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It's all about the Leverage: Apple & Epic, Simplified

Illustration for article titled Its all about the Leverage: Apple  Epic, Simplified
Gif: Terry O’Neill (AP)

Woah. It’s been a while. I’ve seen a number of comments in various threads about the Epic / Apple litigation (strangely, most people forget about Google/Android) that make me want to repeatedly bash my head against a wall. Usually, they are unthinking repetitions of the same themes- “Apple is a Walled Garden, so unfair!” or “Epic is so stupid, and weaponized angry troll gamers isn’t a legal strategy.”

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But given that these are billion-dollar (or, ahem, trillion-dollar) corporations that are likely acting in somewhat rational and predictable fashions, and are represented by the most expensive attorneys money can by (including Cravath and Gibson Dunn), I thought I’d put up a brief post about my thoughts on the issue. As always, you get what you paid for!

1. What about the merits? Who is right, Apple or Epic?

Doesn’t matter. I mean, that’s not right. At some higher, epistemological level, it does matter. If you’re curious as to what Epic thinks is their best claim (they brought a number of “counts” including state law counts) I would say that they think that the “tying” issue is their strongest; that’s why they it’s given prominence in the recently filed motion for preliminary injunction.

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But litigation goes through stages. And while winning a case on the merits (at a bench or jury trial) at the end matters a great deal, in civil litigation what usually matters is the parties’ general estimation of the strength of their positions at various times.

But if I had to state an opinion right now, I would say that Epic’s claims are weak. Not wrong- litigation is tricky, nothing is certain. But very weak. The reason is somewhat obvious to me- as a matter of policy, all the “app stores” charge an amount for in-app purchases, including platforms like Playstation and XBox. Epic essentially wants courts to say that the amount charged is “too much” but courts don’t usually try to micromanage “too much”, and Epic is not arguing collusion between the different platforms. Nor can Epic credibly argue that Fortnite is prevented from being sold due to Apple or Google; it is a cross-platform game. So Epic’s various arguments are a stretch of current law. They aren’t wrong. They can credibly assert, for example, that Apple improperly “ties” the in-app purchases to the app store, but there is hardly a slam-dunk argument. If you look at all of this and still think “Wow, this is unfair,” I am not saying you are wrong (or right), just that it’s a bit of a stretch under current American anti-trust law and precedent.

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The point is, unless I am missing something (always possible!) this looks like, at best, a series of claims that would require a trial and could not be resolved before then in Epic’s favor, but might be resolved (either through dismissal or summary judgment) in Apple’s favor prior to trial.

2. So what does Epic want?

Money. The same as any company. More specifically, Epic wants to be able to get all the money from Fortnite purchases .... and more importantly, Epic wants to put an Epic App store on IOS. Even moreso than the IAP (in app purchases), that is really what the battle is about.

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To understand this, you simply need to go back to the Epic/Valve dispute that led to Epic creating the Epic Game Store. Epic sees itself in a position to undercut other services. This has been part of Epic’s overall history of using other platforms to grow, and then undercutting and supplanting the business model. That’s not a pejorative statement- that’s Capitalism 101, just slightly more ruthless.

Epic not only wants to get all the revenue from Fortnite, it also wants to provide its own app store and sell you other products (and take its own cut).

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3. And what does Apple want?

Money. The same as any company. More specifically, the app store was started with the idea that the cut Apple would take would go to support the infrastructure for the app store, developer’s tools, developer assistance, security, checking apps, advertising for apps, and so on. It wasn’t going to be a profit center. Thirty percent was the amount on the iTune music commissions, so ... why not?

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Now, of course, services, and that 30%, is a profit center. A massive and growing one. It would still be profitable at less. Of course, since Apple did it, so did Google. So did Sony. So did Microsoft. It has become a circular argument- Apple did it because they did it for music, so why not? And everyone else charged it because Apple charged it. And Apple can keep charging it because (wait for it) ... everyone else charges it.

But there’s another concern- control and security. Apple would probably budge on the 30%- they have before (Netflix and other services that you sign up for outside of the Apple system). But one thing that Apple will never allow is an Epic Games Store on their app. Period.

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4. Okay, so what does this mean?

Let’s start with the basics; most litigation that is prolonged between corporations is a result of either the parties not understanding their relative litigation strength, or having a fundamental misunderstanding as to the other party’s goals.

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In my opinion, Epic has fundamentally misunderstood the nature of the litigation with Apple. The idea of the whole “shock & awe” litigation and public relations campaign might work against many companies, but not Apple. Moreover, Apple will litigate, worldwide, for years ... remember the multi-front, interminable Samsung litigation that was arose primarily because Apple was angry that Samsung was (in Apple’s opinion) copying their distinctive look?

If Epic was just trying to lower the amount of the IAPs, that would be one thing- that’s a negotiation. But they’ve poisoned that well for the foreseeable future, and I can’t imagine Apple ever agreeing, in a million years, to allowing the “Epic Game Store” on their devices without years of litigation and appeals. Now, if this is what Epic expected and prepared for- good for them! But just like the Samsung litigation, with billions of stupid web comments that amounted to nothing, I doubt that this will change much and will simply fizzle away.

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5. Predictions?

Sure. There is a hearing on the September 28, 2020. At that hearing, the judge will likely re-affirm the reasoning of the preliminary ruling and allow Apple to continue to prohibit the developer’s account for Epic, thus effectively “banning” Fortnite (and certain other things) from IOS, while keeping other affiliates from being banned. Then Epic will make a version of Fortnite available again on IOS with standard IAP terms along with some press release about how they love their players and Apple is evil, yada yada yada. Apple will probably slow walk the approval for a week to a month before allowing it back.

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And then there will be litigation. And a lot of attorneys will make a lot of money. Same as it ever was.

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