Epic Games is a video game developer, software developer and publisher based in North Carolina that is most famous for being the games publisher of the hugely popular franchise Fortnite, as well as its Unreal Engine (a powerful game development tool used by a range of game developers and (increasingly) businesses in other industry sectors, such as movie studios). Fortnite is an online battle royale video game which is available to download for free on computer, console and, notably, mobile platforms. Fortnite‘s popularity exploded on its battle royale launch in September 2017, with Epic confirming that it reached 250m registered players by March 2019.
Despite being free to download, Epic generates revenue from purchases made by players within the game for add-ons such as skins, costumes and even character dance moves. The revenue Epic makes is significant. It was reported in May 2020 that Fortnite had generated over $1bn in microtransaction sales from the mobile version of the game alone.
On 13 August 2020, Epic Games updated the Fortnite App on the Apple App Store and Google Play Store. The update incorporated Fortnite’s own in-app payment processing system for making the types of purchases that are described above. Purchases made in this way would not be subject to the 30% service fee charged by Apple and Google on such transactions. As a result, Apple and Google both almost immediately took down Fortnite from their respective app stores, which in turn resulted in Epic promptly responding with legal claims against both companies.
So, what are the legal claims?
Epic’s claims against both Apple and Google largely fall under two allegations:
- they have a monopoly over app distribution; and
- they have a monopoly over the in-app payment processing market.
Taking first Epic’s claim with respect to Apple’s monopoly on app distribution. Epic alleges that Apple unlawfully maintains its monopoly power in the iOS app distribution market through its denial to Epic and other app distributors of an essential facility—access to iOS—which prevents them from competing in the iOS app distribution market. To get access to iOS, Apple requires developers like Epic to agree to Apple’s terms, contained in its Developer Agreement, and to comply with Apple’s App Store Review Guidelines, including the requirement that developers distribute their apps through the App Store. Epic alleges that only allowing distribution of apps to iOS users through the App Store unlawfully forecloses the iOS app distribution market to competitors and maintains Apple’s monopoly on iOS app distribution.
The claim against Google with respect to app distribution is more nuanced as Google does allow for apps to be downloaded outside of the Google Play Store. However, despite it being allowed under the applicable Ts&Cs, Epic claims that Google puts software downloadable outside of Google Play at a significant disadvantage. Epic points to Google using technical and business measures including repetitive security pop-ups for downloaded and updated software outside of the Google Play Store and restrictive manufacturer and carrier agreements and dealings as evidence of Google engaging in (de-facto) the same anti-competitive behaviour as Apple when it comes to app distribution.
In-App Payment Processing Market
Both the Apple App Store and Google Play Store take approximately 30% of payments made in apps downloaded through their stores. This clearly results in significant revenue loss for Epic’s Fortnite microtransaction market. In response to this, and as has already been mentioned above, Epic’s Fortnite update of 13 August, which resulted in the game being taken down from both stores, introduced an in-app payment system that allowed Epic to bypass the 30% payment to Apple and Google previously made when users carried out microtransactions.
Epic alleges that Apple and Google’s monopoly over the in-app payment processing market cripples the ecosystem for developers. They have claimed that “if every developer could accept their own payments and avoid the 30% tax by Apple and Google, we could pass the savings along to all our consumers and players would get a better deal on items. And you’d have economic competition.”
Epic also claims that the 30% fee is unfair and artificially inflated due to the respective company’s monopoly on app distribution. Epic believes that an 8% service fee is sufficient to run a digital storefront profitably and have in fact launched their own digital store front which only charges a 12% service fee.
Again, however, the arguments against Google are slightly more nuanced given that Google’s 30% fee can be avoided on apps that are downloaded outside of the Google Play Store (something which is not possible on iOS). However, as Epic alleges, and as is covered above, Google’s de-facto monopoly on app distribution results in the same competition issues with respect to in-app payment processing in practice.
What happens next?
Epic are not seeking monetary damages in either case. Instead they are “seeking injunctive relief to allow fair competition in these two key markets that directly affect hundreds of millions of consumers and tens of thousands, if not more, of third-party app developers.” They have already sought a preliminary injunction against Apple requiring Apple to re-host Fortnite on the Apple App Store.
Apple appears to be fighting its case with vigour and has already countersued Epic for breach of contract, pursuing lost profits for microtransactions made through Fortnite’s own in-app payment processing software on 13 August. Furthermore, in its filing opposing Epic’s preliminary injunction, it accused Epic of “starting a fire and pouring gasoline on it” and making the claim for the purposes of a “marketing campaign”. A preliminary hearing is scheduled for 28 September.
Google on the other hand has attempted to distance itself from Epic’s dispute with Apple, pointing to the factual differences between the claims that this article has identified (such as the ability to download apps from stores other than Google Play). Google also remains open, at least publicly, to negotiating with Epic in order to bring Fortnite back to the Google Play Store. Unlike the case against Apple, Epic does not appear to have made a preliminary injunction application against Google in order to get the Google Play Store to rehost Fortnite.
Epic’s dispute with Apple and Google raises interesting competition issues which are applicable on both sides of the Atlantic, with Spotify raising a similar dispute in the EU. A decision on these issues in the US could have wide-reaching ramifications not only for Apple and google, but also software developers, game publishers and consumers. In particular, a win for Epic could cause significant disruption to, and potentially far greater competition in, both the app distribution market and, more broadly, the mobile economy as a significant amount of revenue is released back to creators and developers.
Stay tuned to MediaWrites for further updates as the case develops.