Yvonne Gonzalez Rogers reached a settlement with both Epic and Apple on May 11, the seventh day of the Epic v. Apple trial. This has a concession neither party had sought for. She inquired of Epic’s economist, David Evans, as to whether it would be sufficient to overturn Apple’s anti-steering rules. This set of regulations prohibits developers from notifying you about an excellent external website where you may buy your subscription rather than via the app itself. And in this trial both Apple and epic suffered a great loss.
On the last day of the trial, on May 24, Judge Rogers indicated that she was still moving toward that precise kind of compromise. One that may not be acceptable to either party and one that could include Apple’s anti-steering regulations.
That is exactly what occurred today. Both teams have defeated. Epic, on the other hand, may have suffered a greater loss.
Although the ruling was favorable to developers, it was not favorable to Epic Games. Rogers granted an injunction against Apple, preventing the company from not only from keeping iPhone users in the dark about alternative payment methods, but also from potentially allowing developers to embed their own purchase mechanisms into their own apps. (“Button” has defined differently in different jurisdictions, so expect a lot of controversy and experimentation in this area.”)
Epic does not come away with a victory for two reasons. First and foremost, the court expressly ruled that Epic’s insertion of its own direct payment system into Fortnite on iOS. A move that has intended to trigger this whole case — was not permissible under law. The company failed to adhere to the terms of its agreement with Apple.
EPIC DIDN’T FREE FORTNITE AT ALL
Since even if Epic wanted to add, say, a PayPal button to Fortnite. It wouldn’t be able to because Apple cancelled Epic’s developer account after the business violated its contract. And Judge Rogers affirmed that Apple is well within its rights to permanently remove Epic from the App Store.
Apple has the contractual right to terminate its distribution partnership agreement (DPLA) with any or all of Epic Games. Wholly owned subsidiaries, affiliates, and/or other companies under Epic Games’ control at any time and in Apple’s sole discretion, according to Rogers.
Epic also suffered a direct loss of about $3.6 million, which it must reimburse to Apple. The reason for this is that Epic generated about $12.2 million in income through the direct payment mechanism. It inserted into Fortnite in violation of Apple’s regulations, and Rogers determined that Apple has entitled to a 30 percent share of that earnings.
On the other hand, you could argue that Epic has suffered a significant financial loss as a result of its efforts to make this lawsuit a success. Not only in legal fees, which it will not recover. But potentially hundreds of millions of dollars from people who would have been playing Fortnite on iOS. If the game had not been removed from Apple’s App Store. According to Epic’s statistics, the game earned $614 million on iOS alone in its first two years. And with $52.7 million of that coming in the fourth quarter of 2019.
Although it’s conceivable that individuals who’d previously loaded Fortnite continued to make purchases after the game has pulled from the App Store did so. It’s doubtful that they did so on a large scale. Fortnite users using Apple gear will lose cross-play, access to new events. And the ability to purchase new items in August 2020, when the game will be divided in half.
And, as Mark Gurman points out, all Epic has to show for its investment is… well, the largest shift in the history of the App Store. (If you want to see for yourself, here’s a link to our recently released history of the App Store’s key policy changes.) It’s only that, for the time being, Epic is unable to take use of it.
Apple Will Lose Billions Of Dollars
However, those millions, if not hundreds of millions, of dollars pale in contrast to the billions of dollars that Apple stands to lose. If the App Store reform has fully implemented and legally implemented. Apple generates roughly $19 billion in revenue from apps each year. With $6.3 billion of that coming from the United States where the ruling has legal standing.
Epic isn’t even trying to sell today’s decision as a victory, which I believe is understandable given the company’s stated aim of FreeFortnite. Which it failed miserably to achieve in public. The iOS version of Fortnite is still under the control of Apple. As a result, rather than altering its tune, Epic will simply file an appeal.
Apple, on the other hand, is hailing the ruling as a “resounding triumph”. In light of Epic’s initial request for the courts to declare Apple an unlawful monopoly under the Sherman Antitrust Act. The court’s decision to reduce Epic’s original motion to a single injunction under the California Unfair Competition Law makes sense as well. Apple is not being forced to enable rival app stores or sideloading. Nor is it being forced to modify its 30 percent charge in any manner, shape, or form.
An actual win would not have left Apple watching billions of dollars in income possibly slip through its fingers nor would it have resulted in the company relinquishing any power at all (let alone exposing the company’s real character as a ruthless corporate organization to everyone on Earth). Rather than making large concessions, Apple prefers to make smaller ones. Such as when it volunteered to Japanese regulators that it could allow a specific category of “reader” apps to bypass its store for payments. Despite the fact that Apple has the final say on whether an app qualifies as a “reader.”
I believe Jason Schreier is correct in his assessment: with millions and billions of cash out the door, respectively. Both businesses have defeated in this battle.