NTRODUCTORY STATEMENT TO APPLE’S ANSWER AND COUNTERCLAIMS
Epic’s lawsuit is nothing more than a basic disagreement over money. Although Epic portrays itself as a modern corporate Robin Hood, in reality it is a multi-billion dollar enterprise that simply wants to pay nothing for the tremendous value it derives from the App Store. Epic’s demands for special treatment and cries of “retaliation” cannot be reconciled with its flagrant breach of contract and its own business practices, as it rakes in billions by taking commissions on game developers’ sales and charging consumers up to $99.99 for bundles of “V-Bucks.” For years, Epic took advantage of everything the App Store had to offer. It availed itself of the tools, technology, software, marketing opportunities, and customer reach that Apple provided so that it could bring games like
Infinity Blade and Fortnite to Apple customers all over the world. It enjoyed the tremendous resources that Apple pours into its App Store to constantly innovate and create new opportunities for developers and experiences for customers, as well as to review and approve every app, keeping the App Store safe and secure for customers and developers alike. As a direct result of Apple’s investments, the App Store has grown into a diverse marketplace with a community of 27 million app developers worldwide, with about 1 billion customers across 175 countries. And, by all accounts, Epic has taken advantage of Apple’s support and services more than any other app developer for the past two years. Fortnite has only been in the App Store since 2018. But in that short time, Fortnite (i) has used more than 400 of Apple’s unique Application Programming Interface (API) frameworks and classes (such as Metal), as well as five different versions of Apple’s Software Development Kit (SDK); (ii) has been reviewed more than 200 times by Apple’s app reviewers; and (iii) has pushed more than 140 unique updates to Apple’s customers. And each time Epic released a new season of Fortnite
, Apple put it in the spotlight, providing free promotion and favorable tweets, ultimately sending over 500 million marketing communications to end users, and even paying for a billboard in Times Square to promote a particular Fortnitein-app concert. With Apple’s support, in the space of two short years, Fortnite grew into an incredibly successful iOS app, enjoying nearly 130 million downloads in 174 countries—and earning Epic more than half a billion dollars. As recently as April 2020, Epic executives recognized and thanked Apple for its support and promotion of Fortniteevents.
But sometime before June 2020, things changed. Epic decided that it would like to reap the benefits of the App Store without paying anything for them. Armed with the apparent view that Epic is too successful to play by the same rules as everyone else—and notwithstanding a public proclamation that Epic “w[ould] not accept special revenue sharing or payment terms just for ourselves”
Epic CEO Tim Sweeney emailed Apple executives on June 30, 2020, requesting a “side letter” that would exempt Epic from its existing contractual obligations, including the App Store Review Guidelines (the “Guidelines”) that apply equally to all Apple developers. Among other things, Mr. Sweeney demanded a complete end-run around “Apple’s fees”—specifically, Epic wished to continue taking full advantage of the App Store while allowing consumers to pay Epic instead, leaving Apple to receive no payment whatsoever for the many services it provides developers and consumers. Mr. Sweeney also demanded the right to coopt the App Store to deliver “[a] competing Epic Games Store app,” in another bid to line Epic’s pockets at Apple’s expense and fundamentally change the way Apple has run its App Store business for over a decade on the iOS operating system for iPhones and iPads. Mr. Sweeney expressly acknowledged that his proposed changes would be in direct breach of multiple terms of the agreements between Epic and Apple. When Apple rejected Epic’s request for a special deal, rather than abide by its long-running contractual agreements pursuant to which it has earned over $600 million, Epic resorted to self-help and subterfuge. On August 3, 2020, Epic sent a Trojan horse to the App Store—a new version of Fortnite that included what Epic has euphemistically described as a “hotfix” that allows Epic to bypass Apple’s app review process and ability to collect commissions by directing app users to pay Epic instead, cutting Apple out entirely. Unbeknownst to Apple, Epic had been busy enlisting a legion of lawyers, publicists, and technicians to orchestrate a sneak assault on the App Store. Shortly after 2:00 a.m. on August 13, 2020, the morning on which Epic would activate its hidden commission-theft functionality, Mr. Sweeney again emailed Apple executives, declaring that “Epic will no longer adhere to Apple’s payment processing restrictions.” According to Mr. Sweeney, Epic would continue to use Apple’s App Store but would “offer[] customers the choice” to pay Epic instead of Apple, effectively depriving Apple of any return on its innovation and investment in the App Store and placing Epic in open breach of years-long contractual obligations to which Epic and all other Apple developers have agreed. Hours after Mr. Sweeney’s 2:00 a.m. email, Epic triggered the “hotfix” it previously planted in Fortnite to push through a new external payment runaround—which Epic had deliberately concealed from Apple’s app review process—that usurped Apple’s commission and brazenly flouted its rules. This was little more than theft. Epic sought to enjoy all of the benefits of Apple’s iOS platform and related services while its “hotfix” lined Epic’s pockets at Apple’s expense. Following Epic’s open, admitted, and deliberate breach of its contractual obligations and the cold-blooded launch of its “hotfix,” Apple rightfully enforced its rights under the contractual agreements and the Guidelines by removing the non-compliant Fortnite app from the App Store. In keeping with its self-serving narrative, Epic attempts to recast Apple’s conduct as “retaliation.” But the exercise of a contractual right in response to an open and admitted breach is not “retaliation”; it is the very thing to which the parties agreed ex ante. Epic proceeded to launch a calculated and pre-packaged campaign against Apple “on a multitude of fronts – creative, technical, business, and legal,” as Mr. Sweeney had previously threatened. Epic filed its pre-drafted 56-page Complaint in this case mere hours after the removal of Fortnite from the App Store. Epic then publicized its willful contractual breaches through an animated Fortnite short film that mimicked Apple’s seminal 1984 Macintosh campaign and villainized Apple for enforcing its contractual right to remove the non-compliant Fortnite from the App Store. Epic’s wrongheaded Complaint is fatally flawed on the facts and law. For starters, Apple is not a monopolist of any relevant market. Competition both inside and outside the App Store is fierce at every level: for devices, platforms, and individual apps. Fortnite users can dance their Floss, ride their sharks, and spend their V-Bucks in no fewer than six different mobile, PC, and game-console platforms. And the business practices that Epic decries as exclusionary and restrictive—including “technical restrictions” on the App Store that have existed since it debuted in 2008—have vastly increased output and made the App Store an engine of innovation, with the number and diversity of apps, the volume of app downloads, and the dollars earned by app developers increasing exponentially over time. All the while, Apple’s commission only decreased while software prices plummeted and barriers to entry evaporated. Epic blasts as “pretext” the idea that Apple’s curation of the App Store is “necessary to enforce privacy and security safeguards.” Compl. ¶ 83. But Apple’s requirement that every iOS app undergo rigorous, human-assisted review—with reviewers representing 81 languages vetting on average 100,000 submissions per week—is critical to its ability to maintain the App Store as a secure and trusted platform for consumers to discover and download software. Epic knows this. Indeed, when Epic itself “sell a product to customers, [it too] feel [it] ha a responsibility”—in Mr. Sweeney’s words—“to moderate for a reasonable level of quality, and also a reasonable level of decency."In the past, Epic has discharged that responsibility with mixed results. That Apple wishes to continue curating its own App Store—rather than outsource the safety and security of Apple’s users to Epic (or other third parties)—should come as no surprise, and it ensures that iOS apps meet Apple’s high standards for privacy, security, content, and quality. Not content with attacking Apple’s app review process, Epic, backed by the tech giant Tencent (which has its own competing app store, one of the largest in the world), also seeks to dismantle the App Store’s entire business model to advance its own economic interests without regard to the effect on other developers and consumers. Under the current model, developers (like Epic) contractually agree to pay Apple a commission for its services. In this context, Apple’s In-App Purchase (IAP) function is not a “payment processor[]” within some imagined “iOS In-App Payment Processing Market” (Compl. ¶¶ 10, 12); it is simply the practical, efficient, hardware-integrated, and consumer-friendly way by which Apple collects its contractually agreed-upon commission on paid
transactions. That commission reflects the immense value of the App Store, which is more than the sum of its parts and includes Apple’s technology, tools, software for app development and testing, marketing efforts, platinum-level customer service, and distribution of developers’ apps and digital content. There is nothing anticompetitive about charging a commission for others to use one’s service. Many platforms—including Epic’s own app marketplace and Unreal Engine—do just that.
In Apple’s case, that commission is not charged—and Apple earns nothing from its substantial investment in the App Store—unless and until developers bill and collect funds from users who engage in digital transactions. For the more than 80% of apps available to consumers for free on the App Store, this means Apple earns no commission whatsoever. Epic wants to change that in ways that would have dire consequences for the App Store ecosystem. In its Motion for a Preliminary Injunction, Epic boldly suggests that Apple monetize the App Store by charging a regressive “per download fee,” leaving consumers and developers on the hook to pay for what otherwise would be billions of free app downloads. Epic’s intention is thus straightforward: It seeks free access to the Apple-provided tools that it uses and—worse yet—it wishes to then charge others for access to Apple’s intellectual property and technologies. This is not something that Apple is willing to create a special “side letter” for Epic to do. While Epic and its CEO take issue with the terms on which Apple has since 2008 provided the App Store to all developers, this does not provide cover for Epic to breach binding contracts, dupe a long-time business partner, pocket commissions that rightfully belong to Apple, and then ask this Court to take a judicial sledgehammer to one of the 21st Century’s most innovative business platforms simply because it does not maximize Epic’s revenues. By any measure, the App Store has revolutionized the marketplace and greatly benefitted consumers and app developers like Epic. Apple looks forward to defending against Epic’s baseless claims.
www.macrumors.com
I’m done with Epics greed
