It's been over nine months since Epic sued Apple for violating antitrust law and the trial has just wrapped up.
We've explained the background of Epic versus Apple in another article, but to recap, last year Epic decided to bypass Apple's in-app purchasing system on Fortnite, one of the biggest games in the world. Apple banned Fortnite from the iOS App Store for breaking its rules and Epic sued for antitrust violations, saying the whole App Store model was an unfair monopoly.
The trial started in early May. Since then, we've heard from Epic CEO Tim Sweeney, Apple CEO Tim Cook, Apple executives Phil Schiller and Craig Federighi, representatives from Microsoft and NVIDIA, and over a dozen other witnesses talking about everything from Apple's accounting methods to the definition of a metaverse. So let's get into it.
The heart of this case is about what it's like to be a developer on the App Store. Apple likes to talk about how much it loves iOS developers, how much money they're making, and how easy they've made the process.
Actual developers tell a different story. It's hard to get on the store, hard to deploy changes, and a lot of your success depends on the placement Apple gives you. That means if you're trying something new like Tile, you might get great placement for years only to find yourself locked out once Apple decides to make a competing product like AirTags.
Apple's defense is that keeping the app store as the exclusive source of content protects users from fraud and enforces basic purchasing standards across the device. Even Epic CEO Tim Sweeney admitted in emails that his platform sometimes struggled with fraud. But during the trial, we got a firsthand look at how Apple's process works. And it wasn't all about protecting users.
In a sworn deposition, a former app store official named Phillip Shoemaker, testified that apps like Google Voice or Rhapsody Music ended up taking a surprisingly long time to get approved as Apple weighed the cost of letting a competing service onto the iPhone. He even specifically named Google Voice as an app that was removed on pretextual or basically fake grounds.
Shoemaker was skeptical of Apple's fraud protections too, comparing the app store to a tropical airport and saying app review was more like the lady who greets you with a lei than the drug sniffing dog. When the lawyers asked how often he heard developers complaining that the rules were unclear, Shoemaker said it happened every day. He saw Apple as just as hypocritical about apps that sold other apps. Something Apple doesn't allow, but hasn't always been clear in communicating.
The conflict came to a head when Shoemaker had to deal with an app called Big Fish Games. Apple wanted it removed as an app store within the app store but Shoemaker thought the denial was arbitrary and blew up at an executive saying there was no guideline to justify the removal.
In-app stores like this aren't a security problem exactly, but they threaten Apple's control over iOS software. And the ban means there's a whole category of product that's almost impossible on iPhones.
That includes the Epic Games store, which is actually distributing software, but it also includes cloud gaming services that are ultimately just streaming video. That's a bigger problem than a single game like Fortnite, or even Apple's 30% commission.
Although Microsoft isn't party to the trial, it has played a big role with an X-Box executive testifying and also documents about its Windows and X-Box businesses. Microsoft is also not happy with Apple's control over the iPhone. And it's been pretty vocal about the App Store over the past year. Microsoft tried to get xCloud onto the iPhone and iPad, but after months of back and forth with Apple, it ultimately ended in Apple refusing to approve the xCloud app. We even saw xCloud rival, Shadow, booted off the app store temporarily, after Microsoft emailed Apple to ask why Netflix and Shadow were able to provide apps with interactive and gaming content.
Apple has defended its reasoning here as an effort to make sure streamed games can use Apple's parental controls. Apple wants Microsoft, NVIDIA, Google, and others that run cloud gaming services to package up every single game individually, which Microsoft has called a bad experience for customers.
Now, Netflix doesn't have to do this for TV shows or movies. And can you imagine having to download an individual app for every single TV show you want to watch on Netflix? Apple claims this is because the content in games can change and is interactive. But this doesn't explain why Netflix's interactive Bandersnatch is still allowed on the app store. Microsoft, NVIDIA, and Google have all decided it's all too much friction for consumers and they've launched web-based versions for iOS instead, working around Apple's policies.
The difference between game consoles, mobile phones, and desktop PCs has also been a key part of this trial. It centers on the PC being an open model where there are plenty of games and app stores, and anyone can install anything, basically; Versus the iPhone and game consoles, where things are a little bit more locked down and platform owners control what apps are available.
While Epic and Microsoft are fighting against Apple's 30% commission on app store digital sales, they're both happy to keep the same cut on the X-Box side. This trial has revealed that Epic has never questioned Microsoft's 30% cut on digital games, and both companies defend it because Microsoft sells exports consoles at a loss.
X-Box's executive Lori Wright revealed during the trial that Microsoft never makes a profit from console hardware itself. And Microsoft was quick to point out, after Wright's testimony, that profits are generated in game sales and online service subscriptions. It's a model that's been in place for X-Box and PlayStation for years and shared marketing campaigns and partnerships have helped games like Fortnite become extremely popular. That might explain why Epic doesn't want to rock the boat with console makers, where it generates most of its Fortnite revenue. Apple argues that its app store shouldn't be treated differently to the export store, which also restricts which apps are available to consumers.
Microsoft and Epic have been arguing that the iPhone should be treated as a general purpose device, much like a PC, and should allow for rival stores and payment platforms. Microsoft even cut the revenue it takes from PC games just days before the trial to 12%, instead of 30%. It was a perfectly timed move to position PC gaming separate to the X-Box and to backup its argument about console business models, and that phones shouldn't be treated as specialist devices.
Documents in this trial have also provided a rare insight into Microsoft's previous back and forth with Apple over launching Office on the iPhone and iPad. Microsoft wanted Apple to allow its Office app to avoid in-app purchases and advertise its own subscriptions. But Apple executive Phil Schiller shut this down in an email, noting 'We run the store, we collect the revenue.' That line alone tells you everything you need to know about how Apple feels about its app store.
One of Epic's big points is that Apple already uses an open app distribution model on the Mac. MacOS has an app store, just like iOS, but it relies on other security techniques, like code signing, to let people download apps from across the internet. Epic dug up a 2007 report where Apple's security team analyzed the risks of third-party software. And the author seemed open to a more MacOS- like model, calling a fully locked down design a policy decision, rather than an absolute must have.
Epic also claims that Apple's ban on stores within the store is arbitrary. It brought up a series of emails about Road Blocks, an app that lets designers build and launch their own games and experiences. Apple's app store reviewers, apparently worried about this, but they never did anything about it. To Epic, that shows that Apple doesn't have consistent guidelines for its platform. In Apple's rebuttal, software engineering head Craig Federighi said iOS couldn't work like MacOS. Federighi said whatever that 2007 report concluded, the situation in 2021 is different. iOS has a lot more users than MacOS.
People's phones collect a lot more data, and he claimed MacOS is regularly exploited by malware. If you applied max security techniques to the iOS ecosystem, it would get run over even more dramatically than on MacOS. Apple's concerns don't stop at malware. iOS restricts content that it considers offensive or sexualized and Apple argued repeatedly that without strict app store review, all that content would come flooding in. It kept bringing up the fact that Epic's game store hosts another game store called itch.io, and that store allows so-called adult games, that Apple's lawyers couldn't even bring themselves to name in court.
Every new store within a store puts control one more step out of Apple's reach. Apple also says iOS users do have third-party store options. Steam, Sony, and Microsoft have iOS apps that let you buy and remotely stream games, as long as it's from a home PC or console, not a cloud gaming service like xCloud. All these debates highlight the biggest stakes for Apple and Epic. Apple says that people buy the iPhone to get a safe and trusted experience.
One of its lawyers accused Epic of trying to make iOS a poor imitation of Android, depriving Apple of a big selling point for its devices. Meanwhile, Apple is locking Epic's game store off a huge mobile platform, and asking for a big cut of Epic's Fortnite fortune. Sweeney called Fortnite a metaverse. A full-fledged social space where players can watch concerts or build their own creations that, eventually, they might even be able to sell. Epic wants to expand the economy inside that metaverse, and if it gives Apple 30 cents of every dollar, that adds up to a lot of money.
The verdict might end up hinging on smaller issues, though. Judge Yvonne Gonzalez Rogers, for example, spent a lot of time asking about Apple's anti-steering provisions, the rules that restrict iOS developers from mentioning other platforms where people can find them. Those weren't central to Epic's case, but they affect a lot of developers of all sizes. Whatever happens, we might not know who won this case for months. Winning could mean a lot of things. And the verdict will affect not just Epic and Apple, but console makers, app developers, rival phone manufacturers, and countless users on all those systems.
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