The Fortnite App Store Battle: A Real Antitrust Conundrum, Or Just A Carefully Planned Out Contract Negotiation?

Legal Issues

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Last week there was quite a lot of news paid to Apple kicking Fortnite out of the iOS app store for violating the rules by avoiding Apple’s in-app payment setup (out of which Apple takes 30%). Epic, who had been hinting at this for a while, introduced a direct payment offering that effectively avoided the 30% charge that Apple (and Google) require from developers.

There have been arguments over the last decade or so since Apple implemented its policy requiring subscription revenue to go through Apple’s system — but this is probably the biggest fight yet. Epic was clearly expecting Apple to do this because almost immediately after Fortnite was removed from the app store, Epic first released a Nineteen Eighty-Fortnite parody ad, mocking Apple’s infamous 1984 Superbowl ad.

Almost immediately, Epic also sued Apple over the removal in a legal complaint that was clearly prepared well in advance. Represented by some of the top antitrust lawyers in the country, and weighing in at 65 pages, Epic had spent some time preparing for this fight. To drive this point home, the lawsuit itself references 1984 in the opening paragraph, tying into Epic’s marketing campaign:

In 1984, the fledgling Apple computer company released the Macintosh?the first mass-market, consumer-friendly home computer. The product launch was announced with a breathtaking advertisement evoking George Orwell?s 1984 that cast Apple as a beneficial, revolutionary force breaking IBM?s monopoly over the computing technology market. Apple?s founder Steve Jobs introduced the first showing of the 1984 advertisement by explaining, ?it appears IBM wants it all. Apple is perceived to be the only hope to offer IBM a run for its money . . . . Will Big Blue dominate the entire computer industry? The entire information age? Was George Orwell right about 1984??

Fast forward to 2020, and Apple has become what it once railed against: the behemoth seeking to control markets, block competition, and stifle innovation. Apple is bigger, more powerful, more entrenched, and more pernicious than the monopolists of yesteryear. At a market cap of nearly $2 trillion, Apple?s size and reach far exceeds that of any technology monopolist in history.

The coordination between product, marketing, and legal shows that Epic was well aware of what it was doing.

And, almost immediately after all of that, Google also kicked Fortnite out of its app store, and Epic sued Google too. Rather than opening with the 1984 line (which wouldn’t apply to Google), in this case, Epic’s lawyers leaned on the “Don’t Be Evil” line:

In 1998, Google was founded as an exciting young company with a unique motto: ?Don?t Be Evil?. Google?s Code of Conduct explained that this admonishment was about ?how we serve our users? and ?much more than that . . . it?s also about doing the right thing more generally?. Twenty-two years later, Google has relegated its motto to nearly an afterthought, and is using its size to do evil upon competitors, innovators, customers, and users in a slew of markets it has grown to monopolize. This case is about doing the right thing in one important area, the Android mobile ecosystem, where Google unlawfully maintains monopolies in multiple related markets, denying consumers the freedom to enjoy their mobile devices?freedom that Google always promised Android users would have.

Google acquired the Android mobile operating system more than a decade ago, promising repeatedly over time that Android would be the basis for an ?open? ecosystem in which industry participants could freely innovate and compete without unnecessary restrictions.2 Google?s CEO, Sundar Pichai, represented in 2014 that Android ?is one of the most open systems that I?ve ever seen?.3 And Andy Rubin, an Android founder who is described by some as the ?Father of Android?, said when he departed Google in 2013 that ?at its core, Android has always been about openness?.4 Since then, Google has deliberately and systematically closed the Android ecosystem to competition, breaking the promises it made. Google?s anti-competitive conduct has now been condemned by regulators the world over.

Both lawsuits argue that this is an antitrust violation. Also, in both cases, Epic makes it clear (again, strategic marketing at work) that it’s not seeking monetary damages, but is demanding that both companies change their practices regarding what cut they take from in-app payments via the app stores. Of course, if it gets rid of having to hand over 30% to Apple and Google, Epic stands to make a lot more money (even if it then discounts in-app purchases that are done directly, as it did with this update).

Of course, when various mutli-billion dollar giants battle in court, you know there’s a lot happening behind the scenes. From a pure narrative perspective, you can see Epic’s point. Fortnite’s success on mobile is not about the benefits provided by the app stores on either of the major mobile operating systems. And, to be clear, Epic had explored this area in the past. Two years ago it tried to avoid the Google Play Store to protest the 30% cut (which is possible, though clunky, on Android), but eventually gave in and went back into the Play Store.

From Apple’s standpoint, Epic’s move put it in a no-win position. If it let Epic do this with Fortnite, tons of other developers would claim that Epic was getting preferential treatment, and thus letting Epic’s move slide would create massive problems in its own way. But pulling Fortnite down from app store created a new set of problems as well (including this antitrust suit). Then Google was similarly put in an impossible situation. Right after seeing what happened with Apple, Google basically had to make a similar call, knowing that it had to decide if it was going to stand firm like Apple (and face a certain lawsuit) or cave and create a whole host of other problems.

From Epic’s vantage point, this was a shot that the company had to take. The company’s CEO, Tim Sweeney, has a history of not liking rent-seeking by middlemen. And while the antitrust fight can be costly, a win (either by settlement or by the results of litigation) would be a huge win, and a loss would effectively leave Epic in the same position it’s in now (though with some quite hefty legal bills that the company can easily afford).

As for the legal arguments… I think it’s an uphill climb. The public narrative may sound good, but the actual antitrust laws are going to make this quite difficult to win.

To some extent, this comes down to one of the key differences between the mobile universe — which is much more closed, limited, and controlled by gatekeepers — and the wider, more open internet ecosystem. And, to their credit, both Apple and Google have done a lot to build the entire smartphone/tablet ecosystem with iOS and Android, though it is disappointing that over time Google has progressively moved away from its more “open” promises regarding Android. That said, being more closed and proprietary has allowed both companies (and especially Apple) to argue that their devices are a lot more secure than computers and an internet where anything goes.

Also, much of this fight ignores that in the console world, 30% is also the standard fee. It certainly looks like, pretty much across the board, devices used for gaming have decided that the entrance fee to get on a device is about 30% of any in-app purchases. As John Gruber notes, Sweeney seems to handwave around the dedicated gaming consoles argument — suggesting that somehow the 30% makes sense there, because of the nature of those consoles. But that does seem to undermine his overall argument (and may also doom his legal argument).

I don’t know what the right answer is here, and I don’t find myself particularly rooting for any one of these giant companies in this fight. I wish mobile platforms were more open, but I understand why they’re not. I also don’t think that the activity Google and Apple engage in will trip the wire under current antitrust law. And thus, if Apple and Google do stand firm, I think Epic loses in the long run. But it can be a very long run, and it might just be worth it for Epic to try to force its view of the mobile app market onto that world.

But, of course, to some extent, everything is a negotiation. And there’s a part of me that wonders if Epic isn’t just hoping to use this as an “initial offer” to get Apple and Google to agree to a favorable deal to allow Fortnite back into the app stores. That, of course, would raise a bunch of other questions — including other developers demanding similar treatment. But I could see some sort of tiered system worked out, whereby Apple and Google agree that at certain levels of revenue, the cuts they take drop. Just to get this lawsuit out of the way.

No matter how you feel though, this is going to be a big fight to watch over the coming months and years. It’s almost as fascinating as Fortnite itself.

Filed Under: $30, antitrust, app store, fortnite, marketplaces, play store, tim sweeney
Companies: apple, epic, google