Epic Games Kicks Off the Civil War in American Business

From cheerleading to video games, business leaders are saying “Enough!”

By Matt Stoller and cross-posted from his substack blog, BIG.

Last week, powerful video game publisher and software developer Epic Games introduced a new version of its Fortnite video game for the iPhone. The key change was that players could bypass Apple’s payment system for in-game purchases, and use a proprietary Epic payment option instead. Such a move breached Apple’s terms for its app store, because Apple requires anyone who makes an app for the iPhone to use the Apple payments system. Such a requirement is how the corporation makes money directly from the app store; Apple’s payment system charges a 30% tax for any revenue generated by any iPhone app during its first year. Apple’s control over its app store has become a source of controversy, mostly because the corporation exploits its power over iPhones to extract high fees from developers.

During the Congressional hearings over the market power of large technology firms, Apple CEO Tim Cook insisted that Apple had little market power over mobile apps, because developers and consumers could always switch over to different types of phones or platforms on which to create software. Epic’s attempt to restructure terms with Apple is a great test case for Cook’s argument. One would expect, based on Cook’s views, that developers of popular apps have leverage against Apple, if Apple had little market power over app stores. Certainly, Epic’s Fortnite is popular, a massive multi-billion dollar game, as close to a must-have app as possible.

Without blinking, however, Apple blocked Epic’s app from its store, which shows that Cook’s argument about a competitive market was just wrong. No one, no matter how powerful, has any bargaining leverage with Apple over its app store, and competition is certainly not disciplining the iPhone maker. Epic CEO Tim Sweeney responded to Apple’s ban not with a modification of its app, but with an antitrust suit (and a parallel though less important suit against Google).

I suspect that a legal approach was not what Epic wanted to do. Epic has experience using the marketplace to address monopoly power; a few years ago, Epic took on Valve, which owned a monopoly game store, Steam, by launching its rival Epic Games Store. And Epic has used Fortnite’s draw to force interoperability among PC, Mac, Xbox One, PS4 and mobile platforms. But because Apple’s monopoly power over the iPhone is so total, Epic chose to use the legal and political system to make an aggressive set of claims that, if accepted by a judge, would essentially destroy Apple’s control over the app ecosystem on the iPhone.

These claims include the argument that Apple has tied its payments system to its app store, which is a fairly strong legal argument that judges have often (though not always) upheld. It also included an argument that the app store is what is called an ‘essential facility,’ and that Apple as a monopolist in control of such a facility has to share it with competitors or customers on reasonable terms. Judges have generally not upheld this kind of claim. So Epic is not only trying to take its dispute with Apple to the courts, it is also seeking to overturn court precedent, and encourage Congress to write statute overturning judge-made law

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