Apple and Epic Head to Court Over Their Slices of the App Pie

One Friday last August, Tim Sweeney, a billionaire game developer, sent an email to a contact at Microsoft: “You’ll enjoy the upcoming fireworks show.”

A week later, Mr. Sweeney’s game Fortnite delivered good news to players on iPhones: They would get a discount on items in the game if they completed the purchases outside Apple’s payment systems.

The change violated Apple’s rules and cut the iPhone maker off from collecting a commission on one of the world’s most popular games. Hours later, Apple kicked Fortnite off the App Store.

If Apple wins, however, it will strengthen its grip over mobile apps and stifle its growing chorus of critics, further empowering a company that is already the world’s most valuable and topped $200 billion in sales over just the past six months.

The trial will center on a legal debate over whether Apple is a monopoly. Epic’s lawyers have argued that companies need iPhones to reach customers and that Apple unfairly forces app makers to use its payment system and pay its fees.

Apple’s lawyers have responded that iPhones are merely one way to reach consumers and that Apple’s fees are in line with industry standards.

Apple probably has the upper hand, legal experts said. Courts are often more sympathetic to defendants in antitrust trials, since companies have a right to choose with whom they do business.

But Epic is arguing that Apple is using its position of power to stifle competition, a legal theory “that has worked and overcome that disadvantage,” said William Kovacic, a law professor at George Washington University. The Department of Justice made a similar argument against Microsoft in its antitrust suit two decades ago.

The case might come down to one narrow technical question: What is the market these two are fighting over? Epic argues that the case is about iPhones and that Apple has a clear monopoly on them. Apple lawyers insist that the market in question includes all gaming platforms — from smartphones to video-game consoles to desktop computers — and that Apple hardly has a monopoly there.

The answer will be up to Judge Gonzalez Rogers. And after she decides this case, she is set to hear the next two App Store lawsuits seeking class-action status.

An Apple spokeswoman said in a statement that Apple’s top executives would show how the App Store had been good for the world. “We feel confident the case will prove that Epic purposefully breached its agreement solely to increase its revenues,” she said.

Epic declined to comment.

Fortnite, a battle royale video game, is the biggest hit of Epic’s 30 years in business. It got there, in part, because Mr. Sweeney pushed the companies behind the big gaming consoles — Microsoft, Sony Group and Nintendo — to let players battle each other across different devices, meaning a Microsoft Xbox owner could play a Sony PlayStation owner for the first time.

In 2018, Epic released Fortnite in an iPhone app. In about two years, Epic earned roughly $1 billion from Fortnite and its other iPhone apps. But it had to pay about 30 percent of that to Apple. Epic was paying similar commissions to the gaming-console makers.

Other app makers were also starting to complain about the app stores, but Epic was one of the few with the money, willingness and independence to take on a fight in court. While the Chinese internet giant Tencent bought a large chunk of Epic in 2012, Mr. Sweeney remains the controlling shareholder. Investors recently valued Epic at $29 billion.

But Epic is still tiny compared with Apple. In its latest quarter, Apple averaged about $30 billion in revenue a month.

Mr. Sweeney dropped the civility in his response. “It’s a sad state of affairs that Apple’s senior executives would hand Epic’s sincere request off to Apple’s legal team to respond with such a self-righteous and self-serving screed,” he wrote to Mr. Cook. “We will continue to pursue this, as we have done in the past to address other injustices in our industry.”

Three weeks later, Mr. Sweeney sent his forecast for fireworks, according to an Apple court filing.

Since then, lawyers for Epic and Apple have been telling different stories in court filings and to reporters.

Apple has said it developed a world-changing product in the iPhone that led to an “economic miracle” in mobile apps. Apple has spent billions of dollars developing the iPhone and another $100 million on its App Store, the company said, and charging a commission on app sales is partly how it recoups that investment and keeps apps safe.

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