US States and Justice Department Support Epic’s Side in Apple Lawsuit
A total of 35 US states joined an antitrust lawsuit in support of Epic Games’ lawsuit against Apple for alleged monopolistic practices.
Those states have met the deadline for filing amicus briefs in Epic’s appeal against a federal court ruling that largely favored Apple, which banned Fortnite from the App Store in 2020 after Epic linked a link to cheaper off-the-shelf cards. -store item purchases to his iOS game.
The states said Apple’s behavior has hurt both developers and users of mobile apps, as it monopolized the distribution of mobile apps and in-app payment solutions for iPhones. On Thursday, Apple said it had more than 1.8 billion active mobile devices on the market. Epic argued that this lucrative market is owned by Apple and constitutes a monopoly.
The case is a major conflict between a platform owner and a powerful game company that could set the rules for engagement and competition in an era that will be filled with giant technology and game companies. A lot of money is at stake here.
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But federal judge Yvonne Gonzalez Rogers ruled in September that the market share in question was greater, representing in-app purchases for mobile games on both iOS and Android. Apple had a larger share of sales, but not an overwhelming share of this market.
When Apple launched the App Store in 2008, it charged a 30% commission on every in-app purchase transaction. While Apple may have earned that commission from the investments it made in the App Store and iPhone, Epic argued that it effectively became a tax that sucked billions of dollars from the game industry and should have been reduced. Apple said it couldn’t calculate actual profits. The court found that not credible.
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Epic’s expert, Ned Barnes, calculated that Apple’s operating margins in the App Store are above 75%. Epic argued that Apple’s commission would be like a car dealership charging a fee for the sale of a car and then taking more fees every time someone puts gas in the car.
Apple won its case on nine points. There were a few points where the judge ruled in Epic’s favor. Apple had introduced an “anti-steering” policy that encouraged developers to use its payment system — which generates the 30% commission — in part because it reduced security and privacy risks for players. The judge noted that this allows Apple to monetize its intellectual property, noting that evidence supports the argument that consumers value these features of privacy, security and reliability.
Apple had argued that Nordstrom does not advertise prices in Macy’s stores for its goods. But the judge said Apple has created a “black box” where it is silencing elsewhere around competitive pricing. Developers were unable to use their app to advertise lower prices on their websites. That was harmful to the consumer, she thought.
Under the injunction, Apple will be permanently barred from banning developers from including external links or other calls to action that direct players to alternative payments. Apple is appealing that part of the ruling and has been delayed in enforcing that order.
The US Department of Justice also said the original ruling in the trial was “flawed” as provisions of the Sherman Act were misapplied by the courts and could jeopardize enforcement of antitrust laws in the digital economy. Apple told Reuters it was optimistic it would prevail. The Justice Department said the court never addressed pricing information when it ruled that Apple did not have monopoly power, but was “near the abyss”.
The states also said they had a problem with Apple’s unilateral contracts that every developer must accept, but the lower court found this not evidence of market power, which the states called a “crippling paradox.” Academics who filed statements also said the court overlooked less restrictive alternatives to Apple’s rules that would be easy to implement. It also noted that Apple’s bundling of products could also hurt competition and consumers.
The Electronic Frontier Foundation said Apple’s approach to security is itself anticompetitive. Even after accepting Apple’s security reasons as a pro-competitive justification, the court should have completed its rule-of-reason analysis by weighing the pro-competitive and anti-competitive effects of Apple’s policies, the foundation said. And it said Apple’s policy denies users choice when it comes to security, privacy and content.
I think the court should have ordered Apple to make its own calculations on profits related solely to the App Store, even if doing so would have forced the company to change its accounting practices.
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