Epic Positions Itself as Hero in Fight With Apple Over Commissions

Epic is painting itself as a David to Apple’s Goliath in an antitrust battle over App Store commissions that it claims are an abuse of power over developers. But as testimony unfolded Tuesday, it became clear that the truth is not so simple.

(Image by amrothman from Pixabay)

OAKLAND, Calif. (CN) — Apple is attempting to dismantle the narrative pushed by Epic Games in a legal showdown over the tight control Apple exerts over its App Store, which Epic claims is unfair to developers.

Back on the stand Tuesday, Epic CEO Tim Sweeney resisted the idea that he was seeking a special deal that would allow his company to bypass the App Store’s payment system — from which Apple takes a 30% cut on all purchases — and launch its own direct payment feature for iPhone users that would let Fortnite players buy in-game credits, or “V-Bucks,” directly from Epic.

Sweeney insisted Epic was trying to get Apple to change its anticompetitive behavior when it breached its licensing agreement by announcing that iPhone users could get discounts by making purchases from Epic’s own store.

And in opening arguments Monday, Epic attorney Katherine Forrest said the company was not looking for special treatment, but wanted to even the playing field for the little guy.

“Epic is not suing for damages, for a special deal. Epic is suing for change, not just for itself but all developers,” she said.

Sweeney repeated the assertion Tuesday, saying, “We didn’t want a deal just for Epic.”

But under further questioning from his own attorney, Sweeney acknowledged he would have taken a deal had Apple offered him one.

“If Apple had told you that it would offer you a deal and no other developers, would you have accepted that deal?” Forrest asked.

“Yeah,” Sweeney said. “I would have.”

The high-stakes antitrust litigation has unearthed a trove of emails and documents outlining Epic’s strategy to cut costs and grow its business.

On June 30, 2020, Sweeney sent an email to Apple executives including CEO Tim Cook and senior vice president Phil Schiller, asking for a “side letter” that would remove restrictive provisions that prohibit Epic from “offering a competing app store and competing payment processing options to consumers.” 

Sweeney added he hoped Apple would make this option available to all iOS developers.

Tuesday’s testimony also highlighted some shaky financial footing for Epic Games, which saw 2019 gross revenue totaling $1.1 billion — down 27% from 2018. While 2020 saw a boost in revenue, Sweeney conceded under cross-examination by Apple attorney Richard Doren that it was not up to 2018 levels.

A business review also from June 2020 titled “Apple x Epic” shows Epic Games had decided to make “returning to growth mode” a priority for 2020 by leaning on partnerships with Apple and making its Epic Game shop a “viable primary game store.”

This past August, Fortnite went ahead with its plan to set up its own direct payment system outside of Apple, called “Project Liberty.” 

“You’ll enjoy the upcoming fireworks show,” Sweeney said in an Aug. 7 email to Microsoft’s vice president of gaming Phil Spencer.

Epic used an engineering update or “hotfix” to activate the direct payment option within the Fortnite iOS app, which spurred Apple to kick Epic out of the App Store. As a result, iPhone users were not able to update or download the Fortnite app.

The PR blitz was on.

A Project Liberty update filed as an exhibit in the case reveals several “press and player narratives” Epic planned to use, including that Epic “fights for players and developers,” and that Apple maintains an anti-consumer monopoly through its App Store.

Sweeney also said Apple’s fees have stymied Epic’s long-term objective of ultimately designing the “metaverse,” a virtual reality world first contemplated by the author Neal Stephenson in “Snowcrash,” a 1992 cyberpunk novel much beloved by Silicon Valley types.

“These fees are an existential issue to the development of the metaverse in general. Fortnite is increasingly a creator-driven platform. Companies and individuals besides Epic are working to distribute to users. We are early in development of a creator-based Fortnite economy,” he said. “Epic is trying to build a metaverse where the majority of the profit should go to the creators themselves. With Apple taking 30% off the top, it makes it very, very difficult for Epic and creators to exist in this world.”  

U.S. District Judge Yvonne Gonzalez Rogers, who will decide the case in lieu of a jury, asked Sweeney if he has a backup plan for Epic’s Unreal Engine, a software tool for computer graphics that helps programmers make games for multiple platforms. 

Apple sought to remove the Unreal Engine along with Fortnite, but Gonzalez Rogers ordered Apple to continue supporting it on iOS until she decides the case.

“You’re asking the court for equitable relief. Part of the equitable relief I already provided was that Apple keep Unreal Engine open. What is your backup plan if I don’t?” she asked.

Sweeney said a ruling in Apple’s favor would like spell the end of the Unreal Engine. 

“If Apple’s actions are lawful, that means Apple would have the right to remove Epic from the developer program for any reason at all, or no reason at all. If Apple cut us out, then we would not be able to support the iOS platform,” he said.

Gonzalez Rogers also heard from Ben Simon, CEO of Yoga Buddhi Co., who said Apple’s 30% commission has forced it to charge higher subscription fees for its Down Dog yoga app and hampers its ability to offer discounts, free trials, and refunds directly to iPhone users. Under questioning from Epic attorney Wes Earnhardt, Simon said he would charge less on iOS if he could.

“If you don’t like the restriction why did you agree to it?” Earnhardt asked

“We didn’t have any other choice,” Simon said. He said roughly 50% of his company’s revenue comes from iOS users, even though subscriptions are 50% higher on the iPhone.

Simon also implied that Apple can be punitive toward developers who speak out against its policies.

“In the past Apple has openly told developers that they shouldn’t go public with their complaints, saying in the guidelines if you run to the press it never helps,” he said.

“Have you experienced retaliation from Apple?” Earnhardt asked.

Simon replied he “wasn’t sure,” but noted that after he agreed to be a witness for Epic, an update for the Down Dog app was delayed by Apple’s App Review process for 33 days without explanation.

“We’ve never had an app being reviewed for more than a few days,” he said.

The trial continues Wednesday.

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