The Epic Games v. Apple trial aka (possibly) the most epic legal showdown in the video game industry history started on May 3rd in the US District Court of Northern California.
Disputes arose between the two companies when Epic Games made updates to its best-selling online video game, Fortnite, attempting to bypass the 30% cut Apple takes from all in-app purchases. In return, Apple removed Fortnite from the App Store for violating its terms of service.
According to the judge Gonzalez Rogers, the hearings will take approximately three weeks before the verdict is given, although it is much likely to be appealed.
During the past two weeks, we have already seen some wild revelations.
The main arguments
In Epic’s opening statement, the developer accused Apple’s App Store of being monopolistic, thus violating antitrust legislation. According to Epic, the lawsuit is intended to change Apple’s anti-competitive practices to benefit all app developers.
Epic CEO Tim Sweeney also constantly referred to Fortnite as a ‘metaverse’, implicating that Fortnite has developed from being just a ‘game’ to a whole virtual world where people are able to socialize, watch movies and hang out. (This actually lead to a long and detailed argument over the definition of a game which included Roblox and Snapchat bunny ears.)
Apple, on the other hand, built its opening statement over the benefits the App Store offers to developers and consumers. Apple claims that its App Store policies keep the platform secure and help developers to provide trustworthy apps to consumers – whereas Epic’s own platform Epic Games Store is, according to Apple, offering ‘unspeakable offensive adult games’ to players.
With regards to the 30% cut, Apple referred to industry standards and added that many developers are in fact paying nothing to Apple since most App Store apps are offered to customers free of charge. Apple also stated that as Fortnite can be played on multiple platforms in addition to iOS, the definition of the ‘market’ used by Epic is too narrow. Most gamers use other platforms to play Fortnite, as revenue from Apple platforms made only 7% of Epic’s revenue for Fortnite, while PlayStation and Xbox made-up for 75% of the revenue generated by Fortnite between 2018 and 2020.
On the same note, Apple also wondered why Epic is not going after Sony although it runs a similar business model. The question was followed by a debate over whether or not consoles and smartphones are similar or not. Epic argued that consoles are different as they are devices meant for a single purpose, whereas smartphones can be used for several purposes other than gaming.
Spilling the beans
Unlike in the EU, private companies in the US are not required to provide any financial statements to the public – unless the information and documents are relevant to, for example, a trial. Thus, the evidence has revealed tons of previously undisclosed company/industry secrets in the form of private emails and financial documents.
It appears that both Epic and Apple have revealed a bit more than they had intended. In the course of the trial, several confidential documents used as evidence were accidentally disclosed as they were misplaced into the public court records online. The disclosed documents also contained confidential information regarding third parties.
Here are the most interesting pieces of information:
1) Xbox consoles are not profitable. In the questioning, Microsoft’s VP of business was asked if Microsoft had ever earned a profit on the sale of Xbox consoles, and she replied in the negative. Instead, Microsoft makes money from digital game purchases from its store as well as subscription services and accessories. Microsoft, like Apple, takes in general a 30% cut of every sale on its store platform.
2) Apple’s margins on the App Store are enormous. Epic’s expert witness Ned Barnes, Berkeley Research Group managing director, told that Apple makes huge margins on the App Store. Epic claims this is the reason Apple doesn’t want to allow competing app stores to join the iOS platform.
3) Fortnite makes billions of dollars yearly. Fortnite made over $5 billion in revenue in 2020, which is far more than any other Epic’s current project generates.
4) The Epic Game Store is not making profit. The evidence presented at the trial shows that the Epic Games Store will probably not make a profit until approximately 2024, meanwhile Epic is spending massive amounts of money on the development and exclusivity deals.
5) Fortnite made cross-platform playing s reality on PS 4. Although apparently Sony disliked the idea, Epic was able to persuade Sony to allow players to play with their friends using other gaming platforms. In fact, Fortnite was the first game to do this.
6) Epic apologized to Ubisoft for massive number of fraudulent transactions. At some point, most of purchases made in Division 2 were made using stolen credit cards, which Tim Sweeney had to apologize to Ubisoft CEO Yves Guillemot.
7) Walmart planned a cloud gaming service. An email from 2019 revealed that Walmart worked on a cloud gaming service, however it is unsure if Walmart is continuing with the project.
Too Epic to handle
Aside from the leakage problems, the trial has also struggled with technical difficulties and continuous derailing from both sides’ lawyers.
During the first days of the trial, the court had troubles getting the public teleconference lines to work, and after that, muting the teleconference line to stop excited players and kids from yelling “Free Fortnite”, among other matters that are not fit for publication.
The trial has also taken hilarious turns, when, for example, Apple’s lawyers proceeded to ask questions about Fortnite’s banana character Peely. The debate went so far that lawyers wondered whether it was appropriate for a banana to be naked in a courtroom, which is, barely related to the case itself.
Apparently, the naked banana comment was related to the fact that Apple had previously attacked Epic by claiming that the Epic Games Store hosts sexually explicit content, trying to make Epic Games’ own game store to look sloppy and unreliable.
For viewers, the trial is fun to watch but it also demonstrates that the court system is not yet ready for such a massive online trial.
Meanwhile in the console gaming scene, Sony has been sued for restricting its digital game sales to the PlayStation store
Sony halted sales of digital download codes for PlayStation games through retailers two years ago and now Sony is facing a class-action lawsuit.
As in the Epic v. Apple case, Sony has also been accused of hosting an unlawful monopoly, since its games cannot be purchased from anywhere else, than from Sony’s own store.
According to the suit, “Sony’s monopoly allows it to charge supra-competitive prices for digital PlayStation games, which are significantly higher than their physical counterparts sold in a competitive retail market, and significantly higher than they would be in a competitive retail market for digital games.”
Read our previous posts:
Part 1: Is Epic Games reshaping the future of in-app purchases?
Part 2: The Epic Battle Continues
Text and additional information:
Juuso Turtiainen, Associate, +358 40 764 8910, [email protected]
Anni Kaarento, Legal Trainee, [email protected]