Apple scores legal win over Epic in Fortnite lawsuit: What you need to know – CNET

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Fortnite has been pulled from the App Store and the Google Play Store.

Epic Games

A year-long battle between Apple and Fortnite publisher Epic over how the App Store operates finally came to a head after a federal judge issued a ruling (see below) that largely sided with iPhone maker. The judge dismissed most of the claims against Apple, although she forced the company to allow developers to inform users of alternative ways to pay within apps. 

This fight, which also includes Google in a separate lawsuit, began in August 2020 when Fortnite was kicked off both the App Store and the Google Play Store after attempting to bypass the 30% fee Apple and Google charge developers. It immediately drew the attention of gamers, consumers and the tech world, since Fortnite had been downloaded over 250 million times on iOS alone. Epic countered by filing lawsuits against both companies. It’s not seeking money from either company, just that they repeal what Epic considers the companies’ monopolistic practices.

The fight isn’t simply a battle between two tech giants — it’s a tussle over principle and just how much control a tech company has over the products that are sold on its platform. The decision also comes at a time when both Europe and the US are scrutinizing the power of Apple, Google and other tech giants. And it isn’t a total victory for Apple, as the judge’s order represents a crack in the walled garden that is its multibillion-dollar app ecosystem. This case could have ramifications on how legislators look at Apple, as well as the separate legal battle between Google and Epic. 

There are a lot of nuances to this ruling. We break down what happened and what this means for you. 

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So who won again?

Apple, for the most part, prevailed over Epic, with one major caveat. Judge Yvonne Gonzalez Rogers of the US District Court for the Northern District of California dismissed most of Epic’s claims, but in an injunction did force Apple to allow developers to inform their users of alternative ways to pay within the app.

Apple, unsurprisingly, applauded the judge’s decision, adding in a statement that it “faces rigorous competition in every segment in which we do business.”

“We remain committed to ensuring the App Store is a safe and trusted marketplace that supports a thriving developer community and more than 2.1 million U.S. jobs, and where the rules apply equally to everyone,” the company added.

What does Apple get?

Rogers said she agreed with Apple’s claim that Epic had violated its developer agreements, and awarded damages equal to 30% of the $12 million Epic collected from iOS users between August and October 2020, plus 30% of any such revenue Epic’s collected since then. 

What does Epic end up with?

Epic was seeking to upend the entire app model of charging a commission to sell programs and games on a platform. Rogers felt the argument was too broad and ultimately ruled against the game publisher. 

“Today’s ruling isn’t a win for developers or for consumers,” Epic CEO Tim Sweeney wrote in a tweet shortly after the ruling. 

What’s Epic doing about this?

Epic filed a notice of appeal on Sunday, signaling that this legal battle is far from over. 

What did the judge have to say about their arguments?

Rogers felt that Epic overreached in trying to dismantle the entire app commission system.

“Once acceptable, Apple’s commission rate is now questioned by some consumers and some developers, like Epic Games, as being overly burdensome and violative of competition laws. Indeed, two related lawsuits were already pending before the Court well before the commencement of this action,” the judge wrote as part of her ruling Friday. “The Court is not persuaded by Epic Games’ broad-brush argument that it should not be bound by certain portions of the agreement.”

Rogers, however, did criticize Apple’s business practices and suggested they could be anti-competitive. 

“Common threads run through Apple’s practices which unreasonably restrains competition and harm consumers,” she wrote. “Namely the lack of information and transparency about policies which effect consumers’ ability to find cheaper prices, increased customer service, and options regarding their purchases.”

She noted that Apple’s commission rate appears inflated, but that Epic didn’t seek to challenge that aspect. 

 “Rather, Epic Games challenged the imposition of any commission whatsoever.”

What does that mean for the tech world?

The case has huge ramifications across the tech world because many of the major companies, including Google, run lucrative platforms that charge a commission on apps. 

“For Big Tech, there’s a sigh of relief because the walls of their gardens will not come tumbling down today, even if this ruling tries to put some cracks in it,” said Paul Swanson, a lawyer at Holland & Hart who specializes in antitrust issues. “The main thrust of the Court’s ruling is that ‘success is not illegal.'”

What does this mean for me?

Once the injunction goes into effect (in 90 days), you could start to see larger app developers advertise payment options on their own websites with discounts that equate to the commission fee. Of course, an appeal could also delay the effect of the injunction. It’s still unclear at this point. 

How did this get started?

It all came down to Fortnite’s success on phones and how Epic makes money. Fortnite is a free-to-play game, meaning it’s free to download and Epic makes money from in-game purchases. Players can buy V-Bucks, in-game currency, which are used to acquire new outfits, weapons and skins. It’s a hugely profitable business model. Fortnite generated $4.2 billion over 2018 and 2019.

But Epic never approved of the 30% cut taken by Apple and Google on their respective app stories, so it set up a direct payment system allowing players to buy V-Bucks for less through Epic, circumventing Apple and Google. When buying 1,000 V-Bucks, players were given a choice of paying $9.99 via the App Store or $7.99 through Epic.

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Epic gave gamers the option to pay directly, instead of through the App and Play Stores.

Epic Games

Apple wasn’t having that, so in August 2020, it pulled Fortnite from the App Store. Google followed hours later. Android gamers can still download the game directly through Epic — and if you previously downloaded it on iOS, you can still re-download it, but you won’t be able to update it or play new seasons.

That kicked off the lawsuits?

Yep.

Hours after Fortnite was booted off the App Store, Epic filed a lawsuit against Apple in US District Court in California that accused Apple of anti-competitive practices for app distribution and app-related payments. The company stresses it’s not looking for compensation or special treatment from Apple, but for Apple to roll back its anti-competitive practices and allow for “fair competition.” 

“To reach iOS users,” reads Epic’s filing, “Apple forces developers to agree to Apple’s unlawful terms contained in its Developer Agreement and to comply with Apple’s App Store Review Guidelines, including the requirement iOS developers distribute their apps through the App Store. These contractual provision unlawfully foreclose the iOS App Distribution Market to competitors and maintain Apple’s monopoly.”

The filing argued that Apple, in charging a 30% fee to publishers, take 10x more than companies like “PayPal, Stripe, Square or Braintree, which typically charge payment processing rates of around 3%.” 

Apple’s full reply, in which they said the App Store is an ecosystem that benefits developers and creates a level playing field, is below.

“Epic Games took the unfortunate step of violating the App Store guidelines that are applied equally to every developer and designed to keep the store safe for our users. As a result their Fortnite app has been removed from the store. Epic enabled a feature in its app which was not reviewed or approved by Apple, and they did so with the express intent of violating the App Store guidelines regarding in-app payments that apply to every developer who sells digital goods or services.

Epic has had apps on the App Store for a decade, and has benefited from the App Store ecosystem – including the tools, testing, and distribution Apple provides to all developers. Epic agreed to the App Store terms and guidelines freely and we’re glad they’ve built such a successful business on the App Store. The fact that their business interests now lead them to push for a special arrangement does not change the fact that these guidelines create a level playing field for all developers and make the store safe for all users. We will make every effort to work with Epic to resolve these violations so they can return Fortnite to the App Store.”

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The suit escalated when Epic said in a court filing that Apple is threatening to ban the Unreal Engine code that Epic licenses to other game developers. This would affect dozens of apps, including a Fortnite competitor, PlayerUnknown’s Battlegrounds.

“Not content simply to remove Fortnite from the App Store, Apple is attacking Epic’s entire business in unrelated areas,” Epic said in its filing. “If the Unreal Engine can no longer support Apple platforms, the software developers that use it will be forced to use alternatives.”  

Apple fired back, releasing a cache of emails between Epic CEO Tim Sweeney and Apple, showing that the Fortnite maker was seeking special treatment. Specifically, Epic wanted to run a competing app store and process payments itself rather than relying on Apple’s App Store and its in-app purchase system that takes a commission of up to 30% on all sales made on an iOS app.

“Sweeney expressly acknowledged that his proposed changes would be in direct breach of multiple terms of the agreements between Epic and Apple. Mr. Sweeney acknowledged that Epic could not implement its proposal unless the agreements between Epic and Apple were modified,” Phil Schiller, an Apple Fellow and former head of worldwide marketing, said in a statement filed with the court. “Apple has never allowed this,” Apple said in its filing. “We strongly believe these rules are vital to the health of the Apple platform and carry enormous benefits for both consumers and developers.”

I remember something about a 1984 commercial back when this all started?

Along with the lawsuit, Epic also released a video parodying Apple’s famous 1984 ad. Apple’s ad, released in late 1983, promoted the upcoming launch of the Macintosh, railing against then-entrenched brand IBM. Epic’s video says Apple has become the new Big Brother of industry — a hugely powerful and overbearing entity.

This is something that Epic expounds more aggressively in its suit. “Apple has become what it once railed against: The behemoth seeking to control markets, block competition, and stifle innovation. Apple is bigger, more powerful, more entrenched, and more pernicious than the monopolists of yesteryear. At a market cap of nearly $2 trillion, Apple’s size and reach far exceeds that of any technology monopolist in history.”

What about Google?

Epic is suing Google, too. Epic followed its lawsuit against Apple hours later with a similar one against Google, arguing that it engaged in unlawfully anti-competitive practices related to app distribution and app-related payments. 

“Google acquired the Android mobile operating system more than a decade ago, promising repeatedly over time that Android would be the basis for an ‘open’ ecosystem in which industry participants could freely innovate and compete without unnecessary restrictions,” the filing reads. “Since then, Google has deliberately and systematically closed the Android ecosystem to competition, breaking the promises it made. Google’s anti-competitive conduct has now been condemned by regulators the world over.”

The suit argues that Android forms an effective monopoly for phone makers, like Samsung, LG and Sony, that have no real alternative to Android for their devices. Having achieved this monopoly, Epic says, Google then restricts the ability of companies to distribute apps in a way that competes with the Play Store.

“Epic’s experience with one [phone maker], OnePlus, is illustrative,” the suit reads. Epic, it said, struck a deal with OnePlus to make Epic games available on its phones through an Epic app that would have allowed users to install and update games, including Fortnite, without obstacles imposed by Google’s Android OS. But Google forced OnePlus to renege on the deal, the suit said, citing Google’s “particular concern” about Epic having the ability to install and update mobile games while “bypassing the Google Play Store.”

As in the Apple suit, Epic says it doesn’t want payment from Google. “Instead, Epic seeks injunctive relief that would deliver Google’s broken promise: an open, competitive Android ecosystem for all users and industry participants. Such injunctive relief is sorely needed.”

Prior to Epic filing suit against Google, Google released the following statement on its decision to pull Fortnite from the Play Store,

“The open Android ecosystem lets developers distribute apps through multiple app stores. For game developers who choose to use the Play Store, we have consistent policies that are fair to developers and keep the store safe for users. While Fortnite remains available on Android, we can no longer make it available on Play because it violates our policies. However, we welcome the opportunity to continue our discussions with Epic and bring Fortnite back to Google Play.”

What do other companies think?

Epic is far from the first to complain about anti-competitive practices from Google and Apple. 

Google and Apple have previously been accused of stifling competition through their Android and iOS operating systems. 

Angela Lang/CNET

In 2018, the European Union fined Google $5 billion for monopolistic behavior, which included Google’s suite of apps, like Chrome and Gmail, coming preinstalled on all Android devices. Spotify, meanwhile, charged that Apple’s charging 30% for in-app purchases, such as subscriptions to Spotify Premium, stifles competition with Apple’s own apps, in this case Apple Music. In June 2020, the EU launched a probe into Apple’s App Store practices.

While the European Union has been more energetic about regulating tech titans over the past decade, the US is beginning to scrutinize these giant companies in the same way. In July 2020, Apple CEO Tim Cook sat in a congressional hearing alongside Jeff Bezos, Sundar Pichai and Mark Zuckerberg, CEOs of Amazon, Google-owner Alphabet and Facebook respectively, in a historic antitrust hearing.

Speaking to Congress, Cook rejected the idea that the App Store favors Apple’s own apps.

“After beginning with 500 apps, today the App Store hosts more than 1.7 million — only 60 of which are Apple software,” Cook said. “Clearly, if Apple is a gatekeeper, what we have done is open the gate wider. We want to get every app we can on the store, not keep them off.”

CNET’s Ian Sherr contributed to this report.

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