Not long ago we have reported here on LegalPlay a Ubisoft’s lawsuit against Apple and Google regarding the Area F2 game, and the video games Industry has once again has entered into a dispute with Silicon Valley companies. Tech giants are under fire from another industry representative – Epic Games. This time, companies are accused of ‘their own’ actions, the dispute has led to the removal of the most popular game in the world from the marketplaces, and the situation is much more serious and could affect the whole gaming industry. The case concerns such fundamental issues as the business models adopted by developers of mobile iOS and Android systems. How did the dispute between Epic Games and Apple and Google arise? What accusations does the developer make against the tech giants?
Epic Games is a developer and publisher of games and gaming technologies. Currently, the largest products offered by the company are Fortnite and Unreal Engine. Fortnite is an extremely popular battle royale game, available on PCs, consoles and mobile devices, which has attracted a total number of over 350 million players. Recently, the game has also allowed the community to participate in concerts or film screenings. Unreal Engine, on the other hand, is an extremely popular video game engine, which has also recently started to be used by filmmakers (e.g. the creators of The Mandalorian). Epic Games has also challenged Steam through the Epic Games Store, a PC-based gaming store widely discussed due to the controversial practice of buying temporary exclusivity for the distribution of popular PC games, and sharing free games on a weekly basis.
Fortnite was until recently available on both of the most popular mobile platforms – iOS and Android. Apple does not allow for downloading apps (including games) from outside the App Store – a platform for distribution of apps on the Apple mobile system, so the only option for Fortnite’s presence on iPhones and iPads was to comply with the conditions imposed by Apple. Google’s platform is more liberal in this regard – you can use apps from outside the Google Play Store on Android, but you need to change your phone’s settings in order to be able to download apps from outside the Google’s store. Apps outside of Google Play are also not capable of automatic background updates. Epic Games initially encouraged players to download Fortnite directly from their website and then also made the game available on the Google’s marketplace.
Both Apple and Google charge 30% commission on all purchases made through the App Store and Google Play Store. In addition, both platforms require app publishers to use their own in-app purchasing systems, such as Fortnite’s cosmetic skins and in-game currency. In both cases, Apple and Google charge 30% commission on each in-app purchase.
Tim Sweeney, CEO of Epic Games, for any months has been accusing tech giants of using its monopolistic position to impose uncompetitive commission rates on developers and publishers and to block free access to the distribution of applications on its systems. The practices of Apple and Google have also attracted the interest of authorities on both sides of the Atlantic – the US Congress and the European Commission are conducting investigations into the companies’ activities.
On August 13th, Epic Games updated Fortnite on the App Store and Google Play, allowing players to choose how to pay for in-game add-ons, between the current system (via Apple and Google payment systems) and direct payment via the Epic payment system. As you can see below, the second payment method meant 20% lower prices.
In response, on the same day, both Apple and Google removed the game from their stores for violation of the store guidelines prohibiting other payment methods within the application. In reaction to the technological activities of the giants, Epic Games decided to bring actions against both companies, demanding the removal of the restrictions, which in Epic’s view constitute an abuse of dominant position of the companies. With regard to Apple, Epic Games also published a parody of Apple’s famous “1984” ad aimed at IBM, in which it calls on Fortnite players to oppose the actions of the corporation, under the hashtag #FreeFortnite.
Suit against Apple
In the lawsuit against the Cupertino corporation, Epic accuses the company of unfair and illegal monopolistic practices, blocking competition in two markets: distribution of applications on mobile devices (smartphones and tablets) with iOS system and processing of consumer payments inside applications on iOS.
As Epic Games repeatedly stresses in its lawsuit, although Apple’s actions have led to financial losses to Fortnite’s publisher and developer, Epic is not seeking damages, but “only” a court injunction to stop Apple from taking the actions described in the lawsuit and for the court to declare that the restrictions imposed by the company are illegal and ineffective.
More than a billion people in the world use iPhones, and there are currently over 1.5 billion iOS devices in use worldwide. Apple’s user base is also distinguished by the statistics that, on average, they spend twice as much money on apps as Android users. By pointing this out, Epic argues that the presence of mobile app developers on iOS is necessary – the omission of this platform by a developer means giving up the possibility of reaching more than a billion “generous” users.
App Store is the only way to distribute apps on iOS. According to Epic, Apple prevents competition on its system in several ways. Technologically, Apple blocks downloading apps outside of the App Store, pre-installs the App Store on every iOS device, and prevents removal. On the contractual side, in order to make the apps available on iOS, each developer must enter into an agreement with Apple (the so-called Apple Developer Agreement), the terms of which are not subject to change (is is the agreement of adhesion). The agreement dictates the App Store as the exclusive platform for general distribution of apps on iOS. The agreement prohibits developers from distributing applications that are a store or marketplace for other applications. Similar provisions are set out in Apple’s App Store Review Guidelines. Interestingly, the macOS operating system, which is available on PCs with a bitten apple in the logo, does not have these restrictions – applications can be installed from various sources. There are also third-party stores available on macOS, including Steam or Epic Games Store.
According to Epic, such restrictions lead to a lack of competition on iOS and harm three types of entities:
- potential app distributors – other would-be marketplace, which could exist on iOS, introducing competition to the market;
- iOS app developers – by taking away their choice of how they want to distribute their apps, by making them dependent on Apple’s unilateral decision regarding their presence on the platform, and by reducing their revenue by Apple charging 30% commission on each transaction on the App Store;
- consumers – by limiting the choice of available apps only to apps available on the App Store (and therefore only to apps accepted by Apple) and by increasing the cost of apps due to the 30% “tax” that developers must take into account when pricing apps.
Apple In-App Payments
The second leg of Epic’s allegations against Apple is related to the payment system inside the application. As Fortnite’s creator points out, Apple has a monopoly (100% share) on the market for in-app payment processing in iOS. Apple has effectively maintained this state of affairs through anti-competitive practices. Each transaction made through Apple’s in-app payment system involves collecting 30% of the transaction value by the corporation. As Epic points out, the fees of other electronic payment operators amount to around 3% of the transaction value, ten times less than the fees charged by Apple. App Store Review Guidelines clearly indicate that it is prohibited to use other (non-Apple) payment systems within an application, and even to encourage consumers to make payments in other form outside the application. Breaking the rules means removing the app from the App Store. According to Epic Games, the desire to ensure the security of transactions is not an excuse to fully block competition, as other payment services in the market also compete with their level of security, and Apple allows certain apps to use non-Apple payment processing to pay for products and services such as food (e.g. Glovo), rides (e.g. Uber), or apartment rentals (e.g. Airbnb).
Epic believes that Apple’s actions again harm three groups of stakeholders: other potential in-app payment processors, application developers and consumers.
As Fortnite’s developer points out in the lawsuit, even if consumers were aware of Apple’s practices ( and usually they are not), switching from iOS to another mobile system involves high switching costs, which discourages consumers from switching and also enables Apple to engage in monopolistic practices. In addition to the most obvious financial costs associated with having to buy a new device, Epic also identifies costs linked to having to learn the new system and to overcome habits if a consumer decides to change the mobile system. Some iOS users have also invested heavily in apps purchased on the App Store, which further discourages them from switching to a new system because not all apps are available on other platforms (e.g. Android) or their developers do not provide the ability to switch to a version of an app on another platform at no cost.
All of the above arguments led Epic Games to conclude that Apple’s conduct described above violates the provisions of the US federal Sherman Act, which prohibits “monopoliz[ation of] any part of the trade or commerce among the several States, or with foreign nations” and entering into “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations”. In addition, Epic Games has accused Apple of violating the California Cartwright Act, which prohibits the the combination of resources by two or more persons to restrain trade or commerce or to prevent market competition. Under the Act, a “combination” is formed when the anti-competitive conduct of a single firm coerces other market participants to involuntarily adhere to the anti-competitive scheme. Finally, a game developer has also charged Apple with violating California Unfair Competition Law by violating the prohibition of any unlawful, unfair, or fraudulent business act or practice.
Suit against Google
The Epic Games lawsuit against Google is very similar to the lawsuit against Apple. Also in this case, Epic accuses the company of illegally monopolizing and imposing restrictions blocking competition in two markets: distribution of apps on Android mobile devices (smartphones and tablets) and processing consumer in-app payments on Android.
Again, despite the losses incurred, Epic does not claim damages from Google, but rather a court injunction requiring Google to cease the actions described in the lawsuit and to declare the restrictions imposed by the company as unlawful and ineffective.
Google Play Store
The Android system developed by Google is much more open than iOS, so the arguments of the game manufacturer and publisher are more nuanced. In a lawsuit against a corporation from Mountain View, Epic Games indicates that by creating numerous contractual and technical barriers, developers and users of Android applications are forced to use the Google Play Store.
Android is made available by Google to smartphone and tablet manufacturers (referred to as OEMs – original equipment manufacturers). As established by the European Commission, Android is installed on 95% of devices sold by OEMs using a licensed system and almost 75% of mobile devices with a pre-installed system. According to the statements of the motion, smartphone manufacturers (the claim refers to ZTE and Nokia) indicate that other licensed mobile systems are not a reasonable alternative to Android, which is due, among other things, to the lack of apps present on the most popular mobile system. OEMs must therefore use Android. Google is well aware of this and therefore imposes specific licensing conditions on OEMs when licensing Android. Among these terms and conditions, Epic mentions, for instance, the need to pre-install the Google Play Store and up to 30 other Google applications on the system and to place the Google Play Store shortcut on the main screen of the system (the first one displayed after unlocking the phone) by default. In addition, Google affects OEM agreements with other Android-based app distributors. As an example, Epic pointed to its own agreement with OnePlus, which was to enable easier direct installation of Epic Games on the manufacturer’s phones. Initially, the agreement was meant to cover the whole world, but due to Google’s intervention, which feared that the agreement would lead to a silent “bypassing the Google Play Store”, OnePlus and Epic were forced to limit the territorial scope of the agreement to India only.
As is the case with Apple, the non-negotiable Google Play Developer Distribution Agreement contains provisions that prohibit the distribution of competing app stores. In addition, Google conditions the ability to advertise apps available on Android through Google services (e.g. search engine, YouTube) on the presence of the app in the Google Play Store or App Store (in the case of iOS apps).
Epic also draws attention to the obstacles implemented in the Android system, which, according to the manufacturer, are designed to discourage consumers from installing applications outside the Google Play Store. Direct installation of applications outside the Google Play Store is much more complicated and involves changing system settings and manually granting permission for the app. The process of installing apps this way means that the consumer is faced with numerous warnings about the danger of the installation process.
From a technical point of view, applications installed outside the Google Play Store are not allowed to make updates “in the background” – you must manually install each update. In addition, to protect against malware, Google may flag any application as “malware”, which may result in the downloading and installation being blocked and forced uninstallation of the application. Epic in the lawsuit suggests that such a mechanism may be abused by Google.
In the opinion of Epic, the California Corporation’s conduct described above harms OEMs, competing application distributors, developers and consumers. As with Apple, the claims can be summarized as limiting choice and forcing others to use Google’s services while at the same time having to pay 30% of all expenses made through Google Play.
Google Play Billing
As in the case of Apple, Epic’s next claim against Google concerns the monopolisation of the in-app payment field of apps installed through the Google Play Store.
In respect of applications present in the Google Play Store, Google enforces the use of its own payment processing system inside the application – so-called Google Play Billing. Like Apple, Google charges 30% of any amount spent through Google Play Billing, which is about ten times the commissions charged by other electronic payment processing companies.
As Epic points out, at the turn of 2019 and 2020, the company tried to place Fortnite on the Google Play Store twice with an alternative payment processing option, but was refused by Google, which forced it to place a version implementing only Google Play Billing in the store. Notably, Epic reveals in the lawsuit that Google encourages video game developers and publishers to be present on the Google Play Store by offering them preferential terms and conditions for other Google services, such as YouTube and cloud services. Epic even explicitly indicates that, to its knowledge, Activision Blizzard has decided to enter into such an agreement.
As with forcing a presence on the Google Play Store, in Epic’s view Google’s conduct harms app developers, consumers and other electronic payment processors, effectively blocking competition, reducing choice and increasing transaction costs.
According to Epic Games, Android users, like iOS users, are burdened with high potential costs of changing the system, which at the same time allows Google to apply the described practices.
The charges brought against Google by Epic Games are identical to those brought against Apple. The video game developer alleges that the corporation has violated the Sherman Act, the Cartwright Act and unfair competition laws.
Summary and commentary
At first glance, the Epic Games dispute with Apple and Google looks like another corporate dispute with big money in the background. Of course, there is a considerable amount of money involved – it is calculated that by the time Fortnite was removed from iOS, players had spent as much as $1.2 billion on in-game purchases on Apple devices alone. 30% of that amount that went to Apple as commission is a colossal amount that acts on the imagination and is certainly able to get a company like Epic Games to fight to increase its revenues.
However, the dispute should be looked at more broadly – using suits, Epic Games questions the model of operation of the most popular mobile systems, based largely on control over the actions taken by developers and the high, 30% commission for payments made on the platform. At the same time, by refraining from claiming compensation, the company creates an image of a defender of the collective interests of the industry that does not care about its own profits.
Both Apple and Google defend themselves against accusations of restricting the freedom of developers on their platforms by pointing out that their procedures increase the security of using iOS and Android. Certainly, a rigorous evaluation process before publishing an app on the App Store has a positive impact on security, but some of the decisions made by corporations seem to be purely business-related. With respect to 30% commissions, Apple recently published an independent study it requested, according to which 30% is the standard commission rate in digital stores, including those for video games.
From the perspective of the video game industry, it seems more beneficial for Epic Games to win. Breaking the monopoly of the tech giants will reduce the commissions paid to intermediaries. As a result, more money will go into developers’ and publishers’ accounts, which will increase their revenue and allow for more money to be spent on new productions.
The battle is fought for the attention and wallets of mobile players – a large and growing group of consumers. Recent examples of not allowing the development of xCloud and Stadia services on iOS or blocking the inclusion of games in Facebook Gaming show that Apple wants to maintain full control over its mobile platform and rules of use, clearly restricting competition.
The battle is fought for the attention and wallets of mobile players – a large and constantly growing group of consumers. Recent examples of not allowing the development of xCloud and Stadia services on iOS or blocking the inclusion of games in Facebook Gaming app show that Apple wants to maintain full control over its mobile platform and rules of its use, clearly restricting competition.
Apple’s first reaction to Epic’s suit confirms this theory. In response to the lawsuit, Apple decided to block Epic Games access to accounts and development tools for iOS and macOS, effective from August 28th. Such a move would prevent Epic Games from further supporting and updating the Unreal Engine on Apple devices. It might antagonize a whole mobile gaming industry against Apple, as it does not only impact Epic, but all developers using Unreal Engine on iOS as well. In response to this move, Epic Games has requested a court to impose a temporary restraining order in the form of a suspension of the stoppage of access pending resolution of the litigation between the parties.
The central issue of the dispute would be the interpretation of the American anti-monopoly provisions. It is important to stress that having a monopoly is not illegal – it is illegal only to use this monopoly to hurt consumers and other businesses. Epic Games is faced with a great legal battle. The lawyers will have to persuade the court that the distribution markets on iOS and Android, as well as in-app payment markets in these systems are relevant markets to evaluate the monopolist status. Even bigger challenge might be to persuade the judge that setting the rules of using the platform you have created might be understood as actions restricting the competition. Epic might be met with a reaction that as platform owners, Apple and Google are free to set any rules they like in regard of using their services.
Regardless of the outcome of the court proceedings, more important might be the stimulation of a discussion on the practices applied by the creators of iOS and Android. By trying to „recruit” players in the fight against corporations, Epic Games wants to use the gaming community to influence their policies, which might be assessed negatively, but had proven effective in the past (e.g. in case of the return of Spider-Man to the Marvel Cinematic Universe). The company’s actions might also encourage politicians and officials to intensify their actions aimed at Apple and Google and impact their evaluation of the situation.
The feud between Epic Games and Apple and Google promises to be one of the most important trials in the history of the video games industry, with potential impact reaching far outside of the industry. We will monitor it closely.
The article is the first in the series of articles summarising the dispute between Epic Games, Apple and Google.
The second part can be found here: What is happening in Epic Games vs Apple? Part two
Title image: © Adobe Stock/Epic Games