New York (CNN Business)Fortnite maker Epic Games sent shockwaves through the tech industry this week when it sued Apple and Google, claiming both companies’ app stores are monopolies. If Epic were to win the lawsuits, Apple and Google could be required to overhaul their businesses by making their app stores more favorable to developers.
The controversy arose Thursday when both Apple (AAPL)
and Google (GOOG)
kicked Fortnite out of their app stores. The companies claimed Epic violated their guidelines by announcing a way for players to buy in-game currency outside their
proprietary payment systems.
The gaming company was prepared for battle. Epic quickly
filed its suits and released a video parodying
Apple’s iconic “1984” ad, casting Apple in the role of villain. It also threw Google’s “Don’t Be Evil” slogan back at the tech company, and accused the firm of having “relegated its motto to nearly an afterthought.”
Apple and Google have not commented on Epic Games’ lawsuit. But they both pointed out that their guidelines are aimed at all developers, to “keep the store safe” from security risks.
“Epic blew it up with their big PR campaign yesterday with videos ready to go and everything,” John Bergmayer, legal director of consumer rights group Public Knowledge, told CNN Business Friday. “They were baiting Apple and Google to take their apps down from the store.”
The complaints ran to 60 pages each, and Epic has big name representation; one its lawyers ran the Justice Department’s antitrust division during the Obama administration.
“Epic retaining Christine Varney is significant,” said Sandeep Vaheesan, legal director of the Open Markets Institute. “It shows Epic is serious about this suit.”
The company is asking the court to end Apple and Google’s allegedly anti-competitive conduct. It is not asking for any damages.
Here are the issues at play and what’s at stake.
How app stores work
Android, which is open source but owned by Google,
controls 85.4% of the global operating system market, while Apple has 14.6%, according to IDC
Every mobile app must go through their app stores, which take a standard 30% cut of revenue for any in-app purchases. Developers claim the fee is too high and stymies growth. Apple doesn’t allow outside apps to be downloaded on its devices, and neither company allows developers in its app stores to circumvent their payment systems.
While Google permits outside apps to be downloaded to Android devices, Epic has complained that going outside the Google-approved process is bogged down with security pop-ups and other software restrictions. Epic originally introduced Fortnite outside of the Google Play Store, but after 18 months it launched the game there in April.
In 2019, consumers bought about $61 billion
of digital goods and services from Apple’s App Store, while Google Play users
spent nearly $30 billion on apps, according to analytics firm Sensor Tower.
The new email service Hey.com found itself at odds
with Apple after asking its users to subscribe and pay Hey on its own website rather than its iOS app. Founder David Heinemeier Hansson testified on the matter at a January hearing before the House Judiciary Committee’s antitrust panel, which is investigating Apple, Amazon, for potential anticompetitive behavior.
Hansson told CNN he’s also spoken to Justice Department antitrust officials
about Hey.com’s experience with Apple.
Earlier this year, the European Commission opened two antitrust investigations
into Apple’s App Store, citing a complaint by Spotify.
Is Apple or Google a monopoly?
In antitrust cases, perhaps the most crucial element is establishing what the market is, the better to show harm to competition. It is in Epic’s benefit to define the market as narrowly as possible, while Apple and Google will push for a broader interpretation.
In claiming that Apple monopolizes the distribution and purchase of iOS apps, Epic Games is “going to have to convince the judge that those are markets to begin with,” John Bergmayer, legal director of consumer rights group Public Knowledge told CNN Business.
For its part, Epic Games argues that since Apple controls one billion devices, there is no other way to reach these consumers.
But if Apple convinces the judge to view the market as only its smartphones, that makes its defense far easier. Apple has only a 13.3% of the global market share
of the phone market.
Apple also could argue that the 30% fee for in-app purchases pays for running the App Store and reviewing apps to ensure they are not security risks, said Jeffrey Blumenfeld, a partner at Lowenstein Sandler.
“I have a very hard time believing that the result of this lawsuit is that the court says that Apple is not permitted to control distribution of apps through its own App Store,” said Blumenfeld. For the court to rule otherwise, it would have to be “pretty strongly convinced” that consumers would be better off in the long run, he said.
If Epic wins, Apple and Google could be ordered to allow developers to sell in-app purchases without giving the tech giants a cut, said Vaheesan. The court could also rule that Apple and Google are prohibited from bundling payment services with their app stores, allowing developers to be paid directly.
Alternatively, Apple and Google could simply settle with Epic and quietly change their policies.
If Epic loses, Bergmayer, the legal director for Public Knowledge, said “at least that highlights what the limits of antitrust law currently are, so people who want change can look to other avenues.” For instance, they could ask Congress to create new antitrust laws.
The case could take years, numerous lawyers told CNN Business. The 1974 antitrust case against AT&T, for example, took eight years to litigate and concluded with the company’s breakup into multiple businesses. (AT&T is the parent of Warner Media, which owns CNN.)
“I think [Epic winning the lawsuits] would be pretty good for the markets overall,” said Mitch Stoltz, senior staff attorney of the nonprofit digital rights group Electronic Frontier Foundation. “You’d see more experimentation, you’d see more business models. You’d see more innovation.”