Epic Games Claims Apple’s Policies are Anticompetitive
By Will Bliss
Graphic by The Advocate. The Epic Games Badge is the registered trademark of Epic Games Inc. The Apple Logo is the registered trademark of Apple Inc.
Epic Games, Inc. is challenging Apple Inc. in court over its business practices.
The complaint alleges that Apple violated the Sherman Antitrust Act when it removed Fortnite from its app store. This came after Epic implemented an in-app purchase method, circumventing Apple’s store payment system and resulting in Apple losing 30% of the fees from in-game digital purchases.
The Sherman Antitrust Act prohibits companies from maintaining monopolistic market power through anticompetitive business practices. Epic argued in its complaint that Apple violated the Act by holding monopoly power over iOS app distribution, and that it unlawfully maintains this control through anticompetitive acts.
Epic argued that the iOS app distribution market is valid for the purposes of the Sherman Act analysis. Epic sought injunctive relief to bar Apple from removing Fortnite from the iOS app store.
“It’s no crime to be a monopolist. There has to be anticompetitive conduct,” Donald Polden, professor of law at Santa Clara University School of Law, said.
Polden said whether a company possesses sufficient market power is a question of consumer preference and whether there are any close substitutes for the product. However, having a dominant product is not enough. Only when the product is dominant as a result of illegal business practices is it an issue under the Sherman Act.
“Their behavior has to be characterized by anticompetitive behavior. Steps to maintain or increase their market power through anticompetitive devices. It’s not a crime to be a monopolist. But if you use anticompetitive conduct to achieve or to maintain your monopoly, then that could constitute a section 2 monopolization case,” Polden said.
The iOS market may be considered its own self-contained market, or it may be considered to be a part of broader markets like mobile apps or video games. Polden explained that this market context is a critical point in the antitrust litigation.
“The general notion is that there’s really no such thing as a one-product market. That’d be saying that there’s absolutely no substitute for that Apple phone, and we know that’s just not true. I think that it’s not an exclusive monopoly, I think that there are other sources you can get apps. It’s just not as robust a market as Apple,” Polden said.
On the same day of their complaint, Epic launched an advertisement, titled “Nineteen Eighty-Fortnite,” which parodies Apple’s commercial, based on George Orwell’s 1984. It depicts a spokesperson shaped as an apple speaking about “harvesting profits” and “unifying platforms” while brainwashing an apparently captive audience. A Fortnite character then rushes in to destroy the brainwashing TV with a unicorn pickaxe. The ad was followed by a social media and press campaign condemning Apple’s business practices with the tagline #freefortnite.
In its response, Apple stated, “Epic should not be entitled to their desired relief because they seek an injunction for ‘self-inflicted injuries.’” The response points out that Epic previously agreed to Apple’s terms, which are consistent throughout the entire mobile market, and Epic breached the terms of their contract by circumventing the iOS payment method.
Apple responded not only by removing Fortnite from its store, but also cancelling development with all developers using Epic’s proprietary software, The Unreal Engine.
Epic CEO Tim Sweeny said at Game Developers Conference 2019 that The Unreal Engine 4 is one of the most popular development engines and is used by 7.5 million developers. In response, Epic moved to enjoin Apple from taking this course of action.
Just days after the hearing, Congress weighed in on the issue as well by releasing a 449-page report. After a year of investigation, the House of Representatives explained why they now consider Google, Apple, Facebook, and Amazon to be monopolistic entities that must be regulated.
The report stated, “[w]hat were once scrappy, underdog startups that challenged the status quo have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons.”
The report further identified Apple as possessing monopolistic control over its own iOS market. The report states, “[Apple] creates barriers to competition, excludes rivals, and charges ‘supra-competitive prices’ within the app store, or pricing which could not be sustained in a competitive market.”
On August 24, Judge Yvonne Gonzales Rogers partially granted and partially denied Epic's motion for preliminary injunction. The order forbids Apple from taking actions against Unreal Engine developers, but permits Apple to keep Fortnite off their store. Judge Gonzalez recommended the dispute should go before a jury.
Judge Gonzalez focused on the novelty of the business practices and of the issues at play. She wrote, “[t]his matter presents questions at the frontier edges of antitrust law in the United States . . . Expert reports reflect fundamental disagreements from luminaries in the field as to the foundational questions of this matter. While ultimately one view will likely prevail, the Court concludes that reasonable minds differ.”
Instead of taking Judge Gonzalez’s recommendation for a jury trial, Epic and Apple have agreed to a bench trial to be heard on May 3, 2021.
(Editor's Note: This article was originally published in the October 2020 [Volume 51, Issue 1] edition of The Advocate.)