On 24 February 2021, in response to Apple subpoenaing Valve Corp. (‘Valve’) in November 2020, U.S. Magistrate Judge Thomas S. Hixon of the United States District Court for the Northern District of California ordered Valve to provide Apple with certain pricing and sales data.
Through this order, Valve has been entrapped in the ongoing legal dispute between Epic Games (‘Epic’), the developer of the immensely popular game, Fortnite, and Apple.
The actual inception of the dispute between Epic and Apple began in August 2020 when Epic unveiled a cheaper Fortnite in-app payment system as an alternative to Apple’s. While Apple charged a 30% fee on in-app purchases, Epic decided to charge only a 10% fee. In response, Apple immediately removed Fortnite from its App Store, claiming that as Epic had bypassed the 30% fee, it had violated Apple’s Developer Guidelines which were in place to protect its customers and applied to all app developers indiscriminately. Following this, Epic released a ‘Nineteen Eighty Fortnite’ promo, which parodied Apple’s famous 1984 advertisement, based on the eponymous George Orwell novel, promoting the Macintosh. Additionally, Epic filed a 65-page complaint against Apple at U.S. District Court for the Northern District of California. Interestingly enough, all of this happened within the span of the same day, showing that Epic was well-prepared for when Apple inevitably took action against their payment system.
Seeds of this battle, however, were planted as early as 2017. Epic’s CEO and co-founder Tim Sweeney has gone on record saying that digital storefronts such as Steam, Apple’s App Store, and Google’s Play Store can still be profitable with an 8% cut to the current 30% revenue sharing model.
Through their lawsuit, Epic is not seeking any monetary compensation and is instead pursuing an injunction that would allow Epic and Fortnite to be back into the App Store for five years. They also want a declaratory judgment stating that certain App Store terms are unlawful.
By way of update, two ago, Epic also filed an antitrust complaint against Apple in the European Union. They also filed additional claims in November against Apple in the Federal Court of Australia. Claims were also issued against both Apple and Google in the U.K. before the U.K.’s Competition Appeal Tribunal right before Christmas.
While Epic is relying on the alleged infringement of different statutes dependent on the country in question, the base of its claim is essentially the same. Epic alleges that Apple has substantially lessened competition and disrupted the antitrust environment by misusing its market power via forcing developers to distribute their apps for iOS only through Apple’s App Sore and charging monopoly-rate commissions on paid apps and in-app purchases. The basis of Epic’s claim is that Apple’s 30% commission on sales through its exclusive App Store is anti-competitive and, in an appeal to one of competition’s fundamental benefits, that allowing iOS apps to be sold on other stores would urge Apple to reduce its commission level to be more competitive.
As per Magistrate Judge Hixon’s discovery order, Apple’s subpoena of Valve seeks information relevant to the effects of competition. Steam, one of the largest video game digital distribution service for Microsoft Windows and macOS, is owned by Valve and also charges a 30% commission despite the emergence of the Epic Game Store, another digital distribution service for the same platforms owned by Epic.
Apple, in obtaining certain Steam sales information through the subpoena, is seemingly trying to show that the existence of Epic Games Store has not affected Valve’s charges and commission rate on Steam. This would be a blow in Epic’s claim that there are monopolistic practices as if the data reveals that Epic Games Store did not make Valve lower its commission, Epic’s argument would lie on shaky grounds. Data surrounding the market share of each platform in this domain would be helpful.
Valve argued that Apple was using its defence against Epic as a means to obtain third party data. However, the court in California dismissed this. It is interesting to note that Magistrate Judge Hixon stated that Apple has “salted the Earth with subpoenas”, but decided the case for Apple anyway.
The resolution of the Apple-Epic case may well prove to be a watershed decision for the role and potency of competition laws and policy in regulating digital markets.