers, it is strange why Epic have no issues with allowing other marketplaces to charge a 30% fee. In fact, Epic offer their services on more marketplaces than just the App Store (Xbox, Steam, Microsoft, Best Buy, Amazon, GameStop, and PlayStation), so why aren’t Epic commencing legal proceedings against these platforms too? This is certainly evidence of there being no lack of competition and surely no Apple-shaped monopoly?
Two Epic Fails?
In what has turned out to be a pitiful time for Epic, on the 23rd September 2020, the games company also announced the end of ‘Fortnite: Save the World’ on Apple Mac. What this means is that, although Mac users can still play the unblocked spin off of Fortnite ‘Battle Royale’, they cannot get the latest update, as Apple have blocked them.
The End of Fortnite?
Considering their overall wane in popularity and uphill struggle against the technology giant, Epic Games clearly appear to be scraping the bottom of the barrel in terms of arguments in this case.
On Monday, 28th September 2020, a hearing took place in which Epic asked the court to place a preliminary injunction against Apple’s removal of Fortnite from the App Store. After a careful consideration by the court, it was announced on 9th October 2020 that the injunction would not be allowed and that Fortnite will therefore remain banned from the App Store pending a full trial.
So, to break it down, Epic have started a fight with Apple, had its (albeit weak and petty) arguments dismissed by the judge, and now have to deal with the banning of Fortnite for the foreseeable future, all whilst user numbers are declining. This really is not looking good for Epic…
In fact, it really looks like Epic have been dishonest, having basically made a premeditated decision to defy App Store rules. In addition, the judge stated that the court does not provide injunctions for contractual disputes.
Monday, 28th September 2020 also marked the next step in this saga. Apple and Epic Games have been engaged in court proceedings for the last few months, yet the dispute appears far from concluding. Judge Rogers suggested a new date of July 2021 (at the earliest) of a trial of the full case by jury.
Although Epic Games put on an upbeat façade, it is hard to see them do well from these proceedings, and it seems all but certain that the Fortnite app will remain absent from the App Store certainly for the rest of this year, and probably for a large portion of 2021.
So, what does this mean? For Apple, this serves as a warning to any other App developers looking to steer past the rules of the App Store. For Fortnite, this may just be the straw that breaks the camel’s back.
This article was written by Tom Bailey. Tom is a final year LLB law student at the University of Law in Guildford, and a Content Writer for According To A Law Student (ATALS). Tom is keen to pursue a career as a Solicitor, having a specific interest in property law.