Apple s Battle With Fortnite Could Change The IPhone As We Know It
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Sherlock and Watson, peanut butter and jelly, Netflix and chill. Since 2008, has created that sort of inextricable link between its and its . The company's "there's an app for that" ad campaign drew millions of people, who over the years have bought more than a billion iPhones. And since the App Store was the only place to get programs for the iPhone, millions of developers flocked to Apple too. Now the tech giant is facing questions about , forced into the topic by Fortnite maker Epic Games and Epic's lawsuit alleging an abuse of power.
On Monday, Apple will face off against Epic in a California court around payment processing and commissions. In short: Apple demands app developers use its payment processing whenever selling in-app digital items, like a new look for a Fortnite character or a celebratory dance move to perform after a win.
Cut through the chatter
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The iPhone maker says that using its payment processing setup guarantees security and fairness, and it on those sales in part to help run its App Store. Epic, however, says Apple's policies are monopolistic and its commissions too high.
On its surface, the lawsuit reads like a corporate slap fight about who gets how much money when we all buy stuff in apps. But the outcome of this case could change everything we know not just about the App Store, but about how mobile transactions work on other platforms like the Google Play store. It could invite further scrutiny from lawmakers, who are already looking at whether companies like Apple and wield too much power.
"This is the frontier of antitrust law," said , an associate professor who teaches about antitrust at the Boston College Law School.
Epic Games v. Apple: Trial preview
What makes this case unusual, Olson said, is that it attempts to challenge how modern tech companies work. Apple touts its "" approach -- where it's approved every app that's offered for sale on its App Store since the beginning in 2008 -- as a feature of its devices, promising that users can trust any app they download because it's been vetted.
Aside from charging an up to 30% fee for in-app purchases, Apple requires app developers to follow policies against what it deems objectionable content, such as pornography, encouraging drug use, or realistic portrayals of death and violence. Apple also scans submitted apps for security issues and spam.
"Apple's requirement that every iOS app undergo rigorous, human-assisted review -- with reviewers representing 81 languages vetting on average 100,000 submissions per week -- is critical to its ability to maintain the App Store as a secure and trusted platform for consumers to discover and download software," the company said in one of its filings.
"It's easy to say it's David vs. Goliath, but this is like Goliath vs. Godzilla."
Michael Pachter, Wedbush Securities
For its part, Epic has argued that Apple's strict control of its App Store and that the court should force the company to allow alternative app stores and payment processors on its phones. "Apple is bigger, more powerful, more entrenched and more pernicious than monopolies of yesteryear," Epic said in an August legal filing. "Apple's size and reach far exceeds that of any technology monopolist in history."
Epic isn't the only company making this case. Music streaming service Spotify notably , saying that Apple's 30% commission and App Store rules breached EU competition laws. On Friday, the EU's competition commissioner said that a preliminary investigation found "" as a result of Apple's policies. Apple will have an opportunity to respond to the commission's objections ahead of a final judgment on the matter. If it loses, Apple could be slapped with a fine of up to 10% of its annual revenue and be required to change how it applies fees to streaming services, at least within the EU.
Apple is also facing increasing scrutiny in the US, where lawmakers earlier in April held a hearing with representatives from the iPhone maker and Google, as well as from Spotify, dating app maker Match and tracking device maker Tile. During the hearing, both Spotify and Tile argued that Apple's . (They made similar arguments about Google too.)
Epic v. Apple
If Apple loses its lawsuit with Epic, it could be forced to change how apps are distributed and monetized across its iPhones and .
"I'll be really interested to see how much Apple argues, "This is our successful business model and this is what's at stake,'" Olson said. Judges are typically wary of completely upending a successful business on a theory that it could promote more competition and lower prices. But not always. "If you're a certain judge, you might say, 'Great! Let's do it,'" he added.
Apple's App Store helped make the iPhone what it is today.
Monopoly or not?
Legal experts and people behind the scenes of the trial say the hardest argument Epic will need to make is proving that iPhone users have been harmed by Apple's policies.
Antitrust laws in the US outlaw "every contract, combination, or conspiracy in restraint of trade," according to a summation of the rules , which oversees many of the antitrust issues for the US government. Antitrust laws also outlaw "monopolization, attempted monopolization, or conspiracy or combination to monopolize." The FTC notes that a key part of judging these issues is is whether a restraint of trade is "unreasonable."
In the Apple case, that translates to its payment processing. Epic, and other critics, say Apple's requirement that developers use its payment processing is in itself monopolistic.
Apple argues that its commission is fair, and thus the payment processing structure isn't unreasonable. Apple has kept its 30% commission consistent since the App Store's launch in 2008, and the iPhone maker says industry practices before then charged app developers much more. Furthermore, it hired a team of economists to help prove .
In their report, the economists Apple hired said commission rates lower "the barriers to entry for small sellers and developers by minimizing upfront payments, and reinforce the marketplace's incentive to promote matches that generate high long-term value." They didn't look into whether the fees stifle innovation or are fair, concerns that Epic and other developers have raised.
Fortnite is one of the most popular games ever made.
Up until last year, Apple and Epic appeared to have a good relationship. Apple invited the software developer on stage at its events to show off games like Project Sword, a one-on-one fighting later called Infinity Blade.
But Epic wasn't just a popular developer. It also began pushing the industry for change. In 2017, Epic briefly allowed Fortnite players on PlayStation and Xbox to compete with one another. This was a feature Sony in particular had resisted with other . So when Epic removed the function, players blamed Sony and began a social media pressure campaign against the company. Sony .
In 2018, Epic , a competitor to the industry-leading Valve Steam store. Its key feature was charging developers 12% commission on game sales, far below the industry standard of 30%. Epic also paid for exclusivity rights to highly anticipated games, forcing gamers to use its store to play highly anticipated titles like Gearbox Software's sci-fi shooter , Deep Silver's postapocalyptic thriller and the epic story game.
Gamers, though, bristled at the move. They didn't like having to install another app store to get access to some of their games. They complained that Epic's store didn't have social networking, reviews and other features they preferred from Valve's store. And now they'd have to go through all that if they wanted to buy these hot new titles.
"I wish there were a more popular way to do this," Tim Sweeney, Epic's CEO, . But a survey by the Game Developers Conference, released just before our interview, underscored Sweeney's point, finding among other things that a majority of game developers justified its 30% cut of revenue. "I feel like the ends are more than worth the means," Sweeney said.
Apple iPhone and iPad owners haven't been able to download the game since last August.
Epic's next target was big. In 2019, the company convened executives, lawyers and public relations experts to plan a public fight with Apple. Epic wanted to run its own app store and payment processing on the iPhone, according to documents filed with the courts. Epic even gave the initiative a name: Project Liberty.
To help make its case, Epic planned to lower the price for Fortnite's "V-Bucks" in-game currency, which people used to buy new looks for their characters and weapons. It prepared a hashtag campaign, #FreeFortnite. And it helped form an advocacy group, the Coalition for App Fairness.
Epic also devised a marketing push, with a video reminiscent of Apple's famous Super Bowl ad, which, in a tech-inspired spin on George Orwell's novel 1984, had painted the original Macintosh as the savior. Now, though, Epic cast Apple as the evil Big Brother.