Speaker 1: We finally have a decision in the epic versus apple trial. Let's break it down
Speaker 1: Last summer. Epic games activated a payment option within its super popular game. Fortnite on the iPhone. Now that payment option circumvented apples, 30% come mission and epic encouraged people to use it by offering them a discount. No surprise. That day apple pulled Fortnite from the app store saying [00:00:30] it went against the company's rules. Epic knew that would happen, and it had an antitrust lawsuit and a massive PR campaign ready to launch. The second Fortnite was yanked and hashtag free. Fortnite was training on Twitter shortly after. Oh, and Google got sued by epic two for pretty much the same thing in what's viewed as a possible piece offering to the developer communities ahead of their respective trials, apple and Google, both reduced its [00:01:00] commissions to percent for the first million bucks in revenue developers make every year so generous. The official epic V apple trial kicked off at the beginning of may earlier this year and ended before the month was over the judge.
Speaker 1: In that case, us district court judge, Yvonne Gonzalez Rogers said a decision and could take months now at the heart of the trial were some key questions like, but market exactly was at stake here. [00:01:30] Epic said apple was a monopoly with no competition since apple controlled every system in the iOS ecosystem, including in app payments. And apple said it was the farthest thing from a monopoly because in this complaint it felt it was competing in the games market, which has tons of competition. The next question was Apple's anti steering rule, which bands developers from linking out to, or even mentioning other payment methods for apps [00:02:00] on the app store. Anti-competitive like epic insisted. It was. And lastly is apple an illegal monopolist like epic alleged in its filing. Recently, a bipartisan bill called the open app markets act was introduced in Congress. That would place restrictions on how app stores are run.
Speaker 1: No forcing devs to use an app store owner's payment, no forcing people through a single app store to install apps on a device, no banning developers from telling [00:02:30] users about pricing on other platforms. You see how this would be a huge deal if it was passed, especially for apple. Oh, and a couple weeks ago, South Korea passed a law with a provision stating app store operators. Couldn't forced customers to use their payment systems and had to allow developers the option to implement alternative payment systems, which all seems to point at Google and Apple's grips on their respective app stores kind of loosening, but back to the tribe. So what was the [00:03:00] relevant market at stake and was Apple's action anti-competitive. So in the finding of facts, judge Gonzalez, Rogers decided she didn't really agree with either company's definition of the relevant market in this case. Now she says that after reviewing the evidence, the court landed on the digital mobile gaming transaction market.
Speaker 1: So specifically the market of all of those purchases customers spend on and in mobile games, micro transactions, game [00:03:30] purchases in game currency bot with real world money. You get the idea. Now in that document, she goes on to say that the mobile gaming market is a massive of hundred billion dollar industry. And that most app store revenue is generated by mobile gaming apps. So there's the relevant market defined by the court, not the full gaming industry like apple insisted and not the party of one monopoly iOS app store payment system. That epic said it was. So what about that whole antit rule? [00:04:00] Well, the judge ruled against apple there finding it in violation of California's unfair competition law, which is kind of a big deal. In fact, the court issued a permanent injunction, restraining apple. It won't be able to expressly ban developers from talking about linking to, or otherwise alert, converting customers to alternative ways to pay outside the app store that will take effect in 90 days.
Speaker 1: So around December 9th of this year, that [00:04:30] injunction does say though that either party can modify it if it brings good cause to the court. But we'll see if either side, mostly apple figure out a loophole and convince the court to change that injunction in any way. So finally is apple an illegal monopolist. This is a massive finding of facts document it's 185 pages long. It details the evidence testimony and other facts leading up to the court's ultimate decision [00:05:00] in the document. Judge Gonzalez Rogers says, quote, the court does not find that it is impossible. Only that epic games failed in its burden to demonstrate apple is an illegal monopolist later in the document. She adds a second reason for that decision. That apple is not what's called an essential facility, meaning its function can't be replaced or replicated by other companies, which chokes out competition.
Speaker 1: Epic tried to say iOS [00:05:30] was an illegal monopoly, but when the market at stake ended up being the digital mobile gaming transaction market, while there are a lot of competitors in that space. So a big note from the court on that one, sorry, epic. On a related note though, it did seem like the judge kind of hinted at epic potentially winning this argument. If it hadn't tried to dismantle the entire app system, uh, which does leave the door open to another company, making [00:06:00] a narrower more refined argument that could in fact sway the court's opinion in a future case in the overall ruling judge Gonzalez Rogers only found in favor of epic on the anti steering allegations, but found in favor of apple on all the other counts, including the one where epic breached its contract with apple by violating app store guidelines when it added the epic pay option to Fortnite over a year ago.
Speaker 1: So epic will have to pay apple a 30% cut of all the money it made [00:06:30] during the time that option was live and available to users, which comes out to a little over 12 million bucks for the three month period between August and October of 2020 plus 30% of whatever relevant revenue it might have made after that point until now. So here's the most important question though, I think which is what does that all mean for you? The consumer, the user, the customer, if everything takes without modification or appeal, which is [00:07:00] a huge if iPhone and iPad owners will see some changes in a few areas. And I think the most important ones for you are one you'll see advertisements and links for payment options outside the app store within apps, I'm guessing apple will probably offer a pop up or other notification to put the fear of Steve jobs in ya saying something like we can't guarantee the security of any payment options outside the app store.
Speaker 1: If you wanna proceed or something like that, they'll try [00:07:30] to toss up some hurdles or caveats in the hopes that you'll find the process just a little too cumbersome and just pay via the app store payment systems. Number two, those payment options will probably be cheaper than paying through the app store 30% cheaper to be exact. If you look at how epic implemented its epic pay option on iOS last year, they basically said, Hey, buy V bucks from us directly and will lower the cost by exactly the amount [00:08:00] of Apple's commission fees. Now for all of this goes forward. According to the court's decision, epic will probably reimplement that option when the ruling takes effect and you can expect other developers to do so as well. Not every developer can build their own payment system though. So maybe you see links out to pay on sites via PayPal or another payment option with a smaller discount than 30% developers are absolutely going to test the limits of this injunction [00:08:30] from buttons that pull up a checkout screen, which would not be out of the realm of possibility though.
Speaker 1: I can't imagine apple would love that. And the ease of you use that would provide, uh, all the way to external links that take you to the developer's website, where you can then walk through the checkout process. And number three, this doesn't mean we'll see the app store completely dismantled with third party app stores allowed to run on iOS. It's not what this case focused on, [00:09:00] even though that's what epic was hoping for in the end. Mobile gaming, as the courts mentioned is a huge industry and it would be extremely lucrative for a company like epic to launch a mobile epic game store on iOS. So I think overall, you could generally consider this ruling a slight win in Apple's favor. Like I said, it's not being forced to completely dismantle or open up the ecosystem it's built for iOS users. And I think most developers and tech influencers [00:09:30] have argued that Apple's binding non-negotiable 30% commission model was pro ripe for disruption and the court finally forced it to change.
Speaker 1: Oh, of course, this is all the beginning of a post-decision parade of activity, apple praise the decision saying the court has affirmed what we've known all along the app store is not in violation of antitrust law and then epic CEO, Tim Sweeney responded to that statement saying the ruling wasn't a win for [00:10:00] developers or for consumers. And the company said it would appeal the decision. So who knows what will actually be implemented in 90 days? Who knows we'll be keeping an eye on the after trial actions of both epic and apple and letting you know if anything important happens until next time be at humans.
