After gaining enormous success with their video game Fortnite, Epic Games placed a heavy bet by initiating a lawsuit against Apple last August. Specifically, Epic challenged Apple’s iOS policy where Apple requires developers to bill customers through the App Store and charges a 30% fee on all purchase. Epic and other developers could either bypass Apple’s platform, lobby Apple to take a smaller cut, or give in to their high fees.
Before litigation, Epic created a “battle plan” codenamed “Project Liberty.” Their strategy was to compel platform owners—namely, Apple and Google—to amend their iOS and Play Store policy to eliminate the 30% commission fees. Epic proceeded to introduce a standard patch—a “hotfix”—into Fortnite to allow users to purchase in-game currency at Epic’s Games Store. Although the patch needed approval from Apple, Epic did not disclose this update and the new feature was approved.
But Epic didn’t stop there. The gaming company incentivized its customers to bypass the App Store and pay them directly by offering steep discounts. Because it was able to bypass Apple’s 30% sales fee, Epic could justify offering steep discounts for users that purchased directly through the Epic Games Store. Within a few hours, Apple removed Fortnite from its app store on the pretext that Epic had violated Apple’s terms of the service by proving its own payment option. As a result, Epic resorted to legal action.
In their complaint, Epic claimed that Apple engaged in anticompetitive behavior by using its monopoly in the mobile device market to charge exorbitant fees and restrict alternative payment systems. Epic sought injunctive relief to allow fair competition in mobile app distribution.
After hearing arguments, Judge Yvonne Gonzalez Rogers ruled against Apple on the anti-steering provision which prohibits developers from directing users to third-party payment systems. The court issued a permanent injunction — in 90 days, “Apple will no longer be allowed to prohibit developers from providing links or other communications that direct users away from Apple in-app purchasing.” Additionally, Judge Rodgers held that although Epic had not provided sufficient evidence to prove that Apple has violated federal or state antitrust laws, Apple had violated the California Unfair Competition Law.
This ruling leaves the door open for future antitrust complaints against mobile app platforms. Hinting at such possibility, Judge Rodgers concluded that “[t]he evidence does suggest that Apple is near the precipice of substantial market power, or monopoly power, with its considerable market share.” If Apple’s market share was higher, or if Epic narrowed in on this issue in its complaint, the ruling may have caused Apple more trouble than it currently has.
So far, the aftermath of this ruling has seriously impacted Apple’s Store sales, which grossed an estimated $64 billion in 2020. After the court’s decision, Apple stock suffered a 3% drop in intraday trading. The data shows that Fornite players generated an estimated $700 million of total revenue on iOS devices before the game was removed from the App Store. Epic paid Apple $237 million in total commissions for Fortnite between January 2017 and October 2020. Now, Fortnite is still not available on iOS and both the parties are hustling in appeal courts to seek their respective remedies. Will Apple reassess how its relationship with developers and how it monetizes the App Store? Or will Epic’s potential demise serve as a warning to other challengers?