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Monday, October 18, 2021

Apple and Epic lost today

It was May 11, the seventh day of the judgment of Epic v. Apple, when Judge Yvonne González Rogers reached a compromise that neither company had asked for. He asked Epic economist David Evans if it would be enough to remove Apple’s anti-direction rules, the ones Apple uses to prevent developers from even telling you that there is a perfectly good external website where you can buy your subscription instead of within the app itself.

On May 24, the last day of the trial, Judge Rogers hinted that she was still leaning toward that exact type of compromise, one that might not please either side, one that could involve Apple’s anti-leadership rules.

That’s what happened today. Both sides lost. But you could say that Epic lost more.

In a victory for developers, but not Epic, Rogers ruled in favor of a permanent nationwide injunction blocking Apple. Not only from keeping iPhone users in the dark about alternative forms of payment, but potentially allowing developers to actually introduce their own purchasing mechanisms in their own applications. (It largely depends on how the courts define a “button,” so stay tuned for a lot of friction and experimentation around that.)

It is no a win for Epic for two reasons: First, because the judge explicitly decided that Epic’s injection of its own direct payment scheme into Fortnite on iOS, a move designed to spark all of this demand, it wasn’t right. Epic breached its contract with Apple.

Second, because even if Epic did now I want to insert, say, a PayPal button in Fortnite, can’t: Apple terminated Epic’s developer account when the company breached its contract, and Judge Rogers confirmed that Apple has every right to keep Epic out of the App Store forever.

“Apple has the contractual right to terminate its LAP with any or all of Epic Games’ wholly owned subsidiaries, affiliates and / or other entities under the control of Epic Games at any time and in Apple’s sole discretion,” Rogers ruled.

Epic also directly lost about $ 3.6 million, which it has to pay Apple. That’s because Epic made roughly $ 12.2 million in revenue with the direct payment mechanism it injected into Fortnite against Apple’s rules, and Rogers decided that Apple deserves his 30 percent cut of that money.

Indirectly, you could argue that Epic also lost its considerable investment to make this lawsuit a success, not just legal fees, which it won’t get back, but potentially hundreds of millions of dollars from people who would have been gaming. Fortnite on iOS if it weren’t for its removal from the App Store. In its first two years, the game made $ 614 million on iOS alone, according to Epic’s records, $ 52.7 million of that in the fourth quarter of 2019.

After Fortnite was removed from the App Store, it is possible that people who had already installed the game were still making purchases, but it is unlikely that they did so on a large scale: Fortnite Players on Apple hardware lost cross-play, access to new events, and new things to buy in August 2020 when the game was split in two.

And all Epic has to show for that money is … well, the biggest change in the history of the App Store, as Mark Gurman points out. (Here’s our just-released history of the top App Store policy changes, so you can see for yourself.) It’s just that, as of now, Epic can’t take advantage of it.

But those millions or even hundreds of millions pale in comparison to the billions Apple could lose if that App Store change is fully adopted and legally enforced. Apple makes roughly $ 19 billion a year from apps, $ 6.3 billion of that in the US, where the ruling carries legal weight, and it wouldn’t take more than the loss of a few whales for Apple to notice a dent in that income, my colleague. Chaim Gartenberg argues.

Epic doesn’t even bother to spin today’s decision as a win, and I think it makes some sense – publicly, their goal was #FreeFortnite, and they completely failed at that. Fortnite on iOS it is still under Apple’s padlock and key. So instead of changing your hue, Epic will just attract.

Apple, however, calls the decision a “resounding victory.” That also makes sense seeing as how it downgraded Epic’s original request that the courts call Apple an illegal monopoly under the Sherman Antitrust Act to a single court order under California’s Unfair Competition Act. The courts are not forcing Apple to allow alternative app stores, or side-downloading, or to change its 30 percent fee in any way.

But a true victory wouldn’t have left Apple seeing billions of dollars in revenue potentially slip out the door, or lose control at all (or, for that matter, see Apple’s true nature as a ruthless business entity exposed to the world. ). Apple prefers to make much smaller concessions, such as when it volunteered to Japanese regulators that it could allow a specific category of “reader” apps to bypass its store for payments, even though Apple has the first and last word on whether an application qualifies to be a “reader” application.

I think Jason Schreier has it exactly right– With millions and billions of dollars at the door respectively, both companies lost this fight.

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