By Drew Apperson

 

At what point does a rent contract overburden retailers in a shopping mall? What if there are only two shopping malls for the entire world? A trial set for mid-2021 may answer this question in the mobile-app context. It will immediately effect over 100 million people in the United States and potentially anyone with a smartphone around the globe.[1] Thankfully, the suit may save consumers money and its anticipation has already triggered a selective discount to begin in January, 2021.[2] Who can be thanked for initiating the suit? The developer of a free gaming app.

 

When the once-popular video game, Snake, was first available on cellphones in 1997, it was only available on select Nokia phones on which it was predownloaded from the factory.[3] Today, Apple offers its users over 278 thousand gaming apps, available for download from its virtual, mobile-app storefront, the App Store.[4] Google’s equivalent, Google Play, offers over 385 thousand.[5] Together, the two account for nearly 100% of the global smartphone market.[6]

 

For an app to be made available on the App Store, a game developer must, among other things, agree to Apple’s rules and meet its standards.[7] The App Store then distributes the apps to Apple devices and continues to profit from the apps by taking a percentage of the sales made therein – 30% during the app’s first year and 15% during subsequent years.[8]Apple requires these purchases to be made via In-App Purchase, which is a tool that “allows [a developer] to offer users the opportunity to purchase in-app content and features. Customers can make the purchases within [the developer’s] app, or directly from the App Store.”[9] In 2019, the App Store reportedly paid out $35 billion to app developers after taking its share.[10] Because of Apple’s massive customer base and successful App Store, these transaction fees have grown Apple into one of the top-five largest gaming companies in the world despite not having made a single game of its own.[11]

 

The rent that Apple charges for a spot in its marketplace, however, has been a topic of discussion for a few popular app developers who initiated antitrust inquiries into Apple’s policy.[12] Fittingly, Epic Games, the developer of Fortnite, has taken charge in the fight.[13] Fortnite is a household name in the gaming world: it is a free-to-play, battle-royale game that offers multi-million-dollar prizes and, through its over 250 million users, brought in $1.8 billion in 2019.[14] On August 13, 2020, in Epic’s strategic approach to voice dismay with Apple, the developer: breached its App Store contract by including in its Fortnite update a workaround to the App Store’s transaction fees; launched an anti-Apple campaign, which included a parody of Apple’s ‘1984’ ad; and filed suit after Apple delisted Fortnite from the App Store.[15] The subsequent lawsuit has drawn widespread attention as Epic has gained support, not just from the gaming-app community, but from other app markets as well.[16] It even gained support from Microsoft as it too has fought with Apple over the introduction of Microsoft games to the App Store.[17]

 

Tim Sweeny, founder and CEO of Epic, argues that Epic’s victory in the lawsuit would allow for consumers to pay less and for developers to earn more.[18] In contrast, Douglas Vetter, Apple’s Vice President and Associate General Counsel, argues that result would undermine the principle of the App Store’s standards – “to provide a safe, secure and reliable experience for users and a great opportunity for all developers to be successful.”[19] The suit may serve as a precedent for the similar suit that Epic filed against Google when Google Play delisted Fortnite for the same workaround.[20] It follows that if it wins both cases, Epic will effectively change the entire smartphone industry.

 

[1] S. O’Dea, iPhone Users as Share of Smartphone Users in the United States 2014-2021, Statistica (Sept. 10, 2020), https://www.statista.com/statistics/236550/percentage-of-us-population-that-own-a-iphone-smartphone (providing statistics of active iPhone users); Hirun Cryer, Here’s Everything We Know About the Epic vs Apple Lawsuit, Games Radar (Nov. 3, 2020), https://www.gamesradar.com/epic-vs-apple-lawsuit (providing anticipated trial date).

[2] Josh Taylor, Apple to Reduce its Cut from In-App Purchases as it Faces New Lawsuit from Fortnite Maker, The Guardian (Nov. 18, 2020), https://www.theguardian.com/technology/2020/nov/18/apple-to-reduce-its-cut-from-in-app-purchases-as-it-faces-new-lawsuit-from-fortnite-maker.

[3] 10 Things You Didn’t Know About Mobile Gaming, Windows (Jan. 16, 2013), https://blogs.windows.com/devices/2013/01/16/10-things-you-didnt-know-about-mobile-gaming-2/#:~:text=One.,called%20the%20Hagenuk%20MT%2D2000.

[4] Christina Gough, Number of Gaming Apps in the Apple App Store from 1st Quarter 2015 to 3rd Quarter 2020, Statistica (Oct. 27, 2020), https://www.statista.com/statistics/780238/number-of-available-gaming-apps-in-the-apple-app-store-quarter/#:~:text=This%20statistic%20gives%20information%20on,compared%20to%20the%20previous%20quarter.

[5] Christina Gough, Number of Gaming Apps at Google Play from 1st Quarter 2015 to 3rd Quarter 2020, Statistica (Oct. 27, 2020), https://www.statista.com/statistics/780229/number-of-available-gaming-apps-in-the-google-play-store-quarter/#:~:text=Google%20Play%3A%20number%20of%20available%20gaming%20apps%20as%20of%20Q3%202020&text=As%20of%20the%20third%20quarter,compared%20to%20the%20previous%20quarter.

[6] Jason Cohen, iOS More Popular in Japan and US, Android Dominates in China and India, PCMag (Sept. 4, 2020), https://www.pcmag.com/news/ios-more-popular-in-japan-and-us-android-dominates-in-china-and-india.

[7] App Store Review Guidelines, Developer, Apple (Sept. 11, 2020), https://developer.apple.com/app-store/review/guidelines/#reader-apps.

[8] Julia Alexander, A Guide to Platform Fees, The Verge (Sept. 22, 2020, 8:05 AM), https://www.theverge.com/21445923/platform-fees-apps-games-business-marketplace-apple-google.

[9] In-App Purchase, Developer Documentation, Apple (last visited Nov. 28, 2020, 6:00 PM), https://developer.apple.com/documentation/storekit/in-app_purchase.

[10] Kif Leswing, Apple’s App Store Had Gross Sales Around $50 Billion Last Year, But Growth is Slowing, CNBC (Jan. 8, 2020, 12:30 PM), https://www.cnbc.com/2020/01/07/apple-app-store-had-estimated-gross-sales-of-50-billion-in-2019.html.

[11] Ross Krasner, Apple v. Epic Lawsuit Could Open Door to Third-Party Payments — Led by Esports, Venture Beat (Nov. 3, 2020, 7:17 AM), https://venturebeat.com/2020/11/03/apple-v-epic-lawsuit-could-open-door-to-third-party-payments-led-by-esports.

[12] Isobel Asher Hamilton, Apple Just Got Hit with 2 EU Antitrust Probes into the App Store and Apple Pay, Bus. Insider (June 16, 2020, 6:29 AM),  https://www.businessinsider.com/apple-two-eu-competition-investigations-2020-6?r=US&IR=T.

[13] Erin Griffith, Apple and Epic Games Spar Over Returning Fortnite to the App Store, NY Times (Nov. 18, 2020), https://www.nytimes.com/2020/09/28/technology/apple-epic-app-court.html.

[14] Akhilesh Ganti, How Does Fortnite Make Money, Investopedia (Sept. 10, 2020), https://www.investopedia.com/tech/how-does-fortnite-make-money/#:~:text=In%202019%2C%20Fortnite%20brought%20in%20revenues%20of%20%241.8%20billion%2C%20according,to%20250%20million%20Fortnite%20players.

[15] Epic Games v. Apple Inc., No. 4:20-cv-05640-YGR, 2020 U.S. Dist. LEXIS 188668, at *12-14 (N.D. Cal. Oct. 9, 2020).

[16] Griffith, supra note 13.

[17] Cryer, supra note 1.

[18] Epic Games, Inc. v. Apple Inc., at *10.

[19] Id. at *11.

[20] Epic Games, Inc. v. Google LLC et al, No. 3:20-cv-05671-JD (N.D. Cal. filed Aug. 13, 2020).

Image Source: https://search.creativecommons.org/photos/5dcefd42-cce2-4c84-b71a-e0ce4f315a5b

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