“We treat every developer the same. We have open and transparent rules.”
— Tim Cook, Apple CEO
“Apple has locked down and crippled the ecosystem by inventing an absolute monopoly on the distribution of software, on the monetization of software.”
— Tim Sweeney, Epic CEO
If, like me, you’re an iPhone user, or if you use a phone from Google, you may have noticed that there are certain apps where you can’t make in-app purchases. For those apps, usually selling things like audiobooks, digital copies of movies, e-books, or the like, you have to go to the seller’s website and purchase the item there, even if they have an app on your phone. If you’re interested in certain kinds of gaming, you may also have noticed that you can no longer access the wildly popular game Fortnite on the app stores of those manufacturers either.
The absence of some of those purchase options is the choice of the sellers, but the absence of Fortnite was an orchestrated act that has set up a potentially landmark antitrust case, currently being tried in a San Francisco courtroom.
The basic issue is this: both Apple and Google take a cut, and a substantial one, of any in-app purchase that you make in any app that appears in their app stores. If you’re an app developer and you want to sell something in-app through Apple, Tim Cook is going to take 30% of that purchase price. That’s why, if you want to buy an audiobook from Audible, or a movie from Disney, they’re going to direct you to their websites to do it. You can access your purchase in the app after you make it, but you can’t make the purchase inside the app itself. It’s not that Apple won’t allow it, it’s that Audible and Disney don’t want to pay Apple’s in-app purchase fee.
The folks at Epic games, the maker of Fortnite, have had about enough of this. They believe that the phone manufacturers are creating a monopoly. To make their test case, last year they began selling virtual currency inside the Fortnite app, without paying the 30% fee. In response, Apple removed Fortnite from the App Store. Legal action followed shortly thereafter.
The consequences are potentially huge. The App Store fees are one of Apple’s main sources of non-hardware income. Some reports are that “services” now account for about one-fifth of Apple’s revenue. If Apple should lose the lawsuit, the entire business model of smartphone apps would be upended.
From a legal standpoint, most experts have opined that Apple is likely to prevail here, but that this case is just the beginning of their antitrust problems. In the instant legal challenge, Apple can point to the fact that Epic Games can sell Fortnite on multiple other phones, on gaming consoles, and as a computer based game. They can also point to the fact that while iPhones have a substantial portion of the market, they certainly aren’t a monopoly in the phone world.
But there are several other problems on the horizon. Regulators in the UK, Australia, and with the European Union are all investigating app store policies, and they tend to be less forgiving when reviewing the practices of large technology companies. Apple also reached a deal with Amazon last year to waive some in-app purchase fees between Amazon’s Prime Video App and Apple+ services on Amazon devices that has drawn the attention of regulators.
The antitrust suit between Apple and Epic is expected to take two more weeks, and a decision may not come for several weeks after that. Whatever the decision is, it will almost certainly be appealed. Thus, we may not know just how Epic this bite out of the Apple is for, well … several fortnites.
David Hejmanowski is judge of the Probate/Juvenile Division of the Delaware County Court of Common Pleas, where he has served as magistrate, court administrator, and now judge, since 2003. He has written a weekly column on law and history for The Gazette since 2005.