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Epic v Apple Defined, What’s the Trial About and What to Count on?

Last year, Epic Games purposely broke Apple’s rules by incorporating its own payment processing system into the iPhone version of Fortnite, bypassing Apple’s 30% fee, and giving players a V-dollar discount. Apple responded by launching Fortnite from the iOS App Store, while Epic launched a lawsuit and PR campaign in which the iPhone manufacturer was classified as “anti-competitive”.

The companies kicked each other off last year and set up their cases. (Tim Sweeney, CEO of Epic, exercises his counter-speeches on Twitter every week.) Now is the time to come to an agreement in person: the trial of Epic and Apple has begun.

Here’s what to expect from the study, and what it’s all about.

Time, place and details of the trial version

When and where is the Epic v Apple Trial?

The trial is now underway: it began on Monday May 3rd and will last “15, maybe 16 days, maybe 17 days,” according to US District Judge Yvonne Gonzalez Rogers, who said in a preliminary conference that she shouldn’t have a quick resolution expect.

While some civil litigation is being processed through Zoom these days, the US District Court of Northern California has decided to hold the trial in person in Oakland. A limited number of people are allowed in the courtroom and the wearing of masks is required. Witnesses wear clear masks so that their facial expressions are visible.

What kind of trial is Epic versus Apple?

The Epic v Apple study is a bank study, meaning there is no jury. Judge Rogers will decide the outcome.

Can I listen to the process?

Yes. The trial version of Epic against Apple will be broadcast live to the public via call-in lines. You can find the details on the US District Court in Northern California website.

Recording is prohibited, although there are transcripts that will be referred to later. If a technical glitch allows you to speak on the line, it’s probably best not to yell things like “I’d suck you all to get Fortnite phone back”, which is what a person did at the beginning of the attempt.

The early days of Apple shaped my life and my views on computers significantly. Every apple][+ booted up to the BASIC programming language, and everyone was free to create and share software, and to grow businesses on their own volition. pic.twitter.com/MOkqhHCWuSMay 2, 2021

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What the trial is about

Why is Epic suing Apple?

Terminology

Epic says that what Apple is doing is “anti-competitive” and that it has “monopoly power,” which both mean that Epic thinks Apple has too much control over a market. The term “antitrust” is similar, but refers to efforts to counter monopolies. In the trial, Epic will reference “antitrust laws,” which are laws against anti-competitive behavior.

Software developers who want to release iPhone apps must do so through the iOS App Store, where Apple takes a cut of each sale. iOS apps also have to use Apple’s payment processing for in-app purchases of digital items (Fortnite V-bucks, for example), and Apple takes a cut of that, too.

Epic says that iOS is an unavoidable operating system for mobile devs—most people either have an iPhone or an Android phone—and so it’s not fair that Apple forces everyone to play by its “oppressive” rules. And according to Epic, Apple’s rules for third-party iOS apps aren’t just unfair: they’re anti-competitive and illegal. 

Epic wants Apple to let users install apps that aren’t distributed on the App Store, and for it to let developers use their own in-app payment processing, bypassing Apple’s fee. In other words, Epic thinks that iPhones should be more like Windows 10 PCs, where you don’t have to use the Microsoft Store to buy or sell software if you don’t want to.

OK, but what does Epic really want?

What every corporation wants: more money. For starters, Epic wants to sell V-bucks in Fortnite without having to pay Apple’s 30% fee. 

Epic didn’t go through all this trouble just for Fortnite dollars, though. It also sees itself as more than a game or engine developer, and wants to build a “metaverse” where players and creators can buy and sell content and play games across platforms. Getting rid of rules and fees on smartphones would certainly help Epic achieve that.

In the near term, Epic wants to release a version of the Epic Games Store that sells mobile games, but right now it’s against Apple’s rules to release a “store within a store”—that is, an iOS app that sells other iOS apps. And definitely forget using your own payment processing. A ruling in Epic’s favor could change that.

Above: Epic’s PR campaign against Apple was the subject of the first day of negotiations.

The latest from the courtroom

What has happened in the negotiation so far?

Epic and Apple set their positions, and Sweeney took the stand first. There he explained his vision for Fortnite and the “Metaverse” epic has come under pressure lately – it recently announced $ 1 billion in funding for that vision, with much of it coming from Sony – and of course, said Apple’s Fees are unfair. “It got to the point where Apple was making more money than developers selling developer apps on the App Store,” Sweeney said.

Apple’s attorney wondered why Epic is apparently right to put Fortnite on PlayStations, but Apple is pursuing. Was it all a publicity stunt? Sweeney denied that his intentions were anything but combating what he sees as Apple’s unfair “walled garden”.

Epic and Apple’s arguments

What does Epic have to prove to win?

To prove that Apple has monopoly power, Epic must first prove that there is a market for Apple that has monopoly power – that it isn’t just complaining about a software feature and terms of use it doesn’t like.

To this end, Epic argues that there is a “pre-market” for smartphone operating systems, iOS and Android, and an “aftermarket” for apps that run on smartphone operating systems. Cars and Auto Parts are an example of a pre-market and an aftermarket: Toyota sells cars, creating an aftermarket for Toyota parts and Toyota repairs. Epic says the same thing is happening here: By selling iPhones, Apple is creating aftermarkets for “iOS app distribution” and “iOS in-app payment processing”.

If the court accepts Epic’s definitions of these markets, it must demonstrate that Apple’s behavior is anticompetitive and that Epic’s proposed remedy is legal. That will not be easy. Rebecca Haw Allensworth, a professor at Vanderbilt Law School, told Reuters that it was “not a super strong suit” and that Epic is unlikely to win.

What are Apple’s counter arguments?

Consumer market? Which aftermarket? Apple says it doesn’t control a market, it competes in one. In this case, Apple sees the App Store as a “game transaction platform” that competes with other game transaction platforms such as the Google Play Store, Steam, and the PlayStation and Xbox stores. In this market, Apple has nothing near monopoly power: it estimates it has 23.3% to 37.5% of the market share.

Sure, some people think the 30% drop in sales on the App Store is too high, but that’s exactly what the market has settled on. To stay competitive with Google, Microsoft, Valve, and others, Apple didn’t increase these by more than 30%. To keep up with this competition, the company recently cut the cut for developers who make sales less than $ 1 million a year. Is that what a monopoly does?

This is just one of Apple’s lines of reasoning. It comes across Epic’s claims on every rounded, brushed aluminum angle it can find. Here is a selection of Apple’s other arguments, paraphrased:

  • Apple sells “devices”, not a mobile operating system. The App Store and the in-app payment system on iPhones are part of what makes an iPhone an iPhone. Epic’s “pre-market” for mobile operating systems is a fantasy.
  • In particular, the in-app payment system is not a product. Apple doesn’t market it, and app developers don’t have to use it if they want to sell physical goods, just digital content. Again, it’s part of what iPhones and iPads are.
  • The iOS and App Store rules and security features protect consumers and developers. (Epic argues back that a lot of junk passed the App Store review. Apple says Epic had its own share of security issues.)
  • The App Store made things better for everyone. Customers get access to tons of apps and developers make money. Epic itself has made over $ 700 million.
  • It doesn’t make sense to call “iOS App Store Distribution” a single marketbecause games and other apps are completely different. It’s like saying that there is a single market for heart surgery and Advil because you can get both of them in hospitals.
  • People are moving away from iPhones and iOS devices and buying Android devices instead. That is further proof of the competition.
  • Microsoft and Sony also operate walled gardens. Why can’t iPhones be like PlayStations and Xboxes? (Epic says smartphones are unique because they are general-purpose computing devices connected to cell towers, important products that almost everyone owns these days.)
  • If the court does what Epic wants, it would force Apple to deal with competitors who want competing app stores to put rival app stores on the iPhone. This violates his right to “refuse to do business”.
  • When the first iPhone hit the market, Apple didn’t allow any third-party apps at all. Now why should third-party developers be required to do what they want?

Documents and revelations

How do you know all of this when the process has just begun?

Unfortunately, I can’t read my minds: I read the documents Epic and Apple submitted to the court prior to the trial. There shouldn’t be many surprises during the testimonials as both companies have previously set out their arguments in large documents.

There will be some surprises, however. The legal teams will be showing the court evidence every day, which we as the public can then download and view for ourselves. Epic is a privately held company and so is not required to publish financial results. These documents provide some of our first unfiltered glimpses into Epic’s spending and business. Here’s what we’ve learned so far:

What it all means

What is the expected result?

If I took bets, odds would help Apple win. Even if Epic loses, it will make an impact on the industry by getting Apple to defend itself and rallying allies in its war on walled gardens – a long-held stance for Sweeney and Epic. (Although Apple claims that Epic tried to negotiate a subsidiary contract just for itself prior to the lawsuit, suggesting the company is more selfish than it claims.)

After Epic started screaming that Steam’s 30% sales cut was too much, online stores started changing their fees. For example, Microsoft recently announced that it would cut the cut to 12%. This is in line with the truncation that the Epic Games Store is making. Epic isn’t entirely responsible for this movement, but its noise certainly helped. Regardless of the outcome, Epic’s continued pressure against closed operating systems can propel the industry in their preferred direction.

Our preliminary conclusion: @Apple violates EU competition law. @AppleMusic compete with other music streaming services. However, @Apple charges high commission fees for competitors in the App Store and forbids them to inform about alternative subscription options. Lose consumers. April 30, 2021

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Apple also absorbs heat regardless of Epic’s suit. Together with Google, Apple was the subject of an antitrust hearing in the US Senate a few weeks ago. According to a complaint from Spotify, the company is currently defending its App Store policies in Europe. If Epic loses, the change it’s trying to make could still be made separately by state regulators – though an epic loss here could hamper those efforts, according to an official who spoke to Reuters.

If Epic wins it would be huge. Apple argues that such a decision would open game console makers to similar judgments, forcing Microsoft and Sony to open the Xbox and PlayStation to all software so anyone could bypass their business. (Though that’s not exactly Epic’s intentions.)

Whatever the outcome, it will likely be appealed and taken to the next court.

What’s happening to Fortnite?

When is Fortnite returning to the App Store?

I don’t know, but there is a pretty popular game called Battle Destruction that you can play instead. I’m sure it’s just as good as Fortnite.

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