The Full Epic Games Lawsuit Argument Outline states that Apple’s Conduct is causing them Financial Harm
Epic Games filed a 10-count lawsuit against Apple yesterday afternoon. The lawsuit notes that "Epic seeks 'injunctive relief in court to end Apple’s unreasonable and unlawful practices. Apple’s conduct has caused and continues to cause Epic financial harm. Epic is not bringing this case to recover these damages; Epic is not seeking any monetary damages. Instead, Epic seeks to end Apple’s dominance over key technology markets, open up the space for progress and ingenuity, and ensure that Apple mobile devices are open to the same competition as Apple’s personal computers."
Epic's full complaint before the court is 170 pages long. However, 105 pages of the lawsuit presents the "Apple Developer Program License Agreement" to make Epic's case clear how unreasonable Apple is. Unfortunately, we can't pass that along as the SCRIBD document service informed us that Apple's License Agreement covers copyright protection and can't be reproduced.
With that said, the full "Nature of the Action" filed by Epic Games is presented below and provides an extensive view of their case.
Nature of the Action
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.
This case concerns Apple’s use of a series of anti-competitive restraints and monopolistic practices in markets for (i)the distribution of software applications (“apps”) to users of mobile computing devices like smartphones and tablets, and (ii)the processing of consumers’ payments for digital content used within iOS mobile apps(“in-app content”). Apple imposes unreasonable and unlawful restraints to completely monopolize both markets and prevent software developers from reaching the over one billion users of its mobile devices (e.g., iPhone and iPad) unless they go through a single store controlled by Apple, the App Store, where Apple exacts an oppressive 30% tax on the sale of every app. Apple also requires software developers who wish to sell digital in-app content to those consumers to use a single payment processing option offered by Apple, In-App Purchase, which likewise carries a 30% tax.
In contrast, software developers can make their products available to users of an Apple personal computer (e.g. Mac or MacBook) in an open market, through a variety of stores or even through direct downloads from a developer’s website, with a variety of payment options and competitive processing fees that average 3%, a full ten times lower than the exorbitant 30% fees Apple applies to its mobile device in-app purchases.
The anti-competitive consequences of Apple’s conduct are pervasive. Mobile computing devices (like smartphones and tablets)—and the apps that run on those devices—have become an integral part of people’s daily lives; as a primary source for news, a place for entertainment, a tool for business, a means to connect with friends and family, and more. For many consumers, mobile devices are their primary computers to stay connected to the digital world, as they may not even own a personal computer. When these devices are unfairly restricted and extortionately “taxed” by Apple, the consumers who rely on these mobile devices to stay connected in the digital age are directly harmed.
Epic brings this suit to end Apple’s unfair and anti-competitive actions that Apple undertakes to unlawfully maintain its monopoly in two distinct, multi-billion-dollar markets:(i) the iOS App Distribution Market, and (ii)the iOS In-App Payment Processing Market (each as defined below). Epic is not seeking monetary compensation from this Court for the injuries it has suffered. Nor is Epic seeking favorable treatment for itself, a single company. Instead, Epic is seeking injunctive relief to allow fair competition in these two key markets that directly affect hundreds of millions of consumers and tens of thousands, if not more, of third-party app developers.
Apple imposes unreasonable restraints and unlawfully maintains a total monopoly in the iOS App Distribution Market. To live up to its promise to users that “there’s an app for that”, Apple, after a short initial attempt to go it alone, opened up iOS and invited third-party app developers to develop a wide array of apps for the iOS ecosystem. Those apps contribute immense value to that ecosystem and are one of the primary marketing features for iPhones and iPads. But Apple completely bans innovation in a central part of this ecosystem, namely, any app that could compete with Apple for the distribution of apps in iOS. Through its control over iOS, and through a variety of unlawful contractual restrictions that it forces app developers to accept, Apple prevents iOS users from downloading any apps from any source other than Apple’s own storefront, the App Store.
The result is that developers are prevented from selling or distributing iOS apps unless they use Apple’s App Store, and accede to Apple’s oppressive terms and conditions for doing so(some of which are discussed further below).For example, as the sole distributor of iOS apps, Apple collects the money from every iOS user’s app purchase, remits only 70% of that payment to the app developer, and retainsa30% tax for itself. iOS developers are thus forced to increase the prices they charge consumers in order to pay Apple’s app tax. There is no method app developers can use to avoid this tax, as Apple has foreclosed any alternative ways to reach the over one billion users of iOS devices. As Representative Hank Johnson aptly summed up at a recent Congressional hearing on technology monopolies: "developers have no choice but to go along with [Apple’s policies] or they must leave the App Store. That’s an enormous amount of power.”9.Apple’s anti-competitive conduct with respect to iOS app distribution results in sweeping harms to (i) app distributors, who are foreclosed from competing with Apple and innovating new methods of distributing iOS apps to users outside the App Store (such as, for example, curated app stores targeting particular categories of apps, like gaming or travel); (ii) app developers, who are denied choice on how to distribute their apps, are forced to fork over more of their revenue on paid apps than they would if Apple faced competition, and on occasion have to abandon their apps altogether if they cannot earn a profit given Apple’s 30% tax; and (iii)consumers, who are likewise denied choice and innovation in app distribution channels and are forced to pay higher prices and suffer inferior customer service from Apple, the unwelcome middleman. (Part I)
Apple also imposes unreasonable restraints and unlawfully maintains a total monopoly in the iOS In-App Payment Processing Market. Among the oppressive terms that app developers have to accept, Apple coerces all app developers who wish to use its App Store—the only means with which to distribute apps to iOS users—to use exclusively Apple’s own payment processing platform for all in-app purchases of in-app content. Apple thus requires third-party app developers to agree they will not even offer iOS users the choice of additional payment processing options alongside Apple’s. And Apple goes as far as to gag app developers, preventing them from even mentioning to users the option of buying the same content outside of the app—for example, by purchasing content directly from the app developer, or using a web browser. Because Apple has a monopoly over the distribution of iOS apps, app developers have no choice but to assent to this anti-competitive tie; it is Apple’s way or the highway.
In this market too, Apple thus stands as the monopolist middleman, positioning itself between developers and consumers. As the sole payment processor, Apple is able to take an exorbitant 30% fee on all in-app purchases of in-app content.
Apple’s anti-competitive conduct with respect to iOS in-app payment processing harms: (i)other payment processors, who are foreclosed from competing with Apple on price and innovating new methods of in-app payment processing (such as, for example, rewards points or payment through carrier billing); (ii) app developers, who are denied choice on how to process payments and the benefits of innovation in payment processing, and are forced to pay Apple’s tax—set by fiat—rather than by competitive market forces; and (iii)consumers, who are also denied choice and innovation in payment processing and suffer higher prices and inferior service. (Part II)
Apple’s anti-competitive conduct in these markets is unchecked; Apple faces little, if any, constraint on its monopoly power in both the iOS App Distribution and iOS In-App Payment Processing Markets, as Apple has foreclosed all direct competition in these markets. And Apple stands as the sole middleman between a vast and dispersed group of iOS users, and a vast and dispersed group of app developers, each with little power individually to constrain Apple.
Further, competition in the sale of mobile devices does not limit Apple’s market power. The threat of users switching to non-iOS devices does not constrain Apple’s anti-competitive conduct because Apple’s mobile device customers face significant switching costs and lock-in to the Apple iOS ecosystem, which serves to perpetuate Apple’s substantial market power. This power manifests itself in the data, as Apple is able to gobble up over two thirds of the total global smartphone operating profits. Furthermore, when making mobile device purchases, consumers are either unaware of, or cannot adequately account for, Apple’s anti-competitive conduct in the downstream app distribution and payment processing markets. The cost of app downloads and in-app purchases will play an insignificant (if any) role in swaying a consumer’s smartphone purchase decision. (Part III).
Epic is one of the many app developers affected by Apple’s anti-competitive conduct. Epic is a developer of entertainment software for personal computers, smart mobile devices and gaming consoles. The most popular game Epic currently makes is Fortnite, which has connected hundreds of millions of people in a colorful, virtual world where they meet, play, talk, compete, dance, and even attend concerts and other cultural events. Fortnite is beloved by its millions of users. In the first year after Fortnite’s release in 2017, the game attracted over 125 million players; in the years since, Fortnite has topped 350 million players and has become a global cultural phenomenon.
Epic—and Fortnite’s users—are directly harmed by Apple’s anti-competitive conduct. But for Apple’s illegal restraints, Epic would provide a competing app store on iOS devices, which would allow iOS users to download apps in an innovative, curated store and would provide users the choice to use Epic’s or another third-party’s in-app payment processing tool. Apple’s anti-competitive conduct has also injured Epic in its capacity as an app developer by forcing Epic to distribute its app exclusively through the App Store and exclusively use Apple’s payment processing services. Asa result, Epic is forced, like so many other developers, to charge higher prices on its users’ in-app purchases on Fortnite in order to pay Apple’s 30% tax.
Contrast this anti-competitive harm with how similar markets operate on Apple’s own Mac computers. Mac users can download virtually any software they like, from any source they like. Developers are free to offer their apps through the Mac computer App Store, a third-party store, through direct download from the developer’s website, or any combination thereof. Indeed, on Macs, Epic distributes Fortnite through its own storefront, which competes with other third-party storefronts available to Mac users. App developers are free to use Apple’s payment processing services, the payment processing services of third parties, or the developers’ own payment processing service; users are offered their choice of different payment processing options (e.g., PayPal, Amazon, and Apple).The result is that consumers and developers alike have choices, competition is thriving, prices drop, and innovation is enhanced. The process should be no different for Apple’s mobile devices. But Apple has chosen to make it different by imposing contractual and technical restrictions that prevent any competition and increase consumer costs for every app and in-app content purchase—restrictions that it could never impose on Macs, where it does not enjoy the same dominance in the sale of devices. It doesn’t have to be like this.
Epic has approached Apple and asked to negotiate relief that would stop Apple’s unlawful and unreasonable restrictions. Epic also has publicly advocated that Apple cease the anti-competitive conduct addressed in this Complaint. Apple has refused to let go of its stranglehold on the iOS ecosystem.
On the morning of August 13, 2020, for the first time, Apple mobile device users were offered competitive choice. Epic added a direct payment option to Fortnite, giving players the option to continue making purchases using Apple’s payment processor or to use Epic’s direct payment system. Fortnite users on iOS, for the first time, had a competitive alternative to Apple’s payment solution, which in turn enabled Epic to pass along its cost savings by offering its users a 20% reduction in in-app prices as shown below:
Rather than tolerate this healthy competition and compete on the merits of its offering, Apple responded by removing Fortnite from sale on the App Store, which means that new users cannot download the app, and users who have already downloaded prior versions of the app from the App Store cannot update it to the latest version. This also means that Fortnite players who downloaded their app from the App Store will not receive updates to Fortnite through the App Store, either automatically or by searching the App Store for the update. Apple’s removal of Fortnite is yet another example of Apple flexing its enormous power in order to impose unreasonable restraints and unlawfully maintain its 100% monopoly over the iOS In-App Payment Processing Market.
Accordingly, Epic seeks injunctive relief in court to end Apple’s unreasonable and unlawful practices. Apple’s conduct has caused and continues to cause Epic financial harm, but as noted above, Epic is not bringing this case to recover these damages; Epic is not seeking any monetary damages. Instead, Epic seeks to end Apple’s dominance over key technology markets, open up the space for progress and ingenuity, and ensure that Apple mobile devices are open to the same competition as Apple’s personal computers. As such, Epic respectfully requests this Court to enjoin Apple from continuing to impose its anti-competitive restrictions on the iOS ecosystem and ensure 2020 is not like "1984."
The 10 Counts of the Lawsuit
COUNT 1: Sherman Act § 2 (Unlawful Monopoly Maintenance in the iOS App Distribution Market)
COUNT 2: Sherman Act § 2 (Denial of Essential Facility in the iOS App Distribution Market)
COUNT 3: Sherman Act § 1 (Unreasonable Restraints of Trade in the iOS App Distribution Market)
COUNT 4: Sherman Act § 2 (Unlawful Monopoly Maintenance in the iOS In-App Payment Processing Market)
COUNT 5: Sherman Act § 1 (Unreasonable Restraints of Trade in the iOS In-App Payment Processing Market)
COUNT 6: Sherman Act § 1 (Tying the App Store in the iOS App Distribution Market to In-App Purchase in the iOS In-App Payment Processing Market)
COUNT 7: California Cartwright Act (Unreasonable Restraints of Trade in the iOS App Distribution Market)
COUNT 8: California Cartwright Act (Unreasonable Restraints of Trade in the iOS In-App Payment Processing Market)
COUNT 9: California Cartwright Act (Tying the App Store in the iOS App Distribution Market to In-App Purchase in the iOS In-App Payment Processing Market)
COUNT 10: California Unfair Competition Law
In the end, what is Epic looking for in this lawsuit? Their "Prayer for Relief" below spells is out:
WHEREFORE, Plaintiff Epic respectfully requests that the Court enter judgment in favor of Epic and against Defendant Apple:
A. Issuing an injunction prohibiting Apple’s anti-competitive conduct and mandating that Apple take all necessary steps to cease unlawful conduct and to restore competition;
B. Awarding a declaration that the contractual and policy restraints complained of herein are unlawful and unenforceable;
C. Awarding any other equitable relief necessary to prevent and remedy Apple’s anti-competitive conduct; and
D. Granting such other and further relief as the Court deems just and proper.