View from Washington: Apple v Epic enters the People’s Court

The legal battle between Apple and Fortnite developer Epic Games passed one milestone yesterday (May 24) as three weeks of hearings in US district court came to an end. The companies are now waiting on a ruling from the presiding judge, Yvonne Gonzalez Rogers, that is expected around the middle of August. In the meantime, expect things to rumble on.

If Judge Rogers decides for Epic’s case that Apple has constructed a three-legged monopoly from iOS, its App Store and mandatory payment processing (at a 30 per cent commission on in-app purchases), it will be a serious blow to the iPhone business, although just how serious will depend on what changes are demanded from Apple. However, should she decide in Apple’s favour, the judgement will almost certainly be appealed. Indeed, appeals to progressively higher courts that could well drag on for years look likely whatever the outcome.

That does make you wonder what exactly is Epic CEO Tim Sweeney’s point? With AI, 5G, AR and VR poised to rewrite the economics of the gaming industry, there is a good chance any ruling will be overtaken by events. It is also worth noting that a separate developer-led class-action antitrust lawsuit against Apple and its app policy is also working its way through the US legal system (as is a consumer-led one).

The cynical but probably valid answer is that Epic is chiefly seeking to litigate the issues around Apple’s ‘walled garden’ ecosystem in the court of public opinion and thus get a quicker response than the courts can offer. Sweeney is a long-standing critic of Apple’s app policy, though obviously frustrated by failing to get what he sees as enough traction.

So much is further suggested by the developer having already launched similarly themed actions in the EU, Australia and, as disclosed at the end of March, the UK. When you see litigation spread from jurisdiction to jurisdiction like that, it’s typically more about the brand than simple vindictiveness or indeed hopes of a successful recourse to law.

For a good while now, the premium that Apple’s reputation has allowed it to charge has held up well. Plenty of us, myself included, are happy to pay a lot more for its products comparatively not so much because of the fabled industrial design but because we prefer the company’s UI and see its offerings as safer, better on privacy and more reliable.

Maintaining this reputation was, not surprisingly, a significant aspect of Apple CEO Tim Cook’s testimony during the case. “Privacy from our point of view is one of the most important issues of the century and safety and security are the foundation that privacy is built upon,” he said. Cook argued in part that having the necessary tools and technologies costs money; involves proprietary R&D; requires assiduous gatekeeping, and would be at risk if iOS was opened up to subsidiary third-party app stores.

While all that makes for a solid argument – and is one that has run through Apple’s public statements and marketing for more than a decade - it doesn’t entirely answer an awkward and uncomfortably timely question Epic is implicitly putting: “Just how much are you making above and beyond what’s reasonable to deliver all that?”

While Cook’s performance as a witness was calm and measured in tone, it did not respond to that at all. As this article from TechCrunch describes, his testimony claimed ignorance on such issues as the App Store’s income and R&D budget – probably legally correct, but given that the man talking was the details-obsessed genius who built Apple’s world-class supply chain, perhaps also a tad surprising.

This issue of income is becoming a bit of a problem for technology companies right now. They are seen as having prospered during the Covid-19 pandemic thanks to increased spending on IT and software from people asked to work from home or stranded there due to lockdowns.

Never mind that many of these sales have come from replacement consumer purchases that have been brought forward – most hardware companies expect a much slower Christmas this year as a result – or are corporate capex that reflects a new WFH normal that will in future be counterbalanced by less enterprise spending. You only need look at some of the irritated reaction in the UK to the latest Sunday Times’ Rich List that shows the richest getting rich at a faster rate. Now, write that story – and the building reaction to it – globally.

Apple has not been completely unresponsive to the threat. Last year, it reduced the commission it charges developers that earn less than $1m a year. You suspect it will have to go further, even if the main beneficiaries end up being companies like Epic that may also have made good numbers during the pandemic. The question of “How much is too much?” has always had irony as a bedfellow because if you do want it posed in court or by regulators, you often need very deep pockets yourself.

Assuming we get a legal ruling in August, even then Apple itself – and much of the rest of the industry – will still be keeping a watchful eye on what the public thinks. Justified or not, some of the mud being slung is already beginning to stick. Exactly how much sticks over the next two or three months may prove more decisive than Judge Rogers' ultimate decision.