Printed in the High Desert Advocate Edition September 17, 2021.
By Shannon Liao
Experts consider last week’s verdict in the Epic Games v. Apple trial a partial victory for both sides, but the ruling also carries ramifications for companies beyond those involved in the trial.
U.S. District Judge Yvonne Gonzalez Rogers ruled Friday that Epic failed to prove that Apple is a monopolist and, as such, it now owes Apple revenue commissions as back payment. The judge also ruled that Apple cannot keep developers from directing customers to alternative payment methods outside its App Store, citing California competition laws. The ruling also has massive implications for ongoing antitrust suits in the gaming industry and particularly for the mobile gaming world.
Gonzalez Rogers’s decision means developers can funnel iOS users to other payment methods, cutting Apple out of some commissions and increasing their own profit margins.
“This verdict … opens a path for tremendous [profit] margin expansion for developers,” said Dan Burkhart, CEO of Recurly, a subscription management and billing platform.
Apple’s App Store is the only way to install software on Apple’s mobile operating system, iOS. Developers who make software for iOS must follow Apple’s rules and use its payment system, which charges a commission on every sale. Burkhart hypothesizes that since developers will no longer have to route customers’ purchases through Apple, they can work on making the purchasing process smoother and more user-friendly.
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As for the video game “Fortnite,” its fate on Apple’s platforms is still unknown. Epic Games CEO Tim Sweeney said Friday that “Fortnite will return to the iOS App Store when and where Epic can offer in-app payment in fair competition with Apple in-app payment.” As Gonzalez Rogers pointed out in her order explaining the judgment, Apple told Epic multiple times that it could bring the game back to the iOS platform as long as Epic complied with its rules. Epic has so far declined these offers.
Gonzalez Rogers ruled that Epic must pay Apple its 30 percent cut from the more than $12 million of revenue — amounting to roughly $3.6 million — collected from “Fortnite” iOS users between August and October last year as well as 30 percent from an undisclosed revenue amount that Epic continued to collect while the trial was underway.
In August 2020, Epic Games updated the “Fortnite” iPhone app to offer players the ability to pay Epic directly, bypassing Apple’s payment processing system and its 30 percent commission. Apple responded by removing “Fortnite” from the App Store. Even though “Fortnite” can no longer be found in the App Store, players who had already downloaded the game can still access it, make transactions and pay Epic through the app.
The judge also found that Apple must allow developers to lead users to other ways to pay, including external links in their apps, buttons or “other calls to action” that direct people to payment options outside of Apple’s proprietary payment system. Such options would keep Apple from its 30 percent revenue cut on in-app purchases. Previously, Apple did not allow developers to direct users to external payment methods.
“I expect all the developers to include links to their own purchasing mechanisms. Obviously, not all gamers are going to click on that link, but we will finally have some meaningful competition in digital mobile gaming transactions,” said Florian Ederer, associate professor of economics at the Yale School of Management. “I also expect it to have big incentives for innovation in mobile gaming because game developers will get to keep some of the 30 percent of revenue that they had to hand over to Apple.”
Apple did not respond to multiple requests for comment.
Sweeney, of Epic Games, stated on Twitter, “Today’s ruling isn’t a win for developers or for consumers. Epic is fighting for fair competition among in-app payment methods and app stores for a billion consumers.”
The Epic Games v. Apple verdict has further implications for other antitrust suits, including an indie developer suing PC games company Valve and a class-action suit against Sony, alleging the console maker overcharged on PlayStation 5 games.
“The detail of the Epic judgment is going to provide a blueprint for cases like that, like in the case of Valve: what evidence is introduced, what economic testimony is introduced,” said Mitch Stoltz, senior staff attorney of the nonprofit digital rights group Electronic Frontier Foundation, while cautioning that the fact-finding portion of each case would determine different outcomes.
There was also a large debate over the definition of a video game. The judge was not satisfied by anyone’s explanations, including Sweeney’s answer that a game has “some sort of win or loss or a score progression” and input from Matt Weissinger, head of marketing at Epic Games, who said that despite his many years of experience, he still did not know. Ultimately, she concluded that since “Fortnite” is a video game, the court did not need to come to a precise definition. And despite Epic’s attempts to portray “Fortnite” as part of the metaverse, the judge wrote that this argument hardly mattered either: “At this time, the general market does not appear to recognize the metaverse and its corresponding game modes in Fortnite as anything separate and apart from the video game market.”
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As for game developers, producing a profitable mobile game on iOS could become easier.
“Most games on the App Store operate within a model where you spend tons of money to acquire players via advertising,” said Eli Hodapp, former vice president of business development at GameClub, a game subscription service that Apple mentioned during the trial in court as an example of a competitor. Hodapp had previously spoken up on social media after Apple cited GameClub as a competitor to Apple Arcade, the tech giant’s gaming subscription service, saying that GameClub had been denied many times in the application process.
“The tipping point of profitability typically required a game that performed really well, as previously Apple was taking 30 percent out of every dollar you made, which resulted in some brutal return on ad spend calculations at times,” said Hodapp, who is now director of mobile publishing at GameMill Entertainment, which is making “Nickelodeon All-Star Brawl,” coming in 2021. “This could go a long way to balancing that out, so games aren’t operating on such thin margins.”
Still, directing customers to pay elsewhere could be a hassle for the user experience if they have to open up a separate browser, enter their credit card information and make an account rather than paying through the iOS app, as they traditionally have, Hodapp said. Although the ruling does state that Apple cannot obstruct apps from linking to other ways to pay, it does not mean those other ways to pay are as easy and convenient as simply using Apple’s payment method. That’s what Sweeney was referencing in his tweet where he says “Fortnite” will not return to iOS until Epic can offer a direct, in-app way to make purchases that’s just as convenient as Apple’s way.
“More options are always good for the consumer,” Hodapp said. “I don’t see this as a mass exodus away from Apple’s payment methods, but rather, just one more promotional avenue developers can choose to utilize.”
