Because it has set things up this way, Apple wields huge power over the terms it can dictate to app makers. One in particular has become a thorny issue, even if most consumers are unlikely to notice it: Any time you buy a digital product or service on many iOS apps, it is processed on an Apple-run payment system, and Apple collects a 30% fee from that.
Now, a federal judge is slated to decide: Is Apple’s policy just a hugely successful business model — or is it a violation of US antitrust law?
In a trial starting Monday, the judge will consider whether Apple is justified in requiring many app makers — and by extension, consumers — to use the company’s payments technology. The potentially landmark trial stems from a lawsuit filed by the maker of the hit video game Fortnite, which Apple booted from its platform last summer for not complying with its rule.
The high-profile case will involve witnesses including Apple CEO Tim Cook and his top lieutenants. Representatives for Facebook and Microsoft are also expected to testify. Corporate emails and presentations could fuel a fierce courtroom battle over app store policies, which are increasingly under scrutiny by regulators in Europe, lawmakers in the United States and many others.
As Silicon Valley’s expanding reach has moved Congress to propose new laws aimed at restraining the tech industry’s biggest players, the outcome of the case may even shape the broader future of tech regulation.
A swift removal
App developers and tech industry observers have complained about Apple’s policies for years. But things reached a boiling point last summer when Epic updated its hugely popular Fortnite app for iOS.
As a violation of Apple’s rules against outside payment channels, the announcement led to the game’s swift removal from the Apple app store. Existing players couldn’t receive updates to the game, and new players couldn’t download the app.
With the suit, Epic alleges that Apple holds a monopoly on the distribution of iOS apps, and that Apple’s rules around payments are illegal because they shut out potential rivals.
The result, Epic has alleged, are higher prices for iOS users and less innovation in the app marketplace. If it weren’t for Apple’s rules, Epic would launch its own iOS app store and offer cheaper payment systems, the company has said in court filings.
Apple disputes that it operates a monopoly, arguing that consumers — and Fortnite fans — aren’t forced into using Apple devices or Apple’s app platform. The 30% fee it collects on app transactions is comparable, it says, to the 30% commissions charged by other app stores and digital storefronts for video games. And it was Epic that went out of its way to engineer a legal crisis so that it could bring the lawsuit in the first place, Apple argues, citing what it describes as an “intentional act of sabotage” by Epic to break its contracts with Apple.
The trial is sure to have some lively moments, as the two sides have already sparred in front of the judge hearing it, Yvonne Gonzalez Rogers, who was nominated by President Barack Obama in 2011 to serve on the US District Court for the Northern District of California.
Epic’s decision to immediately sue and push to publicize its fight suggested it knew how events would unfold — something Epic’s lawyers have acknowledged.
“When you are taking on the biggest company in the world, and you’re taking it on where you know it’s going to retaliate, you don’t lie down in the street and die,” Epic’s attorney, Katherine Forrest, said in one appearance before the judge. “You plan very carefully on how you’re going to respond.”
Records introduced during the pre-trial process showed that Epic developed a whole campaign to challenge Apple, called Project Liberty, of which the Fortnite app update and promotion were a critical part. Apple argues the existence of Project Liberty shows the game company was acting in bad faith from the start, because the entire crisis was premeditated. Further, it has argued that Epic is interested in its own profits, not competition.
Epic has conceded that it broke the terms of its contract with Apple, but justified doing so as a reasonable response to alleged illegal behavior by Apple.
Framing the case
The central idea behind Epic’s lawsuit is that Apple allegedly used its exclusive ability to sell iOS apps as a form of monopolistic leverage. Apple rejects that premise, arguing that there is no monopoly to speak of, so there can be no antitrust violation.
Apple’s store may be the only place for users to download iOS apps, but it isn’t the only place users can find Fortnite or other video games, Apple argues. Apple is, of course, part of a broader market of video game distributors that includes Microsoft, Sony, Nintendo, Valve and Epic itself, all of which operate their own video game software stores. Besides, Apple has argued, its platform rules exist for good reasons, such as ensuring that consumers can’t be targeted by malicious app makers.
It’s not illegal to have a monopoly under US law; it’s only illegal to try to preserve a monopoly at the expense of competition. By portraying itself as part of a competitive market of video game sellers, Apple seeks to avoid both criticisms.
Much of the case could hinge on this framing exercise, as well as the underlying justifications for Apple’s store rules.
“The question at the heart of it,” said Adam Kovacevich, founder of Chamber of Progress, a tech advocacy group backed by Google, “is this: ‘Does Apple as the marketplace owner — do they have rights, essentially, to run their marketplace as they like?'”
Some legal experts say that, from a competition perspective, things are more complicated.
“Once people are in an ecosystem, they are very locked in,” said John Bergmayer, an attorney at the consumer advocacy organization Public Knowledge. “I have an investment in the apps I bought, I have all kinds of data and stuff. It would be a huge hassle to switch, and so most people just don’t.”
Last year, an investigation and report by the House Judiciary Committee’s antitrust panel concluded that Apple, Amazon, Facebook and Google enjoy “monopoly power” and have exercised it in ways that have hindered innovation and reduced consumer choice.
Apple and Google rejected those allegations, arguing in the hearing that their platform policies help ensure the safety and security of their app stores and that they do not engage in retaliatory behavior. But prominent lawmakers were not persuaded; subcommittee chair Sen. Amy Klobuchar vowed to investigate claims of retaliation and Sen. Mike Lee, the panel’s top Republican, called Apple and Google’s power over Americans “unprecedented.”
At several points, both lawmakers quoted directly from documents filed in the Epic case.