Epic’s slick Apple App Store media campaign can’t help it in court

29 Sep 2020 6:17 pm by Michael Acton

Apple

Rarely has an antitrust suit generated as much public hype as Epic’s move to take on Apple.

Yet a court hearing yesterday — watched by legions of devoted Fortnite fans on a multitude of pirated streams — showed Epic’s compelling public relations campaign running into the harsh reality of antitrust law.

US District Judge Yvonne Gonzalez Rogers made it clear that no matter how many supporters the company can get onboard, and no matter how much Big Tech issues climb the ladder of political priorities, Epic’s lawyers have a tough and technical legal fight ahead of them.

Epic’s suit was accompanied by a carefully crafted PR campaign of a scale and tone that isn’t often seen in the antitrust world.

A tongue-in-cheek YouTube video released when the suit was filed — and which has since scored more than 6.5 million views — poked fun at the tech giant and got the social media tag #FreeFortnite trending. A villainous anthropomorphic apple avatar in a business suit, dubbed “Tart Tycoon,” was introduced to the game as a reward for players in a “Free Fortnite” tournament.

The upshot of the hearing is that Fortnite will not be freed any time soon. It’s unlikely Epic will secure a temporary injunction forcing Apple to restore Fortnite to the App Store while the case is pending.

But the hearing also offered a glimpse into the thorny legal arguments that will decide the final outcome of Epic’s suit. The case will be followed with interest by Department of Justice antitrust officials, who are themselves poking around Apple’s business dealings.

Proving a monopoly

The essence of Epic’s claim is that Apple imposes a number of technical and contractual restrictions that prevent alternative forms of app distribution from being available on its iOS operating system.

Apple, Epic argues, has built a monopoly in one market and used it to enforce a second one. The core market is app distribution on the iOS. The lack of competition in this market means Apple can force consumers to use its own In App Payment processing services rather than use any alternatives — as Epic deliberately attempted to do, with the predictable result of the removal of Fortnite from the app store.

Apple, Epic argues, is thus able to extract monopoly rents.

Epic’s case will stand or fall on the question of defining the relevant market. Without a market to monopolize, there can be no oppressive app store tax. Building a compelling argument for a monopoly when dealing with complex digital markets is, however, easier said than done.

Ask the experts

Apple’s lawyers point to the multiple distribution channels through which players can access Fortnite, as well as case law which, they say, shows that a company can do what it likes with its own product — in this case, iOS.

At the start of yesterday’s hearing, the judge homed in on the fact that, while Epic has managed to get noted antitrust academic Dr. David Evans to submit a declaration backing its finding of a monopoly, Apple has found two — Dr. Lorin Hitt and Dr. Richard Schmalensee — who will disagree with Evans’ assessment.

Like the ‘observer effect’ in quantum physics, a phenomenon that is obvious to the casual observer — Apple’s tremendous market power — changes the closer you look at it. And there is no shortage of academics who can offer views that are unhelpful to Epic.

“Between the University of Chicago professor [Evans, who has taught there] and the MIT professor [Schmalensee], we have a disagreement over what the relevant market is: So this is not something that is without debate within the community,” Gonzalez Rogers observed.

Wrong plaintiff?

Epic’s focus on Apple’s 30 percent commission fee might be playing directly into Apple’s hands.

The case is fundamentally about the lack of alternatives to Apple’s in-app distribution and payment systems, not the fee itself. The 30 percent fee is applied to all apps that allow the purchase of “digital” products — and is a source of contention for developers of all sizes across different markets.

This raises the question of whether Epic is the right standard-bearer for that movement. The judge yesterday pointed to a spree of other video game platforms and retailers that charge a similar commission rate. If that’s the case, she asked, then where are the monopoly prices?

“There is an uproar in the marketplace about the lack of competition for iPhone apps — it’s there,” Gonzalez Rogers acknowledged. “It’s not clear to me whether or not this case is actually going to get to that potential problem.”

“And that’s because of my questions about whether or not this is the right plaintiff, given the amount of competition for mobile games,” she added.

The only thing certain at this stage is that, in the words of Gonzalez Rogers, the California case lies on the frontier of antitrust law. “They don’t call this the Wild West for nothing," she said.

It’s still early days for Epic’s suit. But the hearing serves as a reminder that Epic’s self-congratulatory PR campaign might have been a little premature.

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