Epic Games Seeks Injunctive Relief After Apple Removes Popular Game

Epic Games, creator of the popular multi-platform game Fortnite, has filed a complaint in federal district court seeking injunctive relief after Apple booted the game from its App Store.[1]  The event was kicked off when Epic Games introduced the ability to pay for in-app purchases directly through Epic Games, rather than through Apple’s in-app payment processing.  Apple requires that any in-app purchases for apps available in Apple’s App Store must be processed by Apple and that Apple collects a 30% commission on such sales.

Apple’s 30% commission has attracted criticism from app developers claiming that the commission is unfair and a product of anticompetitive practices.  Developers must create apps for a particular operating system (“OS”), and in the case of iPhones and iPads, that includes the iPhone OS (“iOS”).  Apps developed for the iOS must be specifically programmed and, as such, cannot be used for Android OS, Windows OS, or even Mac OS.  Once the app is developed for the iOS, the app is solely distributed through Apple’s App Store, where apps compete against each other for consumer selection.

Epic Games described in their complaint that there are two markets in which Apple has engaged in anticompetitive conduct.  The first is in the app-distribution market, where Apple’s App Store is the only method by which developers can sell their products to consumers.  Second, Apple has engaged in anticompetitive conduct in the in-app payment processing market by not allowing other methods of payment processing.

Companies including Facebook, Spotify, and Microsoft have complained about Apple’s policy of prohibiting alternative methods of app distribution.  Microsoft, for example, announced a cloud-based gaming service powered by its popular Xbox Game Pass service which would allow consumers to play Xbox games across multiple devices and platforms.  Microsoft, however, will not provide this offering for iOS users because Apple maintains that Microsoft’s offering is, in effect, a rival “store” in which consumers can download games that is separate from Apple’s App Store.  Facebook, too, had to withdraw their plans for releasing their Gaming App on iOS because it was an app that allowed consumers to download games from Facebook rather than from the Apple’s App Store.

In the in-app payment processing market which Epic Games alleges exists, Apple controls the means by which consumers pay for certain in-app purchases so that Apple can receive its 30 % commission.  Epic Games is not the only company to challenge this conduct.  Spotify also sought relief from Apple as they claimed that Apple’s 30 % commission caused Spotify to increase its monthly subscription price on the App store from $10 to $13, causing them to abandon in-app payments altogether and requiring subscribers to pay on Spotify’s website.

The lawsuit seeking injunctive relief, in particular, claims that Apple’s practices in these two markets are anticompetitive; however, a court will have to determine whether to accept Epic Games’ market definitions.  The complaint defines the markets narrowly, arguing the relevant market for examination is iOS in-app payment processing and iOS app distribution.  Epic Games offers many justifications for why these markets should be the relevant markets for antitrust examination.  Apple has previously fended off such lawsuits by arguing the relevant market for analysis is the global smartphone market.  Indeed, devices with iOS have significantly less global market share than Android and Windows devices.  If iOS users are unhappy or unsatisfied with Apple’s App Store offering, Apple reasons, consumers can simply switch to a product with a different OS.

Epic responds to the Apple’s point by arguing that Apple’s ecosystem creates network effects for its iOS, thereby reducing the incentive for developers and consumers to simply opt-out of iOS products or to switch to a different OS.  Once a consumer purchases an Apple product with iOS, it is effectively “locked in” to Apple’s products.  Apple has cultivated an ecosystem consisting of products, apps, ancillary hardware, and more, which allow Apple consumers to coordinate and harmonize their Apple experience across multiple devices.  Given these investments into Apple’s ecosystems, consumers are unlikely to simply switch OS because an app is unavailable on the Apple’s App Store, and developers are unlikely to forfeit billions of iOS users.

There is no question that Epic Games is capitalizing on a moment where Apple is under intense scrutiny regarding alleged anticompetitive conduct.  The EU announced that it was launching an antitrust investigation into Apple’s App store after a complaint initiated by Spotify; the Supreme Court last year ruled that plaintiffs may bring an antitrust lawsuit against Apple for its App Store practices; and, the Congressional Hearing on Big Tech last month demonstrated reservations about Apple’s App Store conduct.

[1] After being removed from Apple’s App Store, Epic Games was then removed from the Google Play Store, which serves devices operating Google’s Android OS.  Epic Games is also seeking an injunction against Google; however, Fortnite can still be downloaded on Android devices from sources that are outside the Google Play Store.