May 3, Fortnite Epic Games publisher will finally have its day in court, forcing Apple to defend the hit Fortnite from the iOS App Store last year. Epic’s antitrust lawsuit is bigger than one game; it’s a direct challenge to the App Store model, the most significant legal challenge Apple has faced since Xerox’s days.
Last night, both sides filed a document titled “Proposed Factual Findings,” basically stating every factual claim they will rely on in their arguments. The documents have a total of more than 650 pages, giving a detailed path of how each side sees the case – from the early days of the iPhone to Epic’s specific preparations to fight Apple. But the submissions also put the case in focus, asking three questions that will be crucial for the trial in the coming months.
At the heart of the case is the so-called App Store tax – a 30 percent surcharge that Apple collects for purchases made through the App Store. Fortnite was kicked out of the App Store for tax evasion by installing its own payment system, which is prohibited by the App Store rules. Epic is now bringing to court a case that the rules should never have been established.
You often hear that this case is about whether the App Store is a monopoly – but Epic’s argument is more subtle than that, relying on antitrust ideas about legal monopolies and abuse of market power. As Epic sees, Apple’s monopoly over iOS is legal, but it uses the market power of that monopoly to dominate the secondary market for app distribution. Epic compares the situation to Microsoft’s antitrust case of the 1990s: a legitimate monopoly on Windows, illegally extended to the secondary web browser market.
That’s a good theory, but it only works if you see the App Store model basically separate from iOS. In its statement of facts, Apple describes the exclusive App Store as a fundamental part of the iPhone, part of a broader offering that makes devices valuable. “Apple wanted to ensure that iOS devices were more protected from those malware and instability issues and from the quality issues that the PC world is used to,” Apple claims in its file. The exclusivity of the App Store is part of that, but so are security measures like code signing and a hardware root-of-trust system. On the software side, there are a number of private APIs and OS-level permissions that are enabled only after reviewing the App Store, connecting much more robust systems.
Of course, it’s inconvenient for this argument that Google offers a competing mobile operating system without any of these limitations – not to mention Apple’s MacOS that allows side-loading. It is clear that it would be technically possible to allow competing app stores on iOS. The question is whether the court sees this as a change in Apple’s business model or a change in iOS itself.
One of the biggest challenges for Epic is that the App Store model is quite widespread. Consoles like the Xbox and PlayStation work based on the same book, delivering games digitally through an open but orderly hardware-locked digital store run by the manufacturer. That in itself doesn’t make it legal, but it adds credibility to Apple’s claim that locking the App Store doesn’t captivate consumers. If you don’t want to play Fortnite on iPhone, you can play it on a console or computer. Some devices come locked into a particular distribution channel and some do not, giving users the opportunity to vote with their feet.
Epic’s opposition to this argument, as explained in the application, is that “video game consoles operate under a radically different business model than smartphones.” The development of games for consoles is a slow and expensive job, and consoles are useless without a constant supply of those games, so console manufacturers are under immense pressure to attract developers. This means that the hardware itself is often sold at a price, and commissions in the App Store remain the primary source of profit.
Apple is different, Epic claims, because most of its profits still come from selling the iPhone. “Developers do not participate in that profit,” the application claims, “although the availability of applications greatly contributes to device sales.”
At some level, this boils down to the argument that companies with consoles are nicer to developers, so their platform strength is no less of an issue. The constant competition between the Xbox and PlayStation gives developers the opportunity to pull off more favorable terms. But iOS and Android don’t compete for app developers in the same way, and lower mobile development costs mean competition is happening under completely different conditions. Apple has given people a lot of reasons to buy an iPhone, which means the pressure on any business line is less. But that’s significantly less than the standard for monopoly power, and Apple ends up looking pretty good compared to the console.
Underneath everything else, Apple faces the deep question of how much control it can exercise over its own devices. For critics, this is an original Apple sin, which uses industrial and graphic design to lure customers into a fenced garden and then lock the gate. For fans, it’s Apple’s genius that integrates hardware and software to provide a more purposeful and powerful user experience. But it all rests on Apple’s ability to maintain a closed stack, using hardware integration to control what’s going on in the software.
This trial will not overturn that set, but it could limit what Apple can do with it. The fight for Epic Games began over payment processing, but the same legal standard could allow for alternative app stores or limit the restrictions that Apple can place on invalid apps like Parler. It is the first step towards setting regulatory restrictions on how technology companies operate, similar to regulations on wireless operators or banks. At its most basic level, Epic argues that Apple’s ecosystem has become too large and too powerful to be left completely without Cupertino, and it’s time to directly comply with antitrust law.
Hundreds of pages in Apple’s file are dedicated to the benefits of that system for iPhone developers and owners, most of which are undoubtedly true. There really is less malware on iOS devices because of Apple’s software controls, even if the scams sometimes slip through. The system really generates a lot of money for iOS developers, many of whom couldn’t compete outside of Apple’s fenced garden. The move to digital distribution has really saved money for developers who no longer need to distribute their product in retail.
But in a sense, it’s all a point. Abuses of market power are not an excuse just because they are sometimes useful, and classic monopolies like Standard Oil or Bell Telephone also had a lot of side benefits. The bigger question is whether the courts are willing to dive into the mobile software package and start dictating the conditions for how technology companies can set up their markets. This is a difficult issue and will not be resolved by a single verdict or a single case. But one way or another, it is a question that this court will have to take on.