Lawful Neutral: The Epic vs. Apple lawsuit – when titans are tweens

    
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Lawful Neutral: The Epic vs. Apple lawsuit – when titans are tweens

The MassivelyOP Golden Yacht was anchored someplace off the coast of Maine when the first news about Epic suing Apple hit. We had sailed north to avoid the hurricane from our normal anchorage much further south. I burst into the galley, fax bulletin clutched in my hand, and delivered the news to a bemused Bree, slowly sipping her tea and staring at me with a raised eyebrow.

“This,” I said, “this is going to make for an awesome Lawful Neutral.” Two months later, low and behold we have two companies acting like they in a schoolyard fight with enough drama to catch even Jerry Springer’s attention. With snark and sniping the likes of which we’ve seldom seen between two billion dollar companies, the Epic v. Apple fight is shaping up to be one tumultuous, and facepalm-worthy event.

Before I dive into this rat’s nest, let me make one thing abundantly clear: There are no good guys in this fight. Whether its child labor or installing tracking software of debatable origin, Apple would enslave us (more?) if it could and Epic would install eye trackers to ensure we are looking only at the things it wants us to. Neither of these companies represents the “good guys,” and I think we would hardpressed to even declare one of them the lesser of two evils. They are equally awful, just in unique ways.

But that doesn’t mean the outcome of this lawsuit doesn’t potentially benefit us. Right now, Epic’s greed aligns with gamers’ interests overall. But don’t mistake that temporary alignment for any other than that: temporary. Epic Games is not your friend and isn’t moving with your interests at heart. We good? Cool, moving on.

What’s the Issue?

What started this whole malarkey was Epic Games putting an alternative payment method into Fortnite on the AppStore after asking Apple to allow it to put in its own competing payment option. Apple was, as expected, less than receptive the request and gave what I consider to be a rather bullcrapp-y response about how denying customer choice is actually a good thing.

From there, Epic did the Thing anyway and included its own payment option in Fortnite. Apple got feisty and threatened Epic if it didn’t remove the option because (they argued) it violated the developer agreement. Epic Games, expecting this eventuality, replied with a pre-planned antitrust and monopoly lawsuit.

The software industry is watching with something akin to trepidation over the proceedings. The outcome of this case could have dramatic, far-reaching effects on everything from iOS to the PlayStation store and any other number of similar situations and platforms. The “AppStore” model is incredibly lucrative, and we’ve seen moves from every major player in the space to follow Apple’s lead. But now, the very thing that made the AppStore so successful might actually be its downfall.

The lawsuit

The lawsuit alleges 10 counts that try to establish Apple as in violation of antitrust laws through the Sherman Act and the California Cartwright act. There are two main areas of Apple and iOS that these counts target: the “market” itself (the iOS platform) and the management tie-in to the payment processor.

Counts one through three deal with the iOS AppStore as a market. The first count alleges that Apple has monopoly control over this market and is engaging in anti-competitive behavior through technical and contractual limitations.

Count two alleges that Apple has monopoly over the “essential facilities” of iOS by preventing competing AppStores from being used on iOS. Count three deals with the contractual mandates that Apple imposes on app developers to ensure their continued monopoly.

Counts four through six apply the same basic logic to the Apple payment processing. Counts seven through ten are essentially the same, just in a California jurisdiction.

YOUR MONEY IS NOW OUR MONEY, AND WE WILL USE IT TO BUY DRUGS

The crux of the lawsuit

The funny thing here is that Apple and the AppStore do appear to meet all of the requirements to be a monopoly. They have a stranglehold over all of iOS and are making moves to start the same type of model over their desktops and laptops. They hold complete market power in the iOS market, and that aforementioned stranglehold is anti-competitive to its core.

What Epic has to prove is that iOS is a “valid antitrust market.” This gets a bit dicey because current antitrust law isn’t especially well-equipped to handle this kind of situation. Historically, courts have used a two-step approach: the Brown Shoe factors apply to demand substitution, or the “extent to which an an increase in one product’s price would cause consumers to buy another product instead,” and the SSNIP test. The Brown Shoe factors are a list of “practical indicia” to assess whether goods and services are a reasonable substitution in the definition of a market or a submarket. The Brown Shoe factors are:

1. industry or public recognition of separate markets;
2. a product’s peculiar characteristics and uses;
3. unique production facilities;
4. distinct customers;
5. distinct prices;
6. sensitivity to price changes; and
7. specialized vendors.

The goal of the Brown Shoe factors is to help define the market or submarkets. There’s a lot in the Brown Shoe v. United States, but salient points here are that defendants, in this case Apple, typically argue for bigger markets to show more competition, while plaintiffs argue for smaller markets to show less.

Once the market has been established, the courts then apply the SSNIP Test, which stands for “Small but Significant non-Transitory Increase in Price.” The test asks if a hypothetical monopoly could raise prices by 5% and have the consumers move to a competing product, thus making the price hike unprofitable. If a customer can’t reasonably switch in the event of a 5% price hike, the company is likely to have monopoly power in the market.

There’s a particular effective example of this in play as explained by the nonpartisan Congressional Research Service in a prepared whitepaper for the U.S. Congress:

“One popular antitrust treatise illustrates the SSNIP test’s application by comparing proposed markets consisting of Ford passenger cars and all passenger cars. Because Ford—which has a “monopoly” over the sale of Ford passenger cars—would likely be unable to profitably raise its prices by 5% because of the business it would lose to other car companies, Ford passenger cars are unlikely to qualify as a properly defined antitrust market. However, because a hypothetical firm with a monopoly over passenger cars likely could profit from such a price increase, passenger cars likely qualify as a distinct antitrust market.”)

What’s happened

Well, if you imagine any sort of middle-school fight between tweens, that’s about where we are. We have the two kids (Apple and Epic) screeching more and more shrilly about who should be in trouble to the teacher, while another kid who wants to be part of the situation but isn’t chimes in with completely useless information (Microsoft), and the fourth kid is trying to quietly slide away and not also get in trouble (Google).

In non-metaphor form (and substantially more wordy), Epic released an update with its own payment processor included alongside Apple’s payment processor. Apple got upset and started threatening Epic for breach of contract, and Epic retaliated with a lawsuit and incredibly snarky video parody of an Apple commercial from the ’80s. Because of course it did.

Apple stopped updates of Fortnite from iOS, then threatened to cut off Epic’s access to iOS and Mac entirely, which would have had the downstream impact of blocking any other developer that used the Unreal engine. This was clearly just Apple trying to show how big and tough it was and to call Epic’s bluff. So Epic filed a motion to stop the blocking.

The mobile game developer community basically lost its collective shit, and then Microsoft chimed in because of course it wanted to capitalize on the mob-rage and win some brownie points with consumers by siding with Epic, thereby attempting to prove it was relevant to the conversation (Narrator: It was not).

The judge next granted the motion against blocking the Unreal engine, meaning that Apple couldn’t kick every game using the Unreal engine off of the AppStore, but she upheld the blocking of Epic-created games. True to its word, Apple blocked future updates for Epic-made games on iOS and Mac and in a fit of extreme petulance, featuring PUBG on the AppStore the day it did it. This is how mature adults act, right? Sure, Epic started the snark-war, but really Apple didn’t need to sink to the same lows.

While Apple and Epic are busy being Very Mature to each other, Google used the opportunity to try to quietly slip away from the coming altercation by also trying to dismiss the lawsuit from Epic. Google is clearly not jumping to Apple’s defense here, which makes sense considering there’s no small amount of bad corporate blood between the two giants.

Apple then filed a counter-suit for breach of contract stuffed with completely over the top eyeroll-so-hard-I-need-an-ophthalmologist language, accusing Epic of literally installing a Trojan Horse on the AppStore. Apple’s continued petulance included an attempt to turn off Apple sign-in for Fortnite, then a quick backtrack after Apple users wielded their virtual pitchforks and torches.

Meanwhile, Epic went on NPR to cast itself as a champion of the people, arguing how this is totally all about the good of the people and totally nothing to do with Epic making a crap-ton more money. Totally serial you guys. They pinky swear.

Most recently, a court date has been set for May 3rd, 2021. Who knows what’s going to happen in the meantime, but I think it’s fair to expect more tween-level interactions from these two companies along the way.

What’s the impact?

The lawsuit could have dramatic impacts across both mobile OS and gaming spaces. The assertion that Apple iOS is a market and subject to antitrust laws will have repercussions across all app stores, including PlayStation, Steam, and Microsoft, not to mention Google and iOS and beyond.

Personally, I think Apple is fighting a losing battle. It has exploited this loophole that the law wasn’t equipped to handle for a long time. This battle was always going to happen; it was just a question of when. Apple has always employed borderline draconian tactics in protecting its walled garden, and now it is reaping the consequences of that. Epic’s case is legally strong, and Apple has backed itself into the corner with its aggressive walled-garden approach. It’ll have a hard time arguing that it isn’t a valid antitrust market and an even harder time justifying why its payment processor is the only possible one to use on the AppStore.

While nobody can fully predict the outcome of the case, I suspect Apple will lose the case and ultimately be required to allow competing “AppStores” on iOS and competing payment processors. Other AppStore operators will have to make similar moves, including Epic itself, though the degree of impact will vary. Google already allows competing AppStores, for example.

It’s also clear that Apple is making a play to apply the AppStore model more definitely for its desktop and laptop computers. Apple Silicon, which is Apple switching from Intel chips to ARM chips, will make it easier (aka seamless) for developers to launch apps on iOS and Mac. The fun side effect will be how easy it will be to apply the AppStore lockdown on those full-fledged computers. This is purely my speculation, but I would guess Apple is going all-in on this AppStore model and planning on rolling it out wider to further lock down Mac systems with the release of Apple Silicon. This case is a huge deal for the company.

For consumers, we’ll see more diversity in games and apps on the iOS app store, along with more payment options. Google and Apple will be forced to lower their 30% charges to compete with other payment processors that will undoubtedly be lower. Consumers will likely end up paying slightly less in the long run while Apple tries to find a new way to exploit whatever new legal precedent is set.

It’s worth noting that Apple has played this game before in the eBook market – and lost. Hard. In my semi-informed opinion, this paints a bleak picture for Apple as we know it. But I think the net result will be a gradual renaissance in the binary stalemate between iOS and Android, and that can only benefit consumers.

It’s impossible to say what will come next because there’s a lot on the line for a lot of different groups. But as we’re sitting here, watching the South African coastline go by from the deck of the golden yacht, it’s guaranteed to be a fun ride.

Every other week, Andy McAdams braves the swarms of buzzwords and esoteric legalese of the genre to bring you Massively OP’s Lawful Neutral column, an in-depth analysis of the legal and business issues facing MMOs. Have a topic you want to see covered? Shoot him an email!

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Benjamin Sinnamon

Just my two cents, but the name of the column and its description “esoteric legalese. . . an in-depth analysis of the legal and business issues facing MMOs” indicate that we’re getting a lawyer’s perspective. I’m not trying to knock Andy’s opinions (regardless of my opinions of his opinions), but the expectation puts a nonlawyer in a bind.

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Neurotic

Daaaaamn, this has to be the definitive article on the subject! I feel like just reading the whole thing gave me a law degree. :D

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Schmidt.Capela

From a CNN article about one of the hearings of this lawsuit:

Apple has justified its app store policies partly as a way to protect consumers from security risks and malicious software. Epic has countered that it is a credible business that has been on the iOS App Store for years and poses no security threat. But Gonzalez Rogers said that is not the issue.

“You did something, you lied about it by omission, by not being forthcoming. That’s the security issue. That’s the security issue!” Gonzalez Rogers told Epic. “There are a lot of people in the public who consider you guys heroes for what you guys did, but it’s still not honest.”

So, I’m pretty sure Judge Gonzalez Rogers herself agrees that what Epic did is equivalent to a trojan horse.

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Dranadin

It’s going to be hard to prove that Apple has a monopoly on anything. It’s running its own market on its own devices. If you want to give people space on your land to sell some of their produce, and you charge each user a fee for setting up a stand, you can do that because it’s your property. This case is akin to one of those users suing you, the property owner, by alleging that you have a monopoly because you control your own private land. It’s absurd.

Microsoft has it’s own storefront on its devices. Google has a storefront on its devices. Samsung does, too. There are simply too many digital storefronts from too many companies to claim that Apple has a monopoly over anything. It is controlling what it makes available and how on its own products. If Epic wins this case, then it could be construed that companies lose the right to control software on their own devices when they put them in the public space.

Imagine booting up your Xbox or Playstation, and having 20 different stores to sort through. Some games would be available on certain stores and not others. Microsoft or Sony would have to capitulate and allow these stores to function because a court said that if they don’t, they’re monopolizing their own ecosystem. Spreading all these products out and complicating software stores would not be a benefit to consumers. This is what Epic is trying to do with this lawsuit. This is ALL Epic is trying to do in this lawsuit.

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McGuffn

I mean, I agree with you, but what Epic is doing is treating apple’s customers as its own subset of people distinct and trapped and segregated from the population at large.

See, people that own an ipad don’t have an xbox where they can play fortnite on. they certainly don’t have a pc or god forbid a mac where they can play fortnite on.

To continue your analogy lets say you have an apple orchard where you also sell apples. Great, right? Well epic drives onto your orchard with its trojan station wagon, pops open the back door and demands to sell its own fruit (apples/oranges?) on your land using its own payment processor. And it undercuts your price just to screw you some more. And when you object it files an antitrust lawsuit against you. Why? because Dranadin has an orchard and Epic doesn’t, that’s why.

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Arktouros

Man I dunno every lawyer I’ve listened to on this topic actually says the case against Apple is pretty weak because Apple hasn’t abused their position in their market. Even if you concede the point that Apple is a monopoly just having a monopoly isn’t just outright illegal it’s what you do with your position in the market when you do have a monopoly that is illegal. We can easily point to numerous other examples and see a 30% revenue share is the standard just about everywhere with the most notable exception being at Epic itself. We can also see that even with reduced revenue share there’s almost no benefit to consumers as a $60 game on Steam is still $60 on Epic Game Store. The bulk of anti-trust lawsuits are more concerned with the impact to the consumer which in the gaming world just isn’t there. Most of your predictions on this just aren’t backed up at all by how things have played out elsewhere.

Also you guys really seem to take special affront to the term”trojan horse” but it’s kinda the most accurate term in a technical setting. Epic submitted an update that allowed them to later enable direct payment options on a server side setting without notifying Apple such things were in that update. They purposely deceived Apple to deliver an update that allowed them to enable in app features at a later date. Kinda the textbook definition of what a Trojan is in the app world.

The idea of a US court telling a company it has to redesign it’s products and offerings in a particular way seems extremely strange to me. Maybe there’s legal precedent where they’ve done it before but I just don’t know about all that. Usually we only see that kind of thing when public/consumer safety is concerned and so far Epic has done an extremely bad job at making the case that consumers are harmed by the current setup.

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McGuffn

Explain to me how “this is stuffed with completely over the top eyeroll-so-hard-I-need-an-ophthalmologist language, accusing Epic of literally installing a Trojan Horse on the AppStore.” is accurate? You just insist that it laughable and provide no evidence, as if it is some sort of fait accompli.

It may be debatable but it is certainly a reasonable charge to make and not completely over the top.